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Unformatted text preview: Chapter 2 Outline I. Meaning of Insurance A.Definition of Insurance B.Basic Characteristics of Insurance 1. Pooling of losses the spreading of losses incurred by the few over the entire group, so that in the process, average loss is substituted for actual loss. 2. Payment of fortuitous losses a fortuitous loss is on that is unforeseen and unexpected and occurs as a result of chance. 3. Risk transfer a pure risk is transferred from the insured to the insurer, who typically is in a stronger financial position to pay the loss than the insured. 4. Indemnification the insured is restored to his or her approximate financial position prior to the occurrence of the loss. II. Requirements of an Insurable Risk A.General Requirements 1. Large number of exposure units to enable the insurer to predict loss based on the law of large numbers. 2. Accidental and unintentional loss 3. Determinable and measurable loss 4. No catastrophic loss a larger proportion of exposure units should not incur losses at the...
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This note was uploaded on 07/31/2008 for the course RM 357E taught by Professor Arnold during the Summer '08 term at University of Texas at Austin.
- Summer '08