Risk and Its Treatment - RMIN 4000 Lecture Notes

A set of flashcards summarizing key concepts and terminology related to risk management and its treatment, as discussed in the RMIN 4000 lecture notes.

Risk Management

The process of protecting assets and/or preventing/reducing losses.

Peril

The cause of a loss, such as fire, tornado, or collision.

Hazard

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

Frequency

How often a loss occurs within a specified time period.

Severity

The dollar amount of loss for a specific peril when it occurs.

Pure Risk

Risk that can result only in a loss or no loss, such as accidents or natural disasters.

Speculative Risk

Risk that can result in a loss, no loss, or a gain, such as investments.

Diversifiable Risk

Risk affecting individuals or small groups that can be reduced or eliminated through diversification.

Nondiversifiable Risk

Risk affecting large numbers of people or the entire economy that cannot be eliminated through diversification.

Systemic Risk

Risk of collapse of an entire system or market due to the failure of a single entity.

Liability Risk

Legal liability resulting from injuries or damages caused to someone else.

Loss Control

Techniques to reduce the frequency or severity of losses.

Retention

The practice of retaining part or all of the losses that may occur from a risk.

Avoidance

Technique in which a certain loss exposure is never acquired or abandoned.

Moral Hazard

Dishonesty or character defects that increase the frequency and/or severity of a loss.

Morale Hazard

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

Legal Hazard

Conditions of the legal system that increase the frequency and/or severity of losses.