General Insurance Concepts
Risk, peril, hazard
Risk is the uncertainty of loss; peril is the cause of loss; hazard is a condition that increases the chance or severity of loss. Physical hazards (icy steps), moral hazards (dishonesty, such as faking a claim), and morale hazards (carelessness because insurance exists) are tested constantly - students routinely swap peril and hazard.
Characteristics of insurable risk
Losses must be accidental, definite and measurable, predictable in the aggregate, large enough to matter, and spread over a large, homogeneous pool (law of large numbers). Pure risk (loss or no loss) is insurable; speculative risk (loss or gain) generally is not. Adverse selection - the tendency of high-risk buyers to seek coverage - is controlled through underwriting and exclusions.
Legal concepts
Insurable interest, indemnity, utmost good faith, subrogation, adhesion, and aleatory define the contract. The insurance contract is one of adhesion (the insurer drafts it, so ambiguity favors the insured) and aleatory (the values exchanged are unequal). Utmost good faith supports the insurer's reliance on honest application answers - representations, concealment, and warranties.
Insurers and distribution
Stock insurers are owned by shareholders; mutual insurers by policyholders, who may receive non-guaranteed dividends generally treated as a return of premium. Fraternal benefit societies, reciprocals, and Lloyd's-type associations also appear on exams. Domestic/foreign/alien describes where an insurer is chartered, not where it sells. Reinsurance is a ceding insurer transferring risk to a reinsurer.
Worked example: an icy sidewalk is a hazard; a slip and fall is the peril; the hospital bill is the loss; paying that bill is indemnity.