RMIN 4000 uga test 1 Study Guide Solutions Updated 2024

RMIN 4000 uga test 1 Study Guide Solutions Updated 2024 types of risk - ANSWER--pure risk -speculative risk -diversifiable risk -nondiversifiable risk -enterprise risk -systemic risk risk - ANSWER-uncertainty concerning the occurrence of a loss uncertainty - ANSWER-probabilities cannot be estimated loss exposure - ANSWER-any situation or circumstance in which a loss is possible, regardless of whether a loss actually occurs example: earthquake or flood causing damage to a manufacturing plant objective risk (degree of risk) - ANSWER-the relative variation of actual loss from expected loss Copyright ©EMILYCHARLENE2025. ALL RIGHTS RESERVED Page 2/22 example:10,000 houses insured of a long period of time and on average 100 houses burn each year, however it would be rare for exactly 100 to burn each year law of large numbers - ANSWER-as the number of exposure units increases, the more closely the actual loss experience will approach the expected loss experience example: as the number of homes under observation increases, the greater is the degree of accuracy in predicting the proportion of homes that will burn subjective risk (perceived risk) - ANSWER-uncertainty based on a person's mental condition or state of mind example: driver with previous convictions for drunk driving tries to drive home and wonders if he will get arrested by the police or not chance of loss - ANSWER-the probability that an event will occur objective probability - ANSWER-the long run relative frequency of an event based on the assumptions of an infinite number of observations and of no change in the underlying conditions two ways objective probability can be determined - ANSWER-1) deductive reasoning (priori probabilities): probability of getting a head from the toss of a perfectly balanced coin is 1/2 bc there are two sides Copyright ©EMILYCHARLENE2025. ALL RIGHTS RESERVED Page 3/22 2) inductive reasoning: the probability that a person age 21 will die before age 26 cannot be logically deduced, life insurers can estimate the probability of death and sell a 5 year life insurance policy for a 21 yr old subjective probability - ANSWER-the individual's personal estimate of the chance of loss example: people who buy a lottery ticket on their birthday may believe it is their lucky day and overestimate the small chance of winning objective risk - ANSWER-the relative variation of actual loss from expected loss peril - ANSWER-the cause of loss example: house burns down, peril is the fire hazard - ANSWER-condition that creates or increases the frequency or severity of loss 4 types of hazards - ANSWER-1) physical hazard 2) moral hazard 3) attitudinal hazard 4) legal hazard physical hazard - ANSWER-physical condition that increases the frequency or severity of loss. Copyright ©EMILYCHARLENE2025. ALL RIGHTS RESERVED Page 4/22 example: icy roads that increase chance of automobile accident moral hazard - ANSWER-dishonesty or character defects in an individual that increase the frequency or severity of loss example: faking an accident to collect benefits from an insurer -can try to control this by careful underwriting of applicants for insurance and by various policy provisions, such as deductible