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RMIN 4000 UGA test 1 Questions and Answers 2024
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RMIN 4000 UGA test 1
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RMIN 4000 UGA test 1types of risk - answer-pure risk
-speculative risk
-diversifiable risk
-no diversifiable risk
-enterprise risk
-systemic risk
risk - answer uncertainty concerning the occurrence of a loss
uncertainty - answer probabilities cannot be estimated
loss exposure - 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) - 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 - answeras 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) - answeruncertainty 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 - answerthe probability that an event will occur
objective probability - answerthe 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 - answer1) 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 - answerthe 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 - answerthe relative variation of actual loss from expected loss
peril - answerthe cause of loss
example: house burns down, peril is the fire
hazard - answercondition that creates or increases the frequency or severity of loss
4 types of hazards - answer1) physical hazard
2) moral hazard
3) attitudinal hazard
4) legal hazard
physical hazard - answerphysical condition that increases the frequency or severity of
loss.
example: icy roads that increase chance of automobile accident
moral hazard - answerdishonesty 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 - answercarelessness 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 - answercharacteristics of the legal system or regulatory environment that
increase the frequency or severity of losses.
example: adverse jury verdicts or large damage awards in liability lawsuits; statues that
require insurers to include coverage for certain benefits in health insurance plans
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