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Risk Management > exam 3 > Flashcards

Flashcards in exam 3 Deck (34)
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1
Q

means that an individual is aware of the risk and deliberately plans to retain all or part of it

A

active retention

2
Q

The tendency of persons with a higher-than-average chance of loss to seek insurance at standard rates

A

adverse selection

3
Q

A technique to manage risk by avoiding it

A

avoidance

4
Q

financial loss that results from the physical damage, destruction, or theft of the property, such as fire damage to a home

A

direct loss

5
Q

changed federal law that earlier prevented banks, insurers, and investment firms from competing outside their core area. The federal Reserve has umbrella authority over bank affiliates that engage in underwriting insurance

A

Financial Modernization Act

6
Q

a loss that is unforeseen, unexpected, and occur as a result of chance

A

fortuitous losses

7
Q

A technique for transferring the risk of unfavorable price fluctuations to a speculator by purchasing and selling futures contracts on an organized exchange

A

hedging

8
Q

a type 2 loss, prevention and retention are the most appropriate risk management techniques

A

High-frequency, low-severity

9
Q

Restoring the insured to his or her approximate financial position prior to the occurrence of the loss

A

indemnification

10
Q

a financial loss that results indirectly from the occurrence of a direct physical damage or theft loss. The additional living expenses after a fire

A

indirect loss

11
Q

the pooling of fortuitous losses by transfer of such risks to insurers

A

insurance

12
Q

activities to reduce the frequency of losses

A

Loss prevention

13
Q

activities to reduce the severity of losses

A

Loss reduction

14
Q

type 3 loss Transfer is the most appropriate risk management technique

A

Low-frequency, high-severity

15
Q

dishonesty or character defects in an individual that increase the frequency or severity of loss

A

moral hazard

16
Q

a method other than insurance by which a pure risk and its potential financial consequences are transferred to another party

A

noninsurance transfer

17
Q

The long run relative frequency of an event base on the assumptions of an infinite number of observations and of no change in the underlying conditions

A

objective probability

18
Q

The relative variation of actual loss from expected loss

A

objective risk

19
Q

means risks may be unknowingly retained because of ignorance, indifference, or laziness

A

passive retention

20
Q

ruled insurance was not interstate commerce, and that the states had the right to regulate the industry rather than the federal government

A

Paul v. Virginia

21
Q

the cause of the loss

A

peril

22
Q

a physical condition that increases the frequency or severity of the loss

A

physical hazard

23
Q

spreading the losses incurred by the few over the entire group

A

pooling of losses

24
Q

the Insurers right to sue a liable party.

A

principle of subrogation

25
Q

used to manage catastrophic loss, disperses coverage over large geographic area, or using financial instruments, such as catastrophe bonds. an insurance company can transfer its coverage to another insurer

A

reinsurance

26
Q

an individual or business firm retains part or all of the losses that can result from a given risk

A

retention

27
Q

A pure risk is transferred from the insured to the insurer, who typically is in a stronger financial position

A

risk transfer

28
Q

all or part of the given loss exposure is retained by the firm

A

Self-insurance

29
Q

ruled that insurance was interstate commerce when conducted across state lines and was subject to federal antitrust law

A

South-Eastern Underwriters Association case

30
Q

a situation in which either profit or loss is possible (gambling)

A

speculative risk

31
Q

An individual’s personal estimate of the chance of loss

A

subjective probability

32
Q

Uncertainty based on a person’s mental condition or state of mind

A

subjective risk

33
Q

the inducement of a policy owner to drop an existing policy and replace it with a new one that provides little or no economic benefit to the client. Prohibited practice under insurance law

A

twisting

34
Q

the practice of giving an individual a premium reduction or some other financial advantage not stated in the policy as an inducement to purchase the policy. Insurance laws prohibit this practice

A

rebating