Risk Flashcards
Pure RIsk
A loss with 100% chance of happening
Impossible loss
has zero percent chance of happening
Ex) A hurricane destorying two data centers on oppisite sides of the world
Pure Risk
Results in either loss or no loss
Ex) Fire, flood, death
Speculative Risk
Gain, loss, or no gain or loss
Ex) Buying a stock, gambling
Static Risk
Does not significantly change over time
Dynamic Risk
Arises out of changing circumstances
Diversifiable Risks
Not highly correlated (separate incidents that don’t affect each other)
Non diversifiable
One event impacts a lot of different things
Ex) Hurricane wipes out hundreds of homes
Objective Risk
Measurable variation in uncertain outcomes based on facts and data
Subjective Risk
An individual’s view of uncertainty or the situation involving risk
Expected Loss (EL)
What we expect to lose - based on experience, data, or other means
Actual Losses (AL)
Losses that actually occur
How does one measure risk (formula)
(AL - EL)/EL
Peril (1st factor)
- The immediate cause of the loss
Ex) Fire, flood, theft
Frequency of the loss (2nd factor)
How often do losses occur
- What is the likelihood of a loss
Severity of the loss (3rd Factor)
How bad was the loss in terms of $$$
Hazard (4th Factor)
The “Why”
Physical Hazard
Location, construction, or use
Ex) Living at the beach, building made out of wood, university classroom vs a church
Moral Hazard
When someone behaves differently because they know they have insurance
Morale Hazard
Carelessness concerning loss
- Has nothing to do with whether the person has insurance or not
Expected Cost of Loss
Money that comes from losses
Cost to manage/Risk management expenditures
- Cost to prevent a risk from happening
Ex) Money spent to make a place safe, research on vaccine
Damage to Society/Loss of Goods or Services
What is lost as a result of the risk
Ex) Loosing jobs, loved ones, mental health issues
