RMIN 4000 Brown UGA Test 1 with Complete Solutions
Frequency - ANSWER-How often does a loss occur?
The number of losses (such as fire, theft, collision) that occur within a specified time period
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 (fire, theft, collision)
Peril - ANSWER-cause of a loss
Ex. fire, tornado, collision, burglary
hazard - ANSWER-condition that creates or increases the frequency and/or severity of a loss
physical hazard - ANSWER-a physical condition that increases the frequency and/or severity of a loss
moral hazard - ANSWER-dishonesty or character defects in an individual that increase the frequency and/or severity of a loss
presence of insurance changes the behavior of the insured
Ex. using a hammer to create "hail" damage to a roof
morale hazard - ANSWER-carelessness or indifference to a loss, which increases the frequency and/or severity of a loss
ex. leaving keys in an unlocked car
personal risk - ANSWER-directly affects an individual or family; involve the possibility of loss of income, extra expenses, depletion of financial assets
ex. death, unemployment, disability/injury/ poor health, inadequate retirement income
direct loss - ANSWER-cost to repair or replace property damaged by a peril
indirect loss - ANSWER-financial loss resulting as a consequence of a direct loss ex. fire damages your home, you have to live somewhere else while its repaired
risk management - ANSWER-process that identifies loss exposures faced by an organization and selects the most appropriate techniques for treating such exposures
loss exposure - ANSWER-any situation or circumstance in which a loss is possible, regardless of whether a loss actually occurs
maximum possible loss - ANSWER-worst loss that could happen to a firm during its lifetime
probable maximum loss - ANSWER-the worst loss that is likely to happen
risk control - ANSWER-techniques that reduce the frequency or severity of losses
avoidance - ANSWER-a certain loss exposure is never acquired or an existing loss exposure is abandoned
frequency reduced to zero
disadvantages:
may not be possible
usually has an opportunity cost
avoiding one loss exposure may create another
loss prevention - ANSWER-measures that reduce the frequency of a particular loss
does not completely eliminate risk
ex. airport security
loss reduction - ANSWER-measures that reduce the severity of a loss
no effect on frequency of a loss
ex. fire sprinklers
duplication - ANSWER-having backups or copies of important documents or property available in case a loss occurs
separation - ANSWER-dividing assets exposed to loss to minimize the harm from a single event
ex. firewalls in buildings
companies with multiple warehouses
retention - ANSWER-a firm or individual retains all or part of losses that can occur from a given risk
active- deliberately retaining risk
passive- unknowingly retaining risk
Frequency - ANSWER-How often does a loss occur?
The number of losses (such as fire, theft, collision) that occur within a specified time period
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 (fire, theft, collision)
Peril - ANSWER-cause of a loss
Ex. fire, tornado, collision, burglary
hazard - ANSWER-condition that creates or increases the frequency and/or severity of a loss
physical hazard - ANSWER-a physical condition that increases the frequency and/or severity of a loss
moral hazard - ANSWER-dishonesty or character defects in an individual that increase the frequency and/or severity of a loss
presence of insurance changes the behavior of the insured
Ex. using a hammer to create "hail" damage to a roof
morale hazard - ANSWER-carelessness or indifference to a loss, which increases the frequency and/or severity of a loss
ex. leaving keys in an unlocked car
personal risk - ANSWER-directly affects an individual or family; involve the possibility of loss of income, extra expenses, depletion of financial assets
ex. death, unemployment, disability/injury/ poor health, inadequate retirement income
direct loss - ANSWER-cost to repair or replace property damaged by a peril
indirect loss - ANSWER-financial loss resulting as a consequence of a direct loss ex. fire damages your home, you have to live somewhere else while its repaired
risk management - ANSWER-process that identifies loss exposures faced by an organization and selects the most appropriate techniques for treating such exposures
loss exposure - ANSWER-any situation or circumstance in which a loss is possible, regardless of whether a loss actually occurs
maximum possible loss - ANSWER-worst loss that could happen to a firm during its lifetime
probable maximum loss - ANSWER-the worst loss that is likely to happen
risk control - ANSWER-techniques that reduce the frequency or severity of losses
avoidance - ANSWER-a certain loss exposure is never acquired or an existing loss exposure is abandoned
frequency reduced to zero
disadvantages:
may not be possible
usually has an opportunity cost
avoiding one loss exposure may create another
loss prevention - ANSWER-measures that reduce the frequency of a particular loss
does not completely eliminate risk
ex. airport security
loss reduction - ANSWER-measures that reduce the severity of a loss
no effect on frequency of a loss
ex. fire sprinklers
duplication - ANSWER-having backups or copies of important documents or property available in case a loss occurs
separation - ANSWER-dividing assets exposed to loss to minimize the harm from a single event
ex. firewalls in buildings
companies with multiple warehouses
retention - ANSWER-a firm or individual retains all or part of losses that can occur from a given risk
active- deliberately retaining risk
passive- unknowingly retaining risk
