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Tutorial 2

The document discusses the basic characteristics and concepts of insurance. It provides definitions and explanations of key insurance terms like indemnification, pooling of losses, fortuitous losses, risk transfer, and the law of large numbers. The document also compares insurance to gambling and hedging, lists the characteristics of an ideally insurable risk, and outlines the social benefits that insurance provides. It discusses the different approaches used to address catastrophic loss and distinguishes between private and government insurance programs.

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34 views10 pages

Tutorial 2

The document discusses the basic characteristics and concepts of insurance. It provides definitions and explanations of key insurance terms like indemnification, pooling of losses, fortuitous losses, risk transfer, and the law of large numbers. The document also compares insurance to gambling and hedging, lists the characteristics of an ideally insurable risk, and outlines the social benefits that insurance provides. It discusses the different approaches used to address catastrophic loss and distinguishes between private and government insurance programs.

Uploaded by

mark sanad
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Question One: Mention the basic

characteristics of insurance.

Answer
Insurance is the pooling of fortuitous losses by transfer of such risks to
insurers, who agree to indemnify insureds for such losses, to provide
other pecuniary benefits on their occurrence, or to render services
connected with the risk.
1. Pooling of losses: It’s the sharing of losses. Insurance is the pooling
of fortuitous losses by transfer of such risks to insurers, who agree to
indemnify insureds for such losses, to provide other pecuniary
benefits on their occurrence, or to render services connected with the
risk.

2. Payment of fortuitous losses: Insurance is the pooling of fortuitous


losses by transfer of such risks to insurers, who agree to indemnify
insureds for such losses, to provide other pecuniary benefits on their
occurrence, or to render services connected with the risk.

3. Risk transfer: pure risk is transferred from the insured to the insurer,
who typically is in a stronger financial position to pay the loss than
the insured.

4. Indemnification: Indemnification means that the insured is restored


to his or her approximate financial position prior to the occurrence of
the loss.
Question Two: True or False
The law of large numbers can operate to provide a
substantially accurate prediction of future losses also It
assumes that losses are accidental and occur randomly.

Answer
True

Question Three: Mention the characteristics


of ideally insurable Risk.

Answer

1) There must be a large number of exposures.


2) The loss must be accidental and unintentional.
3) The loss must be determinable and measurable.
4) The loss should not be catastrophic.
5) The chance of loss must be calculable.
6) The premium must be economically feasible.
Question Four: Choose
…………. are approaches used to solve the problem of
catastrophic loss.
A. Reinsurance
B. Concentration of risk
C. Catastrophe bonds
D. Gambling
E. All of the above except D
F. A And C

Answer
(F) Reinsurance, avoid concentration of risk, financial
instruments.

Question Five: Complete


…………. Risks can be insured while ……… Risks are
difficult to insure.
Answer
(Personal Risks, Property and liability Risks) ,
(Market Risks, Financial Risks, Production Risks and
Political Risks).

Question Six: Compare Between Insurance and


Gambling

Answer
POC Insurance Gambling
Type of risk An already Creates new
existing pure risk. speculative risk.
(loss or no loss) (loss or profit)
Productivity Socially Socially
productive. unproductive.
Question Seven Compare Between Insurance
and Hedging

Answer
POC Insurance Hedging
Type of risk Pure insurable risk. Speculative
uninsurable risk.
Moral hazard and More severe Problem for insurers than
adverse selection speculators who buy or sell future contracts
can’t directly
influence the
can directly
production or that
influence the
industry but it will
influence the profit insurance industry.
definitely affect the
or loss on the because of
price as they use a
transaction intentional losses,
future contract is
fraudulent claims,
used to hedge a
and inflated claims.
potential price
decline.
Question Eight: True or False
Private insurance coverages can be grouped into two
major categories personal lines coverages and
commercial lines coverages.

Answer
True.
Personal lines coverages that insure the real estate and
personal property of individuals and families or provide
protection against legal liability. Commercial lines coverages
for business firms, nonprofit organizations, and government
agencies
Question Nine Compare between Private and
Government insurance.
Answer
Private Insurance Government Insurance
1. Life insurance: death 1. Social Insurance:
benefits, funeral expenses, “employers, employees
uninsured medical bills, or both” in favor of low-
estate taxes, periodic income groups. prescribed
income. Also, individual by law
and group health
insurance plans, disability
income plans, long-term
care policies.

2. Health Insurance:
Medical expenses, 2. Other Government
hospital and surgical Insurance Programs:
expense, physician fees Both federal and state
and prescription drugs. levels. “The National
Flood Insurance Program,
3. Property “house, frim” The Federal Employees
and Liability “Legal” or Retirement System, and
casualty “anything but The Civil Service
fire, marine and life Retirement System.”
insurance”.
Question Ten Mention the social benefits of
insurance.

Answer
1) Indemnification for Loss.
2) Reduction of Worry and Fear.
3) Source of Investment Fund.
4) Loss Prevention.
5) Enhancement of Credit.

Question Eleven: Complete


Costs of insurance are cost of doing business, along with
…… claims which could be faking accidents and …….
claims that the indemnification for loss exceeds the actual
financial loss.

Answer
Fraudulent claims and Inflated claims.
Thank you

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