RMIN 4000 TEST 1 BROWN UGA
CORRECT 100%
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 - ANSWER the presence of insurance changes the behavior of the
insured. ex: making hail damage to get a check
Morale hazard (attitudinal hazard) - ANSWER A condition of carelessness or
indifference that increases the frequency or severity of loss.
Legal Hazard - ANSWER characteristics 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 - ANSWER legal hazard because it
increases the severity on property losses
Pure Risk - ANSWER A chance of loss or no loss, but no chance of gain. Insurance can
be bought for this
Speculative Risk - ANSWER A chance of loss, no loss, or gain.
Diversifiable risk - ANSWER a 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? - ANSWER Pure Risk
, diversifiable risk - ANSWER A 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 - ANSWER affects 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 - ANSWER encompasses all major risks faced by a business firm,
which include: pure risk, speculative risk, strategic risk, operational risk, and financial
risk
systemic risk - ANSWER the 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 - ANSWER personal risks, property risks, liability risks, loss of
business income, cyber-security risks
Personal risk - ANSWER a risk that can directly affect an individual or a family; loss of
income, extra expenses, and depletion of financial assets
Property Risk - ANSWER a 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 - ANSWER cost to replace a loss that is a direct result of a peril, such as
fire.
Indirect Loss - ANSWER Loss that is a result or consequence of a direct loss
_______ _____________ is a risk control technique that reduces the severity of a loss.
it can occur pre-loss or post-loss. examples are duplication, diversification, and
separation - ANSWER Loss reduction
which avoidance technique is practiced when a certain loss exposure is never
acquired? - ANSWER proactive avoidance
which avoidance technique is practiced when an existing exposure is abandoned? -
ANSWER Reactive avoidance
Retention is a ___ _____________ technique in which you retain part or all of losses
that can occur from a given risk. - ANSWER Risk Financing
CORRECT 100%
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 - ANSWER the presence of insurance changes the behavior of the
insured. ex: making hail damage to get a check
Morale hazard (attitudinal hazard) - ANSWER A condition of carelessness or
indifference that increases the frequency or severity of loss.
Legal Hazard - ANSWER characteristics 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 - ANSWER legal hazard because it
increases the severity on property losses
Pure Risk - ANSWER A chance of loss or no loss, but no chance of gain. Insurance can
be bought for this
Speculative Risk - ANSWER A chance of loss, no loss, or gain.
Diversifiable risk - ANSWER a 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? - ANSWER Pure Risk
, diversifiable risk - ANSWER A 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 - ANSWER affects 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 - ANSWER encompasses all major risks faced by a business firm,
which include: pure risk, speculative risk, strategic risk, operational risk, and financial
risk
systemic risk - ANSWER the 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 - ANSWER personal risks, property risks, liability risks, loss of
business income, cyber-security risks
Personal risk - ANSWER a risk that can directly affect an individual or a family; loss of
income, extra expenses, and depletion of financial assets
Property Risk - ANSWER a 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 - ANSWER cost to replace a loss that is a direct result of a peril, such as
fire.
Indirect Loss - ANSWER Loss that is a result or consequence of a direct loss
_______ _____________ is a risk control technique that reduces the severity of a loss.
it can occur pre-loss or post-loss. examples are duplication, diversification, and
separation - ANSWER Loss reduction
which avoidance technique is practiced when a certain loss exposure is never
acquired? - ANSWER proactive avoidance
which avoidance technique is practiced when an existing exposure is abandoned? -
ANSWER Reactive avoidance
Retention is a ___ _____________ technique in which you retain part or all of losses
that can occur from a given risk. - ANSWER Risk Financing
