Lesson 1 - LESSON1 NATUREAND TREATMENTOFRISK 1 Introduction

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    1 LESSON 1 NATURE AND  TREATMENT OF RISK
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2 Introduction Definitions and terms Insurance Financial arrangement that redistribute the costs of an  unexpected losses from an insurance pool. Two main elements 1) Financial intermediation 2) Contractual relationship Loss  Being without something previously possessed Types of losses Direct Loss: immediate, first result Indirect Loss: 2 nd  result Chance of Loss Probability that an event will occur
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3 Introduction Definitions and terms Peril - The cause of a loss or contingency that causes a loss “Named peril” or Specified peril contracts ”Open-peril" contracts burden of proof is different Hazard Something that increases the probability of loss or increases the  severity when a loss occurs (or both) Physical hazards  are physical conditions that increase the chance  of loss (icy roads, defective wiring) Moral hazard  is dishonesty or character defects in an individual,  that increase the chance of loss (faking accidents, inflating claim  amounts)  Attitudinal Hazard (Morale Hazard)  is carelessness or indifference  to a loss, which increases the frequency or severity of a loss  (leaving keys in an unlocked car) Legal Hazard  refers to characteristics of the legal system or  regulatory environment that increase the chance of loss (large  damage awards in liability lawsuits)
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4 Introduction Definitions and terms Proximate cause of the loss Also known as the  Doctrine of proximate  cause First insured peril in an unbroken chain of  events leading to the loss - all is paid.
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5 Introduction Definitions and terms Risk - many definitions - the term is used in a  variety of ways 1) To describe that there is a possibility of loss 2) To identify the probability of loss 3) To identify the cause of loss -  peril 4) To identify conditions that increase frequency of 
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This note was uploaded on 10/08/2011 for the course FINANCE FINANCE taught by Professor Don'tknow during the Spring '09 term at American Internation College.

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Lesson 1 - LESSON1 NATUREAND TREATMENTOFRISK 1 Introduction

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