Chapter 3 Vocab (Text)

Question 1

Risk Management

Answer 1

a process that identifies loss exposures faced by an organization and selects the most appropriate techniques for treating such exposures

Question 2

Loss Exposure

Answer 2

any situation or circumstance in which a loss is possible, regardless of whether a loss actually occurs

Question 3

Loss Frequency

Answer 3

refers to the probable number of losses that may occur during some given time period

Question 4

Loss Severity

Answer 4

refers to the probable size of the losses that may occur

Question 5

Maximum Possible Loss

Answer 5

the worst loss that could happen to the firm during its lifetime

Question 6

Probable Maximum Loss

Answer 6

the worst loss that is likely to happen

Question 7

Risk Control

Answer 7

refers to techniques that reduce the frequency or severity of losses

Question 8

Risk Financing

Answer 8

refers to techniques that provide for the funding of losses

Question 9

Avoidance

Answer 9

means a certain loss exposure is never acquired or undertaken, or an existing loss exposure is abandoned

Question 10

Loss Prevention

Answer 10

refers to measures that reduce the frequency of a particular loss

Question 11

Loss Reduction

Answer 11

refers to measures that reduce the severity of a loss after it occurs

Question 12

Retention

Answer 12

the firm retains part or all of the losses that can result from a given loss

Question 13

Retention Level

Answer 13

The dollar amount of losses that the firm will retain

Question 14

Captive Insurer

Answer 14

An insurer owned by parent firm for the purpose of insuring the parent firm’s loss exposures

Question 15

Single Parent Captive

Answer 15

an insurer owned by only one parent, such as a corporation

Question 16

Association or Group Captive

Answer 16

an insurer owned by several parents

Question 17

Self-Insurance

Answer 17

a special form of planned retention by which part or all of a given loss exposure is retained by the firm

Question 18

Risk Retention Group

Answer 18

group captive that can write any type of liability coverage except employers’ liability, workers compensation, and personal lines

Question 19

Noninsurance Transfers

Answer 19

methods other than insurance by which a pure risk and its potential financial consequences are transferred to another party

Question 20

Deductible

Answer 20

provision by which a specified amount is subtracted from the loss payment otherwise payable to the insured

Question 21

Excess Insurance

Answer 21

a plan in which the insurer dose not participate in the loss until the actual loss exceeds the amount a firm has decided to retain

Question 22

Manuscript Policy

Answer 22

written for the firm, the language and meaning of the contractual provisions must be clear to both parties

Question 23

Risk Management Policy Statement

Answer 23

outlines the risk management objectives of the firm, as well as company policy with respect to treatment of loss exposures

Question 24

Risk Management Manual

Answer 24

describes in some detail the risk management program of the firm and can be a useful tool for training managers, supervisors, and new employees who will be participating in the program.

Question 25

Personal Risk Management

Answer 25

refers to the identification and analysis of pure risks faced by an individual or family, and to the selection and implementation of the most appropriate technique(s) for treating such risks

Question 26

Cost of Risk

Answer 26

risk management tool that measures certain costs