Final Study Set. RMIN 4000 - Daniel
Jeremy Brown
Exposures - answer Things of value (assets) that could be lost (Any
situation/circumstance in which a loss is possible, regardless of whether a loss actually
occurs)
Perils - answer Things that could happen to your assets - cause of loss
Risk Management - answer What you do to protect these assets and/or prevent/reduce
losses (Identifies loss exposures faced by an organization and selects the most
appropriate techniques for treating such exposures)
Risk - answer The calculated possibility of a negative outcome
Loss - answer Negative outcome - must be quantifiable
Frequency - answer How often a loss occurs (number of losses that occur within a
specified time period)
Severity - answer How much a loss costs when it does occur (the dollar amount of loss
for a specific peril
Hazard - answer Condition that creates or increases frequency/severity of loss
Physical Hazard - answer A physical condition that increases the frequency/severity of a
loss
Moral Hazard - answer Presence of insurance changes the behavior of the insured
Morale (Attitudinal) Hazard - answer Carelessness/indifference to a loss (increases
frequency/severity of a loss)
Legal Hazard - answerCharacteristics of legal system/regulatory environment that
increase the frequency and/or severity of a loss
Pure Risk - answerTwo outcomes possible: loss or no loss (can purchase insurance for
this)
Speculative Risk - answerThree outcomes possible: loss, no loss/no gain, or gain
(cannot purchase insurance for this)
, Diversifiable Risk - answerAffects only individuals/small groups, not entire economy:
can be reduced/eliminated thru diversification (ex: fire, theft, collision)
Nondiversifiable Risk - answerAffects entire economy/large numbers of groups/persons
within the economy - can't be reduced thru diversification, government assistance may
be needed to insure (correlated risks, ex: hurricane)
Enterprise Risk - answerAll major risks faced by a business firm (pure, speculative,
strategic, operational, financial)
Systemic Risk - answerRisk of collapse of an entire system/market due to the failure of
a single entity/group of entities
Instability in the financial system due to the interdependency between the players in the
market
Personal Risk - answerDirectly affects an individual/family - involve the possibility of
loss of income, extra expenses, depletion of financial assets (ex. of perils: death,
unemployment, disability, etc.)
Property Risk - answerPossibility of losses associated with the destruction or theft of
property (Direct loss: cost to repair, Indirect loss: cost to live elsewhere during repairs)
Liability Risk - answerLegal liability (financial consequences) resulting from
injuries/damages you caused - no upper limit
Loss of Business Income - answerBusiness having to shut down for a period of time
due to physical damage loss: unable to generate an income
Risk Control - answerTechniques to reduce the frequency/severity of losses
Risk Financing - answerTechniques for funding losses
Loss Prevention - answerReduces frequency (airport security, safety training programs)
Loss Reduction - answerReduces severity (fire sprinklers) - can occur pre or post loss
Avoidance - answerType of risk control in which a certain loss exposure is never
acquired (frequency = 0) - many downsides
Retention - answerRetaining part or all of losses that can occur from a given risk (active:
deliberate, passive: unknowing)
Good when a risk is difficult to insure, low severity, predictable loss
Noninsurance Transfer - answerMethods other than insurance by which a pure risk and
its potential financial consequences are transferred to another party (by contract,
hedging, incorporation)
Jeremy Brown
Exposures - answer Things of value (assets) that could be lost (Any
situation/circumstance in which a loss is possible, regardless of whether a loss actually
occurs)
Perils - answer Things that could happen to your assets - cause of loss
Risk Management - answer What you do to protect these assets and/or prevent/reduce
losses (Identifies loss exposures faced by an organization and selects the most
appropriate techniques for treating such exposures)
Risk - answer The calculated possibility of a negative outcome
Loss - answer Negative outcome - must be quantifiable
Frequency - answer How often a loss occurs (number of losses that occur within a
specified time period)
Severity - answer How much a loss costs when it does occur (the dollar amount of loss
for a specific peril
Hazard - answer Condition that creates or increases frequency/severity of loss
Physical Hazard - answer A physical condition that increases the frequency/severity of a
loss
Moral Hazard - answer Presence of insurance changes the behavior of the insured
Morale (Attitudinal) Hazard - answer Carelessness/indifference to a loss (increases
frequency/severity of a loss)
Legal Hazard - answerCharacteristics of legal system/regulatory environment that
increase the frequency and/or severity of a loss
Pure Risk - answerTwo outcomes possible: loss or no loss (can purchase insurance for
this)
Speculative Risk - answerThree outcomes possible: loss, no loss/no gain, or gain
(cannot purchase insurance for this)
, Diversifiable Risk - answerAffects only individuals/small groups, not entire economy:
can be reduced/eliminated thru diversification (ex: fire, theft, collision)
Nondiversifiable Risk - answerAffects entire economy/large numbers of groups/persons
within the economy - can't be reduced thru diversification, government assistance may
be needed to insure (correlated risks, ex: hurricane)
Enterprise Risk - answerAll major risks faced by a business firm (pure, speculative,
strategic, operational, financial)
Systemic Risk - answerRisk of collapse of an entire system/market due to the failure of
a single entity/group of entities
Instability in the financial system due to the interdependency between the players in the
market
Personal Risk - answerDirectly affects an individual/family - involve the possibility of
loss of income, extra expenses, depletion of financial assets (ex. of perils: death,
unemployment, disability, etc.)
Property Risk - answerPossibility of losses associated with the destruction or theft of
property (Direct loss: cost to repair, Indirect loss: cost to live elsewhere during repairs)
Liability Risk - answerLegal liability (financial consequences) resulting from
injuries/damages you caused - no upper limit
Loss of Business Income - answerBusiness having to shut down for a period of time
due to physical damage loss: unable to generate an income
Risk Control - answerTechniques to reduce the frequency/severity of losses
Risk Financing - answerTechniques for funding losses
Loss Prevention - answerReduces frequency (airport security, safety training programs)
Loss Reduction - answerReduces severity (fire sprinklers) - can occur pre or post loss
Avoidance - answerType of risk control in which a certain loss exposure is never
acquired (frequency = 0) - many downsides
Retention - answerRetaining part or all of losses that can occur from a given risk (active:
deliberate, passive: unknowing)
Good when a risk is difficult to insure, low severity, predictable loss
Noninsurance Transfer - answerMethods other than insurance by which a pure risk and
its potential financial consequences are transferred to another party (by contract,
hedging, incorporation)
