Risk Management Concepts and Definitions

This set of flashcards covers key vocabulary and concepts related to risk management, including definitions and characteristics essential for understanding the subject.

Pure Risk

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

Speculative Risk

A situation in which either profit or loss are clear possibilities.

Insurance

Payment of a small loss in anticipation of a large loss.

Insurable Risk Characteristics

The six characteristics include: large number of exposure units, accidental and unintentional loss, determinable and measurable loss, non-catastrophic loss, calculable chance of loss, and economically feasible premium.

Peril

The cause of loss, for example, fire.

Hazard

A condition that increases the frequency or severity of a loss.

Attitudinal Hazard (Morale Hazard)

Carelessness or indifference to a loss, increasing the frequency or severity of loss.

Legal Hazard

Characteristics of the legal system or regulatory environment that increase the frequency or severity of losses.

Moral Hazard

The risk that an insured party may engage in risky behavior or be less careful because they are insured.

Risk Management Process

The systematic process to identify, assess, and manage risks.