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RMIN 4000 uga test 1|102 Questions And Answers
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RMIN 4000 uga test 1|102Questions And Answers
types of risk - --pure risk
-speculative risk
-diversifiable risk
-nondiversifiable risk
-enterprise risk
-systemic risk
- risk - -uncertainty concerning the occurrence of a loss
- uncertainty - -probabilities cannot be estimated
- loss exposure - -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) - -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 - -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) - -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 - -the probability that an event will occur
- objective probability - -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 - -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 - -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 - -the relative variation of actual loss from expected loss
- peril - -the cause of loss
example: house burns down, peril is the fire
- hazard - -condition that creates or increases the frequency or severity of
loss
- 4 types of hazards - -1) physical hazard
2) moral hazard
3) attitudinal hazard
4) legal hazard
- physical hazard - -physical condition that increases the frequency or
severity of loss.
example: icy roads that increase chance of automobile accident
- moral hazard - -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 - -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 - -characteristics of the legal system or regulatory
environment that increase the frequency or severity of losses.
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