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RMIN 4000 Exam 1 Brown|106 Questions with Solutions
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RMIN 4000 Exam 1 Brown|106 Questions with Solutions
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RMIN 4000 Exam 1 Brown|106Questions with Solutions
Textbook definition of RISK - -Uncertainty concerning the occurrence of a
loss
- Better definition of RISK - -A calculated possibility of a negative outcome
- Calculated Possibility - -0 = Impossible event (NO RISK)
0.5 = Highest Risk (Most Uncertainty)
1 = 100% Certain Event (NO RISK
- Negative Outcome - -Loss
- Losses must be __________? - -Quantifiable
- Pure Risk States - -Loss
or
No Loss
- Examples of Pure Risks - -Fire, Cancer, Dog bites a visitor
- Speculative Risk States - -Loss
No Loss/No Gain
Gain
- Examples of speculative risks - -Investment, Gambling, Drinking
- Frequency answers what question? - -How often does a loss occur
The number of losses that occur in a specified time period
- Probability of a loss - -Frequency
- Severity answers what question? - -How much does it cost when a loss
does occur?
The dollar amount for a loss of a specific peril
, - Peril - -Cause of a loss
- Hazard - -Condition that creates or increases the frequency and/or
severity of a loss
DOES NOT CAUSE A LOSS
- Examples of Peril - -Fire, Tornado, Collision, Burglary
- Types of Hazard - -Physical
Moral
Morale (Attitudinal)
Legal
- Physical Hazard - -A physical condition that increases the frequency and/or
severity of a loss
- Book Definition of Moral Hazard - -Dishonesty or character defects in an
individual that increase the frequency and/or severity of a loss
- Better Definition of Moral Hazard - -The presence of insurance changes the
behavior of the insured
- Examples of Moral Hazard - -Using a hammer to create "hail" damage to a
roof
Exaggerating the value of insured property
- Morale (Attitudinal) Hazard - -Carelessness or indifference to a loss, which
increases increases the frequency and/or severity of a loss
- Examples of Morale Hazard - -Leaving car keys in an unlocked car
Neglecting a tree limb growing over your roof
- Legal Hazard - -Characteristics of a legal system or regulatory
environment that increase the frequency and/or severity of a loss
- Examples of a Legal Hazard - -Juries in some areas are more sympathetic
than in other areas
Georgia now requiring Diminution in Value to be paid on property losses
- Diversifiable Risk - -Affects only individuals or small groups, not the entire
economy
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