RMIN 4000 Test 1 Brown UGA Questions and Answers well Explained Latest 2024/2025 Update 100% Correct.

Pure Risk - A chance of loss or no loss, but no chance of gain. Insurance can be bought for this Exposures - things of value (assets) that could be lost Property Risk - a risk that can lead to destruction or theft and loss of personal or business property including money, vehicles, and buildings; 2 types (direct and indirect) Diversifiable risk - a risk that affects only individuals or small groups and not the entire economy. It can be eliminated/ reduced through diversification. the risks are not correlated Perils - things that cause injury or loss risk - a calculated possibility of a negative outcome Frequency - the number of losses (such as fire or theft) that occur within a specified time period. aka the probability of a loss Severity - the dollar amount of a loss for a specific peril (fire, theft, collision) aka How much does it cost when the loss does occur? Hazard - a condition that creates or increases the frequency or severity of loss but does NOT cause the loss. Physical Hazard - a physical condition that increases the frequency or severity of loss Moral Hazard - the presence of insurance changes the behavior of the insured. ex: making hail damage to get a checkMorale hazard (attitudinal hazard) - A condition of carelessness or indifference that increases the frequency or severity of loss. Legal Hazard - characteristics of the legal system or regulatory environment that increase the frequency or severity of losses Georgia's Diminution in value is an example of a - legal hazard because it increases the severity on property losses Speculative Risk - A chance of loss, no loss, or gain. Developing cancer or your house being caught on fire are two examples of what kind of risk? - Pure Risk diversifiable risk - A risk that affects only some individuals, businesses, or small groups. they can be reduced/eliminated through diversification. the risks are not correlated Non-Diversifiable Risk - affects the entire economy or large numbers of persons or groups within the economy (hurricane, flood), risks are correlated (inflation, unemployment) cannot be eliminated through diversification Enterprise Risk - encompasses all major risks faced by a business firm, which include: pure risk, speculative risk, strategic risk, operational risk, and financial risk systemic risk - the risk that the failure of one financial institution can bring down other institutions as well. instability in the financial system due to the interdependency between the players in the market Types of Pure Risk - personal risks, property risks, liability risks, loss of business income, cybersecurity risks Personal risk - a risk that can directly affect an individual or a family; loss of income, extra expenses, and depletion of financial assetsDirect Loss - cost to replace a loss that is a direct result of a peril, such as fire. Indirect Loss - Loss that is a result or consequence of a direct loss Liability Risk - a risk that relates to harm or injury to other people or their property because of your actions; no upper limit; Defense costs; liens may be placed on income or assets may be siezed Grease fire in the kitchen causes a restaurant to close down for 4 weeks while repairs are made. The restaurant has no income while closed. this is an example of: - Loss of business income