Risk Management – Exam 1 (University of Arkansas), 2026 – Study
Material and Practice Questions
Pure Risk - ANS✔✔ a risk that presents the chance of loss but no opportunity for gain
caused by Peril
Peril - ANS✔✔ Cause of loss, Insurance write policies for this
wont cover Flood or earthquake
spread risk across country
Speculative Risk - ANS✔✔ Chance of loss,no loss or gain
Subjective Risk - ANS✔✔ The perceived amount of risk based on an individual's or
organization's opinion. OR Risk Tolerance
Doctrine of Proximate Cause - ANS✔✔ a loss is covered only if a covered peril is the proximate
cause of a covered consequence
Insurance will cover water damage because your house caught on fire
Hazard - ANS✔✔ Anything that increases the chance of loss or the serverity
Physical Hazard - ANS✔✔ a physical condition that increases the frequency or severity of loss
Exposed wiring
Moral Hazard - ANS✔✔ International damage
Arson
, Morale Hazard - ANS✔✔ A condition of carelessness or indifference that increases the
frequency or severity of loss.
Law of Large Numbers - ANS✔✔ the more accurate info we have the better our predictions
Decision Making
all our risk decision are predicated on real detailed data analysis
cash flow underwriting - ANS✔✔ Insurance will lower premiums below profitability and make
up lost profit by investing premium cash flows
increase market share
rapid infusion of capital
cant run for long periods of time
Prudent Person principle - ANS✔✔ We are required to act like any reasonable or prudent
person would act under the same or similar circumstance
Plaintiff needs to prove when suing for negligence - ANS✔✔ Defendant owed duty or
responsibility
Duty or responsibility was breached
Establish measurable financial injury
5 basic defenses for Defendant - ANS✔✔ Obligated to Defend
Assumption of risk-plaintiff knew the dangers of actions
Last clear chance- Plaintiff had the opportunity to avoid the risk
Fellow servant rule- reduces defendant liab if they can prove another employee caused injury
Contributory negligence- plaintiff considered to be a contributory factor in the injury suffered,
and sometimes reducing the amount recovered from the defendant.
Material and Practice Questions
Pure Risk - ANS✔✔ a risk that presents the chance of loss but no opportunity for gain
caused by Peril
Peril - ANS✔✔ Cause of loss, Insurance write policies for this
wont cover Flood or earthquake
spread risk across country
Speculative Risk - ANS✔✔ Chance of loss,no loss or gain
Subjective Risk - ANS✔✔ The perceived amount of risk based on an individual's or
organization's opinion. OR Risk Tolerance
Doctrine of Proximate Cause - ANS✔✔ a loss is covered only if a covered peril is the proximate
cause of a covered consequence
Insurance will cover water damage because your house caught on fire
Hazard - ANS✔✔ Anything that increases the chance of loss or the serverity
Physical Hazard - ANS✔✔ a physical condition that increases the frequency or severity of loss
Exposed wiring
Moral Hazard - ANS✔✔ International damage
Arson
, Morale Hazard - ANS✔✔ A condition of carelessness or indifference that increases the
frequency or severity of loss.
Law of Large Numbers - ANS✔✔ the more accurate info we have the better our predictions
Decision Making
all our risk decision are predicated on real detailed data analysis
cash flow underwriting - ANS✔✔ Insurance will lower premiums below profitability and make
up lost profit by investing premium cash flows
increase market share
rapid infusion of capital
cant run for long periods of time
Prudent Person principle - ANS✔✔ We are required to act like any reasonable or prudent
person would act under the same or similar circumstance
Plaintiff needs to prove when suing for negligence - ANS✔✔ Defendant owed duty or
responsibility
Duty or responsibility was breached
Establish measurable financial injury
5 basic defenses for Defendant - ANS✔✔ Obligated to Defend
Assumption of risk-plaintiff knew the dangers of actions
Last clear chance- Plaintiff had the opportunity to avoid the risk
Fellow servant rule- reduces defendant liab if they can prove another employee caused injury
Contributory negligence- plaintiff considered to be a contributory factor in the injury suffered,
and sometimes reducing the amount recovered from the defendant.
