Study Notes on Risk Management and Insurance Concepts

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Last updated 9:30 PM on 3/29/26
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14 Terms

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Risk
The uncertainty of loss.
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Sharing of Risk
A method where a group collectively shares the risk among its members.
3
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Transfer of Risk
Utilizing insurance to transfer financial loss risks to an insurance company.
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Avoidance of Risk
The act of avoiding certain activities to evade risk altogether.
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Reduction of Risk
Taking actions to lessen the probability of loss.
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Retention of Risk
Involves self-insuring, where individuals are responsible for losses.
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Insurable Risk
Only pure risk is insurable.
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Due to Chance
Risks must be accidental, not intentional.
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Definite and Measurable
Risks need clear definition for accurate estimation.
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Not Catastrophic
Risks must be manageable by insurance providers.
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Random Selection
Individuals in the risk pool should be randomly selected.
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Large Loss Exposure
Sufficient individuals must contribute premiums to cover claims.
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Adverse Selection
Refers to insuring higher-risk applicants who are more likely to experience losses.
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Insurance Underwriting
The process of evaluating applicants for insurance coverage.