RM 357E Intro to Risk Management with
McClellan well answered to pass
Uncertainty Concept - correct answer ✔✔No universal definition
Majority of insurance authors define risk as - correct answer ✔✔uncertainty
Risk and probability - if the probability of an event occurring is either zero or one... - correct answer
✔✔There is no risk since there is no uncertainty.
Objective Risk is - correct answer ✔✔1. Defined as the relative variation of actual loss from expected
loss
2. Declines as the number of exposure units increases
3. Is measurable by using the standard deviation or coefficient of variation
Subjective Risk - correct answer ✔✔1. Defined as: Uncertainty based on one's mental condition or state
of mind.
2. Difficult to measure
A. Objective Probability - correct answer ✔✔1. A priori - by logical deduction such as in games of chance
,2. Empirically - by induction, through analysis of data
Subjective Probability - correct answer ✔✔- a personal estimate of the chance of loss.
Need not coincide with objective probability
Influenced by a variety of factors including age, sex, intelligence, education, and personality.
Chance of Loss Distinguished from Risk - correct answer ✔✔Although chance of loss may be the same
for two groups, the relative variation of actual loss from expected loss may be quite different.
Peril is defined as: - correct answer ✔✔cause of loss outside of our control
Hazard is defined as: - correct answer ✔✔a condition that may create or increase a chance of loss of a
given peril (outside or inside control)
Physical Hazard - correct answer ✔✔-physical characteristics that cause risk
Examples are icy streets, poor designed intersections, and dimly lit stairways.
Moral Hazard - correct answer ✔✔Dishonesty or characteristics of an individual that increase the chance
of loss
Morale Hazard - correct answer ✔✔Carelessness or indifference to a loss because of the existence of
insurance
Pure risk - correct answer ✔✔a situation where there are only the possibilities of loss or no loss
Speculative risk - correct answer ✔✔a chance of profit (loss or gain)
, Why is the distinction between pure risk and speculative risk important? - correct answer ✔✔1) Only
pure risks are insurable
2) Insert more reasons
Diversifiable Risk - correct answer ✔✔a risk that affects only individuals or small groups and not the
entire economy
Non-Diversifiable Risk - correct answer ✔✔A risk that affects society.
Enterprise RIsk - correct answer ✔✔Risk that develop simply because different operations in your
company
Dynamic Risk - correct answer ✔✔Results from changes in the economy (inflation, unemployment)
Static Risk - correct answer ✔✔No change in the economy (fires)
Personal Risks - correct answer ✔✔Basic personal risks are: unemployment, poor health, ...
Types of losses are loss of earned income, extra expenses, and depletion of financial assets.
Property Risks - correct answer ✔✔Types of losses include direct physical damage losses, theft losses,
indirect pr consequential losses, and extra expenses.
Perils include: [insert perils]
Liability Risks - correct answer ✔✔"Anyone can sue anyone"
1. The loss is legal liability for damages arising out of bodily injury or property damage to another party.
McClellan well answered to pass
Uncertainty Concept - correct answer ✔✔No universal definition
Majority of insurance authors define risk as - correct answer ✔✔uncertainty
Risk and probability - if the probability of an event occurring is either zero or one... - correct answer
✔✔There is no risk since there is no uncertainty.
Objective Risk is - correct answer ✔✔1. Defined as the relative variation of actual loss from expected
loss
2. Declines as the number of exposure units increases
3. Is measurable by using the standard deviation or coefficient of variation
Subjective Risk - correct answer ✔✔1. Defined as: Uncertainty based on one's mental condition or state
of mind.
2. Difficult to measure
A. Objective Probability - correct answer ✔✔1. A priori - by logical deduction such as in games of chance
,2. Empirically - by induction, through analysis of data
Subjective Probability - correct answer ✔✔- a personal estimate of the chance of loss.
Need not coincide with objective probability
Influenced by a variety of factors including age, sex, intelligence, education, and personality.
Chance of Loss Distinguished from Risk - correct answer ✔✔Although chance of loss may be the same
for two groups, the relative variation of actual loss from expected loss may be quite different.
Peril is defined as: - correct answer ✔✔cause of loss outside of our control
Hazard is defined as: - correct answer ✔✔a condition that may create or increase a chance of loss of a
given peril (outside or inside control)
Physical Hazard - correct answer ✔✔-physical characteristics that cause risk
Examples are icy streets, poor designed intersections, and dimly lit stairways.
Moral Hazard - correct answer ✔✔Dishonesty or characteristics of an individual that increase the chance
of loss
Morale Hazard - correct answer ✔✔Carelessness or indifference to a loss because of the existence of
insurance
Pure risk - correct answer ✔✔a situation where there are only the possibilities of loss or no loss
Speculative risk - correct answer ✔✔a chance of profit (loss or gain)
, Why is the distinction between pure risk and speculative risk important? - correct answer ✔✔1) Only
pure risks are insurable
2) Insert more reasons
Diversifiable Risk - correct answer ✔✔a risk that affects only individuals or small groups and not the
entire economy
Non-Diversifiable Risk - correct answer ✔✔A risk that affects society.
Enterprise RIsk - correct answer ✔✔Risk that develop simply because different operations in your
company
Dynamic Risk - correct answer ✔✔Results from changes in the economy (inflation, unemployment)
Static Risk - correct answer ✔✔No change in the economy (fires)
Personal Risks - correct answer ✔✔Basic personal risks are: unemployment, poor health, ...
Types of losses are loss of earned income, extra expenses, and depletion of financial assets.
Property Risks - correct answer ✔✔Types of losses include direct physical damage losses, theft losses,
indirect pr consequential losses, and extra expenses.
Perils include: [insert perils]
Liability Risks - correct answer ✔✔"Anyone can sue anyone"
1. The loss is legal liability for damages arising out of bodily injury or property damage to another party.
