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RMIN 4000 final exam review part 1- Questions with Answers
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RMIN 4000 final exam review part 1- Questions with Answers
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RMIN 4000 final exam review part1- Questions with Answers
frequency - -- how often does a loss occur?
- the number of losses (such as fire, theft, collision) that occur within a
specified time period.
- probability of a loss
ex) probability of a fire is 0.0071 per loss exposure per
year
- severity - -- how much does it cost when a loss does occur?
- the dollar amount of loss for a specific peril (fire, theft, collision).
ex) average fire loss is $32,547
- peril - -- cause of a loss
- things that could happen to assets
- ex) fire, tornado, collision, burglary, etc.
- hazard - -- condition that creates or increases the frequency
and/or severity of a loss.
- does not cause a loss.
- types of hazards - -physical, moral, morale (attitudinal), and legal
- physical hazard - -a physical condition that increases the frequency or
severity of loss
- moral hazard - -- dishonesty or character defects in an individual that
increase the frequency and/or severity of a loss.
- the presence of insurance changes the behavior of the insured.
examples:
- using a hammer to create "hail" damage to a roof.
- exaggerating the value of insured property.
- morale (attitudinal) hazard - -carelessness or indifference to a loss, which
increases the frequency and/or severity of a loss.
examples:
- leaving car keys in an unlocked car.
- neglecting a tree limb growing over your roof.
, - legal hazard - -characteristics of legal system or regulatory environment
that increase the frequency and/or severity of a loss.
examples:
- juries in some areas are more sympathetic than other areas (meaning
larger damage awards in liability lawsuits).
- Georgia now requires Diminution in Value to be paid on property losses
(meaning increased severity in Georgia).
- pure risk vs speculative risk - -pure risk (2 future states)
1) loss
2) no loss
ex: fire, dance, dog bites a visitor
speculative risk (3 future states)
1) loss
2) no loss/no gain
3) gain
ex: investment, gambling, drinking
- can you buy insurance for pure risks? speculative risks? - -pure risk:
insurable
~~ typically insurable through commercial, personal, or liability insurance
policies.
speculative risk: not insurable
- types of pure risks - -- personal risk
- property risk
- liability risk
- loss of business income
- cyber security
- personal risk - -directly affects an individual or family; involves the
possibility of loss of income, extra expenses, depletion of financial assets.
perils that might be involved:
- death, unemployment, disability/injury/poor health, and/or inadequate
retirement income
- property risk - -the possibility of losses associated with the destruction or
theft of property.
- direct loss and indirect loss
- direct loss - -cost to repair or replace property damaged by a peril.
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