RISK MANAGEMENT QUIZ (chapter 1-3) 100% Correct Answers

Peril - ANS a cause of a loss. EG: fire, auto accident, thief Pure risk - ANS a chance of loss or no gain speculative risk - ANS a chance of no loss or a chance or a chance of profit. EG: invest in the stock market, credit risk of default subjective risk - ANS a person's perspective of the risk that is a chance of loss objective risk - ANS the actual chance of loss based on factual data hazard - ANS a condition that either increases the CHANCE of having a lost or increases the SIZE of a lost physical hazard - ANS a condition of property, person, or operation that increases the frequency and/or severity of loss. EG: auto accident-from speeding, texting, moral hazard - ANS intentional causing a loss or making it more sever. a condition that increases the likelihood that a person will intentionally cause or exaggerate a loss. EG: starting a fire legal hazard - ANS operate in a city where there is lots of litigation morale hazard - ANS carelessness due to the presences of insurance. Behavior influenced due to insurance. .EG: driving careless, failing to lock a building ways to deal with risk (risk control techniques) - avoidance - ANS dropping a product line or ceasing a product due to risk ways to deal with risk (risk control techniques)- diversification - ANS providing a range of product lines or services used by a variety of customers ways to deal with risk (risk control techniques)- duplication - ANS backup "having an extra" ways to deal with risk (risk control techniques) -separation - ANS moving operations apart to minimize the impact of one's loss ways to deal with risk (financial techniques)- transfer - ANS generate funds from outside the organization to pay for losses such as insurances ways to deal with risk (risk financial techniques)- risk retention - ANS involves generating funds from within the organization to pay for losses how to quantify the risk? - ANS frequency and severity (loss) 1. frequency ity - ANS 1. NUMBER of losses and 2. the SIZE of losses (dollar amount) enterprise risk management - ANS boarder view off risk management that encompasses all types of risk. It's an approach that allows an organization to integrate all of its risk management activities so that the risk management process occurs at the enterprise level, rather than the department or business level. identifying loss exposures - ANS 1. checklist or questionnaires, 2. financial statement (budgets, cash flows, footnotes(more detail, potential litigation) strategic plans) 3. contracts 4. loss runs "what kind of claims" EG: workers comp, liabilities from outsiders) 5. flowcharts (raw material-process-sold) 6. Hazard Specialist- "seek risk that we don't see" 7. personal inspection risk management process - ANS 1. identify the risk of loss exposure 2. analyze the loss exposure 3. examine the feasibility risk alternative 4. select the risk alternative ment 6. monitor cost of risk - ANS 1. unreimbursed losses- uninsured or within the deductible 2. cost of insurance premiums or expenses incurred for noninsurance indemnity 3. cost of loss control 4. cost of the administration or risk management 5. cost of residual uncertainty = "loss of worry" elements of loss exposure - ANS 1. an asset exposed to loss EG:property 2. cause of loss (called peril) EG: fire quences of that loss Pre-loss Goals - ANS 1. Economy of operation 2. Tolerable uncertain 3. legality l responsibility Post-loss Goals - ANS 1. Survival 2. Continuity of operations 3. Profitability 4. Earning stabilities 5. Social responsibility 6. Growth negligence - ANS failure to act exercise the standard of care by the law and result in harm to someone cost of worry - ANS residual uncertainty, risk that remain Element of a tort - ANS duty- "duty to drive good" breach- its measured by the reasonable person test damages-injured by the breach cause Types of loss exposure - ANS 1. property loss exposure 2. liability loss exposure 3. personnel loss exposure 4. net income loss exposure three types of tort - ANS negligence, intentional tort and strict liability tort law of large numbers - ANS As the same size grows larger, the accuracy of prediction from the sample increases worry value - ANS subjective risk - ANS the perceived amount of risk based on an individual's or organization's opinion. objective risk - ANS the measurable variation in uncertain outcomes based on facts and data coefficient of variation - ANS divided standard deviation or variance BY its mean three components of a premium - ANS 1. expected loss AKA pure loss 2. risk charge- the amount insurer changes for the risk that actual losses exceed expected 3.Administrative expense and overhead