Principles of Risk Management & Insurance – Exam 1, 2026 – Study
Material and Practice Questions
Risk - ANS✔✔ Uncertainty concerning the occurrence of a loss
Also used to identify the property or life that is being considered
Risk Management - ANS✔✔ identifies loss exposures faced by an organization and selects the
most appropriate techniques
Uncertainty - ANS✔✔ situations or circumstances where such probabilities cannot be estimated
Pure Risk - ANS✔✔ When there is uncertainty as to whether loss will occur, no possibility of
gain
(Your house burning down, earthquake, getting in a car accident, etc.)
Objective Risk - ANS✔✔ Measures both dimensions, the probability of loss and severity of loss -
simultaneously
Actual loss vs. expected loss
Speculative Risk - ANS✔✔ when there is uncertainty about whether an event can produce
either a profit or a loss (Gambling, investments, etc.)
Subjective Risk - ANS✔✔ the mental state of an individual who experiences doubt or worry as
to the outcome of a given event
Ex: Some people think flying in an airplane is unsafe, some think its totally safe
Objective probability - ANS✔✔ relative variation of an actual loss from expected loss
, Subjective probability - ANS✔✔ the individual's personal estimate of the chance of loss
Difference between Subjective and Objective Risk - ANS✔✔ differs from subjective risk in the
sense that it is more precisely observable and therefore measurable
Risk Averse - ANS✔✔ Prefer to avoid risk, willing to pay more than expected loss to avoid risk
Risk Seeker - ANS✔✔ Prefer risk, would pay more than expected return to engage in risky
situation
Probability (chance) of loss - ANS✔✔ The probability that an event will occur.
= (number expected) / (total number exposed)
Commercial Risks - ANS✔✔ Property ricks
Liability ricks
loss of business income
cybersecurity and identity theft
Human resources exposure
Foreign loss exposure
intangible property
Gov't exposures
Property Risk - ANS✔✔ Risk that property may be damaged, destroyed, or stolen
Liability Risk - ANS✔✔ the possibility of being held legally liable for bodily injury or property
damage to someone else
Material and Practice Questions
Risk - ANS✔✔ Uncertainty concerning the occurrence of a loss
Also used to identify the property or life that is being considered
Risk Management - ANS✔✔ identifies loss exposures faced by an organization and selects the
most appropriate techniques
Uncertainty - ANS✔✔ situations or circumstances where such probabilities cannot be estimated
Pure Risk - ANS✔✔ When there is uncertainty as to whether loss will occur, no possibility of
gain
(Your house burning down, earthquake, getting in a car accident, etc.)
Objective Risk - ANS✔✔ Measures both dimensions, the probability of loss and severity of loss -
simultaneously
Actual loss vs. expected loss
Speculative Risk - ANS✔✔ when there is uncertainty about whether an event can produce
either a profit or a loss (Gambling, investments, etc.)
Subjective Risk - ANS✔✔ the mental state of an individual who experiences doubt or worry as
to the outcome of a given event
Ex: Some people think flying in an airplane is unsafe, some think its totally safe
Objective probability - ANS✔✔ relative variation of an actual loss from expected loss
, Subjective probability - ANS✔✔ the individual's personal estimate of the chance of loss
Difference between Subjective and Objective Risk - ANS✔✔ differs from subjective risk in the
sense that it is more precisely observable and therefore measurable
Risk Averse - ANS✔✔ Prefer to avoid risk, willing to pay more than expected loss to avoid risk
Risk Seeker - ANS✔✔ Prefer risk, would pay more than expected return to engage in risky
situation
Probability (chance) of loss - ANS✔✔ The probability that an event will occur.
= (number expected) / (total number exposed)
Commercial Risks - ANS✔✔ Property ricks
Liability ricks
loss of business income
cybersecurity and identity theft
Human resources exposure
Foreign loss exposure
intangible property
Gov't exposures
Property Risk - ANS✔✔ Risk that property may be damaged, destroyed, or stolen
Liability Risk - ANS✔✔ the possibility of being held legally liable for bodily injury or property
damage to someone else
