RMIN 4000 EXAM 1|100
Accurate Questions with
Answers
Exposures - -things of value (assets) that could be lost
- perils - -things that could happen to these assets
- Risk management - -what do you do to protect these assets and/or
prevent/reduce losses?
process that identifies loss exposures faced by an organization and selects
the most appropriate techniques for treating such exposures
- Risk - -a calculates possibility of a negative outcome
- Calculated possibility - -a probabilistic outcome (chance of loss, the
likelihood of loss) that is known or estimated; ranges from 0 to 1
- Negative outcome - -lost must be quantifiable
- frequency - -how often does a loss occur; The number of losses that occur
within a specified time period;
Probability of a loss
- Severity - -how much does it cost when a loss does occur;
The dollar amount of loss for a specific peril
- Peril - -Cause of loss ex: fire, tornado, collision, burglary etc
- Hazard - -a condition that creates or increases the frequency and/or
severity of a loss
- Moral hazard - -The presence of insurance changes the behavior of the
insured; Dishonesty or character defects in an individual that increases the
frequency and/or severity of a loss
examples→ using a hammer to create "hail" damage to a roof or
exaggerating the value of insured property
- Morale (attitudinal) hazard - -The carelessness of indifference to a loss,
which increases the frequency and/or severity of a loss
, examples→ leaving car keys in an unlocked car; neglecting a tree limb
growing over your roof
- Legal Hazard - -Characteristics of the legal system or regulatory
environment that increase the frequency and/or severity of a loss
examples→ juries in some areas are more sympathetic than other areas
(meaning larger damage awards in liability lawsuits); Georiga now requires
Diminution in Value to be paid on property losses (meaning increased
severity in Georgia).
(Diminution in value is a legal term of art used when calculating damages in
a legal dispute, and describes a measure of value lost due to a circumstance
or set of circumstances that caused the loss.)
- Pure risk - -2 future states: loss or no loss
you can buy insurance for these risks!
ex: fire to your house, cancer, your dog bites someone
- Speculative risk - -3 future states; loss, no loss/no gain, or gain
you can not buy insurance for these risks!
ex: investment, gabling
- diversifiable risk - -Affects only individuals or small groups, not the entire
economy;
Can be reduced/eliminated through diversification;
Risks are not correlated (fire, theft, collision)
- nondiversifiable risk - -Affects the entire economy or large numbers of
groups/persons within the economy;
Cannot be reduced/eliminated through diversification;
Government assistance may be needed to insure;
Risks are correlated (inflation, unemployment.)
- enterprise risk - -Encompasses all major risks faced by a business firm:
Pure risk
Speculative risk
Strategic risk
Operational risk
Financial risk
Accurate Questions with
Answers
Exposures - -things of value (assets) that could be lost
- perils - -things that could happen to these assets
- Risk management - -what do you do to protect these assets and/or
prevent/reduce losses?
process that identifies loss exposures faced by an organization and selects
the most appropriate techniques for treating such exposures
- Risk - -a calculates possibility of a negative outcome
- Calculated possibility - -a probabilistic outcome (chance of loss, the
likelihood of loss) that is known or estimated; ranges from 0 to 1
- Negative outcome - -lost must be quantifiable
- frequency - -how often does a loss occur; The number of losses that occur
within a specified time period;
Probability of a loss
- Severity - -how much does it cost when a loss does occur;
The dollar amount of loss for a specific peril
- Peril - -Cause of loss ex: fire, tornado, collision, burglary etc
- Hazard - -a condition that creates or increases the frequency and/or
severity of a loss
- Moral hazard - -The presence of insurance changes the behavior of the
insured; Dishonesty or character defects in an individual that increases the
frequency and/or severity of a loss
examples→ using a hammer to create "hail" damage to a roof or
exaggerating the value of insured property
- Morale (attitudinal) hazard - -The carelessness of indifference to a loss,
which increases the frequency and/or severity of a loss
, examples→ leaving car keys in an unlocked car; neglecting a tree limb
growing over your roof
- Legal Hazard - -Characteristics of the legal system or regulatory
environment that increase the frequency and/or severity of a loss
examples→ juries in some areas are more sympathetic than other areas
(meaning larger damage awards in liability lawsuits); Georiga now requires
Diminution in Value to be paid on property losses (meaning increased
severity in Georgia).
(Diminution in value is a legal term of art used when calculating damages in
a legal dispute, and describes a measure of value lost due to a circumstance
or set of circumstances that caused the loss.)
- Pure risk - -2 future states: loss or no loss
you can buy insurance for these risks!
ex: fire to your house, cancer, your dog bites someone
- Speculative risk - -3 future states; loss, no loss/no gain, or gain
you can not buy insurance for these risks!
ex: investment, gabling
- diversifiable risk - -Affects only individuals or small groups, not the entire
economy;
Can be reduced/eliminated through diversification;
Risks are not correlated (fire, theft, collision)
- nondiversifiable risk - -Affects the entire economy or large numbers of
groups/persons within the economy;
Cannot be reduced/eliminated through diversification;
Government assistance may be needed to insure;
Risks are correlated (inflation, unemployment.)
- enterprise risk - -Encompasses all major risks faced by a business firm:
Pure risk
Speculative risk
Strategic risk
Operational risk
Financial risk
