Risk Management Test 1 Set 3

Front 1

Insurers are regulated by the states for several reasons, including

Back 1

o maintain insurer solvency
o compensate for inadequate consumer knowledge
o ensure reasonable rates
o make insurance available

Front 2

Three principal methods are used to regulate insurers:

Back 2

legislation, courts, and state insurance departments.

Front 3

Formation and licensing of insurers, solvency regulation, rate regulation, policy forms, sales practices and consumer protection.

Back 3

principal areas insurers are regulated

Front 4

All states have -------- that provide for the payment of unpaid claims of insolvent property and casualty insurers.

Back 4

guaranty funds

Front 5

(also called degree of risk) is defined as the relative variation of actual loss from expected loss

Back 5

objective risk

Front 6

is defined as uncertainty based on a persons mental condition or state of mind.

Back 6

Subjective risk

Front 7

refers to the long run relative frequency of an event based on the assumptions of an infinite number of observations and of no change in the underlying conditions

Back 7

objective probability

Front 8

the individual’s personal estimate of the chance of loss

Back 8

subjective probability

Front 9

is defined here as uncertainty concerning the occurrence of a loss

Back 9

risk

Front 10

is defined as the probability that an event will occur

Back 10

chance of loss

Front 11

a situation in which there are only the possibilities of loss or no loss

Back 11

pure risk

Front 12

a risk that affects the entire economy or large numbers or persons or groups within the economy

Back 12

fundamental risk

Front 13

defined as a situation in which either profit or loss is possible

Back 13

speculative risk

Front 14

a condition that creates or increases the chance of loss. The four major types of hazard are physical hazard, moral hazard, morale hazard, and legal hazard

Back 14

hazard

Front 15

defined as the cause of loss

Back 15

peril

Front 16

a physical condition that increases the chance of loss. Ex-defective lock that causes theft

Back 16

physical hazard

Front 17

how many times something happens; Loss prevention is used to reduce frequency of a particular loss

Back 17

frequency

Front 18

how bad are injuries; Loss reduction refers to measures that reduce the severity of a loss after it occurs.

Back 18

severity

Front 19

dishonesty or character defects in an individual that increase the frequency or severity of loss. Ex. Faking an accident to collect from an insurer

Back 19

moral hazard

Front 20

carelessness or indifference to a loss because of the existence of insurance

Back 20

morale hazard