Use LEFT and RIGHT arrow keys to navigate between flashcards;
Use UP and DOWN arrow keys to flip the card;
H to show hint;
A reads text to speech;
19 Cards in this Set
- Front
- Back
|
Pure vs speculative risk |
Pure - possibility of loss or no loss, ano potential for gain. Insurers generally only insure pure risks. Speculative - potential for gain or loss |
|
|
Peril vs hazard |
peril - Direct cause of loss (house fire) Hazard - condition increasing possibility of loss in terms of occurrence, extent or severity (Faulty wiring that causes house fire) |
|
|
4 types of hazards (physical, moral, morale, legal) |
Physical - condition or activity like diabetes, faulty wiring, living in flood plain Moral - person with dishonest tendencies, character defects or questionable reputation Morale or attitudinal - carelessness or indifference to loss (not fixing broken lock, people who can pay claim) Legal - susceptible to liability lawsuits |
|
|
3 Types of risk exposures for individuals and families |
Personal - poor health, disability, death, unemployment, living longer than expected Property - real, personal tangible and intangible, auto Liability - bodily injury, Property damage, personal injury, contractual liability, wrongful acts |
|
|
3 types of risk exposures for Businesses and business owners |
Owner or employee - Death, disability Property - Real, inventory, personal, machinery and equipment, customer property, property in transit, farm property equipment livestock wraps, autos trucks other vehicles Liability - Bodily injury, property damage, personal injury, wrongful acts, contractual liability, product liability, Professional liability (Errors and omissions), Directors and officers liability, employee injury, fiduciary risk |
|
|
3 risk control methods besides transfer |
Risk avoidance, risks diversification, risk reduction |
|
|
Frequency and severity graph. Low frequency, low severity |
Risk Retention |
|
|
Frequency and severity graph. Low frequency, high severity |
Risk transfer |
|
|
Frequency and severity graph. High frequency, low severity |
Risk retention and risk reduction |
|
|
Frequency and severity graph. High frequency, high severity |
Risk avoidance and risk reduction |
|
|
When is risk avoidance appropriate? |
When potential losses are catastrophic and risks cannot be reduced or transferred |
|
|
When is risk diversification appropriate in investing and business? |
Reduce volatility and losses in investment portfolios. Businesses can diversify products and services to reduce risk of marketplace cycles and or hedge risk of specialized products subject to health risks or obsolescence |
|
|
What are the 2 types of losses in which risk reduction is appropriate? |
Loss prevention - Preemptive action to reduce likelihood of loss (flu shots, adhere to building code) Loss reduction - used after the fact to reduce impact of loss (Life vests, fire alarms) |
|
|
What is retention of financial risk and what are examples of tactics to do so? |
Retain are embracing part or all of risk Examples: pay for them cash, emergency fund, self insurance, tax advantage to reserve, insurance deductibles, coinsurance, maximum benefit limit, exclusions |
|
|
Passive vs active retention |
Passive - ignorant or callous disregard Active - consciously aware (auto deductible) |
|
|
What is transfer of financial risk and what are examples? |
Transfer risk to another party. Example: insurance |
|
|
Uninsured transfers vs insured transfers. Examples |
Uninsured - Risk transferred to party other than insurance company Examples: hedging, contractual agreements, warranties or guarantees, subcontracting Insured - transfer all or part to insurer Examples: commercial insurance, social insurance |
|
|
6 steps in risk management process |
1. Determine client risk management objectives 2. Identify risk exposures 3. Evaluate risk exposures 4. Select risk management strategies and tools. Use frequency and severity graph 5. Implement plan 6. Evaluate and review |
|
|
Name some of the tenants in selecting risk management strategies and tools based on frequency and severity |
1. If high severity and low frequency, transfer via insurance 2. If high severity and high frequency, prevention, avoidance, reduction of losses, transfer by contract or subcontract. If insurance necessary, use high deductible and maybe coinsurance 3. If low severity and High frequency, use retention, self-insure or perhaps non-insurance transfer. 4. Consider tax treatment of insurance premiums, losses, benefits 5. Remember non-financial issues can impact how risk is handled 6. Some risks not insurable or covered by private insurers. Government programs may mitigate otherwise uninsurable risks 7. Some risks can be insured as a large group but not practical for individuals |
