RMI 211 EXAM 1 Questions With Correct Solutions, Already Passed!!
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Course
RMI 211
Institution
RMI 211
sources of information for identifying loss exposures - - risk analysis questionnaires
- physical inspection
- flow charts
- financial statements
- historical loss data (most common)
What is Risk? - Uncertainty regarding loss
Objective Risk - the relative variation of actual loss from expecte...
RMI 211 EXAM 1
sources of information for identifying loss exposures - - risk analysis questionnaires
- physical inspection
- flow charts
- financial statements
- historical loss data (most common)
What is Risk? - Uncertainty regarding loss
Objective Risk - the relative variation of actual loss from expected loss
subjective probability - - personal estimate of the chance of loss
- it need not coincide with objective probability and is influenced by a variety of factors including age,
sex, intelligence, education, and personality.
Chance of Loss Distinguished from Risk - although chance of loss may be the same for two groups, the
relative variation of actual loss from expected loss may be quite different
Peril - The cause of a loss (Fire, Hurricane, Tornado)
Objective Risk - -Can be measured by using the standard deviation or coefficient of variation
-Declines as the number of exposure units increase
Hazard - A condition that increases the frequency or severity of a loss.
Physical Hazard - A physical condition that increases the chance of loss.
Examples: Icy Streets, poorly designed intersections, and dimly lit stairways.
, Moral Hazard - Dishonesty or characteristics of an individual that increases the chance of loss.
Example: You have not insured your house from any future damages. It implies that a loss will be
completely borne by you at the time of a mishappening like fire or burglary. Hence you will show extra
care and attentiveness.
Attitudinal (Morale) Hazard - Carelessness or indifference to a loss, which increases the frequency or
severity of a loss.
Examples: Suppose a person pays insurance for his new phone. Morale Hazard arises when the model of
his phone becomes outdated, and he no longer cares about it.
Legal Hazard - Characteristics of the legal system or regulatory environment that increase the frequency
or severity of losses.
Example: A court notice about a property, dispute of an insured person or some other similar legal
matter which could result in loss for the insured and for which insurance company may have to pay.
Pure Risk - A situation in which there are only the possibilities of loss or no loss.
Speculative Risk - A situation in which either profit or loss is possible.
Diversifiable Risk - A risk that affects only individuals or small groups and not the entire economy.
It can be reduced or eliminated by diversification.
nondiversifiable risk - A risk that affects the entire economy or large numbers of persons or groups
within the economy.
It cannot be eliminated or reduced by diversification.
Enterprise Risk - Encompasses all major risks faced by a business firm, which include: pure risk,
speculative risk, strategic risk, operational risk, and financial risk.
Personal Risk - Anything that exposes you to the risk of losing something of value. Usually, the personal
risk is associated with your financial investments/insurance and personal health.
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