RMIN 4000 UGA Test 1 Questions and Answers (Scored A+)
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Course
RMIN 4000 UGA
Institution
RMIN 4000 UGA
RMIN 4000 UGA Test 1 Questions and Answers (Scored A+)
types of risk - ANSWER--pure risk
-speculative risk
-diversifiable risk
-nondiversifiable risk
-enterprise risk
-systemic risk
risk - ANSWER-uncertainty concerning the occurrence of a loss
uncertainty - ANSWER-probabilities cannot...
RMIN 4000 UGA Test 1 Questions and Answers (Scored A+)
types of risk - ANSWER--pure risk
-speculative risk
-diversifiable risk
-nondiversifiable risk
-enterprise risk
-systemic risk
risk - ANSWER-uncertainty concerning the occurrence of a loss
uncertainty - ANSWER-probabilities cannot be estimated
loss exposure - ANSWER-any situation or circumstance in which a loss is possible, regardless of whether a loss actually occurs example: earthquake or flood causing damage to a manufacturing plant
objective risk (degree of risk) - ANSWER-the relative variation of actual loss from expected loss example:10,000 houses insured of a long period of time and on average 100 houses burn each year, however it would be rare for exactly 100 to burn each year
law of large numbers - ANSWER-as the number of exposure units increases, the more closely the actual loss experience will approach the expected loss experience
example: as the number of homes under observation increases, the greater is the degree of accuracy in predicting the proportion of homes that will burn
subjective risk (perceived risk) - ANSWER-uncertainty based on a person's mental condition or state of mind
example: driver with previous convictions for drunk driving tries to drive home and wonders if he will get arrested by the police or not
chance of loss - ANSWER-the probability that an event will occur
objective probability - ANSWER-the long run relative frequency of an event based on the assumptions of an infinite number of observations and of no change in the underlying conditions two ways objective probability can be determined - ANSWER-1) deductive reasoning (priori probabilities): probability of getting a head from the toss of a perfectly balanced coin is 1/2 bc there are two sides 2) inductive reasoning: the probability that a person age 21 will die before age 26 cannot be logically deduced, life insurers can estimate the probability of death and sell a
5 year life insurance policy for a 21 yr old
subjective probability - ANSWER-the individual's personal estimate of the chance of loss example: people who buy a lottery ticket on their birthday may believe it is their lucky day and overestimate the small chance of winning
objective risk - ANSWER-the relative variation of actual loss from expected loss
peril - ANSWER-the cause of loss
example: house burns down, peril is the fire
hazard - ANSWER-condition that creates or increases the frequency or severity of loss
4 types of hazards - ANSWER-1) physical hazard
2) moral hazard
3) attitudinal hazard
4) legal hazard
physical hazard - ANSWER-physical condition that increases the frequency or severity of loss.
example: icy roads that increase chance of automobile accident
moral hazard - ANSWER-dishonesty or character defects in an individual that increase the frequency or severity of loss example: faking an accident to collect benefits from an insurer -can try to control this by careful underwriting of applicants for insurance and by various policy provisions, such as deductibles, waiting periods
attitudinal hazard - ANSWER-carelessness or indifference to a loss, which increases the frequency or severity of a loss
example: leaving car keys in an unlocked car, which increases the chance of theft, changing lanes on highway without blinker
legal hazard - ANSWER-characteristics of the legal system or regulatory environment that increase the frequency or severity of losses. example: adverse jury verdicts or large damage awards in liability lawsuits; statues that require insurers to include coverage for certain benefits in health insurance plans
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