Chapter 1 Vocab (Text) Flashcards Preview

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Flashcards in Chapter 1 Vocab (Text) Deck (36):
1

Attitudinal (Morale) Hazard

Carelessness or indifference to a loss, which increases the frequency or severity of a loss

2

Avoidance

A risk control technique in which a certain loss exposure is never acquired, or an existing loss exposure is abandoned

3

Chance of Loss

The probability that an event will occur

4

Direct Loss

Financial loss that results directly from an insured peril

5

Diversifiable Risk

A risk that affects only individuals of small groups and not the entire economy, which can be reduced or eliminated by diversification. Also called nonsystematic risk or particular risk.

6

Enterprise Risk

A term that encompasses all major risks faced by a business, including pure risk, speculative risk, strategic risk, operation risk, and financial risk

7

Enterprise Risk Management

Comprehensive risk management program that considers an organization's pure risks, speculative risks, strategic risks, and operational risks

8

Financial Risk

A risk that business firms face because of adverse changes in commodity prices, interest rates, foreign exchange rates, and the value of money

9

Hazard

Condition that creates or increases the chance of loss

10

Hedging

Technique for transferring the risk of unfavorable price fluctuations to a speculator by purchasing and selling options and futures contracts on an organized exchange.

11

Hold-Harmless Clause

Clause written into a contract by which one party agrees to release another party from all legal liability, such as a retailer who agrees to release the manufacturer from legal liability if the product injures someone

12

Human Life Value

For purposes of life insurance, the present value of the family's share of the deceased breadwinner's future earnings

13

Indirect/Consequential Loss

Financial loss occurring as the consequence of some other loss.

14

Law of Large Numbers

Concept that the greater the number of exposures, the more closely will actual results approach the probable results expected from an infinite number of exposures

15

Legal Hazard

Characteristics of the legal system or regulatory environment that increase the frequency or severity of losses

16

Loss Exposure

Any situation or circumstance in which a loss is possible, regardless of whether a loss occurs.

17

Loss Prevention

Aims at reducing the probability of loss so that the frequency of losses is reduced

18

Moral Hazard

Dishonesty or character defects in an individual that increase the chance of loss

19

Nondiversifiable Risk

A risk that affects the entire economy or large numbers of persons or groups within the economy, which cannot be reduced or eliminated by diversification.

20

Noninsurable Transfers

Various methods other than insurance by which a pure risk and its potential financial consequences can be transferred to another party, for example, contracts, leases, and hold-harmless agreements

21

Objective Probability

The long-run relative frequency of an event based on the assumptions of an infinite number of observations and of no change in the underlying conditions

22

Objective Risk

Relative variation of actual loss from expected loss, which varies inversely with the square root of the number of cases under observation

23

Peril

Cause or source of loss

24

Personal Risks

Risks that directly affect an individual or family

25

Physical Hazard

Physical condition that increases the chance of loss

26

Premature Death

the death of a family head with unfulfilled financial obligations

27

Property Risks

The risk of having property damaged or lost from numerous causes

28

Pure Risk

Situation in which there are only the possibilities of loss or no loss

29

Retention

Risk management technique in which an individual or a firm retains part or all of the losses resulting from a given loss exposure. Used when no other method is available, the worst possible loss is not serious, and losses are highly predictable

30

Risk

defined as uncertainty concerning the occurrence of a loss

31

Risk Control

Risk management techniques that reduce the frequency or severity of losses, such as avoidance, loss prevention, and loss reduction

32

Risk Financing

Risk management technique that provide for the funding of losses after they occur, such as retention, noninsurance transfers, and commercial insurance

33

Self-Insurance

Retention program in which the employer self-funds or pays part or all of the losses

34

Speculative Risk

Situation in which either profit or loss are clear possibilities

35

Subjective Probability

the individual's personal estimate of the chance of loss

36

Subjective Risk

Uncertainty based on one's mental condition or state of mind