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RMIN 4000 UGA- Brown- exam 1 Study Guide Solutions definition of risk - ANSWER-A calculated possibility of a negative outcome calculated possibility - ANSWER-probabilistic outcome, ranges from 0-1 (0-100%) negative outcome - ANSWER-loss, must be quantifiable ($) frequency - ANSWER--"how often ...

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  • November 13, 2024
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  • 2024/2025
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RMIN 4000 UGA- Brown- exam 1
Study Guide Solutions

definition of risk - ANSWER✔✔-A calculated possibility of a negative outcome


calculated possibility - ANSWER✔✔-probabilistic outcome, ranges from 0-1 (0-100%)


negative outcome - ANSWER✔✔-loss, must be quantifiable ($)


frequency - ANSWER✔✔--"how often does a loss occur?"


-number of losses in a certain time period


-probability of a loss


Severity - ANSWER✔✔--"how much does it cost when a loss occurs?"


- dollar amount


how to calculate frequency - ANSWER✔✔-# of losses/# of exposures


how to calculate severity - ANSWER✔✔-total losses ($)/# number of losses


peril - ANSWER✔✔-cause of loss (ex: fire)


hazard - ANSWER✔✔-condition that creates or increases frequency of a loss. 4 types:

physical, moral, morale (attitudinal), legal

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,physical hazard - ANSWER✔✔-a physical condition that increases the frequency or

severity of loss


moral hazard - ANSWER✔✔-the presence of insurance changes the behavior of the

insured (ex: faking damages or exaggerating value of insured property)


Morale (attitudinal) hazard - ANSWER✔✔-carelessness or indifference to a loss because

of the existence of insurance, increases frequency and severity (ex: leaving keys in car,

ignoring limbs)


legal hazard - ANSWER✔✔-characteristics of the legal system or regulatory

environment that increase the frequency or severity of losses (ex: different juries in

different areas, diminution in value laws)


pure risk - ANSWER✔✔-loss or no loss (no gain), insurable (ex: fire or cancer)


speculative risk - ANSWER✔✔-A chance of loss, no loss, or gain. (ex: gambling or

investing), not always insurable


diversifiable risk - ANSWER✔✔--affects only small groups not whole economy


-can be reduced/eliminated thru diversification


-risks aren't correlated (fire, theft, collision)


nondiversifiable risk - ANSWER✔✔--affects entire economy


-cannot be reduced thru diversififcation

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, -gov. assistance may be needed to insure


-risks are correlated (inflation, unemployment)


-ex: flood, earthquake


enterprise risk - ANSWER✔✔-encompasses all major risks faced by a business: pure,

speculative, operational, and financial


systemic risk - ANSWER✔✔--risk collapse of an entire system or entire market due to a

failure of a single entity or group of entities that can result in a breakdown of the entire

financial system


-instability in the financial system due to interdependency between the players and the

market


types of pure risks - ANSWER✔✔--personal


-property


-liability


-loss of business income


-cyber security


personal risk - ANSWER✔✔--directly affects individual or family, involves a possibility

of loss of income, extra expenses, or depletion of financial assets




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