Continuing Education Flashcards
What is PURE risk?
Pure risk is the risk involved in situations that present the opportunity for loss but no opportunity for gain. It’s either loss or no loss. Flood, lightning, earthquakes, etc. Generally insurable.
What is SPECULATIVE risk?
Speculative risk is the uncertainty about an event under consideration that could either produce a loss, no change, or a profit/gain. Investing in stock market or engaging in new business. They usually create risks where none were before and are generally uninsurable.
What is a loss?
A loss is an unplanned reduction in the value of something. It always involves an unplanned reduction in value.
What is a PERIL?
A peril is a direct or proximate cause of loss. The 3 categories are:
Natural perils - Mother Nature
Human perils - Theft, vandalism, violence, carelessness
Economic perils - Recession or changes in consumer preferences and in technology.
What is a HAZARD?
A hazard is a condition or action that increases the probability/frequency or the magnitude/severity of a loss. There are 4 types of hazards.
What are the 4 types of hazards?
Physical hazard- condition/situation that increased the probability or severity of a loss.
Moral hazard- concerns the likelihood of intentional acts committing by the insured that creates or exaggerates a loss.
Attitudinal(morale) hazard- An indifference to loss simply because insurance exists.
Legal hazard- Various conditions/situations that present the possibility of loss, whether or not a loss ever occurred.
What is LOSS EXPOSURE?
Any condition/situation that presents the possibility of a loss, whether it occurs or not. Loss exposure has 4 categories.
What’re the 4 categories of LOSS EXPOSURE?
Loss frequency - How often a loss is expected to occur within a given period of time.
Loss severity - The amount of loss, measured in dollars, for a specific occurrence.
Total dollar losses - Total dollar amount of losses for all occurrences of a given type during a specific time period. TOTAL DOLLAR LOSS is frequency times severity.
Timing - Relevant with respect ti both the occurrence of the loss and the time when an insurer pays the resulting claim.
What’re the 4 phases of risk management?
E.A.E.A.
1.) Evaluating loss exposure.
2.) Appraising the feasibility of alternative risk management techniques.
3.) Establishing a risk management program
4.) Adapting to change
What is a property loss exposure?
Property Loss Exposure is the possibility of loss resulting in the damaging, destruction, taking, or loss of use of property that one has a financial interest in. Includes partial and total losses.
What is LIABILITY LOSS EXPOSURE?
Liability Loss Exposure is the possibility of a claim allege that a person/organization is legally responsible for another parts injury or damage. Can be by tort(negligence or slander)or by an action that is wrong against society rather than an individual/specific entity(such as environmental pollution).
What are some risk management evaluation tools?
1.) Questionnaire
2.) History to partial losses
3.) Financial statements and records
4.) Flowcharts of operations
5.) Personal inspections of facilities by someone with risk management experience
What are the 7 organizational goals for risk management?
1.) Meeting legal requirements
2.) Abiding by ethical standards
3.) Achieving specified financial operating results
4.) Maintaining continuous/stable operations
5.) Reaching growth targets
6.) Addressing humanitarian concerns
7.) Serving any goals that may be important to a specific organization
What are the 4 types of COST OF RISK expenses?
1.) Insurance premiums
2.) Cost of restoring uninsured losses(including deductibles)
3.) Expenditures for safety measures
4.) Administrative costs of operating the organizations risk management program.
What are the 5 basic Risk Control techniques?
1.) Exposure avoidance - completely eliminates an org’s loss exposure
2.) Loss prevention - reduces probability of losses
3.) Loss reduction - reduces size or severity of potential losses
4.) Segregation of exposures - divided a single exposures into several smaller, more easy to handle exposures
5.) Contractual transfer - separates several exposures from one another legally rather than physically
What is RISK RETENTION?
Risk retention uses funds from within an organization to pay for losses it incurs. It’s usually less expensive than purchasing insurance due to frictional costs. Deductibles and loss-sensitive insurance rating plans are complex forms of retention.
What are some retention-funding alternatives?
1.) Current expensing of accidental losses - used for minor accidental losses that occur more frequently than major ones and thus can be anticipated and absorbed.
2.) Use of unfunded reserves - Used for accidental losses that are more frequent or severe than can be easily absorbed through current expensing.
3.) Use of funded reserves - used for loss exposures for which the firm does not have/chooses not to use its insurance when an unfunded reserve would not provide sufficient financial security.
4.) Drawing on borrowed funds - used for serious accidental loss for which there is no applicable insurance/none was available and absorption as a current expense would greatly damage and effect the firm.
5.) Creating/relying on a “captive insurer” - used for losses that occur frequently and are to some extent able to be budgeted. A captive is a highly formalized arrangement for retaining losses, it’s an insurance company that has as its primary purpose the financing of the risk of its owners/participants.
What are the 3 most common forms of transfer for risk financing?
1.) Commercial insurance
2.) Contractual(non-insurance)transfer for risk financing
3.) Operation of general law(tort law and statute)
What are some actions included in appraising the feasibility of alternative risk management techniques?
1.) Determining where the company can get the biggest bang for their buck by applying certain techniques.
2.) Looking for contractual alternatives to assuming exposures
3.) Determining how the company wants to fund losses that occur and it’s risk appetite.
What is defined as REAL property?
Real property is land and anything affixed to the land such as a building or other structures. Fixed and immobile.
What is defined as PERSONAL property?
Personal property is anything that is not real property such as all loose, mobile items like clothing, furniture, jewelry, lawn mowers, tv’s. Anything not permanently fixed to the foundation or building.
What are fixtures?
Fixtures are loose articles of personal property attached to real property such that they become a part of it and not to be removed. Ex- wall to wall carpeting, air conditioner, etc.
Outdoor fixtures are attached to the land itself rather than a structure, like a flag or light pole.
What are trade fixtures?
Trade fixtures are what a tenant installs fixtures on commercial property specifically for its use in a trade or business. If the comm. lease gives the tenant the right to remove the fixtures at the end of the lease. They are useful to the specific tenant but wouldn’t be for any other tenant.
What is TANGIBLE property?
Tangible property is property that has physical form such that it can be seen, felt, touched, or handled. Can be real or personal property. Like a house or a car.
What is INTANGIBLE property?
Intangible property cannot be seen, felt, touched, or handled. Can be real or personal. Ex- an easement over someone’s property or a patent. No coverage options possible for losses to intangible property.
What is a LEGAL TITLE?
A legal title refers to the right of control over property and which Carrie’s the legal responsibility for it.
What is EQUITABLE TITLE?
Equitable title is the beneficial use of the property.
What is a BAILMENT?
A bailment is a contractual arrangement initiated by the owner of a piece of property who temporarily transfers possession of the property to another party for a specified purpose.
The owner of the property is the “bailor”.
The party to whom the property is transferred to is the “bailee”.
What is a LIEN?
A lien is a charge or responsibility on either real or personal property of a debtor that gives the lien holder a security interest in that property. Ex- the right to take and hold property until the debtor pays the debt or fulfills a duty that is owed.
What is a MORTGAGE?
Mortgage is a specific type of lien created by a written instrument in which the party giving the mortgage(the owner/“mortgagor”)transfers a security interest in real property to the party receiving the mortgage(mortgagee). The purpose is to secure a loan.
What is REPLACEMENT COST?
Replacement cost is the amount of money needed to repair your home at today’s prices of building supplies; or replace your belongings at today’s cost of the similar or like item.
What is Actual Cash Value/ACV?
ACV is a replacement cost minus depreciation-as fair market value. It is equivalent to the cost to replace the damage/destroyed item(s) with a similar item in the present day marketplace minus a deduction from the replacement cost for reflecting depreciation(for wear and tear given the damaged items age and use).
What is TORT LAW?
Tort law is a civil wrong, other than a breach of contract, for which the law provides money damages as a possible remedy. In order for a tort to occur, there must be an unjustified breach of a legal duty causing direct damage.
What is NEGLIGENCE?
Negligence is the failure to use a reasonable degree of care under a given set of circumstances.
