RMIN 4000 Test 1 Brown UGA
Exposures - answer things of value (assets) that could be lost
Perils - answer things that cause injury or loss
risk - answer a calculated possibility of a negative outcome
Frequency - answer the number of losses (such as fire or theft) that occur within a
specified time period. aka the probability of a loss
Severity - answer the dollar amount of a loss for a specific peril (fire, theft, collision) aka
How much does it cost when the loss does occur?
Hazard - answer a condition that creates or increases the frequency or severity of loss
but does NOT cause the loss.
Physical Hazard - answer a physical condition that increases the frequency or severity
of loss
Moral Hazard - answerthe presence of insurance changes the behavior of the insured.
ex: making hail damage to get a check
Morale hazard (attitudinal hazard) - answerA condition of carelessness or indifference
that increases the frequency or severity of loss.
Legal Hazard - answercharacteristics of the legal system or regulatory environment that
increase the frequency or severity of losses
Georgia's Diminution in value is an example of a - answerlegal hazard because it
increases the severity on property losses
Pure Risk - answerA chance of loss or no loss, but no chance of gain. Insurance can be
bought for this
Speculative Risk - answerA chance of loss, no loss, or gain.
Diversifiable risk - answera risk that affects only individuals or small groups and not the
entire economy. It can be eliminated/ reduced through diversification. the risks are not
correlated
, Developing cancer or your house being caught on fire are two examples of what kind of
risk? - answerPure Risk
diversifiable risk - answerA risk that affects only some individuals, businesses, or small
groups. they can be reduced/eliminated through diversification. the risks are not
correlated
Non-Diversifiable Risk - answeraffects the entire economy or large numbers of persons
or groups within the economy (hurricane, flood), risks are correlated (inflation,
unemployment) cannot be eliminated through diversification
Enterprise Risk - answerencompasses all major risks faced by a business firm, which
include: pure risk, speculative risk, strategic risk, operational risk, and financial risk
systemic risk - answerthe risk that the failure of one financial institution can bring down
other institutions as well. instability in the financial system due to the interdependency
between the players in the market
Types of Pure Risk - answerpersonal risks, property risks, liability risks, loss of business
income, cyber-security risks
Personal risk - answera risk that can directly affect an individual or a family; loss of
income, extra expenses, and depletion of financial assets
Property Risk - answera risk that can lead to destruction or theft and loss of personal or
business property including money, vehicles, and buildings; 2 types (direct and indirect)
Direct Loss - answercost to replace a loss that is a direct result of a peril, such as fire.
Indirect Loss - answerLoss that is a result or consequence of a direct loss
Liability Risk - answera risk that relates to harm or injury to other people or their
property because of your actions; no upper limit; Defense costs; liens may be placed on
income or assets may be siezed
Loss of business income - answerFinancial loss when the firm must shut down for some
time after a physical damage loss
Grease fire in the kitchen causes a restaurant to close down for 4 weeks while repairs
are made. The restaurant has no income while closed. this is an example of: -
answerLoss of business income
2 techniques for managing risk - answerrisk control, risk financing
Risk Control - answertechniques that reduce the frequency or severity of losses
Exposures - answer things of value (assets) that could be lost
Perils - answer things that cause injury or loss
risk - answer a calculated possibility of a negative outcome
Frequency - answer the number of losses (such as fire or theft) that occur within a
specified time period. aka the probability of a loss
Severity - answer the dollar amount of a loss for a specific peril (fire, theft, collision) aka
How much does it cost when the loss does occur?
Hazard - answer a condition that creates or increases the frequency or severity of loss
but does NOT cause the loss.
Physical Hazard - answer a physical condition that increases the frequency or severity
of loss
Moral Hazard - answerthe presence of insurance changes the behavior of the insured.
ex: making hail damage to get a check
Morale hazard (attitudinal hazard) - answerA condition of carelessness or indifference
that increases the frequency or severity of loss.
Legal Hazard - answercharacteristics of the legal system or regulatory environment that
increase the frequency or severity of losses
Georgia's Diminution in value is an example of a - answerlegal hazard because it
increases the severity on property losses
Pure Risk - answerA chance of loss or no loss, but no chance of gain. Insurance can be
bought for this
Speculative Risk - answerA chance of loss, no loss, or gain.
Diversifiable risk - answera risk that affects only individuals or small groups and not the
entire economy. It can be eliminated/ reduced through diversification. the risks are not
correlated
, Developing cancer or your house being caught on fire are two examples of what kind of
risk? - answerPure Risk
diversifiable risk - answerA risk that affects only some individuals, businesses, or small
groups. they can be reduced/eliminated through diversification. the risks are not
correlated
Non-Diversifiable Risk - answeraffects the entire economy or large numbers of persons
or groups within the economy (hurricane, flood), risks are correlated (inflation,
unemployment) cannot be eliminated through diversification
Enterprise Risk - answerencompasses all major risks faced by a business firm, which
include: pure risk, speculative risk, strategic risk, operational risk, and financial risk
systemic risk - answerthe risk that the failure of one financial institution can bring down
other institutions as well. instability in the financial system due to the interdependency
between the players in the market
Types of Pure Risk - answerpersonal risks, property risks, liability risks, loss of business
income, cyber-security risks
Personal risk - answera risk that can directly affect an individual or a family; loss of
income, extra expenses, and depletion of financial assets
Property Risk - answera risk that can lead to destruction or theft and loss of personal or
business property including money, vehicles, and buildings; 2 types (direct and indirect)
Direct Loss - answercost to replace a loss that is a direct result of a peril, such as fire.
Indirect Loss - answerLoss that is a result or consequence of a direct loss
Liability Risk - answera risk that relates to harm or injury to other people or their
property because of your actions; no upper limit; Defense costs; liens may be placed on
income or assets may be siezed
Loss of business income - answerFinancial loss when the firm must shut down for some
time after a physical damage loss
Grease fire in the kitchen causes a restaurant to close down for 4 weeks while repairs
are made. The restaurant has no income while closed. this is an example of: -
answerLoss of business income
2 techniques for managing risk - answerrisk control, risk financing
Risk Control - answertechniques that reduce the frequency or severity of losses
