Insurance Principles and the Risk Landscape
Core principles
A candidate must be able to define and apply insurable interest, indemnity, utmost good faith, contribution, subrogation and proximate cause. Understand the difference between speculative and pure risk, and why only pure risk is normally insurable. Distinguish moral hazard, morale hazard and adverse selection.
Risk landscape
Know the classes of risk: operational, strategic, financial, catastrophic, systemic and emerging. Understand accumulation and correlation, and how aggregation of exposures (for example, many properties in one flood plain) creates catastrophe exposure. Understand risk appetite, tolerance and capacity, and the role of reinsurance and alternative capital in expanding capacity.
Traps
Questions often blur the distinction between indemnity and betterment, or between contribution and subrogation. Remember contribution applies between insurers covering the same interest and peril; subrogation is the insurer stepping into the insured's shoes against a third party. Another trap is treating proximate cause as the last event rather than the dominant, effective cause.
Worked example
A factory floods after a storm blocks drains. The dominant cause is storm, not faulty maintenance, so a storm extension responds. Rule of thumb: identify the dominant, effective cause, not the last event in the chain.