RMIN 4000- Exam 1 Latest Update 100% Solved

RMIN 4000- Exam 1 Latest Update 100% Solved things of value (assets) that could be lost Exposures Examples of exposures when driving car: Car health life money future income contents (stuff) freedom license things that could happen to these assets Perils Examples of perils when driving car: Car accident license revoked act of god breakdown vandalism maintenance theft lawsuit what you do to protect these assets and/ or prevent/ reduce losses risk management Examples of risk management when driving car: (8) Drive safely insurance car alarm lock vehicle driver's education obey laws wear seatbelt park in safe areas uncertainty concerning the occurrence of a loss (textbook definition) risk a calculated possibility of a negative outcome risk probabilistic outcome (chance of loss, likelihood of loss) that is known or estimated - ranges from 0 to 1 Calculated possibility - Loss - Must be quantifiable ($) Negative Outcome The number of losses (such as fire, theft, collision) that occur within a specified time period - How often does a loss occur? - Probability of a loss Frequency The dollar amount of loss for a specific peril - How much does it cost when a loss does occur? Severity Lannister Insurance Company insures 100,000 homes. In 2018, they paid at total of $30,000,000 in wind damage losses to the owners of 5,000 of those homes. What was Lannister's wind loss frequency in 2018? 5,000/100,000= .05 (5%) 30,000,000/5,000= 6,000 Lannister Insurance Company insures 100,000 homes. In 2018, they paid at total of $30,000,000 in wind damage losses to the owners of 5,000 of those homes. What was Lannister's average wind loss severity in 2018? cause of loss Peril Examples of perils fire, tornado, collision, burglary, etc. condition that creates or increases the frequency and/ or severity of a loss Hazard Four types of hazards: physical hazard moral hazard morale (attitudinal) hazard legal hazard physical condition that increases the frequency and/ or severity of loss Physical Hazard Examples of physical hazard exposed power lines, corroded pipes, overcrowded electrical sockets The presence of insurance changes the behavior of the insured. Dishonesty or character defects in an individual that increase the frequency and/or severity of a loss (textbook definition) Moral Hazard Examples of moral hazard using a hammer to create "hail" damage to a roof, exaggerating the value of insured property