RMIN 4000 EXAM 1 BROWN FINAL PAPER
COMPLETE QUESTIONS WITH ACCURATE
SOLUTIONS
●● risk's 3 components: exposures
Answer: things of value (assets) that could be lost
ex: car
●● risk's 3 components: perils
Answer: things that could happen to assets
ex: car accident
●● risk's 3 components: risk management
Answer: what you do to protect assets and/or prevent or reduce losses
ex: drive safely
●● risk
Answer: textbook definition: uncertainty concerning the occurrence of a
loss
better definition: a calculated possibility of a negative outcome
,●● calculated possibility
Answer: a probabilistic outcome (chance of loss / likelihood) that is
known/estimated
ranges from 0-1 or 0-100%
0% (0) - impossible event
50% (0.5) - highest risk (most uncertainty)
100% (1) - certain event (no risk)
●● negative outcome
Answer: a loss that must be quantifiable
●● frequency
Answer: how often does a loss occur?
the number of losses occurring within a specific time period
aka probability of a loss
●● severity
Answer: how much does it cost when a loss does occur?
the dollar amount of loss for a specific peril
●● equation for frequency
,Answer: number of losses ÷ number of exposures
●● equation for severity
Answer: total losses (dollar amount) ÷ number of losses
●● _____ x _____ = pure premium ($)
Answer: frequency x severity
●● peril
Answer: cause of loss
ex: fire, tornado, collision, burglary
●● hazard
Answer: condition that creates or increases the frequency and/or severity
of a loss
does NOT cause a loss
4 types: physical, moral, morale, legal
●● physical hazard
Answer: a physical condition that increases the frequency and/or
severity of a loss
●● moral hazard
, Answer: the presence of insurance changes the behavior of the insured
ex: using a hammer to create hail damage to a roof
●● morale (attitudinal) hazard
Answer: carelessness or indifference to a loss, which increases the
frequency and/or severity of a loss
ex: leaving car keys in an unlocked car
●● legal hazard
Answer: characteristics of legal system or regulatory environment that
increase the frequency and/or severity of a loss
ex: juries in some areas are more sympathetic than others (aka larger
damage awards)
ex: GA requires Diminution in Value to be paid on property losses
●● deductibles exist to reduce which types of hazards?
Answer: moral and morale
●● risk classifications
Answer: pure vs speculative
diversifiable
nondiversifiable
enterprise
COMPLETE QUESTIONS WITH ACCURATE
SOLUTIONS
●● risk's 3 components: exposures
Answer: things of value (assets) that could be lost
ex: car
●● risk's 3 components: perils
Answer: things that could happen to assets
ex: car accident
●● risk's 3 components: risk management
Answer: what you do to protect assets and/or prevent or reduce losses
ex: drive safely
●● risk
Answer: textbook definition: uncertainty concerning the occurrence of a
loss
better definition: a calculated possibility of a negative outcome
,●● calculated possibility
Answer: a probabilistic outcome (chance of loss / likelihood) that is
known/estimated
ranges from 0-1 or 0-100%
0% (0) - impossible event
50% (0.5) - highest risk (most uncertainty)
100% (1) - certain event (no risk)
●● negative outcome
Answer: a loss that must be quantifiable
●● frequency
Answer: how often does a loss occur?
the number of losses occurring within a specific time period
aka probability of a loss
●● severity
Answer: how much does it cost when a loss does occur?
the dollar amount of loss for a specific peril
●● equation for frequency
,Answer: number of losses ÷ number of exposures
●● equation for severity
Answer: total losses (dollar amount) ÷ number of losses
●● _____ x _____ = pure premium ($)
Answer: frequency x severity
●● peril
Answer: cause of loss
ex: fire, tornado, collision, burglary
●● hazard
Answer: condition that creates or increases the frequency and/or severity
of a loss
does NOT cause a loss
4 types: physical, moral, morale, legal
●● physical hazard
Answer: a physical condition that increases the frequency and/or
severity of a loss
●● moral hazard
, Answer: the presence of insurance changes the behavior of the insured
ex: using a hammer to create hail damage to a roof
●● morale (attitudinal) hazard
Answer: carelessness or indifference to a loss, which increases the
frequency and/or severity of a loss
ex: leaving car keys in an unlocked car
●● legal hazard
Answer: characteristics of legal system or regulatory environment that
increase the frequency and/or severity of a loss
ex: juries in some areas are more sympathetic than others (aka larger
damage awards)
ex: GA requires Diminution in Value to be paid on property losses
●● deductibles exist to reduce which types of hazards?
Answer: moral and morale
●● risk classifications
Answer: pure vs speculative
diversifiable
nondiversifiable
enterprise
