RMIN 4000 Exam 1 Brown Latest Update Graded A+

RMIN 4000 Exam 1 Brown Latest Update Graded A+ Textbook definition of RISK Uncertainty concerning the occurrence of a loss Better definition of RISK A calculated possibility of a negative outcome Calculated Possibility 0 = Impossible event (NO RISK) 0.5 = Highest Risk (Most Uncertainty) 1 = 100% Certain Event (NO RISK Negative Outcome Loss Losses must be __________? Quantifiable Pure Risk States Loss or No Loss Examples of Pure Risks Fire, Cancer, Dog bites a visitor Speculative Risk States Loss No Loss/No Gain Gain Examples of speculative risks Investment, Gambling, Drinking Frequency answers what question? How often does a loss occur The number of losses that occur in a specified time period Probability of a loss Frequency Severity answers what question? How much does it cost when a loss does occur? The dollar amount for a loss of a specific peril Peril Cause of a loss Hazard Condition that creates or increases the frequency and/or severity of a loss DOES NOT CAUSE A LOSS Examples of Peril Fire, Tornado, Collision, Burglary Types of Hazard Physical Moral Morale (Attitudinal) Legal Physical Hazard A physical condition that increases the frequency and/or severity of a loss Book Definition of Moral Hazard Dishonesty or character defects in an individual that increase the frequency and/or severity of a loss Better Definition of Moral Hazard The presence of insurance changes the behavior of the insured Examples of Moral Hazard Using a hammer to create "hail" damage to a roof Exaggerating the value of insured property Morale (Attitudinal) Hazard Carelessness or indifference to a loss, which increases increases the frequency and/or severity of a loss Examples of Morale Hazard Leaving car keys in an unlocked car Neglecting a tree limb growing over your roof Legal Hazard Characteristics of a legal system or regulatory environment that increase the frequency and/or severity of a loss Examples of a Legal Hazard Juries in some areas are more sympathetic than in other areas Georgia now requiring Diminution in Value to be paid on property losses Diversifiable Risk Affects only individuals or small groups, not the entire economy Can be reduced/eliminated through diversification