RMIN 4000 Final Exam Review Part 1(Material from Ch 1-8) with Complete Solutions!

frequency - ANSWER-- how often does a loss occur? - the number of losses (such as fire, theft, collision) that occur within a specified time period. - probability of a loss ex) probability of a fire is 0.0071 per loss exposure per year severity - ANSWER-- how much does it cost when a loss does occur? - the dollar amount of loss for a specific peril (fire, theft, collision). ex) average fire loss is $32,547 peril - ANSWER-- cause of a loss - things that could happen to assets - ex) fire, tornado, collision, burglary, etc. hazard - ANSWER-- condition that creates or increases the frequency and/or severity of a loss. - does not cause a loss. types of hazards - ANSWER-physical, moral, morale (attitudinal), and legal physical hazard - ANSWER-a physical condition that increases the frequency or severity of loss moral hazard - ANSWER-- dishonesty or character defects in an individual that increase the frequency and/or severity of a loss. - the presence of insurance changes the behavior of the insured. examples: - using a hammer to create "hail" damage to a roof. - exaggerating the value of insured property. morale (attitudinal) hazard - ANSWER-carelessness or indifference to a loss, which increases the frequency and/or severity of a loss. examples: - leaving car keys in an unlocked car. - n