Introduction to insurance. ExigenServices

unexpected losses.
Insurance involves the transfer of loss exposure to an insurance pool and the redistribution of losses among the members of the pool.

Financial definition

Total loss = $200,00

$1,500

$1,500

$1,500

$200,000

to compensate another party for losses.
The party that agrees to pay for losses is the insurer.
The party whose loss causes the insurer to make a claim payment is the insured.
The payment the insurer receives is called a premium.
Policy – is the insurance contract.
Insured’s possibility of loss is called insured’s exposure to loss.
Insurance is a branch of contract law. An insurance contract creates rights and corresponding obligations for the insurer and insured. E.g. The insurance contract creates the insured’s right to collect payment from the insurer if a covered loss occurs. The insurer has a corresponding duty to pay for such loss.

of economic value.
Direct loss is the immediate, or first, result of insured peril.
Indirect loss, also called consequential loss, or loss of use, are a secondary result of an insured peril.

Direct loss

Indirect loss

cause of the loss.
Hazards are conditions that increase the frequency or the severity of losses.
If an individual causes or exaggerates a loss to collect insurance proceeds, this is insurance fraud, and the loss result from the moral hazard, which is an individual’s mental attitude.
Morale hazard refers to an attitude of carelessness or indifference to loss created by the purchase of an insurance contract.
Insurance contracts do not cover losses cased by an insured’s fraud.

event based on chances.
The degree of risk is a measure of the accuracy with which the outcome of an event based on a chance can be predicted.
Pure risk exists when there is uncertainty as to whether loss will occur (e.g. damage to property by flood or fire).
Speculative risk refers to those exposures to price change that may result in gain or loss (e.g. stock market investments).
Static risk, which can be either pure or speculative, stem from an unchanging society that is in stable equilibrium (examples of pure static risk include windstorms, death; business undertakings in a stable economy illustrates example of speculative static risk).
Dynamic risk (either pure or speculative) is produced because of changes in society (e.g. urban unrest).
Subjective risk refers to the mental state of an individual who experiences doubt or worry as to the outcome of a given event.
Objective risk is more precisely observable and measurable. In general, it’s the probable variation of actual from expected experience.

risks, and life, health and loss of income risks (which also are of a speculative nature).
Property Risks
All businesses and individuals that own, rent, or use property are exposed to the risk that the property may be damaged, destroyed, or stolen.
Liability Risks
Negligent acts or omissions that result in actual or imagined bodily injury and/or property damage to a third party, who brings suit against an individual or a business firm and its representatives.
Life, Health, and Loss of Income Risks
Potential losses associated with the health and well-being of individuals.

greater the number of observations of an event based on chance, the more likely the actual result will approximate the expected result.