Chapter 3: Hazard Risk - Vocabulary

Question 1

Frequency

Answer 1

Number of losses

Question 2

Severity

Answer 2

The size of a loss

Question 3

Avoidance

Answer 3

A technique that involves ceasing or never undertaking an activity so that the possibility of future gains or losses occurring from that activity is eliminated

Question 4

Separation

Answer 4

A risk control technique that isolates loss exposures from one another to minimize the adverse effect of a single loss

Question 5

Duplication

Answer 5

A risk control technique that uses backups, spares, or copies of critical property, information, or capabilities and keeps them in reserve

Question 6

Diversification

Answer 6

A risk control technique that spreads loss exposures over numerous projects, products, markets, or regions

Question 7

Insurance

Answer 7

A risk management technique that transfers the potential financial consequences of certain specified loss exposures from the insured to the insurer

Question 8

Hazard

Answer 8

A condition that increases the frequency or severity of a loss

Question 9

Tangible property

Answer 9

Property that has a physical form

Question 10

Intangible property

Answer 10

Property that has no physical form

Question 11

Property-casualty insurance

Answer 11

One of the two main sectors of the insurance industry, encompassing numerous types of insurance, most of which cover the financial consequences of damage to one’s own property or legal liability to others

Question 12

Property

Answer 12

The real estate, buildings, objects or articles, intangible assets, or rights with exchangeable value of which someone may claim legal ownership

Question 13

Liability

Answer 13

A legal responsibility for the consequences of an act or omission

Question 14

Line of business

Answer 14

A general classification of insurance, such as commercial property, commercial general liability, commercial crime, or commercial auto

Question 15

Commercial property insurance

Answer 15

Insurance that covers commercial buildings and their contents against various types of property loss

Question 16

Monoline policy

Answer 16

Policy that covers only one line of business

Question 17

Package policy

Answer 17

Policy that covers two or more lines of business

Question 18

Named peril

Answer 18

A specific cause of loss listed and described in an insurance policy. Also used to describe policies containing named perils

Question 19

Direct physical loss

Answer 19

A loss that is physical (not just financial) and results immediately from the occurrence

Question 20

All-risks policy

Answer 20

An insurance policy that covers any risk of physical loss unless the policy specifically excludes it

Question 21

Bailees’ customers policy

Answer 21

A policy that covers damage to customers’ goods while in the possession of the insured, regardless of whether the insured is legally liable for the damage

Question 22

Replacement cost

Answer 22

The cost to repair or replace property using new materials of like kind and quality with no deduction for depreciation

Question 23

Actual cash value

Answer 23

A method in valuing property that is calculated as the cost to replace or repair property minus depreciation, the fair market value, or a valuation determined by the broad evidence rule

Question 24

Insurance-to-value provision

Answer 24

A provision in property insurance policies that encourages insureds to purchase an amount of insurance that is equal to, or close to, the value of the covered property

Question 25

Coinsurance clause

Answer 25

A clause that requires the insured to carry insurance equal to at least a specified percentage of the insured property's value

Question 26

Business income insurance

Answer 26

Insurance that covers the reduction in an organization's income when operations are interrupted by damage to property caused by a covered peril

Question 27

Dependent property exposure

Answer 27

The possibility of incurring business income loss because of physical loss occurring on the premises of an organization that the insured depends on for materials, products, or sales

Question 28

Principal

Answer 28

The party to a surety bond whose obligation or performance the surety guarantees

Question 29

Surety

Answer 29

The party (usually an insurer) to a surety bond that guarantees to the obligee that the principal will fulfill an obligation or perform as required by the underlying contract, permit, or law

Question 30

Obligee

Answer 30

The party to a surety bond that receives the surety's guarantee that the principal will fulfill an obligation or perform as promised

Question 31

Breach of contract

Answer 31

The failure, without legal excuse, to fulfill a contractual promise

Question 32

Tort

Answer 32

A wrongful act or an omission, other than a crime or a breach of contract, that invades a legally protected right

Question 33

Insuring agreement

Answer 33

A statement in an insurance policy that the insurer will, under described circumstances, make a loss payment or provide a service

Question 34

Occurrence

Answer 34

An accident, including continuous or repeated exposure to substantially the same general harmful conditions

Question 35

Indemnify

Answer 35

To restore a party who has sustained a loss to the same financial position that party held before the loss occurred

Question 36

Claims-made coverage form

Answer 36

A coverage form that provides coverage for bodily injury or property damage that is claimed during the policy period

Question 37

Occurrence coverage form

Answer 37

A coverage form that covers bodily injury or property damage occurring during the policy period

Question 38

Entity coverage

Answer 38

Coverage extension of D&O liability policies for claims made directly against a corporation (the "entity") for wrongful acts covered by the policy

Question 39

Claims-made coverage trigger

Answer 39

The event that triggers coverage under a claims-made coverage form; the first making of a claim against any insured during either the policy period or an extended reporting period

Question 40

Fiduciary liability insurance

Answer 40

Insurance that covers the fiduciaries of an employee benefit plan against liability claims alleging breach of their fiduciary duties involving discretionary judgment

Question 41

Perils of the sea

Answer 41

Accidental causes of loss that are peculiar to the sea and other bodies of water