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RMIN 4000 - Exam 1 Study Guide Solutions TRIA - ANSWER-Terrorism risk and insurance act (2002) what is TRIA? - ANSWER-A federal backstop for insurance claims related to terrorism ; has a trigger of $200M Exposures - ANSWER-things of value (assets) that could be lost (ex: car) Perils - ANSWER-t...

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  • November 11, 2024
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  • 2024/2025
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RMIN 4000 - Exam 1 Study Guide Solutions


TRIA - ANSWER✔✔-Terrorism risk and insurance act (2002)


what is TRIA? - ANSWER✔✔-A federal backstop for insurance claims related to terrorism ; has a trigger of

$200M


Exposures - ANSWER✔✔-things of value (assets) that could be lost (ex: car)


Perils - ANSWER✔✔-things that could happen to these assets/ exposures


Risk Management - ANSWER✔✔-how to protect these assets and/or prevent/ reduce loss


Risk - ANSWER✔✔-A calculated probability of a negative outcome (has to have loss and probability)


Pure Risk - ANSWER✔✔-2 future states: a loss or nothing happens


Speculative Risk - ANSWER✔✔-3 future states: loss, nothing happens, or a gain


Can you buy insurance for a pure risk? - ANSWER✔✔-generally yes


Can you buy insurance for speculative risk? - ANSWER✔✔-generally no (bc moral hazard)


Moral Hazard - ANSWER✔✔-a hazard where the presence of insurance changes the behavior of the

insured (ex: Bugatti Veyron)


Fundamental Risk - ANSWER✔✔-Risk where an entire economy experiences loss at the same time

(losses are correlated) (ex: pandemic, recession, inflation)




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Systemic Risk - ANSWER✔✔-instability in a system/ market due to interdependency between players in

the market)


can you buy insurance for a fundamental risk? - ANSWER✔✔-generally no


Particular Risk - ANSWER✔✔-risk where only 1 or a few people/ firms experience loss at the same time

(losses are not correlated)


can you buy insurance for particular risk? - ANSWER✔✔-yes, it is normal to do so


What are the factors affecting risk? - ANSWER✔✔-frequency of the loss, severity of the loss, exposure,

peril, hazard, moral hazard, direct loss, indirect loss


what is a hazard? - ANSWER✔✔-something that increases the frequency, severity, or both within a risk

(this itself does not cause loss) (ex: speeding)


what is the difference between a hazard and a peril? - ANSWER✔✔-If you take the thing away and there

is still a loss, it is a peril


direct loss - ANSWER✔✔-the immediate damage caused by the peril (ex: fire burned down building)


indirect loss - ANSWER✔✔-the result of a direct loss, "secondary effect" (ex: a fire causes a loss of

revenue, higher inventory cost, loss of market share); can end up being much higher than the direct loss


Risk Attitudes - ANSWER✔✔-how we feel about risk ; impacts RM decision making


risk averse - ANSWER✔✔-doesn't like risk


- will pay money to offload risk (buy insurance); will reject some favorable bets


risk seeking - ANSWER✔✔--Likes risk/will pay to take on risk



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