PMT 0170 RISK MANAGEMENT 2 2026
COMPREHENSIVE NOTES AND WORKBOOK A+
◉ What is loss exposure? Answer: Any situation or circumstance in
which a loss is possible, regardless of whether a loss occurs.
◉ What are the three different types of risk attitude? Answer: 1. Risk
Averse
2. Risk Neutral
3. Risk Taker (Lover)
◉ What is a risk averse? Answer: Avoid risk if and when possible.
(Will pay extra to remove risk from a set of outcomes.)
◉ What is a risk neutral? Answer: Will evaluate risk and will strive
to "pay" no more or less than the expected loss to avoid the risk.
◉ What is a risk taker? Answer: Will "gamble" on a big payout and
not take many precautions to avoid risk.
◉ What is an objective risk? Answer: Defined as the relative
variation of actual loss from expected loss can be statistically
calculated by some measure of dispersion. (Standard deviation)
,◉ What is the law of large numbers? Answer: States that as the
number of exposure units increases, the more closely the actual loss
experience will approach the expected loss experience.
◉ What is a subjective risk? Answer: Defined as the uncertainty
based on a person's mental condition or state of mind, varies by
individual. (Cannot be measured)
◉ What is the chance of loss? Answer: Defined as the probability
that an event will occur.
◉ What is a peril? Answer: Defined as the cause of the loss.
Ex. Your house burns because of fire, the peril, or cause of loss, is the
fire.
◉ What is a hazard? Answer: Cause of peril, a condition that creates
or increase the frequency of severity of loss.
Ex. Your house burns because of a fire because of wood, wood is the
hazard.
◉ What are the four major types of hazards? Answer: 1. Physical
hazard
2. Moral hazard
, 3. Attitudinal hazard (Morale hazard)
4. Legal hazard
◉ What is a physical hazard? Answer: A physical condition that
increases the frequency or severity of loss.
Ex. Icy road that increases the chance of an auto insurance.
◉ What is a moral hazard? Answer: Dishonesty or character defects
in an individual that increase the frequency or severity of loss.
Ex-post vs. Ex-ante
Ex. Faking an accident to collect from insurers, intentional murder to
collect life insurance.
◉ What is ex-post and ex-ante? Answer: Ex-post is when you
exaggerate after a loss and ex-ante is when you lie that you don't
have problems for health insurance.
◉ What is an attitudinal hazard (morale hazard)? Answer:
Carelessness or indifference to a loss which increases the frequency
or severity of a loss.
Ex. Leaving car keys in an unlocked car.
COMPREHENSIVE NOTES AND WORKBOOK A+
◉ What is loss exposure? Answer: Any situation or circumstance in
which a loss is possible, regardless of whether a loss occurs.
◉ What are the three different types of risk attitude? Answer: 1. Risk
Averse
2. Risk Neutral
3. Risk Taker (Lover)
◉ What is a risk averse? Answer: Avoid risk if and when possible.
(Will pay extra to remove risk from a set of outcomes.)
◉ What is a risk neutral? Answer: Will evaluate risk and will strive
to "pay" no more or less than the expected loss to avoid the risk.
◉ What is a risk taker? Answer: Will "gamble" on a big payout and
not take many precautions to avoid risk.
◉ What is an objective risk? Answer: Defined as the relative
variation of actual loss from expected loss can be statistically
calculated by some measure of dispersion. (Standard deviation)
,◉ What is the law of large numbers? Answer: States that as the
number of exposure units increases, the more closely the actual loss
experience will approach the expected loss experience.
◉ What is a subjective risk? Answer: Defined as the uncertainty
based on a person's mental condition or state of mind, varies by
individual. (Cannot be measured)
◉ What is the chance of loss? Answer: Defined as the probability
that an event will occur.
◉ What is a peril? Answer: Defined as the cause of the loss.
Ex. Your house burns because of fire, the peril, or cause of loss, is the
fire.
◉ What is a hazard? Answer: Cause of peril, a condition that creates
or increase the frequency of severity of loss.
Ex. Your house burns because of a fire because of wood, wood is the
hazard.
◉ What are the four major types of hazards? Answer: 1. Physical
hazard
2. Moral hazard
, 3. Attitudinal hazard (Morale hazard)
4. Legal hazard
◉ What is a physical hazard? Answer: A physical condition that
increases the frequency or severity of loss.
Ex. Icy road that increases the chance of an auto insurance.
◉ What is a moral hazard? Answer: Dishonesty or character defects
in an individual that increase the frequency or severity of loss.
Ex-post vs. Ex-ante
Ex. Faking an accident to collect from insurers, intentional murder to
collect life insurance.
◉ What is ex-post and ex-ante? Answer: Ex-post is when you
exaggerate after a loss and ex-ante is when you lie that you don't
have problems for health insurance.
◉ What is an attitudinal hazard (morale hazard)? Answer:
Carelessness or indifference to a loss which increases the frequency
or severity of a loss.
Ex. Leaving car keys in an unlocked car.
