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UGA RMIN 4000 Edmunds Exam 1 Questions and Answers 2024
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UGA RMIN 4000 Edmunds Exam 1
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UGA RMIN 4000 Edmunds Exam 1risk - answer uncertainty concerning the occurrence of a loss (or calculated possibility of
a negative outcome)
loss exposure - answer any situation where a loss is possible (does not have to occur)
loss frequency - answer how often a loss occurs within a specific period (probability)
formula to find frequency - answer# of losses/# of exposures
loss severity - answer how much does a loss cost when it occurs (a house fire costs $x)
formula to find severity - answer total losses in dollars/# of losses
Peril - answer cause of loss (fire, windstorm, flood)
Hazard - answeran event that creates or increases the chance of a loss without causing
At what probability is risk highest? - answer0.5
Do risk and chance of loss mean the same? - answerNo, chance of loss is the
probability that an event will occur
What are the four types of hazards? - answerPhysical, Moral, Morale, and Legal
Physical hazard - answera physical condition that increases the frequency or severity of
loss
moral hazard - answerdishonesty or character defects in an individual that increase the
frequency or severity of loss (using a hammer to create "hail" damage to your roof to get
a claim)
Morale (Attitudinal) Hazard - answercarelessness or indifference to a loss, which
increases the frequency or severity of a loss (leaving car unlocked leading to theft)
Legal Hazard - answercharacteristics of the legal system or regulatory environment that
increase the frequency or severity of losses (a jury in one district may be more
sympathetic than others)
pure risk - answera risk with a possibility of loss or no loss; no gain occurs
, speculative risk - answerA chance of loss, no loss, or gain
diversifiable risk - answera risk that affects only individuals or small groups and not the
entire economy
nondiversifiable risk - answera risk that affects the entire economy or large numbers of
persons or groups within the economy (war, inflation, business recession)
what makes a risk diversifiable or not? - answerit is diversifiable if it can be reduced or
eliminated by diversification
enterprise risk - answerencompasses all major risks faced by a business firm
systemic risk - answerthe risk that the failure of one financial institution can bring down
other institutions as well
What are the major types of pure risk? - answerpersonal, property, and liability
personal risk - answerA risk that directly affects an individual or family (peril, like
unemployment, causes loss of income)
property risk - answerpossibility of losses associated with the destruction or theft of
property (can be direct or indirect-financial loss result of direct loss)
legal liability risk - answerfinancial consequences from injuries or damages you caused
to someone else (defense costs; liens on income or assets seized as punishment)
What are the techniques of managing risks? - answerrisk control and risk financing
risk control - answertechniques that reduce the frequency or severity of losses
risk financing - answertechniques for funding losses
what are some risk control tactics? - answerloss prevention (employee training or safety
equipment to reduce frequency), loss reduction (sprinkler heads for fires to reduce
severity) , duplication, separation, diversification, and avoidance (never acquire loss
exposure (proactive) or abandon loss (reactive))
what are some risk financing tactics? - answerretention (retaining part or all of losses
from a risk), noninsurance risk transfer (risk is given to party other than insurance
company), and insurance (transfer risk to insurer in exchange for a premium cost)
insurance - answerpooling of accidental losses by transfer of risks to insurers, who
agree to compensate insureds for such losses, to provide monetary benefits on their
occurrence, or to render services connected to the risks
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