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RMIN 4000 Ragin Exam 1|94 Q’s and A’s
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RMIN 4000 Ragin Exam 1|94 Q’s and A’s
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RMIN 4000 RaginExam 1|94 Q’s and A’s
worker's compensation - -employee injuries can have compensation in a
percentage of lost wages, medical payment/care, death benefits, and body
part payments
- Terrorism Risk & Insurance Act (2002) - -federal backstop for terrorism
losses where the gov't pays a % of losses above a certain amount
-will have to be renewed several times
-currently 85% of losses above $100 million
- risk - -a calculated possibility of a negative outcome
- calculated possibility - -probabilistic outcome (chance/likelihood) that is
known or estimated
-sometimes easier/harder
-ranges from 0% to 100%
- negative outcome - -loss must be quantifiable
- RISK - -LOSS + LIABILITY
- pure risk - -2 future states of the world
1. Nothing
2. Loss
Major types:
- Personal Risk
- Property Risk
- Liability Risk
- speculative risk - -3 future states of the world
1. Loss
2. Nothing
2. Gain
Example: Gambling, marriage, investing, college, robbing a bank
- Can you buy insurance for pure risks? - -Yes, typically but some types can
be hard to insure
- Can you buy insurance for speculative risks? - -Generally No, but usually
you can take some off setting gambles
, - Why can't you buy insurance for speculative risks? - -It can cause
catastrophic loss for insurance as you are more likely to take riskier gambles
- fundamental risk - -risk that every person/firm in a sample faces at the
same time and to a similar extent
-localization make it harder to judge/determine
-unemployment, recession, major catastrophes, inflation
- particular risk - -risk that applies to only one or a small # of people/firms
in a sample at the same time
-fire, theft, entrepreneurship (failed restaurant)
- systemic risk - -instability in the financial system as a result of
interdependency between players in the market
- Domino Effect
- EX. Financial Housing Crisis
* Type of FUNDAMENTAL RISK
- risk attitudes - -how we feel about risk and how that impacts Risk
Management decision making
- risk averse - -don''t like risk, will pay $ to offload risk (insurance), more
risk averse are willing to pay more $ for insurance, will reject some favorable
bets.
More risk averse --> Willing to pay more (buy insurance etc.)
- risk seeking - -likes risk, will pay to take on risk (gambling), will accept
some unfavorable bets
- expected value - -= sum (probabilities X outcomes)
- when E(v) > 0 (favorable bet)
- when E(v) < 0 (unfavorable bet)
- frequency of loss (F) - -how often do losses occur, how likely is a loss, the
PROBABILITY of a loss
- severity of loss (S) - -how much ($) are losses when they do occur
= avg loss size/amount
- exposure - -the thing of value (asset) that could be lost
noun; exposure --> what is exposed
ex. Car ---> belongings
- peril - -the immediate cause of the loss
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