Risk Management Exam 1 Uark UPDATED ACTUAL Questions and
CORRECT Answers
Pure Risk a risk that presents the chance of loss but no opportunity for gain
caused by Peril
Peril Cause of loss, Insurance write policies for this
wont cover Flood or earthquake
spread risk across country
Speculative Risk Chance of loss,no loss or gain
Subjective Risk The perceived amount of risk based on an individual's or organization's opinion.
OR Risk Tolerance
Doctrine of Proximate Cause a loss is covered only if a covered peril is the proximate cause of a covered
consequence
Insurance will cover water damage because your house caught on fire
Hazard Anything that increases the chance of loss or the serverity
Physical Hazard a physical condition that increases the frequency or severity of loss
Exposed wiring
Moral Hazard International damage
Arson
Morale Hazard A condition of carelessness or indifference that increases the frequency or
severity of loss.
Law of Large Numbers the more accurate info we have the better our predictions
Decision Making
all our risk decision are predicated on real detailed data analysis
cash flow underwriting Insurance will lower premiums below profitability and make up lost profit by
investing premium cash flows
increase market share
rapid infusion of capital
cant run for long periods of time
Prudent Person principle We are required to act like any reasonable or prudent person would act under the
same or similar circumstance
CORRECT Answers
Pure Risk a risk that presents the chance of loss but no opportunity for gain
caused by Peril
Peril Cause of loss, Insurance write policies for this
wont cover Flood or earthquake
spread risk across country
Speculative Risk Chance of loss,no loss or gain
Subjective Risk The perceived amount of risk based on an individual's or organization's opinion.
OR Risk Tolerance
Doctrine of Proximate Cause a loss is covered only if a covered peril is the proximate cause of a covered
consequence
Insurance will cover water damage because your house caught on fire
Hazard Anything that increases the chance of loss or the serverity
Physical Hazard a physical condition that increases the frequency or severity of loss
Exposed wiring
Moral Hazard International damage
Arson
Morale Hazard A condition of carelessness or indifference that increases the frequency or
severity of loss.
Law of Large Numbers the more accurate info we have the better our predictions
Decision Making
all our risk decision are predicated on real detailed data analysis
cash flow underwriting Insurance will lower premiums below profitability and make up lost profit by
investing premium cash flows
increase market share
rapid infusion of capital
cant run for long periods of time
Prudent Person principle We are required to act like any reasonable or prudent person would act under the
same or similar circumstance
