General Insurance Concepts and Principles
Risk, peril, and hazard
Risk is uncertainty about loss. A peril is the cause of loss (fire, illness, death). A hazard is a condition that increases the chance or severity of loss (an icy sidewalk, smoking). Only pure risk - chance of loss or no loss - is insurable; speculative risk (chance of gain) is not. Insurers transfer risk using the law of large numbers and control adverse selection through underwriting.
Risk management techniques
Avoidance, retention (deductibles, self-insurance), sharing (coinsurance, pooling), transfer (buying insurance), and loss prevention/reduction.
Contract characteristics
Insurance is a contract of utmost good faith (material facts must be disclosed; concealment or material misrepresentation can void coverage), a contract of adhesion (insurer writes it; ambiguities favor the insured), aleatory (unequal exchange), conditional (premiums and proof of loss are conditions), and unilateral (only the insurer makes an enforceable promise). Indemnity restores a policyowner to the pre-loss financial position - life insurance is the classic exception because a life has no measurable value.
Key doctrines
Insurable interest in property must exist at the time of loss; for life insurance it need exist only at application. Subrogation and contribution apply to property/casualty, not life or health. A representation is believed true; a warranty is promised true and breach can void the contract. Waiver is voluntary relinquishment of a known right; estoppel prevents an insurer from reclaiming a right it has waived.
Worked example: an applicant on a treadmill test shows a heart condition and marks no on the application - that is a material misrepresentation, and the insurer may rescind during the contestability period. Rule of thumb: peril causes the loss, hazard makes the loss more likely, risk is the uncertainty.