Fin 341 Liebenberg Exam 1 UPDATED ACTUAL Questions And Correct Answers
Terms in this set (199)
80% of schools experience _________ attacks ransomware
What percent of the RMI industry will retire in the next 15 50%
years?
Top 5 most important global business risks for 2023 1. Cyber incidents
2. Business interruptions
3. Macroeconomic development (inflation)
4. Energy crisis
5. Changes in legislation and regulation
Treasury Yield Curve a plot of the yields on treasury notes and bonds relative to maturity; predicts
recessions
Define risk uncertainty concerning the occurrence of a loss
Is it riskier to fall off of a treehouse or a 100-story tower? Treehouse become the outcome is uncertain; if you fall off the tower the outcome
is certain: you die
How is risk used in the insurance industry? to identify the property or life that is being considered for insurance
Loss exposure any situation or circumstance in which a loss is possible, regardless of whether a
loss occurs
Objective risk the relative variation of actual loss from expected loss (fact)
Subjective (perceived) risk uncertainty based on a person's mental condition or state of mind (opinion)
T/F Subjective risk is measurable, data-drive, and non- FALSE; this describes objective risk, not subjective
biased
Chance of loss the probability that an event that causes a loss will occur
Objective risk/standard deviation the relative variation of actual loss from expected loss
Expected loss also means what? mean or average loss
T/F Having higher objective risk means more variation TRUE
from the mean
T/F Given two events with the same chance of loss, the FALSE
one with the lower objective risk is the riskier event
Standard deviation formula sqrt(sum of squares of the deviation from the mean/n)
= sqrt(sum(xi-mean)^2/n)
, Peril cause of the loss (ex. fire, flood, theft)
Hazard a condition that creates or increases the frequency or severity of loss
4 types of hazards physical, legal, moral, attitudinal (morale)
Physical hazard a physical condition that increases the frequency or severity of loss
Say fire is the peril; what are the hazards in these 1. gas, cars, people, etc.
situations? 2. nothing really in the desert, so the fire isn't as big of a deal
Gas station: 1 3. high temperature and dry weather
Desert: 2
California wildfires: 3
Two components of physical hazards construction and location
Say an earthquake is the peril, how would the Brick would pose a physical hazard
construction of a house (brick vs wood) affect its
resilience?
How does the location of a house affect the flood (peril) the property located in a flood zone is a physical hazard
loss?
Construction affects ____________ severity
Location affects __________ & ___________ frequency; severity
Moral hazard (behavior) dishonesty or character defects in an individual that increase frequency or severity
of loss; the change of behavior due to some condition
How is insurance fraud a moral hazard? - the presence of insurance changes the behavior
- for example, a wife kills her husband for life insurance
- charity hazard: residents in flood zones not buying insurance because they
anticipate receiving governmental & private aid
Attitudinal/Morale hazard carelessness or indifference to a loss, which increased the frequency or severity
of a loss
- people know they have insurance, so they are less careful
How is attitudinal hazard different from moral hazard? Attitudinal hazard involves NO change of behavior due to some conditions
Legal hazard some condition of the legal environment which increases loss frequency or
severity (ex. large punitive damage award of liability lawsuits)
Punitive damages award assessed in the legal process to punish a defendant for negligence; beyond
compensatory award and are designed to prevent others from being hurt by
similar actions
- these are established in prior cases
- purpose is not to compensate plaintiff, but they still get all or some of the award
Terms in this set (199)
80% of schools experience _________ attacks ransomware
What percent of the RMI industry will retire in the next 15 50%
years?
Top 5 most important global business risks for 2023 1. Cyber incidents
2. Business interruptions
3. Macroeconomic development (inflation)
4. Energy crisis
5. Changes in legislation and regulation
Treasury Yield Curve a plot of the yields on treasury notes and bonds relative to maturity; predicts
recessions
Define risk uncertainty concerning the occurrence of a loss
Is it riskier to fall off of a treehouse or a 100-story tower? Treehouse become the outcome is uncertain; if you fall off the tower the outcome
is certain: you die
How is risk used in the insurance industry? to identify the property or life that is being considered for insurance
Loss exposure any situation or circumstance in which a loss is possible, regardless of whether a
loss occurs
Objective risk the relative variation of actual loss from expected loss (fact)
Subjective (perceived) risk uncertainty based on a person's mental condition or state of mind (opinion)
T/F Subjective risk is measurable, data-drive, and non- FALSE; this describes objective risk, not subjective
biased
Chance of loss the probability that an event that causes a loss will occur
Objective risk/standard deviation the relative variation of actual loss from expected loss
Expected loss also means what? mean or average loss
T/F Having higher objective risk means more variation TRUE
from the mean
T/F Given two events with the same chance of loss, the FALSE
one with the lower objective risk is the riskier event
Standard deviation formula sqrt(sum of squares of the deviation from the mean/n)
= sqrt(sum(xi-mean)^2/n)
, Peril cause of the loss (ex. fire, flood, theft)
Hazard a condition that creates or increases the frequency or severity of loss
4 types of hazards physical, legal, moral, attitudinal (morale)
Physical hazard a physical condition that increases the frequency or severity of loss
Say fire is the peril; what are the hazards in these 1. gas, cars, people, etc.
situations? 2. nothing really in the desert, so the fire isn't as big of a deal
Gas station: 1 3. high temperature and dry weather
Desert: 2
California wildfires: 3
Two components of physical hazards construction and location
Say an earthquake is the peril, how would the Brick would pose a physical hazard
construction of a house (brick vs wood) affect its
resilience?
How does the location of a house affect the flood (peril) the property located in a flood zone is a physical hazard
loss?
Construction affects ____________ severity
Location affects __________ & ___________ frequency; severity
Moral hazard (behavior) dishonesty or character defects in an individual that increase frequency or severity
of loss; the change of behavior due to some condition
How is insurance fraud a moral hazard? - the presence of insurance changes the behavior
- for example, a wife kills her husband for life insurance
- charity hazard: residents in flood zones not buying insurance because they
anticipate receiving governmental & private aid
Attitudinal/Morale hazard carelessness or indifference to a loss, which increased the frequency or severity
of a loss
- people know they have insurance, so they are less careful
How is attitudinal hazard different from moral hazard? Attitudinal hazard involves NO change of behavior due to some conditions
Legal hazard some condition of the legal environment which increases loss frequency or
severity (ex. large punitive damage award of liability lawsuits)
Punitive damages award assessed in the legal process to punish a defendant for negligence; beyond
compensatory award and are designed to prevent others from being hurt by
similar actions
- these are established in prior cases
- purpose is not to compensate plaintiff, but they still get all or some of the award
