Mid Term Flashcards
(33 cards)
Loss Exposure
Any situation or circumstance in which a loss is possible, regardless of whether a loss occurs
e. g
- Manufacturing plants that may be damaged by an earthquake or flood
- Possible theft or company property due to inadequate security
- potential injury to employees because unsafe working conditions
Objective Risk ( degree of risk)
the relative varriation of actual loss form expected loss
e.g - in some yearsas few as 90 houses may burn in other years maybe up to 110 housrs may burn
Loss Exposure
Any situation or circumstance in which a loss is possible, regardless of whether a loss occurs
for instance,
Subjective risk - uncertainty based on a person’s mental condition or state of mind
mental uncertainty is called subjective risk
High subjective risk
High subjective risk often results in conservative and prudent behavior while low subjective risk may result in less conservative behavior
Chance of loss = the probability that an event will occur
objective probability VS subjective Probability
- Objeictive probability refers to the long-run relative frequency of an event based on the assumptions of an infinitie number of observations and of no change in the underlying conditions
- Subjective probability is the individual’s personal estimate of the chance of loss
Peri
a Peril is defined as the cause of the loss
e.g in an auto accident the collision is the peril.
Risk
Uncertainty concerning the occurence of a loss
e. g - the risk of lung cancer for smoker is present, because uncertainty is present
- The risk of being hit by a car in a zebra crossing is present, becauseuncertainty ispresent
Loss Exposure
- Any situation or circumstances which a loss is possible, regardless of if loss occurs .
- e.g possible theft of company property
Subjective Risk
- Uncertainty based on persons mental condition or state of mind
e. g Drunk driving
High subjective risk
High Subjective risk often results in conservative prudent behavior such astaking a tax, while low objective risk may result in less conservative behavior driving home.
Chance of Loss
- The probability that an event will occur
Objective Probability
- refers to the LONG-RUn relative frequency of an event, based on the assumption of an infinite number of obersevations
Subjective probability
- Is the individual’s person estimate of the chances of loss
e. g green card lottery
Objective risk and chance of loss
- Objective risk is the relative variation of actual loss from expected loss
Peril and Hazard
Peril - is defined as the cause of the loss
e.g perils that cause loss to property, fire flood, tornado etc
Hazard
- is a condition that increases the chance of loss
-
Physical hazard
is a physical condition that increases the frequency or severity of loss
e.g ice road that increase the chance of an accident
Moral Hazard
- is dishonesty or character defects in an individual that increase the frequency or severity of loss
- Faking an accident to collect from an auto insurer
Attitudinal Hazard * moral*
0 is carelessness or indifference to a loss, which increases the frequency or severity of a loss
e.g leaving car keys in an unlocked car, which increases the chance of car theft
Legal Hazzard
- refers to characteristics of the legal system or regulatory environment that increase the frequency or severity of loss
e. g Laws that requires insurers to include coverage for certina benefits in health insurance plans
Pure and Speculative risk
- Pure risk is a situation in which there are ONLY the possibilties of loss orno loss and no potential benefit from it. e.g damage to proerpty from fire
Speculative Risk
- Speculative risk is a situation in which either profit or loss is possible.
e. g investing in stock market, gabmbling
- diversifiable risk
- affects only individuals or small groups and not the tire economy ! also known as
]Non systematic or particular risk.
it is a risk that can be reduced or eliminated by diversification ..
