INS1000 Assignment No. 1
(Covers Studies 1,2, and 3)
1. A) State a simple definition of risk. (2 marks)
Risk = the chance of loss/possibility of loss.
B) Explain why pure risk is insurable but speculative risk is not. (10 marks)
Onlypure risksareinsurablebecause they involve only the chance of loss. They arepurein the sense that they donotmix both profits and losses. Insurance is concerned with the economic problems created bypure risks.Speculative risksarenot insurable.
C) Explain how losses are caused by perils but also influenced by hazards. (8 marks)
Ahazardis an action, condition, circumstance or situation that makes aperilmore likelyto occuror alossmore likelytobe suffered as theresult ofaperil. Examples ofhazardsinclude dangerous behaviors, such as skydiving or base jumping, that increase the likelihood of injury.
D) Outline the five main steps in the risk management process. (10 marks)
Five main steps in the risk management process:
1 Identifying and analyzing exposures.
2 Formulating options.
3 Selecting the best techniques.
4 Implementing the risk management plan.
5 Monitoring results and modifying the plan.
2. A) Describe how insurance works to spread risk. (10 marks)
Spreadofrisk. The selling ofinsurancein multiple areas to multiple policyholders to minimize the danger that all policyholders will have losses at the same time. Companies are more likely to insure perils that offer a goodspreadofrisk.
Spread of risk:
-Insure a large number of risks premiums of the
Diversity of type of risk
-Write as many different types of risks as possible.
Diversity of location
-Write in as many different locations as practical.
B) Describe the 5 secondary functions of insurance.
Secondary functions of insurance:
1. Aiding security (Peace of mind, can plan future).
2. Aiding credit (No credit without insurance).
3. Promoting loss prevention (Loss prevention activities: insurers vitally interested in reducing or preventing losses).
4. Providing capital (Source of capital: large sums of money to be invested, unearned premium reserve, working capital).
5. Providing employment (Source of employment: 122,500 directly employed in Canada in 2015).
C) Identify ten types of general insurance. (10 marks)
Types of general insurance:
1. Fire fire, lightning, and limited explosion.
2. Business interruption loss of income (profits).
3. Surety bonds guarantees.
4. Liability liability resulting from the ownership of promises, operations, products, rendering of professional services, libel, slander.
5. Accident- losses from bodily injury.
6. Crime losses from various criminal activities.
7. Floater policies covers portable property:
- Commercial property;
- Inland transportation;
- Personal article and personal effects.
8. Aviation aircraft and liability associated with the operation of the aircraft, airstrips and airfields.
9. Marine covers both the hull and cargo.