Risk Management (Test A)

The probability that an event that causes a loss will occur

• Speculative Risk

• Adverse selection

• Chance of Loss

Self Insurance

• Characteristics of the legal or regulatory system that increase the frequency or severity of loss

• A special form of planned retention by which part or all of a given loss exposure is retained by the firm

• A situation in which the only outcomes are loss or no lossEx: car crash, house fire, acciden

• Dishonesty or character defects in an individual that increase the chance of a lossInsurance fraud, inflating claims

• The risk of being financially responsible for damage to another entity(3rd Party)

Legal Hazard

• Characteristics of the legal or regulatory system that increase the frequency or severity of loss

• A special form of planned retention by which part or all of a given loss exposure is retained by the firm

• A situation in which the only outcomes are loss or no lossEx: car crash, house fire, acciden

• Dishonesty or character defects in an individual that increase the chance of a lossInsurance fraud, inflating claims

• The risk of being financially responsible for damage to another entity(3rd Party)

Moral Hazard

• Characteristics of the legal or regulatory system that increase the frequency or severity of loss

• A special form of planned retention by which part or all of a given loss exposure is retained by the firm

• A situation in which the only outcomes are loss or no lossEx: car crash, house fire, acciden

• Dishonesty or character defects in an individual that increase the chance of a lossInsurance fraud, inflating claims

• The risk of being financially responsible for damage to another entity(3rd Party)

Liability risks

• Characteristics of the legal or regulatory system that increase the frequency or severity of loss

• A special form of planned retention by which part or all of a given loss exposure is retained by the firm

• A situation in which the only outcomes are loss or no lossEx: car crash, house fire, acciden

• Dishonesty or character defects in an individual that increase the chance of a lossInsurance fraud, inflating claims

• The risk of being financially responsible for damage to another entity(3rd Party)

Pure Risk

• Characteristics of the legal or regulatory system that increase the frequency or severity of loss

• A special form of planned retention by which part or all of a given loss exposure is retained by the firm

• A situation in which the only outcomes are loss or no lossEx: car crash, house fire, acciden

• Dishonesty or character defects in an individual that increase the chance of a lossInsurance fraud, inflating claims

• The risk of being financially responsible for damage to another entity(3rd Party)

Death or disability of key employees

Retirement or unemployment exposures

• Personal risks

• Captive insurer

• Indemnification

• Human Resources Loss Exposures

Avoidance - don't do the risky activity

Prevention - reduce frequency (Ex Alarms, bike chains)

Reduction - reduce severity after loss occurs (helmets, seat belts, sprinklers, hurricane proofing home)

• Risk Control

• Moral Hazard

• Active retention

• Loss exposure

Carelessness or indifference to loss because of the existence of insurance

Ex: leave car unlocked because it is worth more stolen, etc.

• Types of personal risks management

• Passive retention

• Morale (Attitudinal) Hazard

• Economically feasible

A situation in which profit or loss is possible

Ex: Stock market, commodities, gambling

• Active retention

• Speculative risk

• Hedging

• Subjective probability