Book Definition of Moral Hazard - ️️Dishonesty or character defects in an individual
that increase the frequency and/or severity of a loss
Better Definition of Moral Hazard - ️️The presence of insurance changes the
behavior of the insured
Morale (Attitudinal) Hazard - ️️Carelessness...
RMIN 4000 Exam 1 Brown
Book Definition of Moral Hazard - ✔️✔️Dishonesty or character defects in an individual
that increase the frequency and/or severity of a loss
Better Definition of Moral Hazard - ✔️✔️The presence of insurance changes the
behavior of the insured
Morale (Attitudinal) Hazard - ✔️✔️Carelessness or indifference to a loss, which
increases increases the frequency and/or severity of a loss
Textbook definition of RISK - ✔️✔️Uncertainty concerning the occurrence of a loss
Better definition of RISK - ✔️✔️A calculated possibility of a negative outcome
Calculated Possibility - ✔️✔️0 = Impossible event (NO RISK)
0.5 = Highest Risk (Most Uncertainty)
1 = 100% Certain Event (NO RISK
Negative Outcome - ✔️✔️Loss
Losses must be __________? - ✔️✔️Quantifiable
Pure Risk States - ✔️✔️Loss
or
No Loss
Examples of Pure Risks - ✔️✔️Fire, Cancer, Dog bites a visitor
Speculative Risk States - ✔️✔️Loss
No Loss/No Gain
Gain
Examples of speculative risks - ✔️✔️Investment, Gambling, Drinking
, Frequency answers what question? - ✔️✔️How often does a loss occur
The number of losses that occur in a specified time period
Probability of a loss - ✔️✔️Frequency
Severity answers what question? - ✔️✔️How much does it cost when a loss does
occur?
The dollar amount for a loss of a specific peril
Peril - ✔️✔️Cause of a loss
Hazard - ✔️✔️Condition that creates or increases the frequency and/or severity of a
loss
DOES NOT CAUSE A LOSS
Examples of Peril - ✔️✔️Fire, Tornado, Collision, Burglary
Types of Hazard - ✔️✔️Physical
Moral
Morale (Attitudinal)
Legal
Physical Hazard - ✔️✔️A physical condition that increases the frequency and/or
severity of a loss
Examples of Moral Hazard - ✔️✔️Using a hammer to create "hail" damage to a roof
Exaggerating the value of insured property
Examples of Morale Hazard - ✔️✔️Leaving car keys in an unlocked car
Neglecting a tree limb growing over your roof
Legal Hazard - ✔️✔️Characteristics of a legal system or regulatory environment that
increase the frequency and/or severity of a loss
Examples of a Legal Hazard - ✔️✔️Juries in some areas are more sympathetic than in
other areas
Georgia now requiring Diminution in Value to be paid on property losses
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