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Risk Financing
4th Edition
Berthelsen • Elliott • Harrison<|user|> | [{"model_id": "zai-org/GLM-OCR", "model_name": "GLM-OCR", "column_name": "markdown", "timestamp": "2026-02-22T15:26:00.801985", "task": "ocr", "batch_size": 1, "max_tokens": 8192, "script": "glm-ocr-transformers.py"}] | |
Digitized by the Internet Archive in 2022 with funding from Kahle/Austin Foundation
https://archive.org/details/riskfinancing0000bert<|user|> | [{"model_id": "zai-org/GLM-OCR", "model_name": "GLM-OCR", "column_name": "markdown", "timestamp": "2026-02-22T15:26:04.599465", "task": "ocr", "batch_size": 1, "max_tokens": 8192, "script": "glm-ocr-transformers.py"}] | |
Risk Financing<|user|> | [{"model_id": "zai-org/GLM-OCR", "model_name": "GLM-OCR", "column_name": "markdown", "timestamp": "2026-02-22T15:26:05.958228", "task": "ocr", "batch_size": 1, "max_tokens": 8192, "script": "glm-ocr-transformers.py"}] | |
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Risk Financing
Richard G. Berthelsen, JD, CPCU, ARM
Director of Curriculum
American Institute for CPCU/Insurance Institute of America
Michael W. Elliott, MBA, CPCU, AIAF
Director of Examination Development
American Institute for CPCU/Insurance Institute of America
Connor M. Harrison, CPCU, AU, ARe
Assistant Vice Pre... | [{"model_id": "zai-org/GLM-OCR", "model_name": "GLM-OCR", "column_name": "markdown", "timestamp": "2026-02-22T15:26:11.721375", "task": "ocr", "batch_size": 1, "max_tokens": 8192, "script": "glm-ocr-transformers.py"}] | |
© 2006
American Institute for Chartered Property Casualty Underwriters/Insurance Institute of America
All rights reserved. This book or any part thereof may not be reproduced without the written permission of the copyright holder.
Unless otherwise apparent, examples used in AICPCU/IIA materials related to this course... | [{"model_id": "zai-org/GLM-OCR", "model_name": "GLM-OCR", "column_name": "markdown", "timestamp": "2026-02-22T15:26:23.101680", "task": "ocr", "batch_size": 1, "max_tokens": 8192, "script": "glm-ocr-transformers.py"}] | |
Foreword
The American Institute for Chartered Property Casualty Underwriters and the Insurance Institute of America (the Institutes) are not-for-profit organizations committed to meeting the evolving educational needs of the risk management and insurance community. The Institutes strive to provide current, relevant ed... | [{"model_id": "zai-org/GLM-OCR", "model_name": "GLM-OCR", "column_name": "markdown", "timestamp": "2026-02-22T15:26:32.010327", "task": "ocr", "batch_size": 1, "max_tokens": 8192, "script": "glm-ocr-transformers.py"}] | |
In addition, the Institutes offer designations and certificate programs in a variety of disciplines, including the following:
- Claims
- Commercial underwriting
- Fidelity and surety bonding
- General insurance
- Insurance accounting and finance
- Insurance information technology
- Insurance production and agency mana... | [{"model_id": "zai-org/GLM-OCR", "model_name": "GLM-OCR", "column_name": "markdown", "timestamp": "2026-02-22T15:26:38.096732", "task": "ocr", "batch_size": 1, "max_tokens": 8192, "script": "glm-ocr-transformers.py"}] | |
Preface
Risk Financing is the text for ARM 56, one of the courses required for earning the Associate in Risk Management (ARM) designation. This text provides the reader with a comprehensive overview of techniques risk management professionals use to finance and manage risk. These techniques are often characterized as ... | [{"model_id": "zai-org/GLM-OCR", "model_name": "GLM-OCR", "column_name": "markdown", "timestamp": "2026-02-22T15:26:46.401052", "task": "ocr", "batch_size": 1, "max_tokens": 8192, "script": "glm-ocr-transformers.py"}] | |
• Chapter 10 examines the product innovations that enable organizations to access the capital markets to finance risks that are traditionally covered by insurance (or reinsurance).
• Chapter 11 describes the uses of noninsurance contractual transfers of risk. These contractual agreements are normally incidental to ano... | [{"model_id": "zai-org/GLM-OCR", "model_name": "GLM-OCR", "column_name": "markdown", "timestamp": "2026-02-22T15:26:52.838537", "task": "ocr", "batch_size": 1, "max_tokens": 8192, "script": "glm-ocr-transformers.py"}] | |
The American Institute for CPCU, the Insurance Institute of America, and the authors acknowledge with deep appreciation the work of the following contributing authors:
Arthur L. Flitner, CPCU, ARM, AIC
Vice President
AICPCU/IIA
Melissa O. Leuck, ARM
Director
Weather & Commodity Risk Solutions
Gallagher Financial Prod... | [{"model_id": "zai-org/GLM-OCR", "model_name": "GLM-OCR", "column_name": "markdown", "timestamp": "2026-02-22T15:26:55.760439", "task": "ocr", "batch_size": 1, "max_tokens": 8192, "script": "glm-ocr-transformers.py"}] | |
The image provided is too blurry and low-resolution to accurately recognize any text or content. It appears to be a blank or heavily blurred screen with no visible text or images. Therefore, no text can be extracted from this image.<|user|> | [{"model_id": "zai-org/GLM-OCR", "model_name": "GLM-OCR", "column_name": "markdown", "timestamp": "2026-02-22T15:26:57.600985", "task": "ocr", "batch_size": 1, "max_tokens": 8192, "script": "glm-ocr-transformers.py"}] | |
1 Understanding Risk Financing 1.1
Risk Financing and Its Importance 1.4
Risk Financing Goals 1.7
Risk Financing Technique Selection 1.11
Enterprise Risk Management: A Holistic Approach to Risk Financing 1.13
Summary 1.15
2 Insurance as a Risk Financing Technique 2.1
Purpose and Operation of Insurance 2.4
Characterist... | [{"model_id": "zai-org/GLM-OCR", "model_name": "GLM-OCR", "column_name": "markdown", "timestamp": "2026-02-22T15:27:05.839624", "task": "ocr", "batch_size": 1, "max_tokens": 8192, "script": "glm-ocr-transformers.py"}] | |
6 Retrospective Rating Plans 6.1
Purpose and Operation of Retrospective Rating Plans 6.4
Calculation of Retrospective Rating Plan Insurance Premiums 6.8
Types of Retrospective Rating Plans 6.14
Administration of Retrospective Rating Plans 6.17
Advantages and Disadvantages of Retrospective Rating Plans 6.19
Case Study i... | [{"model_id": "zai-org/GLM-OCR", "model_name": "GLM-OCR", "column_name": "markdown", "timestamp": "2026-02-22T15:27:16.709078", "task": "ocr", "batch_size": 1, "max_tokens": 8192, "script": "glm-ocr-transformers.py"}] | |
11 Noninsurance Contractual Transfer of Risk 11.1
Types of Noninsurance Risk Transfers 11.4
Noninsurance Risk Control and Risk Financing Transfers—Type of Transaction 11.17
Noninsurance Risk Financing Transfers—How They Alter Common-Law Liabilities 11.25
Legal Principles Underlying Noninsurance Risk Transfers 11.27
Man... | [{"model_id": "zai-org/GLM-OCR", "model_name": "GLM-OCR", "column_name": "markdown", "timestamp": "2026-02-22T15:27:23.627273", "task": "ocr", "batch_size": 1, "max_tokens": 8192, "script": "glm-ocr-transformers.py"}] | |
The image provided is too blurry and low-resolution to accurately recognize any text or content. It appears to be a blank or heavily blurred screen with no visible text or images. Therefore, no text can be extracted from this image.<|user|> | [{"model_id": "zai-org/GLM-OCR", "model_name": "GLM-OCR", "column_name": "markdown", "timestamp": "2026-02-22T15:27:25.505328", "task": "ocr", "batch_size": 1, "max_tokens": 8192, "script": "glm-ocr-transformers.py"}] | |
Direct Your Learning
Understanding Risk Financing
After learning the content of this chapter and completing the corresponding course guide assignment, you should be able to:
- Describe risk financing and its importance to organizations.
- Describe the following risk financing goals:
- Paying for losses
- Maintai... | [{"model_id": "zai-org/GLM-OCR", "model_name": "GLM-OCR", "column_name": "markdown", "timestamp": "2026-02-22T15:27:28.824921", "task": "ocr", "batch_size": 1, "max_tokens": 8192, "script": "glm-ocr-transformers.py"}] | |
Develop Your Perspective
What are the main topics covered in the chapter?
Loss assessment identifies loss exposures that should be treated with risk control and risk financing. Risk financing is usually applied to loss exposures that cannot be effectively treated through risk control.
Identify the risk financing tec... | [{"model_id": "zai-org/GLM-OCR", "model_name": "GLM-OCR", "column_name": "markdown", "timestamp": "2026-02-22T15:27:33.971394", "task": "ocr", "batch_size": 1, "max_tokens": 8192, "script": "glm-ocr-transformers.py"}] | |
Understanding Risk Financing
Risk management helps people and organizations realize the opportunities and avert the threats associated with risk. Risk assessment enables a risk management professional (any person who has responsibility under an organization’s risk management program) to identify and analyze loss expos... | [{"model_id": "zai-org/GLM-OCR", "model_name": "GLM-OCR", "column_name": "markdown", "timestamp": "2026-02-22T15:27:41.166298", "task": "ocr", "batch_size": 1, "max_tokens": 8192, "script": "glm-ocr-transformers.py"}] | |
1.4 Risk Financing
RISK FINANCING AND ITS IMPORTANCE
When examining the feasibility of risk management alternatives, a risk management professional should consider risk financing as well as risk control.
Risk financing is a conscious act or decision not to act that generates the funds to pay for losses or offset the... | [{"model_id": "zai-org/GLM-OCR", "model_name": "GLM-OCR", "column_name": "markdown", "timestamp": "2026-02-22T15:27:48.976698", "task": "ocr", "batch_size": 1, "max_tokens": 8192, "script": "glm-ocr-transformers.py"}] | |
Insurance is essentially a funded risk transfer. By accepting a premium, the insurer agrees to pay for all of the organization’s losses that are covered by the insurance contract. The insurer also agrees to provide services, such as claim handling and defense of liability claims.
Noninsurance risk transfer is a risk f... | [{"model_id": "zai-org/GLM-OCR", "model_name": "GLM-OCR", "column_name": "markdown", "timestamp": "2026-02-22T15:28:00.229284", "task": "ocr", "batch_size": 1, "max_tokens": 8192, "script": "glm-ocr-transformers.py"}] | |
be the risk financing technique of last resort; the financial burden of any losses that cannot be insured or otherwise transferred must be retained.
Retention can be planned or unplanned. These terms are defined as follows:
- Planned retention is a deliberate assumption of a loss exposure (and any consequential losse... | [{"model_id": "zai-org/GLM-OCR", "model_name": "GLM-OCR", "column_name": "markdown", "timestamp": "2026-02-22T15:28:10.589442", "task": "ocr", "batch_size": 1, "max_tokens": 8192, "script": "glm-ocr-transformers.py"}] | |
meantime. For example, a building owner may have to take out a mortgage to fund the reconstruction of a damaged uninsured building. In such a case, the mortgage would be the post-loss funding instrument.
Advantages to using post-loss funding include the opportunity to pay the cost of retained losses over several years... | [{"model_id": "zai-org/GLM-OCR", "model_name": "GLM-OCR", "column_name": "markdown", "timestamp": "2026-02-22T15:28:21.402968", "task": "ocr", "batch_size": 1, "max_tokens": 8192, "script": "glm-ocr-transformers.py"}] | |
To manage its cost of risk and maintain a tolerable level of uncertainty for retained losses, an organization should pursue risk financing goals. Common risk financing goals include the following:
- Paying for losses
- Maintaining an appropriate level of liquidity
- Managing uncertainty of loss outcomes
- Managing the... | [{"model_id": "zai-org/GLM-OCR", "model_name": "GLM-OCR", "column_name": "markdown", "timestamp": "2026-02-22T15:28:30.028092", "task": "ocr", "batch_size": 1, "max_tokens": 8192, "script": "glm-ocr-transformers.py"}] | |
organization often has difficulty determining the maximum level of uncertainty it can tolerate. Its maximum uncertainty level depends on a number of factors, such as its size, its financial strength, and its level of risk tolerance—for example, whether management prefers to accept risk in order to gain a possible benef... | [{"model_id": "zai-org/GLM-OCR", "model_name": "GLM-OCR", "column_name": "markdown", "timestamp": "2026-02-22T15:28:39.010505", "task": "ocr", "batch_size": 1, "max_tokens": 8192, "script": "glm-ocr-transformers.py"}] | |
Retained Losses
Retained losses are a major component of an organization’s cost of risk. When deciding whether to retain a loss, an organization can compare the projected cost of retaining the loss with the cost of transferring it.
Retaining some types of losses that have significant delays in claim reporting and sett... | [{"model_id": "zai-org/GLM-OCR", "model_name": "GLM-OCR", "column_name": "markdown", "timestamp": "2026-02-22T15:28:49.439335", "task": "ocr", "batch_size": 1, "max_tokens": 8192, "script": "glm-ocr-transformers.py"}] | |
Risk management professionals use risk financing goals to guide them in selecting appropriate risk financing techniques. However, the characteristics of losses associated with a particular loss exposure often direct the risk management professional to a particular risk financing technique.
RISK FINANCING TECHNIQUE SEL... | [{"model_id": "zai-org/GLM-OCR", "model_name": "GLM-OCR", "column_name": "markdown", "timestamp": "2026-02-22T15:28:56.407263", "task": "ocr", "batch_size": 1, "max_tokens": 8192, "script": "glm-ocr-transformers.py"}] | |
The top segment of the triangle in Exhibit 1-3 represents catastrophic losses that are characterized by both high severity and low frequency. The cost of these losses is unpredictable, regardless of whether they are considered individually or as a group. Therefore, they present a high risk to organizations. Most organi... | [{"model_id": "zai-org/GLM-OCR", "model_name": "GLM-OCR", "column_name": "markdown", "timestamp": "2026-02-22T15:29:06.104231", "task": "ocr", "batch_size": 1, "max_tokens": 8192, "script": "glm-ocr-transformers.py"}] | |
EXHIBIT 1-5
Categories of Risk Financing Plans
Retention Plans
- Informal retention
- Self-insurance
Transfer Plans
- Guaranteed-cost insurance
- Insurance derivatives and insurance securitizations
Hybrid Plans
- Large deductible insurance
- Retrospective rating
- Captive insurance
- Pooling
- Finite risk insurance... | [{"model_id": "zai-org/GLM-OCR", "model_name": "GLM-OCR", "column_name": "markdown", "timestamp": "2026-02-22T15:29:16.011358", "task": "ocr", "batch_size": 1, "max_tokens": 8192, "script": "glm-ocr-transformers.py"}] | |
Enterprise risk management differs from traditional risk management in the following ways:
- Enterprise risk management encompasses both hazard risk and business risk; traditional risk management focuses on hazard risk.
- Enterprise risk management seeks to enable an organization to fulfill its greatest productive pot... | [{"model_id": "zai-org/GLM-OCR", "model_name": "GLM-OCR", "column_name": "markdown", "timestamp": "2026-02-22T15:29:24.634903", "task": "ocr", "batch_size": 1, "max_tokens": 8192, "script": "glm-ocr-transformers.py"}] | |
When analyzing risk financing across their enterprise-wide risks, many organizations find inconsistencies in their approach to loss retention. For example, an organization that retains millions of dollars of risk on a daily basis in the foreign exchange market may find that it retains only $100,000 per loss under its p... | [{"model_id": "zai-org/GLM-OCR", "model_name": "GLM-OCR", "column_name": "markdown", "timestamp": "2026-02-22T15:29:35.107011", "task": "ocr", "batch_size": 1, "max_tokens": 8192, "script": "glm-ocr-transformers.py"}] | |
Loss exposures exhibit loss characteristics in terms of frequency and severity. Often, these characteristics direct the risk management professional to use a particular risk financing technique to treat them. Low-frequency/high-severity losses are most appropriately treated through transfer. High-frequency/low-severity... | [{"model_id": "zai-org/GLM-OCR", "model_name": "GLM-OCR", "column_name": "markdown", "timestamp": "2026-02-22T15:29:41.223845", "task": "ocr", "batch_size": 1, "max_tokens": 8192, "script": "glm-ocr-transformers.py"}] | |
Direct Your Learning
Insurance as a Risk Financing Technique
After learning the content of this chapter and completing the corresponding course guide assignment, you should be able to:
- Describe the purpose and operation of insurance, including:
- Risk reduction through pooling
- Services provided by insurers
-... | [{"model_id": "zai-org/GLM-OCR", "model_name": "GLM-OCR", "column_name": "markdown", "timestamp": "2026-02-22T15:29:44.331303", "task": "ocr", "batch_size": 1, "max_tokens": 8192, "script": "glm-ocr-transformers.py"}] | |
Develop Your Perspective
What are the main topics covered in the chapter?
This chapter examines insurance as a risk financing technique. Insurance can be used as a stand-alone risk financing technique to transfer risk, or as the risk transfer component of a hybrid risk financing plan.
Identify the distinction betwee... | [{"model_id": "zai-org/GLM-OCR", "model_name": "GLM-OCR", "column_name": "markdown", "timestamp": "2026-02-22T15:29:49.309996", "task": "ocr", "batch_size": 1, "max_tokens": 8192, "script": "glm-ocr-transformers.py"}] | |
Insurance as a Risk Financing Technique
Insurance is a component of most risk financing plans. Organizations that want the security and certainty of insurance can purchase an insurance policy that transfers hazard risk to an insurer.
Because its meaning depends on context, however, the term “insurance” can be confusi... | [{"model_id": "zai-org/GLM-OCR", "model_name": "GLM-OCR", "column_name": "markdown", "timestamp": "2026-02-22T15:29:57.401579", "task": "ocr", "batch_size": 1, "max_tokens": 8192, "script": "glm-ocr-transformers.py"}] | |
This chapter defines insurance and describes its purpose and operation. The concept of pooling underlies the operation of insurance and is essential to the evaluation of alternative risk financing plans that involve pooling, but not insurance. The characteristics of an ideally insurable loss exposure are also fundament... | [{"model_id": "zai-org/GLM-OCR", "model_name": "GLM-OCR", "column_name": "markdown", "timestamp": "2026-02-22T15:30:07.564813", "task": "ocr", "batch_size": 1, "max_tokens": 8192, "script": "glm-ocr-transformers.py"}] | |
that neither organization will have more than one accident during the year. Exhibit 2-1 shows the resulting probability distribution for each organization’s accidental losses without pooling. (A probability distribution is a presentation of probability estimates of a particular set of circumstances and the probability ... | [{"model_id": "zai-org/GLM-OCR", "model_name": "GLM-OCR", "column_name": "markdown", "timestamp": "2026-02-22T15:30:18.779644", "task": "ocr", "batch_size": 1, "max_tokens": 8192, "script": "glm-ocr-transformers.py"}] | |
EXHIBIT 2-2
Probability Distribution of Losses Paid by Each Organization (Galston and Atwell) With Pooling
| Possible Outcomes | Probability | Total Losses | Losses Paid by Each Organization (Average Loss) |
| :--- | :--- | :--- | :--- |
| 1. Neither Atwell nor Galston has an accident. | $(.8)(.8) = .64$ | $0 | $0 |
... | [{"model_id": "zai-org/GLM-OCR", "model_name": "GLM-OCR", "column_name": "markdown", "timestamp": "2026-02-22T15:30:29.735834", "task": "ocr", "batch_size": 1, "max_tokens": 8192, "script": "glm-ocr-transformers.py"}] | |
EXHIBIT 2-3
Expected Losses Paid by Each Organization (Galston and Atwell) With Pooling
(a) (b) (a) $\times$ (b)
Losses by Each Organization (Average Loss) Probability
$0 .64 $0
$1,250 .16 $200
$1,250 .16 $200
$2,500 .04 $100
Total 1.00 $500
Because the pooling arrangement reduces the probabilities of the extr... | [{"model_id": "zai-org/GLM-OCR", "model_name": "GLM-OCR", "column_name": "markdown", "timestamp": "2026-02-22T15:30:39.242884", "task": "ocr", "batch_size": 1, "max_tokens": 8192, "script": "glm-ocr-transformers.py"}] | |
The probability distribution of each organization’s accident cost will continue to change as more participants are added to the pool. Exhibit 2-4 compares the probability distribution for average losses when four or twenty participants are in the pool. Note that as the number of pool participants increases, the probabi... | [{"model_id": "zai-org/GLM-OCR", "model_name": "GLM-OCR", "column_name": "markdown", "timestamp": "2026-02-22T15:30:44.620716", "task": "ocr", "batch_size": 1, "max_tokens": 8192, "script": "glm-ocr-transformers.py"}] | |
In summary, pooling increases the predictability of each of its participant’s losses by reducing the variability of their average loss. Therefore, pooling reduces each participant’s risk. As even more participants are added, the loss probability distribution becomes increasingly bell-shaped.
Although pooling does not ... | [{"model_id": "zai-org/GLM-OCR", "model_name": "GLM-OCR", "column_name": "markdown", "timestamp": "2026-02-22T15:30:54.205264", "task": "ocr", "batch_size": 1, "max_tokens": 8192, "script": "glm-ocr-transformers.py"}] | |
Loss correlation has important implications for risk management and insurance. Positively correlated losses have the potential of causing simultaneous loss to large numbers of pool participants, thereby undermining the risk sharing principles on which pooling is based.
Insurance relies on the principles of pooling to ... | [{"model_id": "zai-org/GLM-OCR", "model_name": "GLM-OCR", "column_name": "markdown", "timestamp": "2026-02-22T15:30:58.791442", "task": "ocr", "batch_size": 1, "max_tokens": 8192, "script": "glm-ocr-transformers.py"}] | |
2. The insurer has additional financial resources from which it can fund losses, enabling it to provide a stronger guarantee that sufficient funds will be available in the event of a loss, further reducing risk.
The premiums an insurer receives should be sufficient to pay for losses, expenses, profits, and contingenci... | [{"model_id": "zai-org/GLM-OCR", "model_name": "GLM-OCR", "column_name": "markdown", "timestamp": "2026-02-22T15:31:08.865025", "task": "ocr", "batch_size": 1, "max_tokens": 8192, "script": "glm-ocr-transformers.py"}] | |
With insurance, insurers bear the cost of losses, which provides a strong financial incentive for them to identify and implement measures that control their insureds’ losses. Insurers provide risk control services to organizations both to complement insurance coverage and as a separate fee-based service. Insured organi... | [{"model_id": "zai-org/GLM-OCR", "model_name": "GLM-OCR", "column_name": "markdown", "timestamp": "2026-02-22T15:31:18.594030", "task": "ocr", "batch_size": 1, "max_tokens": 8192, "script": "glm-ocr-transformers.py"}] | |
EXHIBIT 2-6
Six Characteristics of an Ideally Insurable Loss Exposure
1. Pure risk—involves pure risk, not speculative risk
2. Fortuitous losses—subject to fortuitous loss from the insured’s standpoint
3. Definite and measurable—subject to losses that are definite in time, cause, and location and that are measurable
... | [{"model_id": "zai-org/GLM-OCR", "model_name": "GLM-OCR", "column_name": "markdown", "timestamp": "2026-02-22T15:31:28.907947", "task": "ocr", "batch_size": 1, "max_tokens": 8192, "script": "glm-ocr-transformers.py"}] | |
cannot possibly happen, or when it is guaranteed to happen. By definition, a loss cannot occur when an exposure is avoided, so there is no risk of loss to transfer to an insurer.
Uncertainty also is absent when the organization has complete control over whether a loss occurs. In such a situation, chance of loss exists... | [{"model_id": "zai-org/GLM-OCR", "model_name": "GLM-OCR", "column_name": "markdown", "timestamp": "2026-02-22T15:31:39.934248", "task": "ocr", "batch_size": 1, "max_tokens": 8192, "script": "glm-ocr-transformers.py"}] | |
units, because they are expected to respond similarly to similar causes of loss, improve loss predictability. For example, restaurants share many of the same loss characteristics and consequently have similar loss experience. Because of the diversity in loss exposures, the similarity among them is relative.
Despite th... | [{"model_id": "zai-org/GLM-OCR", "model_name": "GLM-OCR", "column_name": "markdown", "timestamp": "2026-02-22T15:31:51.185735", "task": "ocr", "batch_size": 1, "max_tokens": 8192, "script": "glm-ocr-transformers.py"}] | |
Most low-severity losses are inconsequential, so they can readily be managed with one’s own resources. For example, a large organization can easily pay for a physical damage loss that occurs to one of its vehicles.
Although insurance works well for many low-frequency loss exposures, it may not be economically feasible... | [{"model_id": "zai-org/GLM-OCR", "model_name": "GLM-OCR", "column_name": "markdown", "timestamp": "2026-02-22T15:32:01.432161", "task": "ocr", "batch_size": 1, "max_tokens": 8192, "script": "glm-ocr-transformers.py"}] | |
EXHIBIT 2-7
Types of Commercial Insurance
Property insurance Environmental insurance
Business income insurance Aircraft insurance
General liability insurance Umbrella liability insurance
Auto insurance Surety bonds
Workers' compensation and employers' Ocean marine insurance
liability insurance Inland marine insurance... | [{"model_id": "zai-org/GLM-OCR", "model_name": "GLM-OCR", "column_name": "markdown", "timestamp": "2026-02-22T15:32:09.613328", "task": "ocr", "batch_size": 1, "max_tokens": 8192, "script": "glm-ocr-transformers.py"}] | |
earthquake causes of loss can be added by endorsement. Exhibit 2-8 shows the covered causes of loss in the basic and broad forms.
EXHIBIT 2-8
Covered Causes of Loss in Basic and Broad Forms
Both Forms Cover:
• Fire
• Lightning
• Explosion
• Windstorm or hail
• Smoke
• Aircraft or vehicles
• Riot or civil commotion
•... | [{"model_id": "zai-org/GLM-OCR", "model_name": "GLM-OCR", "column_name": "markdown", "timestamp": "2026-02-22T15:32:19.404158", "task": "ocr", "batch_size": 1, "max_tokens": 8192, "script": "glm-ocr-transformers.py"}] | |
Government action—Seizure or destruction of property by government action is not covered. This exclusion does not apply to the destruction of property by governmental order to stop the spread of a covered fire, in which case the policy provides coverage.
Nuclear hazard—The basic form excludes loss caused by nuclear re... | [{"model_id": "zai-org/GLM-OCR", "model_name": "GLM-OCR", "column_name": "markdown", "timestamp": "2026-02-22T15:32:30.832570", "task": "ocr", "batch_size": 1, "max_tokens": 8192, "script": "glm-ocr-transformers.py"}] | |
Business Income Insurance
Business income (BI) insurance covers the reduction in an organization's income when operations are interrupted by damage to property caused by a covered cause of loss. Because the severity of a business income loss correlates with the length of time required to restore the property, business... | [{"model_id": "zai-org/GLM-OCR", "model_name": "GLM-OCR", "column_name": "markdown", "timestamp": "2026-02-22T15:32:40.200552", "task": "ocr", "batch_size": 1, "max_tokens": 8192, "script": "glm-ocr-transformers.py"}] | |
• The claims-made coverage form covers bodily injury or property damage that occurs after the retroactive date stated in the policy. The retroactive date stated in the policy can be the same as the policy inception date or can be earlier than the policy inception date, but only if a claim for the injury or damage is fi... | [{"model_id": "zai-org/GLM-OCR", "model_name": "GLM-OCR", "column_name": "markdown", "timestamp": "2026-02-22T15:32:50.857838", "task": "ocr", "batch_size": 1, "max_tokens": 8192, "script": "glm-ocr-transformers.py"}] | |
The Garage Coverage Form is designed to meet the special needs of automobile dealers. Because it is often difficult to separate the auto liability and general liability loss exposures of an auto dealer, the Garage Coverage Form insures both types of loss exposures. It also provides garagekeepers coverage, which insures... | [{"model_id": "zai-org/GLM-OCR", "model_name": "GLM-OCR", "column_name": "markdown", "timestamp": "2026-02-22T15:33:01.437357", "task": "ocr", "batch_size": 1, "max_tokens": 8192, "script": "glm-ocr-transformers.py"}] | |
The NFIP also offers a Residential Condominium Building Association Policy for insuring residential condominium buildings and contents that are owned either by the unit owners in common or by the condominium association solely.
Directors and Officers Liability Insurance
The individuals who serve as the directors and ... | [{"model_id": "zai-org/GLM-OCR", "model_name": "GLM-OCR", "column_name": "markdown", "timestamp": "2026-02-22T15:33:11.305204", "task": "ocr", "batch_size": 1, "max_tokens": 8192, "script": "glm-ocr-transformers.py"}] | |
Environmental Insurance
Insurers have developed various types of environmental insurance, both first-party and third-party, to manage pollution-related loss exposures that are largely excluded by most other commercial insurance policies. The leading insurers in environmental insurance use independently developed polic... | [{"model_id": "zai-org/GLM-OCR", "model_name": "GLM-OCR", "column_name": "markdown", "timestamp": "2026-02-22T15:33:20.298572", "task": "ocr", "batch_size": 1, "max_tokens": 8192, "script": "glm-ocr-transformers.py"}] | |
the obligee. The surety guarantees to the obligee that the principal will fulfill the underlying obligations. In most cases, the party making the guarantee—the surety—is an insurance company that also sells property and liability insurance.
Many types of surety bonds are used in a variety of circumstances. However, al... | [{"model_id": "zai-org/GLM-OCR", "model_name": "GLM-OCR", "column_name": "markdown", "timestamp": "2026-02-22T15:33:31.266991", "task": "ocr", "batch_size": 1, "max_tokens": 8192, "script": "glm-ocr-transformers.py"}] | |
Ocean marine insurance policies are classified as hull, cargo, and protection and indemnity (P&I).
Hull—A hull policy provides coverage for the hull of the ship, materials and equipment, and stores and provisions for the officers and crew. Also included are the machinery, boilers, and fuel supplies owned by the insure... | [{"model_id": "zai-org/GLM-OCR", "model_name": "GLM-OCR", "column_name": "markdown", "timestamp": "2026-02-22T15:33:41.349620", "task": "ocr", "batch_size": 1, "max_tokens": 8192, "script": "glm-ocr-transformers.py"}] | |
Various advisory organizations, including the American Association of Insurance Services (AAIS), ISO, and The Surety Association of America (SSA) have developed commercial crime forms for the use of their member companies.
Equipment Breakdown Insurance
Equipment breakdown insurance (traditionally known as boiler and ... | [{"model_id": "zai-org/GLM-OCR", "model_name": "GLM-OCR", "column_name": "markdown", "timestamp": "2026-02-22T15:33:50.979729", "task": "ocr", "batch_size": 1, "max_tokens": 8192, "script": "glm-ocr-transformers.py"}] | |
extra expense coverage, selected crime and inland marine coverages, and equipment breakdown coverage. Liability coverage, like that provided by the CGL, is also included in the policy. Hired and nonowned auto liability coverage and various professional liability endorsements can be added as needed.
Difference in Condi... | [{"model_id": "zai-org/GLM-OCR", "model_name": "GLM-OCR", "column_name": "markdown", "timestamp": "2026-02-22T15:33:59.660196", "task": "ocr", "batch_size": 1, "max_tokens": 8192, "script": "glm-ocr-transformers.py"}] | |
Advantages of Insurance as a Risk Financing Technique
Because of its numerous advantages, insurance is often the only risk financing technique an organization considers. These advantages include the following:
- Insurance reduces financial uncertainty from accidental losses.
- Insurance provides access to claim handl... | [{"model_id": "zai-org/GLM-OCR", "model_name": "GLM-OCR", "column_name": "markdown", "timestamp": "2026-02-22T15:34:09.484199", "task": "ocr", "batch_size": 1, "max_tokens": 8192, "script": "glm-ocr-transformers.py"}] | |
(real property) or as a loss payee (personal property). In the event of an accidental loss, the creditor is repaid the outstanding loan amount by the insurer. This advantage of insurance allows risk management professionals to easily satisfy creditor requirements through the purchase of a properly drafted insurance pol... | [{"model_id": "zai-org/GLM-OCR", "model_name": "GLM-OCR", "column_name": "markdown", "timestamp": "2026-02-22T15:34:20.227867", "task": "ocr", "batch_size": 1, "max_tokens": 8192, "script": "glm-ocr-transformers.py"}] | |
Finally, insurance, as a risk financing strategy, is easy to exit. For a variety of reasons, an organization may choose to switch insurers or use another risk financing technique. The contractual relationship between the insured and the insurer can be terminated at any time. At the time of policy termination, the insur... | [{"model_id": "zai-org/GLM-OCR", "model_name": "GLM-OCR", "column_name": "markdown", "timestamp": "2026-02-22T15:34:30.666483", "task": "ocr", "batch_size": 1, "max_tokens": 8192, "script": "glm-ocr-transformers.py"}] | |
or limit risk transfer. Coverage disputes, which are disagreements between the insurer and the insured organization, may result in the organization not having insurance coverage it thought it had purchased. Risk management professionals often choose insurance because it reduces uncertainty to a tolerable level. However... | [{"model_id": "zai-org/GLM-OCR", "model_name": "GLM-OCR", "column_name": "markdown", "timestamp": "2026-02-22T15:34:41.023048", "task": "ocr", "batch_size": 1, "max_tokens": 8192, "script": "glm-ocr-transformers.py"}] | |
Insurance differs from pooling in the following two important ways:
1. Insurance transfers risk from the insured to the insurer in exchange for premiums, rather than simply serving as a conduit for passing along its costs to others.
2. The insurer introduces additional financial resources, enabling the insurer to pro... | [{"model_id": "zai-org/GLM-OCR", "model_name": "GLM-OCR", "column_name": "markdown", "timestamp": "2026-02-22T15:34:50.543109", "task": "ocr", "batch_size": 1, "max_tokens": 8192, "script": "glm-ocr-transformers.py"}] | |
The major disadvantages of insurance as a risk financing technique are as follows:
- Insurance premiums include insurer expenses, profits, and risk charges.
- Insurance premiums diminish cash flows.
- Insurance coverage is not a complete transfer of hazard risk.
- Insurance price and availability at desired terms and ... | [{"model_id": "zai-org/GLM-OCR", "model_name": "GLM-OCR", "column_name": "markdown", "timestamp": "2026-02-22T15:34:54.468810", "task": "ocr", "batch_size": 1, "max_tokens": 8192, "script": "glm-ocr-transformers.py"}] | |
Direct Your Learning
Insurance Plan Design
After learning the content of this chapter and completing the corresponding course guide assignment, you should be able to:
- Describe the importance and contents of insurance binders.
- Describe the physical construction of insurance policies.
- Summarize the effect of eac... | [{"model_id": "zai-org/GLM-OCR", "model_name": "GLM-OCR", "column_name": "markdown", "timestamp": "2026-02-22T15:34:58.535032", "task": "ocr", "batch_size": 1, "max_tokens": 8192, "script": "glm-ocr-transformers.py"}] | |
Develop Your Perspective
What are the main topics covered in the chapter?
This chapter describes the preliminary insurance contract (binder) and the final insurance contract (policy) used by insurers. Risk management professionals need to know how to evaluate the insurance coverage purchased so that they know whether... | [{"model_id": "zai-org/GLM-OCR", "model_name": "GLM-OCR", "column_name": "markdown", "timestamp": "2026-02-22T15:35:04.133086", "task": "ocr", "batch_size": 1, "max_tokens": 8192, "script": "glm-ocr-transformers.py"}] | |
Insurance Plan Design
Just as an organization’s risk financing program employs different techniques, its insurance plan uses a combination of insurance policies to satisfy specific risk financing needs. Relative to other risk financing techniques, insurance is an easily implemented means of addressing hazard risk. How... | [{"model_id": "zai-org/GLM-OCR", "model_name": "GLM-OCR", "column_name": "markdown", "timestamp": "2026-02-22T15:35:11.606037", "task": "ocr", "batch_size": 1, "max_tokens": 8192, "script": "glm-ocr-transformers.py"}] | |
Because the insurer’s claim representatives use the binder to settle losses until the policy is issued, risk management professionals should scrutinize the insurer’s binder as carefully as they would the insurance policy itself. Many claims are settled based on the information contained in the binder alone. Binders als... | [{"model_id": "zai-org/GLM-OCR", "model_name": "GLM-OCR", "column_name": "markdown", "timestamp": "2026-02-22T15:35:21.706651", "task": "ocr", "batch_size": 1, "max_tokens": 8192, "script": "glm-ocr-transformers.py"}] | |
EXHIBIT 3-1
ACORD Insurance Binder
INSURANCE BINDER
DATE (MM/DD/YYYY)
THIS BINDER IS A TEMPORARY INSURANCE CONTRACT, SUBJECT TO THE CONDITIONS SHOWN ON THE REVERSE SIDE OF THIS FORM.
AGENCY
PHONE
(A/C, No, Ext):
FAX
(A/C, No):
CODE:
AGENCY
CUSTOMER ID:
SUB CODE:
COMPANY
BINDER #
DATE
EFFECTIVE
TIME
DATE
EXPIRAT... | [{"model_id": "zai-org/GLM-OCR", "model_name": "GLM-OCR", "column_name": "markdown", "timestamp": "2026-02-22T15:35:36.038948", "task": "ocr", "batch_size": 1, "max_tokens": 8192, "script": "glm-ocr-transformers.py"}] | |
3.6 Risk Financing
Coverage part
One or more forms that, together, provide coverage for a type of insurance.
A coverage part consists of one or more forms that, together, provide coverage for a type of insurance. It may include the following components:
- Declarations page that applies only to that coverage part
- O... | [{"model_id": "zai-org/GLM-OCR", "model_name": "GLM-OCR", "column_name": "markdown", "timestamp": "2026-02-22T15:35:48.180347", "task": "ocr", "batch_size": 1, "max_tokens": 8192, "script": "glm-ocr-transformers.py"}] | |
property coverage part includes a commercial property declarations page, the necessary commercial property coverage forms, a causes of loss form, and a commercial property conditions form, in addition to the common policy conditions and common declarations. This combination of documents constitutes a monoline policy th... | [{"model_id": "zai-org/GLM-OCR", "model_name": "GLM-OCR", "column_name": "markdown", "timestamp": "2026-02-22T15:35:53.753651", "task": "ocr", "batch_size": 1, "max_tokens": 8192, "script": "glm-ocr-transformers.py"}] | |
An advantage of the modular approach is that a single policy can include several types of insurance. The resulting combination is not a monoline policy, but a package or multi-line policy. The commercial package policy shown in Exhibit 3-2 is flexible enough to cover the majority of loss exposures most organizations fa... | [{"model_id": "zai-org/GLM-OCR", "model_name": "GLM-OCR", "column_name": "markdown", "timestamp": "2026-02-22T15:36:04.573751", "task": "ocr", "batch_size": 1, "max_tokens": 8192, "script": "glm-ocr-transformers.py"}] | |
Preprinted Forms
Most insurance policies are assembled from one or more preprinted forms and endorsements. Preprinted forms are ready-made forms developed for use with many different insureds. They refer to the insured in general terms ("the insured," "you," and so forth) so that they can be used to insure any organiz... | [{"model_id": "zai-org/GLM-OCR", "model_name": "GLM-OCR", "column_name": "markdown", "timestamp": "2026-02-22T15:36:14.889691", "task": "ocr", "batch_size": 1, "max_tokens": 8192, "script": "glm-ocr-transformers.py"}] | |
Similar to preprinted standard forms, preprinted nonstandard forms typically are among the easiest for risk management professionals to work with during policy analysis. Though these forms are referred to as nonstandard, many of them are widely used by some of the largest United States insurers. While the use of nonsta... | [{"model_id": "zai-org/GLM-OCR", "model_name": "GLM-OCR", "column_name": "markdown", "timestamp": "2026-02-22T15:36:25.119202", "task": "ocr", "batch_size": 1, "max_tokens": 8192, "script": "glm-ocr-transformers.py"}] |
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