FIN 341 EXAM 1 COMPREHENSIVE SCRIPT 2026
FULL QUESTIONS AND CORRECT ANSWERS
◉ What is the insurance industry definition of risk? Answer: Risk is
also used to identify the property or life that is being considered for
insurance
◉ Loss exposure Answer: Any situation or circumstance in which a
loss is possible, regardless of whether a loss occurs
◉ Objective Risk Answer: Defined as the relative variation of actual
loss from expected loss
◉ Objective risk is... Answer: Data driven - Actual # of losses in a
given period
◉ Subjective Risk Answer: 1) Defined as uncertainty based on a
person's mental condition or state of mind
2) Depends on how an individual perceives the chance of loss, which
may not align with statistical evidence
,◉ Chance of Loss Answer: The likelihood (expressed as a
probability) that a peril will cause harm
◉ Peril Answer: Defined as the cause of the loss, aka "actual event".
◉ Fire, flood, theft, Covid-19, wildfire are all examples of Answer: A
peril
◉ Hazard Answer: A condition that creates or increases the
frequency or severity of loss.
◉ Flood zone, bad wiring, medical conditions, dry conditions are all
examples of Answer: A hazard
◉ Physical Hazard Answer: Physical condition that increases the
frequency or severity of the loss.
◉ Location, construction/design, property conditions are all
examples of Answer: A physical hazard
◉ Moral Hazard Answer: Dishonesty or character defects in an
individual that increases the frequency or severity of loss
, ◉ Insurance fraud, life insurance abuse, charity hazard are all
examples of Answer: A Moral hazard
◉ Attitudinal Hazard Answer: Carelessness or indifference to a loss,
which increased the frequency or severity of a loss
◉ Leaving door unlocked, driving recklessly, forgetting personal
belongings at public places are all examples of Answer: A attitudinal
hazard
◉ Legal Hazard Answer: Some condition of the legal environment
which increases the loss frequency or severity
◉ Large punitive damage award of liability lawsuits is an example of
Answer: A legal hazard
◉ Pure Risk Answer: Is a situation in which there are only the
possibilities of loss or no loss
◉ Insurance companies only insure Answer: Pure risks
◉ Speculative Risk Answer: Is a situation in which either profit or
loss is possible
FULL QUESTIONS AND CORRECT ANSWERS
◉ What is the insurance industry definition of risk? Answer: Risk is
also used to identify the property or life that is being considered for
insurance
◉ Loss exposure Answer: Any situation or circumstance in which a
loss is possible, regardless of whether a loss occurs
◉ Objective Risk Answer: Defined as the relative variation of actual
loss from expected loss
◉ Objective risk is... Answer: Data driven - Actual # of losses in a
given period
◉ Subjective Risk Answer: 1) Defined as uncertainty based on a
person's mental condition or state of mind
2) Depends on how an individual perceives the chance of loss, which
may not align with statistical evidence
,◉ Chance of Loss Answer: The likelihood (expressed as a
probability) that a peril will cause harm
◉ Peril Answer: Defined as the cause of the loss, aka "actual event".
◉ Fire, flood, theft, Covid-19, wildfire are all examples of Answer: A
peril
◉ Hazard Answer: A condition that creates or increases the
frequency or severity of loss.
◉ Flood zone, bad wiring, medical conditions, dry conditions are all
examples of Answer: A hazard
◉ Physical Hazard Answer: Physical condition that increases the
frequency or severity of the loss.
◉ Location, construction/design, property conditions are all
examples of Answer: A physical hazard
◉ Moral Hazard Answer: Dishonesty or character defects in an
individual that increases the frequency or severity of loss
, ◉ Insurance fraud, life insurance abuse, charity hazard are all
examples of Answer: A Moral hazard
◉ Attitudinal Hazard Answer: Carelessness or indifference to a loss,
which increased the frequency or severity of a loss
◉ Leaving door unlocked, driving recklessly, forgetting personal
belongings at public places are all examples of Answer: A attitudinal
hazard
◉ Legal Hazard Answer: Some condition of the legal environment
which increases the loss frequency or severity
◉ Large punitive damage award of liability lawsuits is an example of
Answer: A legal hazard
◉ Pure Risk Answer: Is a situation in which there are only the
possibilities of loss or no loss
◉ Insurance companies only insure Answer: Pure risks
◉ Speculative Risk Answer: Is a situation in which either profit or
loss is possible
