Section 1 - Introduction to Risk Management Flashcards
Pure Risk vs Speculative Risk
Pure
- Incident or situation in which the only outcome can either be loss or no loss.
- Partial or whole losses
Speculative
- Can be a loss, no loss, or chance of gain
Exposure Definition
a situation, practice, or condition that may lead to an insured’s
susceptibility to adverse financial consequences or loss. Activities, resources, and assets
are also considered exposures.
Loss Definition
reduction in the value of assets. Losses include business interruption, physical property damage, and injury to an employee or customer.
Peril Definition
cause of loss or any action or event that causes a loss. Perils include fire, lightning, riots, vehicular accidents, smoke, theft, heavy snow and ice, hurricanes, tornadoes, and volcanic eruptions.
Hazard Definition
a factor that increases the likelihood that a loss will occur or the severity of a loss that occurs.
Incident Definition
an event that disrupts or interrupts normal activities and may become a loss.
Accident Definition
an unexpected and unintentional event definite as to time and place that results in injury or damage to a person or property
Occurrence Definition
goes beyond an immediate and observable accident. Instead, it is an extended situation leading to damages—such as from injury—that occurs over a period of time.
Claim Definition
a demand for payment or a company’s moral or ethical obligation to pay damages as a result of a loss or occurrence.
Frequency definition
Frequency is the number of losses that occur or that are expected to occur within a given period.
Severity Definition
dollar amount of a given loss or the aggregate dollar amount of all losses for a given period, usually the policy period
Expected Losses Definition
the projection of the frequency or severity of losses based on loss history, probability distributions, and statistics.
Risk Appetite Definition
Organizations willingness to accept or tolerate risk
Risk-Taking Ability Definition
Organizations financial capacity for accepting risk 4
5 Steps of Risk Management Process
(IACFA = I Am Control Freak Agent aka an RM)
Risk Identification: Examine Exposures, perils, hazards. Can include understanding of a company’s position and goals.
Risk analysis: Qualitative and quantitative analysis (#’s vs impacts that can’t be measured easily). Assessing potential impact of exposures on one’s business.
Risk Control: Any conscious action or inaction to minimize, at the optimal cost, the probability, frequency, severity, and unpredictability of a loss.
Risk Financing: Acquisition of external funds or allocation of internal funds to pay for losses.
Risk Administration: Ongoing implementation and monitoring of risk management programs, policies and procedures.
