ch1 Flashcards
(18 cards)
pure risk
when losses can be known w certainty
speculative risk
risk isnt certain but there’s a possibility
static risk
risk that doesn’t change much over time
dynamic risk
risk that arises out of a changing circumstance
diversifiable risk
risks that are not highly correlated; impacts only some individuals/businesses
non-diversifiable risk
highly correlated to one event; simultaneous occurrence of may losses from one single event
subjective risk
an individuals view of uncertainty or the situation evolving risk
objective risk
measurable variation in uncertain outcomes based on facts and data
peril
immediate cost of the loss; ex-fire, injury, sickness, death
frequency of the loss
how often do losses occur
severity
given the severity of the loss, how bad is it in $$$ terms
hazard
underlying condition lying behind a loss occurrence
Physical Hazard
if peril is flood, living at the shore is a physical hazard (frequency)
if peril is fire, distance to fire hydrant is a physical hazard (severity)
if peril is fire, wood structure is a physical hazard (frequency & severity)
moral hazard
act different because of the existence of insurance
frequency or severity increases because of the existence of insurance
morale hazard
carelessness concerning losses/possible losses
3 financial consequences of risk
expected cost of loss
cost to manage/risk management expenditures
residual uncertainty
TRM
Focuses on managing/mitigating risks that have already occurred
Focuses on a specific area
ERM
Is forward-looking and attempts to determine potential events and situations that could, or are even likely to, occur
Focuses on an entire organization
