RMI Exam 1 UPDATED QUESTIONS
AND CORRECT ANSWERS
What is the traditional definition of risk? - CORRECT ANSWER Uncertainty
concerning the occurrence of a loss
What is a loss exposure? - CORRECT ANSWER Any situation where a loss is
possible, even if the loss does not happen.
What is objective risk? - CORRECT ANSWER The relative variation of actual loss
from the expected loss. ("Variance around probability")
What risk does insurance want to be as little as possible? - CORRECT
ANSWER Objective risk
What is subjective risk? - CORRECT ANSWER Uncertainty based on a person's
mental condition or state of mind.
What is chance of loss? - CORRECT ANSWER The probability that an event that
causes a loss will occur. ("There is a 1% chance your car gets towed during class")
What is subjective probability? - CORRECT ANSWER An individual's personal
estimate of the chance of loss.
What is objective probability? - CORRECT ANSWER The long-run relative frequency
of an event based on assumptions and infinite observations
What is the problem with subjective probability? - CORRECT ANSWER Sometimes
you're wrong
, Sometimes the _______________ can be the same, but the _______________ can be
different. - CORRECT ANSWER Chance of loss; objective risk
If the chance of loss is the same for a fire, but the objective loss is higher in one location than
the other, what should you do? - CORRECT ANSWER Move to the area where the
objective risk is lower.
What is peril? - CORRECT ANSWER WHAT causes the loss (ex: a fire)
What is a hazard? - CORRECT ANSWER The condition that creates or increases the
frequency or severity of a loss?
What is a physical hazard? - CORRECT ANSWER Physical condition that increases
F/S of a loss
What is a moral hazard? - CORRECT ANSWER dishonesty or character defects in an
individual that increase F/S of a loss
What is an attitudinal hazard? - CORRECT ANSWER Carelessness or indifference to a
loss
True or false: attitudinal and morale hazards mean the same thing - CORRECT
ANSWER True
What is a legal hazard? - CORRECT ANSWER Characteristics of the legal system that
increase F/S of a loss
What is pure risk? - CORRECT ANSWER Only possibilities of a loss or no loss (ex:
earthquake)
What is speculative risk? - CORRECT ANSWER Situation in which either profit or
loss is possible (ex: gambling)
AND CORRECT ANSWERS
What is the traditional definition of risk? - CORRECT ANSWER Uncertainty
concerning the occurrence of a loss
What is a loss exposure? - CORRECT ANSWER Any situation where a loss is
possible, even if the loss does not happen.
What is objective risk? - CORRECT ANSWER The relative variation of actual loss
from the expected loss. ("Variance around probability")
What risk does insurance want to be as little as possible? - CORRECT
ANSWER Objective risk
What is subjective risk? - CORRECT ANSWER Uncertainty based on a person's
mental condition or state of mind.
What is chance of loss? - CORRECT ANSWER The probability that an event that
causes a loss will occur. ("There is a 1% chance your car gets towed during class")
What is subjective probability? - CORRECT ANSWER An individual's personal
estimate of the chance of loss.
What is objective probability? - CORRECT ANSWER The long-run relative frequency
of an event based on assumptions and infinite observations
What is the problem with subjective probability? - CORRECT ANSWER Sometimes
you're wrong
, Sometimes the _______________ can be the same, but the _______________ can be
different. - CORRECT ANSWER Chance of loss; objective risk
If the chance of loss is the same for a fire, but the objective loss is higher in one location than
the other, what should you do? - CORRECT ANSWER Move to the area where the
objective risk is lower.
What is peril? - CORRECT ANSWER WHAT causes the loss (ex: a fire)
What is a hazard? - CORRECT ANSWER The condition that creates or increases the
frequency or severity of a loss?
What is a physical hazard? - CORRECT ANSWER Physical condition that increases
F/S of a loss
What is a moral hazard? - CORRECT ANSWER dishonesty or character defects in an
individual that increase F/S of a loss
What is an attitudinal hazard? - CORRECT ANSWER Carelessness or indifference to a
loss
True or false: attitudinal and morale hazards mean the same thing - CORRECT
ANSWER True
What is a legal hazard? - CORRECT ANSWER Characteristics of the legal system that
increase F/S of a loss
What is pure risk? - CORRECT ANSWER Only possibilities of a loss or no loss (ex:
earthquake)
What is speculative risk? - CORRECT ANSWER Situation in which either profit or
loss is possible (ex: gambling)
