XCEL Terms - CHAPTER 2 - PART 2

Pure Risk

This is a type of risk that involves the chance of loss only; there’s no opportunity for gain. These risks are the only form of insurable risks.

Reinsurance

This is the acceptance by one or more insurers—referred to as reinsurers—of a portion of the risk underwritten by another insurer that has contracted with an insured to provide coverage for the total value of a loss exposure.

Reinsurer

 This is an insurance company that assumes a portion of the risk underwritten by a primary insurance company.

Risk

This is the uncertainty regarding loss. This is the probability of a loss occurring for an insured or prospect.

Risk Avoidance

  This occurs when individuals evade risk entirely. It’s the act of NOT participating in an activity that could possibly cause a loss.

Risk Management

  This is the process of analyzing exposures that create risk and then designing programs to address them.

Risk Reduction

This is the risk management strategy that focuses on taking actions which decrease the chances of a loss occurring. It also refers to action taken to lessen the severity of a loss if one occurs.

Risk Retention

This is the act of analyzing the loss exposure presented by a risk and determining that the potential loss is acceptable. It is often associated with self-insurance.

Risk Selection

describes the insurance company’s process for determining whether to cover a new loss exposure. If done correctly, the ratio of losses to premium should reflect what actuaries predicted when they created the product, established the price, and set the underwriting criteria.

Risk Sharing (Risk Pooling or Loss Sharing)

manages an individual’s risk by sharing the possibility of loss with others and spreading the cost over a large number of individuals. This technique transfers risk from an individual to a group.

Risk Transfer

This is the act of exchanging the responsibility for a significant potential loss (risk) to another party in exchange for a smaller, preset cost or premium.

Self-Insurance

This is a risk retention process. A self-insuring individual or organization maintains monetary reserves to cover potential costs in the event of a financial loss occurring.

Speculative Risk

This is a type of risk that involves the chance of both loss and gain; it’s not insurable.