1-D Hazards & Risk

Question 1

Define the two meanings os RISK

Answer 1

1. ) the potential for financial loss; being exposed or open to damage
2. ) an insured item

Question 2

Speculative Risk

Answer 2

• undertaken with no certainty of a gain of loss
• made knowingly, by conscious decision
• CANNOT be insured
  Example: stock market/lottery ticket - no guarantees

Question 3

Pure Risk

Answer 3

• a risk with no chance of gain
• can only result in a loss or gain
• CAN be insured

Question 4

Exposure

Answer 4

Extent or possibility to which a person, item, or organization is open to damage or loss
Example: Gulf coast = hurricane
California = earthquakes/fire

Question 5

Evaluating Exposure

Answer 5

• expressed in dollars/units

- determining factor in issuing a policy and premium

Question 6

Underwriting

Answer 6

• helps to determine companies future payouts according to risk exposure

Question 7

Hazard

Answer 7

A condition increasing the likelihood of severity of a loss

Question 8

Hazard vs. Exposure

Answer 8

• expose is the possibility of loss

- hazards are things that increase that possibility

Question 9

Peril

Answer 9

The actual cause of a loss or damage; events which people have little or no control over
Example:
- lightning
- fire 
- food
- vandalism

Question 10

In what 2 ways can insurance policies cover perils?

Answer 10

1. ) Named Peril- lists each peril that’s covered

2. ) All Peril/ “open” Peril- covers all perils except ones specifically excluded

Question 11

How many definitions of Loss are there?

Answer 11

3

Question 12

First definition of Loss

Answer 12

1.) reduction in value of an insured item

Example: reduction in car value

Question 13

Second definition of Loss

Answer 13

2.) a financial loss due to an occurrence/accident

Example: medical bills for an insured wrist

Question 14

Third definition of Loss (for insurers)

Answer 14

3.) The amount paid out in a claim settlement; what insurer must pay insured for his property damage and injury