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RMIN 4000 uga test 1 Questions and Answers 100% Verified
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RMIN 4000 uga test 1 Questions and Answers 100- Verified
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RMIN 4000 uga test 1 Questions and Answers100% Verified
types of risk - (correct answer) --pure risk
-speculative risk
-diversifiable risk
-nondiversifiable risk
-enterprise risk
-systemic risk
risk - (correct answer) -uncertainty concerning the occurrence of a loss
uncertainty - (correct answer) -probabilities cannot be estimated
loss exposure - (correct 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) - (correct 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 - (correct 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) - (correct 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 - (correct answer) -the probability that an event will occur
objective probability - (correct 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 - (correct 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 - (correct 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 - (correct answer) -the relative variation of actual loss from expected loss
, peril - (correct answer) -the cause of loss
example: house burns down, peril is the fire
hazard - (correct answer) -condition that creates or increases the frequency or severity of loss
4 types of hazards - (correct answer) -1) physical hazard
2) moral hazard
3) attitudinal hazard
4) legal hazard
physical hazard - (correct answer) -physical condition that increases the frequency or severity of loss.
example: icy roads that increase chance of automobile accident
moral hazard - (correct 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 - (correct 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
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