UGA RMIN 4000 EDMUNDS EXAM 1| 2026 |
GUARANTEED PASS
Risk - Answers -uncertainty concerning the occurrence of a loss (or calculated
possibility of a negative outcome)
Loss exposure - Answers -any situation where a loss is possible (does not have to
occur)
Loss frequency - Answers -how often a loss occurs within a specific period (probability)
Formula to find frequency - Answers -# of losses/# of exposures
Loss severity - Answers -how much does a loss cost when it occurs (a house fire costs
$x)
Formula to find severity - Answers -total losses in dollars/# of losses
Peril - Answers -cause of loss (fire, windstorm, flood)
Hazard - Answers -an event that creates or increases the chance of a loss without
causing
At what probability is risk highest? - Answers -0.5
Do risk and chance of loss mean the same? - Answers -No, chance of loss is the
probability that an event will occur
What are the four types of hazards? - Answers -Physical, Moral, Morale, and Legal
Physical hazard - Answers -a physical condition that increases the frequency or
severity of loss
Moral hazard - Answers -dishonesty or character defects in an individual that increase
the frequency or severity of loss (using a hammer to create "hail" damage to your roof to
get a claim)
Morale (Attitudinal) Hazard - Answers -carelessness or indifference to a loss, which
increases the frequency or severity of a loss (leaving car unlocked leading to theft)
Legal Hazard - Answers -characteristics of the legal system or regulatory environment
that increase the frequency or severity of losses (a jury in one district may be more
sympathetic than others)
, Pure risk - Answers -a risk with a possibility of loss or no loss; no gain occurs
Speculative risk - Answers -A chance of loss, no loss, or gain
Diversifiable risk - Answers -a risk that affects only individuals or small groups and not
the entire economy
Nondiversifiable risk - Answers -a risk that affects the entire economy or large numbers
of persons or groups within the economy (war, inflation, business recession)
What makes a risk diversifiable or not? - Answers -it is diversifiable if it can be reduced
or eliminated by diversification
Enterprise risk - Answers -encompasses all major risks faced by a business firm
Systemic risk - Answers -the risk that the failure of one financial institution can bring
down other institutions as well
What are the major types of pure risk? - Answers -personal, property, and liability
Personal risk - Answers -A risk that directly affects an individual or family (peril, like
unemployment, causes loss of income)
Property risk - Answers -possibility of losses associated with the destruction or theft of
property (can be direct or indirect-financial loss result of direct loss)
Legal liability risk - Answers -financial consequences from injuries or damages you
caused to someone else (defense costs; liens on income or assets seized as
punishment)
What are the techniques of managing risks? - Answers -risk control and risk financing
Risk control - Answers -techniques that reduce the frequency or severity of losses
Risk financing - Answers -techniques for funding losses
What are some risk control tactics? - Answers -loss prevention (employee training or
safety equipment to reduce frequency), loss reduction (sprinkler heads for fires to
reduce severity) , duplication, separation, diversification, and avoidance (never acquire
loss exposure (proactive) or abandon loss (reactive))
What are some risk financing tactics? - Answers -retention (retaining part or all of
losses from a risk), noninsurance risk transfer (risk is given to party other than
insurance company), and insurance (transfer risk to insurer in exchange for a premium
cost)
GUARANTEED PASS
Risk - Answers -uncertainty concerning the occurrence of a loss (or calculated
possibility of a negative outcome)
Loss exposure - Answers -any situation where a loss is possible (does not have to
occur)
Loss frequency - Answers -how often a loss occurs within a specific period (probability)
Formula to find frequency - Answers -# of losses/# of exposures
Loss severity - Answers -how much does a loss cost when it occurs (a house fire costs
$x)
Formula to find severity - Answers -total losses in dollars/# of losses
Peril - Answers -cause of loss (fire, windstorm, flood)
Hazard - Answers -an event that creates or increases the chance of a loss without
causing
At what probability is risk highest? - Answers -0.5
Do risk and chance of loss mean the same? - Answers -No, chance of loss is the
probability that an event will occur
What are the four types of hazards? - Answers -Physical, Moral, Morale, and Legal
Physical hazard - Answers -a physical condition that increases the frequency or
severity of loss
Moral hazard - Answers -dishonesty or character defects in an individual that increase
the frequency or severity of loss (using a hammer to create "hail" damage to your roof to
get a claim)
Morale (Attitudinal) Hazard - Answers -carelessness or indifference to a loss, which
increases the frequency or severity of a loss (leaving car unlocked leading to theft)
Legal Hazard - Answers -characteristics of the legal system or regulatory environment
that increase the frequency or severity of losses (a jury in one district may be more
sympathetic than others)
, Pure risk - Answers -a risk with a possibility of loss or no loss; no gain occurs
Speculative risk - Answers -A chance of loss, no loss, or gain
Diversifiable risk - Answers -a risk that affects only individuals or small groups and not
the entire economy
Nondiversifiable risk - Answers -a risk that affects the entire economy or large numbers
of persons or groups within the economy (war, inflation, business recession)
What makes a risk diversifiable or not? - Answers -it is diversifiable if it can be reduced
or eliminated by diversification
Enterprise risk - Answers -encompasses all major risks faced by a business firm
Systemic risk - Answers -the risk that the failure of one financial institution can bring
down other institutions as well
What are the major types of pure risk? - Answers -personal, property, and liability
Personal risk - Answers -A risk that directly affects an individual or family (peril, like
unemployment, causes loss of income)
Property risk - Answers -possibility of losses associated with the destruction or theft of
property (can be direct or indirect-financial loss result of direct loss)
Legal liability risk - Answers -financial consequences from injuries or damages you
caused to someone else (defense costs; liens on income or assets seized as
punishment)
What are the techniques of managing risks? - Answers -risk control and risk financing
Risk control - Answers -techniques that reduce the frequency or severity of losses
Risk financing - Answers -techniques for funding losses
What are some risk control tactics? - Answers -loss prevention (employee training or
safety equipment to reduce frequency), loss reduction (sprinkler heads for fires to
reduce severity) , duplication, separation, diversification, and avoidance (never acquire
loss exposure (proactive) or abandon loss (reactive))
What are some risk financing tactics? - Answers -retention (retaining part or all of
losses from a risk), noninsurance risk transfer (risk is given to party other than
insurance company), and insurance (transfer risk to insurer in exchange for a premium
cost)
