Chapter 3 Vocab (Notes) Flashcards Preview

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Flashcards in Chapter 3 Vocab (Notes) Deck (27):
1

Risk Management

process that identifies loss exposures faced by an organization and selects the most appropriate techniques to treat exposures

2

Loss Exposures

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

3

Loss Frequency

refers to the probable number of losses that may occur during some time period

4

Loss Severity

refers to the probable size of the losses that may occur

5

Maximum Possible Loss

is the worst loss that could happen to the firm during its lifetime

6

Probable Maximum Loss

is the worst loss that is likely to happen

7

Risk Control

refers to techniques that reduce the frequency and severity of losses

8

Avoidance

means a certain loss exposure is never acquired or undertaken, or an existing loss exposure is abandoned

9

Loss Prevention

refers to measures that reduce the frequency of a particular loss

10

Loss Reduction

refers to measures that reduce the severity of the loss after it occurs

11

Risk Financing

refers to techniques that provide for the payment of losses after they occur

12

Retention

means that the firm retains part or all of the losses that can result from a given loss

13

Retention level

the dollar amount of losses that the firm will retain

14

Single Parent Captive

insurer is owned by only one parent

15

Captive Insurer

an insurer is owned by a parent firm for the purpose of insuring the parent firm's loss exposures

16

Association or Group Captive

an insurer owned by several parents

17

Self Insurance/Self Funding

special form of planned retention by which part or all of a given loss exposure is retained by the firm

18

Risk Retention Group (RRG)

a group captive that can write any type of liability coverage except employers' liability, workers compensation, and personal lines

19

Noninsurance Transfer

a method other than insurance by which a pure risk and its potential financial consequences are transferred to another party

20

Deductible

a specified amount subtracted from the loss payment otherwise payable to the insured

21

Excess Insurance Policy

the insurer pays only if the actual loss exceeds the amount a firm has decided to retain

22

Manuscript Policy

is a policy tailored to the firm

23

Underwriting Cycle

in a "hard" market, profitability is declining and underwriting standards are tighten, premiums increase and insurance is hard to obtain. in a "soft market" profitability is improving, standards are loosened, premiums decline, and insurance becomes easier to obtain

24

Risk Management Policy Statement

outlines the firms objectives and policies, educates top level executives, gives risk manager greater authority, provides standards for judging the risk manager's performance

25

Risk Management Manual

describes the risk management program and may be used to train new employees

26

Cost of Risk

A risk management tool that measures certain costs in a risk management program, including insurance premiums paid, retained losses, outside risk management services, financial guarantees, internal administrative costs, taxes and fees, and certain other expenses

27

Personal Risk Management

the identification of pure risks faced by an individual or family and to the selection of the most appropriate technique for treating such risks