RMIN 4000 Exam/133 Accurate Q’s and
A’s
Exposures - -Things of value (assets) that could be lost
- Perils - -Bad things that could happen to assets/Causes of loss
- Risk Management - -Things we do to protect our assets and/or
prevent/reduce losses
- Risk - -Uncertainty concerning the occurrence of a loss
- Probabilistic Outcome - -Chance of loss/Likelihood of loss
- What does 0% to 100% mean, when understanding probabilistic outcome?
What is the highest risk? - -0% = No Risk
100% = A certain Event
50% = Highest Risk because it has the most uncertainty
- Negative outcome - -A loss that must be quantifiable ($)
- Frequency - -How often a loss occurs within a specified time period
- Severity - -The dollar amount of loss for a specific peril (How much a loss
cost)
- Frequency Equation - -Frequency = number of losses/number of exposures
- Severity Equation - -Severity = total losses ($)/number of losses
- Lannister Insurance company insures 100,000 homes. In 2021, they paid a
total of $30,000,000 in wind damage losses to the owners of 5,000 of those
homes.
1. What was Lannister's wind loss frequency in 2021?
2. What was Lannister's average wind loss severity in 2021? - -1. 0.05 -->
5%
2. 6,000
- Hazard - -Condition that increases the frequency and/or severity of a loss
- Does not cause a loss
, - Four types of hazards - -physical, moral, morale (attitudinal), legal
- Physical hazard & Example - -A physical condition that increases the
frequency and/or severity of a loss
Example: Rain on the road
- Moral Hazard & Example - -Dishonesty or character defects in an
individual that increase the frequency and/or severity of a loss
Example: Exaggerating the value of insured property
- Morale (Attitudinal) Hazard & Example - -Carelessness or indifference to a
loss, which increases the frequency and/or severity of a loss
Example: Leaving car keys in an unlocked car
- Legal Hazard & Example - -Characteristics of legal system or regulatory
environment that increases the frequency and/or severity of a loss
Example: Georgia requiring Diminution in value to be paid on property losses
- Pure risk - -A risk where there is no gain - outcomes are either loss/no loss
- Speculative risk - -A risk where there is a chance of gain - outcomes are
either loss, no loss, or gain
- Can you buy insurance for pure risks? - -Yes
- Can you buy insurance for speculative risks? - -No
- Examples of pure risk - -Fire, Cancer, Dog bites for a visitor
- Examples of speculative risk - -Investment, Gambling, Drinking
- Diversifiable Risk - -A risk that affects only individuals or small groups, not
the entire economy
- How can diversifiable risks be reduced? - -Via diversification
- Are the risks in diversifiable risk correlated? Give some examples of
diversifiable risk - -No - fire, theft, collision
- Nondiversifiable Risk - -Risks that affects the entire economy or large
numbers of groups/persons within the economy
A’s
Exposures - -Things of value (assets) that could be lost
- Perils - -Bad things that could happen to assets/Causes of loss
- Risk Management - -Things we do to protect our assets and/or
prevent/reduce losses
- Risk - -Uncertainty concerning the occurrence of a loss
- Probabilistic Outcome - -Chance of loss/Likelihood of loss
- What does 0% to 100% mean, when understanding probabilistic outcome?
What is the highest risk? - -0% = No Risk
100% = A certain Event
50% = Highest Risk because it has the most uncertainty
- Negative outcome - -A loss that must be quantifiable ($)
- Frequency - -How often a loss occurs within a specified time period
- Severity - -The dollar amount of loss for a specific peril (How much a loss
cost)
- Frequency Equation - -Frequency = number of losses/number of exposures
- Severity Equation - -Severity = total losses ($)/number of losses
- Lannister Insurance company insures 100,000 homes. In 2021, they paid a
total of $30,000,000 in wind damage losses to the owners of 5,000 of those
homes.
1. What was Lannister's wind loss frequency in 2021?
2. What was Lannister's average wind loss severity in 2021? - -1. 0.05 -->
5%
2. 6,000
- Hazard - -Condition that increases the frequency and/or severity of a loss
- Does not cause a loss
, - Four types of hazards - -physical, moral, morale (attitudinal), legal
- Physical hazard & Example - -A physical condition that increases the
frequency and/or severity of a loss
Example: Rain on the road
- Moral Hazard & Example - -Dishonesty or character defects in an
individual that increase the frequency and/or severity of a loss
Example: Exaggerating the value of insured property
- Morale (Attitudinal) Hazard & Example - -Carelessness or indifference to a
loss, which increases the frequency and/or severity of a loss
Example: Leaving car keys in an unlocked car
- Legal Hazard & Example - -Characteristics of legal system or regulatory
environment that increases the frequency and/or severity of a loss
Example: Georgia requiring Diminution in value to be paid on property losses
- Pure risk - -A risk where there is no gain - outcomes are either loss/no loss
- Speculative risk - -A risk where there is a chance of gain - outcomes are
either loss, no loss, or gain
- Can you buy insurance for pure risks? - -Yes
- Can you buy insurance for speculative risks? - -No
- Examples of pure risk - -Fire, Cancer, Dog bites for a visitor
- Examples of speculative risk - -Investment, Gambling, Drinking
- Diversifiable Risk - -A risk that affects only individuals or small groups, not
the entire economy
- How can diversifiable risks be reduced? - -Via diversification
- Are the risks in diversifiable risk correlated? Give some examples of
diversifiable risk - -No - fire, theft, collision
- Nondiversifiable Risk - -Risks that affects the entire economy or large
numbers of groups/persons within the economy
