Principles of Risk Management and Insurance, 13th Edition

Review Questions

1. Explain each of the following characteristics of a typical insurance plan.

   1. Pooling of losses

   2. Payment of fortuitous losses

   3. Risk transfer

   4. Indemnification

2. Explain the law of large numbers.

3. Pure risks ideally should have certain characteristics to be insurable by private insurers. List the six characteristics of an ideally insurable risk.

4. Identify the approaches that insurers can use to deal with the problem of catastrophic loss exposures.

5. Why are most market risks, financial risks, production risks, and political risks considered difficult to insure by private insurers?

6. 1. a. What is the meaning of adverse selection?

   2. Identify some methods that insurers use to control for adverse selection.

7. What are the two major differences between ...