Intro to Risk & Insurance #1
Q: This type of risk is not insurable.
A: What is "speculative risk"?
If there's a chance of loss AND a chance of gain, it's not insurable. (See page 1-3 in the textbook | LO1).
Q: These are the three (3) classes of general insurance, whereby agents and brokers require a general license.
A: What are:
1. Personal Lines
2. Commercial Lines
3. Special Risks
(See page 1-6 in the textbook | LO1).
Q: This is anything that may cause a loss.
A: What is a "peril"?
In insurance, the word "peril" simply means an event that can cause damage or loss—something like a fire, theft, or explosion. When you buy insurance, you're basically getting protection against perils that are listed in your policy. (See page 1-7 in the textbook | LO2).
Q: This type of hazard speaks to someone's mental state or spirit -- their attitude.
A: What is a "morale" hazard?
Kind of like a "whatever happens, happens" type of approach, and is subconscious (unintentional, careless). (See page 1-10 in the textbook | LO2).
Q: These are the two (2) types of risk management goals.
A: What are:
1. Pre-loss objectives (prepare & prevent)
2. Post-loss objectives (recovery & damage control)
Risk management is about helping a business avoid problems—or bounce back if something goes wrong. (See page 1-12 in the textbook | LO4).
Q: This is the failure to use the degree of care expected from a reasonable and prudent person.
A: What is "negligence"?
Negligence is the peril insured in liability policies. (See page 1-7 in the textbook | LO2).
Q: This is when there is only a chance of loss, no profit.
A: What is "pure risk"?
Pure risk is insurable -- insurance is only concerned with pure risk. (See page 1-3 in the textbook | LO1).
Q: This class of general insurance provides coverage for unusual or high-risk industries, like marine, aviation, factories, etc.
A: What are "special risks"?
General insurance is usually divided into three (3) categories - personal, commercial, special risks. (See page 1-6 in the textbook | LO1).
Q: Define proximate cause.
A: Proximate cause is an uninterrupted series of events, from start to finish, without the interruption of another main event from initial act to conclusion.
(See page 1-11 in the textbook | LO3).
Q: What are:
1. Assets subject to loss
2. Potential cause of loss (peril)
3. Financial consequences
A: These are three (3) distinct elements to loss exposure.
Assets = physical property and its loss of use, intangible assets (e.g., patents), human assets (health and earning capacity), legal liabilities.
Peril = what is the cause of loss? Human-caused, naturally caused, economically caused (e.g., changes in trends)?
Financial consequences = reduced value, decreased income, increased expenses.
(See page 1-18 in the textbook | LO5).
Q: This is anything that increases the likelihood of a loss.
A: What is a "hazard"?
There are two (2) main types of hazards: physical and moral (character, conscious actions).
Morale hazards (carelessness, subconscious) are a subcategory of moral hazards. (See page 1-7 in the textbook | LO2).
Q: This type of risk results from negligence.
A: What is a "liability risk"?
Liability risks involve:
- A person's conduct (behaviour)
- Operation of vehicles
- Ownership / occupancy
- Products manufacturing
- Professional services
(See page 1-5 in the textbook | LO1).
Q: This may have contributed to the situation but is not the proximate cause – it didn’t directly lead to the damage or loss.
A: What is a "remote cause"?
Remote causes may be earlier events in the chain that aren’t directly tied to the damage – like a tree falling onto a house during a storm, but the tree was already in a weakened state due to rot. (See page 1-11 in the textbook | LO3).
Q: This tort case helped define proximate cause.
A: What is "Scott v. Shepherd"?
AKA: The squib case. (See page 1-11 in the textbook| LO3).
Q: What do social responsibility, externally imposed obligations, peace of mind and cost of risk refer to in terms of risk management?
A: These are "pre-loss" objectives in a risk management plan.
Pre-loss objectives = preparation and prevention. (See page 1-13 in the textbook | LO4).
Q: These are risks that involve destruction or damage to tangible property.
A: What are "property risks"?
Two (2) types of property risks:
1. Direct losses (e.g., collision losses)
2. Indirect losses (e.g. loss of use due to collision loss)
(See page 1-5 in the textbook | LO1).
Q: What do the following steps relate to:
1. Identifying and analyzing exposures
2. Formulating options
3. Selecting the best technique
4. Implementing the risk management plan
5. Monitoring results and modifying the plan
A: These are the five (5) steps in the risk management process.
The goal of risk management is to reduce the chance of something bad happening (like accidents, theft, or property damage) and limit how much it costs the company if it does. (See page 1-16 in the textbook | LO5).
Q: These are the three (3) key parts to implementing a risk management plan.
A: What are:
1. A risk control plan (what are we doing to reduce / manage risk?)
2. A communication plan (who needs to know what, and how do we keep everyone in the loop?)
3. A way to allocate costs (which departments should pay for which parts?)
(See page 1-23 in the textbook | LO5).
Q: This is not the proximate cause, but the last link in a chain of events leading to a loss.
A: What is the "immediate cause"?
An immediate cause is the last thing that happened before the damage – like if a faulty space heater sparks, causing a fire that damages the living room. The immediate cause of loss is the faulty space heater sparking—it directly triggered the fire. The proximate cause is the faulty wiring—it started the chain that led to the fire. (See page 1- in the textbook | LO3)
Q: Name the four (4) common methods of exposure identification.
A: What are:
1. Surveys (targeted questions)
2. Flowcharts (help spot weak links in product/service)
3. Financial Statements (strengths/vulnerabilities)
4. Inspections (visual)
(See page 1-17 of the textbook | LO5).