RMIN 4000 uga test 1
holdharmless clause - ✔️✔️if a manufacturer of scaffolds inserts a hold-harmless
clause in a contract with a retailer, the retailer agrees to hold the manufacturer harmless
in case a scaffold collapses and someone is injured
two ways objective probability can be determined - ✔️✔️1) deductive reasoning (priori
probabilities): probability of getting a head from the toss of a perfectly balanced coin is
1/2 bc there are two sides
2) inductive reasoning: the probability that a person age 21 will die before age 26
cannot be logically deduced, life insurers can estimate the probability of death and sell a
5 year life insurance policy for a 21 yr old
risk - ✔️✔️uncertainty concerning the occurrence of a loss
uncertainty - ✔️✔️probabilities cannot be estimated
loss exposure - ✔️✔️any situation or circumstance in which a loss is possible,
regardless of whether a loss actually occurs
example: earthquake or flood causing damage to a manufacturing plant
objective risk (degree of risk) - ✔️✔️the relative variation of actual loss from expected
loss
example:10,000 houses insured of a long period of time and on average 100 houses
burn each year, however it would be rare for exactly 100 to burn each year
law of large numbers - ✔️✔️as the number of exposure units increases, the more
closely the actual loss experience will approach the expected loss experience
example: as the number of homes under observation increases, the greater is the
degree of accuracy in predicting the proportion of homes that will burn
subjective risk (perceived risk) - ✔️✔️uncertainty based on a person's mental condition
or state of mind
example: driver with previous convictions for drunk driving tries to drive home and
wonders if he will get arrested by the police or not
chance of loss - ✔️✔️the probability that an event will occur
objective probability - ✔️✔️the long run relative frequency of an event based on the
assumptions of an infinite number of observations and of no change in the underlying
conditions
, types of risk - ✔️✔️-pure risk
-speculative risk
-diversifiable risk
-nondiversifiable risk
-enterprise risk
-systemic risk
subjective probability - ✔️✔️the individual's personal estimate of the chance of loss
example: people who buy a lottery ticket on their birthday may believe it is their lucky
day and overestimate the small chance of winning
objective risk - ✔️✔️the relative variation of actual loss from expected loss
peril - ✔️✔️the cause of loss
example: house burns down, peril is the fire
hazard - ✔️✔️condition that creates or increases the frequency or severity of loss
4 types of hazards - ✔️✔️1) physical hazard
2) moral hazard
3) attitudinal hazard
4) legal hazard
physical hazard - ✔️✔️physical condition that increases the frequency or severity of
loss.
example: icy roads that increase chance of automobile accident
moral hazard - ✔️✔️dishonesty or character defects in an individual that increase the
frequency or severity of loss
example: faking an accident to collect benefits from an insurer
-can try to control this by careful underwriting of applicants for insurance and by various
policy provisions, such as deductibles, waiting periods
attitudinal hazard - ✔️✔️carelessness or indifference to a loss, which increases the
frequency or severity of a loss
example: leaving car keys in an unlocked car, which increases the chance of theft,
changing lanes on highway without blinker
legal hazard - ✔️✔️characteristics of the legal system or regulatory environment that
increase the frequency or severity of losses.
holdharmless clause - ✔️✔️if a manufacturer of scaffolds inserts a hold-harmless
clause in a contract with a retailer, the retailer agrees to hold the manufacturer harmless
in case a scaffold collapses and someone is injured
two ways objective probability can be determined - ✔️✔️1) deductive reasoning (priori
probabilities): probability of getting a head from the toss of a perfectly balanced coin is
1/2 bc there are two sides
2) inductive reasoning: the probability that a person age 21 will die before age 26
cannot be logically deduced, life insurers can estimate the probability of death and sell a
5 year life insurance policy for a 21 yr old
risk - ✔️✔️uncertainty concerning the occurrence of a loss
uncertainty - ✔️✔️probabilities cannot be estimated
loss exposure - ✔️✔️any situation or circumstance in which a loss is possible,
regardless of whether a loss actually occurs
example: earthquake or flood causing damage to a manufacturing plant
objective risk (degree of risk) - ✔️✔️the relative variation of actual loss from expected
loss
example:10,000 houses insured of a long period of time and on average 100 houses
burn each year, however it would be rare for exactly 100 to burn each year
law of large numbers - ✔️✔️as the number of exposure units increases, the more
closely the actual loss experience will approach the expected loss experience
example: as the number of homes under observation increases, the greater is the
degree of accuracy in predicting the proportion of homes that will burn
subjective risk (perceived risk) - ✔️✔️uncertainty based on a person's mental condition
or state of mind
example: driver with previous convictions for drunk driving tries to drive home and
wonders if he will get arrested by the police or not
chance of loss - ✔️✔️the probability that an event will occur
objective probability - ✔️✔️the long run relative frequency of an event based on the
assumptions of an infinite number of observations and of no change in the underlying
conditions
, types of risk - ✔️✔️-pure risk
-speculative risk
-diversifiable risk
-nondiversifiable risk
-enterprise risk
-systemic risk
subjective probability - ✔️✔️the individual's personal estimate of the chance of loss
example: people who buy a lottery ticket on their birthday may believe it is their lucky
day and overestimate the small chance of winning
objective risk - ✔️✔️the relative variation of actual loss from expected loss
peril - ✔️✔️the cause of loss
example: house burns down, peril is the fire
hazard - ✔️✔️condition that creates or increases the frequency or severity of loss
4 types of hazards - ✔️✔️1) physical hazard
2) moral hazard
3) attitudinal hazard
4) legal hazard
physical hazard - ✔️✔️physical condition that increases the frequency or severity of
loss.
example: icy roads that increase chance of automobile accident
moral hazard - ✔️✔️dishonesty or character defects in an individual that increase the
frequency or severity of loss
example: faking an accident to collect benefits from an insurer
-can try to control this by careful underwriting of applicants for insurance and by various
policy provisions, such as deductibles, waiting periods
attitudinal hazard - ✔️✔️carelessness or indifference to a loss, which increases the
frequency or severity of a loss
example: leaving car keys in an unlocked car, which increases the chance of theft,
changing lanes on highway without blinker
legal hazard - ✔️✔️characteristics of the legal system or regulatory environment that
increase the frequency or severity of losses.
