Final Study Set: RMIN 4000 - Daniel Jeremy Brown Questions and Answers Rated A+

Final Study Set: RMIN 4000 - Daniel Jeremy Brown Questions and Answers Rated A+ Exposures Things of value (assets) that could be lost (Any situation/circumstance in which a loss is possible, regardless of whether a loss actually occurs) Perils Things that could happen to your assets - cause of loss Risk Management What you do to protect these assets and/or prevent/reduce losses (Identifies loss exposures faced by an organization and selects the most appropriate techniques for treating such exposures) Risk The calculated possibility of a negative outcome Loss Negative outcome - must be quantifiable Frequency How often a loss occurs (number of losses that occur within a specified time period) Severity How much a loss costs when it does occur (the dollar amount of loss for a specific peril Hazard Condition that creates or increases frequency/severity of loss Physical Hazard A physical condition that increases the frequency/severity of a loss Moral Hazard Presence of insurance changes the behavior of the insured Morale (Attitudinal) Hazard Carelessness/indifference to a loss (increases frequency/severity of a loss) Legal Hazard Characteristics of legal system/regulatory environment that increase the frequency and/or severity of a loss Pure Risk Two outcomes possible: loss or no loss (can purchase insurance for this) Speculative Risk Three outcomes possible: loss, no loss/no gain, or gain (cannot purchase insurance for this) Diversifiable Risk Affects only individuals/small groups, not entire economy: can be reduced/eliminated thru diversification (ex: fire, theft, collision) Nondiversifiable Risk Affects entire economy/large numbers of groups/persons within the economy - can't be reduced thru diversification, government assistance may be needed to insure (correlated risks, ex: hurricane) Enterprise Risk All major risks faced by a business firm (pure, speculative, strategic, operational, financial) Systemic Risk Risk of collapse of an entire system/market due to the failure of a single entity/group of entities Instability in the financial system due to the interdependency between the players in the market Personal Risk Directly affects an individual/family - involve the possibility of loss of income, extra expenses, depletion of financial assets (ex. of perils: death, unemployment, disability, etc.) Property Risk Possibility of losses associated with the destruction or theft of property (Direct loss: cost to repair, Indirect loss: cost to live elsewhere during repairs) Liability Risk Legal liability (financial consequences) resulting from injuries/damages you caused - no upper limit Loss of Business Income Business having to shut down for a period of time due to physical damage loss: unable to generate an income