Ch 1 Risk In Our Society

Front 1

risk

Back 1

uncertainty concerning the occurrence of loss

Front 2

objective risk

Back 2

the relative variation of actual loss from expected loss

Front 3

subjective risk

Back 3

uncertainty based on a persons mental condition or state of mind

Front 4

objective probability

Back 4

the long-run relative frequency of an event based on the assumption of an infinite number of observations with no change in the underlying conditions

Front 5

subjective probability

Back 5

an individual's personal estimate of the chance of loss

Front 6

peril

Back 6

cause of a loss

Front 7

earthquake is an example of a

Back 7

peril

Front 8

dense fog that increases the chance of an auto accident is an example of a

Back 8

physical hazard

Front 9

faking an accident to collect insurance proceeds is an example of a

Back 9

moral hazard

Front 10

morale hazard

Back 10

indifference to loss because of the existence of insurance

Front 11

some characteristics of the judicial system and regulatory environment increase the frequency and severity of loss. this hazard is called

Back 11

legal hazard

Front 12

enterprise risk

Back 12

phrase that encompasses all of the major risks faced by a business firm

Front 13

the decline in the value of a bond portfolio because of rising interest rates is considered a (blank) risk

Back 13

financial risk

Front 14

increased cost of production because of rising commodity prices is considered a (blank) risk

Back 14

financial risk

Front 15

loss of money because of adverse movements in currency exchange rates is considered a (blank) risk

Back 15

financial risk

Front 16

Katelyn was just named Risk Manager of ABC Company. She has decided to create a risk management program which considers all of the risks faced by ABC—pure, speculative, operational, and strategic—in a single risk management program. Such a program is called a(n)

Back 16

enterprise risk management program

Front 17

pure risk

Back 17

a situation which there is only the possibility of loss or no loss

Front 18

premature death of an individual is an example of a

Back 18

pure risk

Front 19

programs to insure fundamental risks include

Back 19

federally subsidized flood insurance, social security, or unemployment compensation

Front 20

example of personal risk

Back 20

poor health, unemployment, premature death

Front 21

poor health, unemployment, premature death are examples of

Back 21

personal risk

Front 22

reasons why premature death may result in economic insecurity

Back 22

additional expenses associated with death may be incurred or the income of the deceased person's family may be inadequate to meet its basic needs

Front 23

consequences of long-term disability

Back 23

continuing medical expenses or loss or reduction of employee benefits

Front 24

continuing medical expenses or loss or reduction of employee benefits could be a consequence of

Back 24

long term disability

Front 25

direct property losses examples

Back 25

theft of a person's jewelry, the destruction of a firm's manufacturing plant by an earthquake, or the vandalism of a person's automobile

Front 26

theft of a person's jewelry, the destruction of a firm's manufacturing plant by an earthquake, or the vandalism of a person's automobile are examples of

Back 26

direct property losses

Front 27

example of indirect loss

Back 27

extra expense incurred by a business to stay in operation following a fire

Front 28

extra expense incurred by a business to stay in operation following a fire is an example of a

Back 28

indirect loss

Front 29

liability risks

Back 29

future income and assets can be attached to pay judgements if inadequate insurance is carried

Front 30

loss control includes

Back 30

loss reduction and loss prevention

Front 31

following good health habits can be categorized as

Back 31

loss prevention

Front 32

from the insured's perspective, the use of deductibles in insurance contracts is an example of

Back 32

risk retention

Front 33

risk retention and transfer are considered

Back 33

risk financing

Front 34

risk avoidance and reduction are considered

Back 34

risk control

Front 35

the use of fire-resistive materials when constructing a building is an example of

Back 35

loss control

Front 36

methods of non insurance transfer

Back 36

entering into hold-harmless agreements, hedging risk using stock index futures, or incorporating a business

Front 37

Curt borrowed money from a bank to purchase a fishing boat. He purchased property insurance on the boat. Curt had difficulty making loan payments because he did not catch many fish, and fish prices were low. Curt intentionally sunk the boat, collected from his insurer, and paid off the loan balance. This scenario illustrates the problem of

Back 37

moral hazard

Front 38

Jenna opened a successful restaurant. One night, after the restaurant had closed, a fire started when the electrical system malfunctioned. In addition to the physical damage to the restaurant, Jenna also lost profits that could have been earned while the restaurant was closed to repair the damage. The lost profits are an example of

Back 38

indirect loss

Front 39

Brad started a pest control business. To protect his personal assets against liability arising out of the business, Brad incorporated the business. Brad’s use of the corporate form of organization to shield against personal liability claims illustrates

Back 39

non-insurance transfer

Front 40

ABC Insurance Company plans to sell homeowners insurance in five Western states. ABC expects that 8 homeowners out of every 100, on average, will report claims each year. The variation between the rate of loss that ABC expects to occur and the rate of loss that actually does occur is called

Back 40

objective risk

Front 41

Williams Company installed smoke detectors, a sprinkler system, and fire extinguishers in its new manufacturing facility. These devices are all examples of

Back 41

loss control

Front 42

Tyndal Products Company produces cereal. The company has entered into contracts to deliver one million boxes of cereal during the next 18 months. The company is concerned that the prices of two ingredients, corn and wheat, may increase over the next 18 months. The company used grain futures contracts to hedge the price risk associated with these commodities. Tyndal’s use of hedging illustrates which risk management technique?

Back 42

non-insurance transfer

Front 43

cathy's car hit a patch of ice on the road. the car skidded off the road and hit a tree. the presence of ice on the road is best described as a

Back 43

physical hazard

Front 44

Jim and Paula Franklin started a dry cleaning business. The business may be successful or it may fail. The type of risk that is present when either a profit or loss could occur is called

Back 44

speculative risk

Front 45

Ben is concerned that if he injures someone or damages someone’s property he could be held legally responsible and required to pay damages. This type of risk is called a

Back 45

liability risk

Front 46

MLX Drug Company would like to market a new hypertension drug. While the Food and Drug Administration (FDA) was testing the drug, it discovered that the drug produced a harmful side effect. When MLX learned of the FDA’s test result, MLX abandoned its plan to produce and distribute the drug. MLX’s reaction illustrates

Back 46

risk avoidance

Front 47

ABC Health Insurance Company sells health insurance in one state. Recently, the state legislature passed a law forbidding health insurers from considering an individual’s health history when selecting applicants to insure. This change in law will increase the possibility of unprofitable results for ABC. This type of hazard is an example of

Back 47

legal hazard