Chapter 3 Vocab (Notes) Flashcards
Risk Management
process that identifies loss exposures faced by an organization and selects the most appropriate techniques to treat exposures
Loss Exposures
any situation or circumstance in which a loss is possible, regardless of whether a loss occurs
Loss Frequency
refers to the probable number of losses that may occur during some time period
Loss Severity
refers to the probable size of the losses that may occur
Maximum Possible Loss
is the worst loss that could happen to the firm during its lifetime
Probable Maximum Loss
is the worst loss that is likely to happen
Risk Control
refers to techniques that reduce the frequency and severity of losses
Avoidance
means a certain loss exposure is never acquired or undertaken, or an existing loss exposure is abandoned
Loss Prevention
refers to measures that reduce the frequency of a particular loss
Loss Reduction
refers to measures that reduce the severity of the loss after it occurs
Risk Financing
refers to techniques that provide for the payment of losses after they occur
Retention
means that the firm retains part or all of the losses that can result from a given loss
Retention level
the dollar amount of losses that the firm will retain
Single Parent Captive
insurer is owned by only one parent
Captive Insurer
an insurer is owned by a parent firm for the purpose of insuring the parent firm’s loss exposures
Association or Group Captive
an insurer owned by several parents
Self Insurance/Self Funding
special form of planned retention by which part or all of a given loss exposure is retained by the firm
Risk Retention Group (RRG)
a group captive that can write any type of liability coverage except employers’ liability, workers compensation, and personal lines
Noninsurance Transfer
a method other than insurance by which a pure risk and its potential financial consequences are transferred to another party
Deductible
a specified amount subtracted from the loss payment otherwise payable to the insured
Excess Insurance Policy
the insurer pays only if the actual loss exceeds the amount a firm has decided to retain
Manuscript Policy
is a policy tailored to the firm
Underwriting Cycle
in a “hard” market, profitability is declining and underwriting standards are tighten, premiums increase and insurance is hard to obtain. in a “soft market” profitability is improving, standards are loosened, premiums decline, and insurance becomes easier to obtain
Risk Management Policy Statement
outlines the firms objectives and policies, educates top level executives, gives risk manager greater authority, provides standards for judging the risk manager’s performance
Risk Management Manual
describes the risk management program and may be used to train new employees
Cost of Risk
A risk management tool that measures certain costs in a risk management program, including insurance premiums paid, retained losses, outside risk management services, financial guarantees, internal administrative costs, taxes and fees, and certain other expenses
Personal Risk Management
the identification of pure risks faced by an individual or family and to the selection of the most appropriate technique for treating such risks
