Loss Exposures

Question 1

What is Loss Exposure?

Answer 1

Any condition or situation that presents a possibility of loss, whether or not an actual loss occurs.

Question 2

What are the 3 elements of Loss Exposure?

Answer 2

An asset exposed to loss
Cause of Loss (Peril)
Financial consequences of the loss

All 3 elements are needed to properly describe a loss exposure. (Ex. Building in a fire now has a decline in market value.)

Question 3

What are the four basic types of loss exposure?

Answer 3

Property
Liability
Personnel
Net Income

Question 4

Define a Hazard.

Answer 4

A condition that increases the frequency or severity of a loss. (Ex. Storing oil rags next to a furnace)

Question 5

What are the 4 classifications of Hazards?

Answer 5

Moral
Morale
Physical
Legal

Question 6

Define Moral Hazard

Answer 6

A condition that increases the likelihood that a person will intentionally cause or exaggerate a loss. (Ex. Someone in financial debt intentionally causing a loss in attempt to gain a profit)

Question 7

Define Morale Hazard

Answer 7

A condition of carelessness or indifference that increases the frequency or severity of loss.

Question 8

Define Physical Hazard

Answer 8

A tangible characteristic of property, persons, or operations that tends to increase the frequency or severity of loss.

Question 9

Define Legal Hazard

Answer 9

A condition of the legal environment that increases loss frequency or severity. (Legal decisions favor on one side because of trends. I.E. Tobacco Manufacturers)

Question 10

Define Property loss exposure

Answer 10

A condition that presents the possibility that a person or an organization will sustain a loss resulting from damage (including destruction, taking, or loss of use) to property in which that person or organization has a financial interest.
Can be tangible or intangible property.

Question 11

Real property VS personal property

Answer 11

Real property is tangible property consisting of land and anything permanently attached to the land.
Personal property is tangible or intangible property that is not real property.

Question 12

Define Liability loss exposure

Answer 12

Any condition or situation that presents the possibility of a claim alleging legal responsibility of a person or business for injury or damage suffered by another party.

(Ex, defense cost in a lawsuit, even if won)

Question 13

Define Personnel loss exposure

Answer 13

possibility of loss caused by a key persons death, disability, retirement, or resignation.

Question 14

Define Net income loss exposure

Answer 14

possibility of loss caused by a reduction in net income.
Net income = Revenue - expenses and income tax
Decrease in revenue. Increase in expenses. Combination of both.
(causes: Loss of goodwill, failure to perform, and missed opportunities)

Question 15

While there are many causes for net income losses, net income losses are usually associated with…

Answer 15

property losses.

Question 16

Driving carelessly or failing to lock an unattended building are examples of…

Answer 16

morale hazard.