RMIN 4000 Brown UGA Final Exam
Questions and Answers Graded A+
Pure Risk - Correct answer-a risk that presents the chance of loss but no
opportunity for gain
Examples of Pure Risk - Correct answer-fire, cancer, dog bites a visitor
Speculative Risk - Correct answer-A chance of loss, no loss, or gain.
Examples of Speculative Risk - Correct answer-investment, gambling, drinking
Which type of risk can you buy insurance for - Correct answer-Pure
Frequency - Correct answer-the number of losses (such as fire, theft, collision) that
occur within a specified time period
Frequency Equation - Correct answer-number of losses/number of exposures
Severity - Correct answer-the dollar amount of loss for a specific peril
Severity Equation - Correct answer-total losses ($)/number of losses
Peril - Correct answer-things that could happen to cause of loss to assets
©COPYRIGHT 2025, ALL RIGHTS RESERVED 1
,Hazard - Correct answer-condition that creates or increases the frequency and/or
severity of a loss
Physical Hazard - Correct answer-A physical condition that increases the frequency
and/or severity of a loss
Moral Hazard - Correct answer-dishonesty or character defects in an individual
that increase the frequency or severity of loss
Morale Hazard - Correct answer-carelessness or indifference to a loss, which
increases the frequency and/or severity of a loss,shows the rise of indifference
knowing his items are covered by insurance
Legal Hazard - Correct answer-characteristics of legal system or regulatory
environment that increase the frequency and/or severity of a loss
Personal Risk - Correct answer-Directly affects an individual or family; involves
the
possibility of loss of income, extra expenses, depletion of financial assets.
Property Risk - Correct answer-The possibility of losses associated with the
destruction or theft of property.
Liability Risk - Correct answer-Legal liability (financial consequences) resulting
from
©COPYRIGHT 2025, ALL RIGHTS RESERVED 2
,injuries or damages you caused to someone else
Loss of Business Income - Correct answer-If a business has to shut down for a
period of time due to a physical damage loss, it is unable to generate an
income
Law of Large Numbers - Correct answer-The greater the number of exposures, the
more closely
will actual results approach the probable results expected from an infinite number
of exposures.
Characteristics of an IDEALLY Insurable Risk - Correct answer-1) Large number
of exposure units.
2) Loss must be accidental and unintentional.
3) Loss must be determinable and measurable.
4) Loss should not be catastrophic.
5) Chance of loss must be calculable.
6) Premium must be economically feasible
Adverse Selection - Correct answer-• The tendency of persons with a higher-than-
average chance of loss to seek insurance at
©COPYRIGHT 2025, ALL RIGHTS RESERVED 3
, standard (average) rates, which, if not controlled
by underwriting, results in higher than expected
loss levels.
• Typically results from asymmetric information.
Credit Score - Correct answer-utilizes a consumer's credit history to predict the
likelihood of repaying a debt
Insurance Score - Correct answer-utilizes a consumer's credit history to predict the
likelihood of an insurance loss
Steps in the Risk Management Process - Correct answer-1. Identify loss exposures.
2. Measure and analyze the loss exposures.
3. Consider and select the appropriate risk
management techniques.
4. Implement and monitor the chosen techniques
Risk Control - Correct answer-Techniques that reduce the frequency or severity of
losses
Risk Financing - Correct answer-Techniques that provide for the funding of losses
©COPYRIGHT 2025, ALL RIGHTS RESERVED 4
Questions and Answers Graded A+
Pure Risk - Correct answer-a risk that presents the chance of loss but no
opportunity for gain
Examples of Pure Risk - Correct answer-fire, cancer, dog bites a visitor
Speculative Risk - Correct answer-A chance of loss, no loss, or gain.
Examples of Speculative Risk - Correct answer-investment, gambling, drinking
Which type of risk can you buy insurance for - Correct answer-Pure
Frequency - Correct answer-the number of losses (such as fire, theft, collision) that
occur within a specified time period
Frequency Equation - Correct answer-number of losses/number of exposures
Severity - Correct answer-the dollar amount of loss for a specific peril
Severity Equation - Correct answer-total losses ($)/number of losses
Peril - Correct answer-things that could happen to cause of loss to assets
©COPYRIGHT 2025, ALL RIGHTS RESERVED 1
,Hazard - Correct answer-condition that creates or increases the frequency and/or
severity of a loss
Physical Hazard - Correct answer-A physical condition that increases the frequency
and/or severity of a loss
Moral Hazard - Correct answer-dishonesty or character defects in an individual
that increase the frequency or severity of loss
Morale Hazard - Correct answer-carelessness or indifference to a loss, which
increases the frequency and/or severity of a loss,shows the rise of indifference
knowing his items are covered by insurance
Legal Hazard - Correct answer-characteristics of legal system or regulatory
environment that increase the frequency and/or severity of a loss
Personal Risk - Correct answer-Directly affects an individual or family; involves
the
possibility of loss of income, extra expenses, depletion of financial assets.
Property Risk - Correct answer-The possibility of losses associated with the
destruction or theft of property.
Liability Risk - Correct answer-Legal liability (financial consequences) resulting
from
©COPYRIGHT 2025, ALL RIGHTS RESERVED 2
,injuries or damages you caused to someone else
Loss of Business Income - Correct answer-If a business has to shut down for a
period of time due to a physical damage loss, it is unable to generate an
income
Law of Large Numbers - Correct answer-The greater the number of exposures, the
more closely
will actual results approach the probable results expected from an infinite number
of exposures.
Characteristics of an IDEALLY Insurable Risk - Correct answer-1) Large number
of exposure units.
2) Loss must be accidental and unintentional.
3) Loss must be determinable and measurable.
4) Loss should not be catastrophic.
5) Chance of loss must be calculable.
6) Premium must be economically feasible
Adverse Selection - Correct answer-• The tendency of persons with a higher-than-
average chance of loss to seek insurance at
©COPYRIGHT 2025, ALL RIGHTS RESERVED 3
, standard (average) rates, which, if not controlled
by underwriting, results in higher than expected
loss levels.
• Typically results from asymmetric information.
Credit Score - Correct answer-utilizes a consumer's credit history to predict the
likelihood of repaying a debt
Insurance Score - Correct answer-utilizes a consumer's credit history to predict the
likelihood of an insurance loss
Steps in the Risk Management Process - Correct answer-1. Identify loss exposures.
2. Measure and analyze the loss exposures.
3. Consider and select the appropriate risk
management techniques.
4. Implement and monitor the chosen techniques
Risk Control - Correct answer-Techniques that reduce the frequency or severity of
losses
Risk Financing - Correct answer-Techniques that provide for the funding of losses
©COPYRIGHT 2025, ALL RIGHTS RESERVED 4
