RMIN 4000 UGA TEST 1 CORRECT
QUESTIONS & ANSWERS|| 2025 LATEST
UPDATE!!
types of risk - ANSWER -pure risk
-speculative risk
-diversifiable risk
-nondiversifiable risk
-enterprise risk
-systemic risk
risk - ANSWER uncertainty concerning the occurrence of a loss
uncertainty - ANSWER probabilities cannot be estimated
loss exposure - ANSWER 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) - ANSWER 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 - ANSWER 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) - ANSWER 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 - ANSWER the probability that an event will occur
objective probability - ANSWER 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
, two ways objective probability can be determined - ANSWER 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
subjective probability - ANSWER 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 - ANSWER the relative variation of actual loss from expected loss
peril - ANSWER the cause of loss
example: house burns down, peril is the fire
hazard - ANSWER condition that creates or increases the frequency or severity of loss
4 types of hazards - ANSWER 1) physical hazard
2) moral hazard
3) attitudinal hazard
4) legal hazard
physical hazard - ANSWER physical condition that increases the frequency or severity
of loss.
example: icy roads that increase chance of automobile accident
moral hazard - ANSWER 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 - ANSWER 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 - ANSWER characteristics of the legal system or regulatory environment
that increase the frequency or severity of losses.
example: adverse jury verdicts or large damage awards in liability lawsuits; statues that
require insurers to include coverage for certain benefits in health insurance plans
QUESTIONS & ANSWERS|| 2025 LATEST
UPDATE!!
types of risk - ANSWER -pure risk
-speculative risk
-diversifiable risk
-nondiversifiable risk
-enterprise risk
-systemic risk
risk - ANSWER uncertainty concerning the occurrence of a loss
uncertainty - ANSWER probabilities cannot be estimated
loss exposure - ANSWER 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) - ANSWER 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 - ANSWER 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) - ANSWER 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 - ANSWER the probability that an event will occur
objective probability - ANSWER 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
, two ways objective probability can be determined - ANSWER 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
subjective probability - ANSWER 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 - ANSWER the relative variation of actual loss from expected loss
peril - ANSWER the cause of loss
example: house burns down, peril is the fire
hazard - ANSWER condition that creates or increases the frequency or severity of loss
4 types of hazards - ANSWER 1) physical hazard
2) moral hazard
3) attitudinal hazard
4) legal hazard
physical hazard - ANSWER physical condition that increases the frequency or severity
of loss.
example: icy roads that increase chance of automobile accident
moral hazard - ANSWER 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 - ANSWER 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 - ANSWER characteristics of the legal system or regulatory environment
that increase the frequency or severity of losses.
example: adverse jury verdicts or large damage awards in liability lawsuits; statues that
require insurers to include coverage for certain benefits in health insurance plans
