Risk and Insurance week 1 & 2 before mid

Flashcards covering key vocabulary and concepts from the lecture notes on risk and insurance.

Insurance

A financial tool designed to manage and transfer risk, protecting against uncertain events by transferring risk to an insurer in exchange for premiums.

Insurance

Operates on the principle of risk pooling, spreading the financial impact of losses across many policyholders.

Actuaries

Quantify and price risks, ensuring insurers can cover expected losses while maintaining profitability.

Risk

The potential for loss or harm from a particular action or decision.

Understanding risk

Essential for making informed choices and assessing potential dangers against possible benefits.

Managing risk

Involves identifying, evaluating, and mitigating threats to achieve desired objectives.

Uncertainty

The lack of certainty about whether an event will occur or not.

Probability

The likelihood of the event happening.

Impact

The potential consequences or severity of the event if it occurs.

Pure vs. Speculative Risk

Distinguishes between risks with no potential gain and those with potential gain or loss.

Financial vs. Non-Financial Risk

Separates risks with monetary implications from those with non-monetary consequences.

Fundamental vs. Particular Risk

Differentiates between risks affecting large populations and those affecting individuals or small groups.

Pure Risk

Involves only the possibility of loss or no loss (e.g., fire, theft, illness). There is no potential for gain.

Speculative Risk

Involves the possibility of either gain or loss (e.g., investing in the stock market, starting a business).

Fundamental Risk

Affects a large number of people or the entire economy (e.g., natural disasters, inflation).

Particular Risk

Affects only individuals or small groups (e.g., car accidents, house fires).

Financial Risk

Relates to monetary losses (e.g., market risk, credit risk).

Non-Financial Risk

Relates to non-monetary consequences (e.g., reputational risk, operational risk).