Risk Management Test 1: UGA Brown
questions and answers already passed
What is a risk? - correct answer ✔✔A calculated possibility of a negative outcome
Calculated Possibility - correct answer ✔✔a chance of loss or likelihood of loss
that is known or estimated
- Ranges from 0 to 1 (0% to 100%)
- 0 being impossible .5 being most certainty or highest risk and 1 being certain
event
Frequency - correct answer ✔✔How often a loss occurs
- The number of losses that occur within a specified time period
- Probability of a loss
Severity - correct answer ✔✔How much it costs when a loss does occur
-The dollar amount of a loss for a specific peril
Exposures - correct answer ✔✔Things of value (assets) that could be lost
Perils - correct answer ✔✔Things that could happen to these assets
,Risk Management - correct answer ✔✔What you do to protect theses assets
and/or prevent/reduce losses.
Frequency Equation - correct answer ✔✔Number of losses
Frequency= ------------------------
Number of Exposures
Severity Equation - correct answer ✔✔Total Losses ($)
Severity= ---------------------
Number of Losses
Hazard - correct answer ✔✔Condition that creates or increases the frequency
and/or severity of loss
Peril vs Hazard - correct answer ✔✔Peril causes the loss hazard does not
Four Types of Hazards - correct answer ✔✔Physical, moral, morale (attitudinal),
and legal
Physical Hazard - correct answer ✔✔A physical condition that increases the
frequency and/or severity of loss
Moral Hazard - correct answer ✔✔The presence of insurance changes the
behavior of the insured, dishonesty or character defects in an individual that
increase frequency and/or severity of a loss
, Ex: Using a hammer to create "hail" damage to a roof
Morale (Attitudinal) Hazard - correct answer ✔✔Carelessness or indifference to a
loss, which increases the frequency and/or severity of a loss
Ex: leaving car keys in an unlocked car
Legal Hazard - correct answer ✔✔Characteristics of legal system or regulatory
environment that increase the frequency and/or severity of a loss
Ex: Georgia now requires Diminution in Value to be paid on property losses
(meaning increased severity in Georgia)
Risk Classifications - correct answer ✔✔Pure vs. Speculative
Diversifiable
Nondiversifiable
Enterprise
Systemic
Pure vs. Speculative Risk - correct answer ✔✔-A pure risk is a situation in which
there are only the possibilities of loss or no loss (earthquake, fire)
-A speculative risk is a situation in which either profit or loss is possible (gambling)
Diversifiable Risk - correct answer ✔✔a risk that affects only individuals or small
groups and not the entire economy
- Can be reduced/ eliminated through diversification
- Risks aren't correlated
questions and answers already passed
What is a risk? - correct answer ✔✔A calculated possibility of a negative outcome
Calculated Possibility - correct answer ✔✔a chance of loss or likelihood of loss
that is known or estimated
- Ranges from 0 to 1 (0% to 100%)
- 0 being impossible .5 being most certainty or highest risk and 1 being certain
event
Frequency - correct answer ✔✔How often a loss occurs
- The number of losses that occur within a specified time period
- Probability of a loss
Severity - correct answer ✔✔How much it costs when a loss does occur
-The dollar amount of a loss for a specific peril
Exposures - correct answer ✔✔Things of value (assets) that could be lost
Perils - correct answer ✔✔Things that could happen to these assets
,Risk Management - correct answer ✔✔What you do to protect theses assets
and/or prevent/reduce losses.
Frequency Equation - correct answer ✔✔Number of losses
Frequency= ------------------------
Number of Exposures
Severity Equation - correct answer ✔✔Total Losses ($)
Severity= ---------------------
Number of Losses
Hazard - correct answer ✔✔Condition that creates or increases the frequency
and/or severity of loss
Peril vs Hazard - correct answer ✔✔Peril causes the loss hazard does not
Four Types of Hazards - correct answer ✔✔Physical, moral, morale (attitudinal),
and legal
Physical Hazard - correct answer ✔✔A physical condition that increases the
frequency and/or severity of loss
Moral Hazard - correct answer ✔✔The presence of insurance changes the
behavior of the insured, dishonesty or character defects in an individual that
increase frequency and/or severity of a loss
, Ex: Using a hammer to create "hail" damage to a roof
Morale (Attitudinal) Hazard - correct answer ✔✔Carelessness or indifference to a
loss, which increases the frequency and/or severity of a loss
Ex: leaving car keys in an unlocked car
Legal Hazard - correct answer ✔✔Characteristics of legal system or regulatory
environment that increase the frequency and/or severity of a loss
Ex: Georgia now requires Diminution in Value to be paid on property losses
(meaning increased severity in Georgia)
Risk Classifications - correct answer ✔✔Pure vs. Speculative
Diversifiable
Nondiversifiable
Enterprise
Systemic
Pure vs. Speculative Risk - correct answer ✔✔-A pure risk is a situation in which
there are only the possibilities of loss or no loss (earthquake, fire)
-A speculative risk is a situation in which either profit or loss is possible (gambling)
Diversifiable Risk - correct answer ✔✔a risk that affects only individuals or small
groups and not the entire economy
- Can be reduced/ eliminated through diversification
- Risks aren't correlated
