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RMIN 4000 Test 1 Questions and Answers.

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RMIN 4000 Test 1 Questions and Answers.

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  • October 31, 2024
  • 31
  • 2024/2025
  • Exam (elaborations)
  • Questions & answers
  • RMIN 4000
  • RMIN 4000
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Wisdoms
RMIN 4000 Test 1 Questions and
Answers




frequency equation - (correct answer) -number of losses/number of exposures
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severity equation - (correct answer) -total losses ($) / number of losses
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What is risk? - (correct answer) -Traditional Definition - Uncertainty concerning the occurrence of a
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loss.
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Better Definition - A calculated possibility of a negative outcome.
io io io io io io io io io




risk of driving a car example - (correct answer) -Exposures - car, life/health, money, future income,
io io io io io io io io io io io io io io io




contents in car, freedom, license
io io io io io




Perils - Accident, license revoked, acts of God(tree falls), breakdown, vandalism, maintenance, theft,
io io io io io io io io io io io io




liability
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Risk Management - Drive safely, wear seatbelts, insurance, lock vehicle, driver's Ed, obey laws, car
io io io io io io io io io io io io io io




alarm, park in safe areas
io io io io io




Exposure - (correct answer) -Things of Value (Assets) That Could be Lost
io io io io io io io io io io io




Perils - (correct answer) -Things That Could Happen to These Assets
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Risk Management - (correct answer) -What do you to protect these assets and/or prevent/reduce
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losses?
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calculated possibility - (correct answer) -A probabilistic outcome (chance of loss, likelihood of loss) that
io io io io io io io io io io io io io io




is known or estimated
io io io io

,• Ranges from 0 to 1 (0% to 100%)
io io io io io io io io




0- impossible
io




0.5 - Highest Risk io io io




1 - Certain Event
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Negative outcomes - (correct answer) -Loss io io io io io




Must be quantifiable in $$$ io io io io




Frequency - (correct answer) -How often does a loss occur? io io io io io io io io io




• The number of losses (such as fire, theft, collision) that occur within a specified time period.•
io io io io io io io io io io io io io io io io




Probability of a loss.
io io io io




• Ex: Probability of a fire is 0.0071 per loss exposure per year.
io io io io io io io io io io io io




severity - (correct answer) -• How much does it cost when a loss does occur?
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• The dollar amount of loss for a specific peril (fire, theft, collision).
io io io io io io io io io io io io




• Example: Average structure fire loss is about $25,000
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Peril vs. Hazard - (correct answer) -Peril is the CAUSE of loss.
io io io io io io io io io io io io




Like fire storm flood io io io io




Hazard is a condition that increases LIKELIHOOD of loss but doesn't cause it
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io four types - Physical, moral, morale(attitude), legal
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1. Physical Hazard - (correct answer) -A physical condition that increases the frequency and/or severity
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of a loss.
io io io




is a hazard that arises from the condition, occupancy, or use of the property itself.
io io io io io io io io io io io io io io io

,An example of a physical hazard is a skateboard left on the porch steps.
io io io io io io io io io io io io io




Moral Hazard - (correct answer) -Book definition
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Dishonesty or character defects in an individual that increase the frequency and/or severity of a loss.
io io io io io io io io io io io io io io io




Better definition io




The presence of insurance changes the behavior of the insured.
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Examples

• Using a hammer to create "hail" damage to a roof.
io io io io io io io io io io




• Exaggerating the value of insured property
io io io io io io




3. Morale (Attitudinal) Hazard - (correct answer) -Carelessness or indifference to a loss, which increases
io io io io io io io io io io io io io io




the frequency and/or severity of a loss.
io io io io io io io




Examples:

• Leaving car keys in an unlocked car.
io io io io io io io




• Neglecting a tree limb growing over your roof.
io io io io io io io io




4. Legal Hazard - (correct answer) -Characteristics of legal system or regulatory environment that
io io io io io io io io io io io io io




increase the frequency and/or severity of a loss.
io io io io io io io io




Examples:

• Juries in some jurisdictions are more sympathetic than other areas (meaning larger damage awards
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in liability lawsuits).
io io io




• Georgia now requires Diminution in Value to be paid on property losses
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(meaning increased severity in Georgia). io io io io




Risk Classifications - (correct answer) -• Pure Risk vs. Speculative Risk
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• Diversifiable Risk
io io




• Nondiversifiable Risk
io io




• Enterprise Risk
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• Systemic Risk
io io

, Pure vs. Speculative Risk - (correct answer) --A pure risk is a situation in which there are only the
io io io io io io io io io io io io io io io io io io




possibilities of loss or no loss (earthquake, fire accident)
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-A speculative risk is a situation in which either profit or loss is possible (gambling, investment)
io io io io io io io io io io io io io io io




can you buy insurance for pure risks? - (correct answer) -Yes, typically but some types can be hard to
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insure
io




Can you buy insurance for speculative risks? - (correct answer) -generally no
io io io io io io io io io io io




Diversifiable Risk - (correct answer) -• Affects only individuals or small groups, not entire economy.
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• Can be reduced/eliminated through diversification. (Have multiple facilities, cloud / backup data
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centers)
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• Risks are not correlated (For example: fire at multiple locations, theft, vehicle collision).
io io io io io io io io io io io io io




Nondiversifiable Risk - (correct answer) -• Affects the entire economy or large numbers of io io io io io io io io io io io io io




groups/persons within the economy.
io io io io




• Cannot be reduced/eliminated through diversification.
io io io io io




• Government assistance may be needed to insure.
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• Risks are correlated (inflation, unemployment).
io io io io io




Enterprise Risk - (correct answer) -Encompasses all major risks faced by a business firm:
io io io io io io io io io io io io io




• Pure Risk
io io




• Speculative Risk
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• Strategic Risk*
io io




• Operational Risk*
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• Financial Risk*
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Systemic Risk - (correct answer) -• Risk of collapse of an entire system or entire market due to the
io io io io io io io io io io io io io io io io io io




failure of a single entity or group of entities that can result in the breakdown of the entire financial
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system.
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• Instability in the financial system due to the interdependency between the players in the market
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Major Types of Pure Risks - (correct answer) -• Personal Risk
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• Property Risk
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• Legal Liability Risk
io io io

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