RMI 3011 Exam 1 Question and answers
verified to pass
Risk - correct answer ✔uncertainty concerning the occurrence of a loss
Loss exposure - correct answer ✔ANY time a loss is possible, not just when
a loss occurs
Objective Risk - correct answer ✔the relative variation of actual loss vs.
expected loss. Ex. how many more/less car accidents actually occurred vs.
what the insurance company predicted
As the number of exposures increases... - correct answer ✔...the objective
risk decreases.
Peril - correct answer ✔cause of loss
Hazard - correct answer ✔any condition which creates/increases chance of a
loss
Physical Hazard - correct answer ✔a physical condition that increases the
frequency or severity of a loss. Ex. icy roads increasing chance of auto
accident, defective wiring in a building increasing chance of fire
Moral Hazard - correct answer ✔dishonesty or character defects in an
individual that increase frequency/severity of a loss. Ex. faking an accident to
collect from insurer, submitting fraudulent claim.
, Attitudinal Hazard - correct answer ✔carelessness or indifference to a loss,
which increases freq/severity of a loss. Ex. Leaving keys in an unlocked car -
thus increasing chance of theft, changing lanes suddenly on a congested
expressway without signaling
Legal Hazard - correct answer ✔characteristics of the legal system or
regulatory environment that increase the freq/severity of loss. Ex. jury verdicts
or LARGE damage awards in liability lawsuits. Insurers being required to
include health coverage for things like alcoholism.
Pure Risk - correct answer ✔situation where there is ONLY the possibility of
loss or no loss...but no gain is possible. Only adverse or neutral. Ex. natural
disasters, premature death, catastrophic medical expenses.
Speculative Risk - correct answer ✔a situation in which either profit or loss is
possible. Ex. purchasing 1,000 shares of stock - it's possible to win and/but
also possible to lose.
Diversifiable Risk - correct answer ✔affects only individuals /small groups
(vs. affecting an entire economy, etc). These risks can be reduced or
eliminated by diversifying. Ex. don't put all your eggs in one basket
Nondiversifiable risk - correct answer ✔risk that affects the entire economy
or large numbers of persons/groups within an economy. Ex. rapid inflation,
hurricanes, war
Enterprise Risk - correct answer ✔A term which encompasses all major risks
faced by a business firm.
Includes...
-pure
-speculative
verified to pass
Risk - correct answer ✔uncertainty concerning the occurrence of a loss
Loss exposure - correct answer ✔ANY time a loss is possible, not just when
a loss occurs
Objective Risk - correct answer ✔the relative variation of actual loss vs.
expected loss. Ex. how many more/less car accidents actually occurred vs.
what the insurance company predicted
As the number of exposures increases... - correct answer ✔...the objective
risk decreases.
Peril - correct answer ✔cause of loss
Hazard - correct answer ✔any condition which creates/increases chance of a
loss
Physical Hazard - correct answer ✔a physical condition that increases the
frequency or severity of a loss. Ex. icy roads increasing chance of auto
accident, defective wiring in a building increasing chance of fire
Moral Hazard - correct answer ✔dishonesty or character defects in an
individual that increase frequency/severity of a loss. Ex. faking an accident to
collect from insurer, submitting fraudulent claim.
, Attitudinal Hazard - correct answer ✔carelessness or indifference to a loss,
which increases freq/severity of a loss. Ex. Leaving keys in an unlocked car -
thus increasing chance of theft, changing lanes suddenly on a congested
expressway without signaling
Legal Hazard - correct answer ✔characteristics of the legal system or
regulatory environment that increase the freq/severity of loss. Ex. jury verdicts
or LARGE damage awards in liability lawsuits. Insurers being required to
include health coverage for things like alcoholism.
Pure Risk - correct answer ✔situation where there is ONLY the possibility of
loss or no loss...but no gain is possible. Only adverse or neutral. Ex. natural
disasters, premature death, catastrophic medical expenses.
Speculative Risk - correct answer ✔a situation in which either profit or loss is
possible. Ex. purchasing 1,000 shares of stock - it's possible to win and/but
also possible to lose.
Diversifiable Risk - correct answer ✔affects only individuals /small groups
(vs. affecting an entire economy, etc). These risks can be reduced or
eliminated by diversifying. Ex. don't put all your eggs in one basket
Nondiversifiable risk - correct answer ✔risk that affects the entire economy
or large numbers of persons/groups within an economy. Ex. rapid inflation,
hurricanes, war
Enterprise Risk - correct answer ✔A term which encompasses all major risks
faced by a business firm.
Includes...
-pure
-speculative
