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CII IF1 Chapter 1Risk & Insurance well answered to pass
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CII IF1 Chapter 1Risk & Insurance well answered to pass
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CII IF1 Chapter 1Risk & Insurance wellanswered to pass
Concept of risk & perception - correct answer ✔✔Element of uncertainty & unpredictability.
Peril or contingency that is insured.
Individuals can be either RISK-ADVERSE or RISK-SEEKING
Primary function of insurance is to act as a risk transfer mechanism. This means transfer the risk from
the insured to the insurer. The insured transfers a large uncertain known cost (in event of a claim) for a
smaller set premium.
Risk Management - correct answer ✔✔Seeks to IDENTIFY, ANALYSE AND CONTROL THE RISK
Insurable and Un-insurable risks - correct answer ✔✔To be INSURABLE risks must be FINANCIAL (impact
of loss be capable of financial measurement), PURE (not speculative) & PARTICULAR (localised &
personal in their impact).
The event insured must be fortuitous (happen by chance rather than intention) or unforeseen. There
must be insurable interest and insuring against it must not be against public interest (welfare or well
being of the general public).
There must be homogenous exposure (a group of risks that lead to a loss).
Components of Risk - correct answer ✔✔Insurer considers the frequency the risk occurs and the severity
of its impact when it does, when deciding how much of a risk can be placed with them.
PERIL - that which gives rise to a loss
HAZARD - that which influences the operation or effect of the peril. Hazard can be PHYSICAL (can cause
harm with or without contact) or MORAL (where one party gets involved in a risky event knowing they
are protected against the risk and the other party will incur the costs)
Pooling of Risks - correct answer ✔✔Pooling of risks - losses of the few are paid for by the premiums of
the many who, facing the same risk, face no loss.
Law of Large Numbers - where there are a large number of similar situations the actual number of events
occurring tends to lean towards the expected number.
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