Risk Management Study Guide

A collection of flashcards covering key concepts and definitions related to Risk Management.

Risk Management

A process to identify loss exposures and select appropriate techniques for treatment.

Pre-loss Objectives

Economy, reduction of anxiety, and meeting legal obligations.

Post-loss Objectives

Survival of the firm, continued operations, stability of earnings, continued growth, and social responsibility.

Risk Control

Techniques to reduce the frequency or severity of losses.

Avoidance

Never acquiring or abandoning a loss exposure.

Loss Prevention

Measures that reduce the frequency of a loss.

Loss Reduction

Measures that reduce the severity of a loss after it occurs.

Duplication

Having backup copies of key records or assets.

Separation

Dividing assets to minimize harm from a single event.

Diversification

Spreading loss exposures across different parties, securities, or transactions.

Risk Financing

Techniques that provide for the funding of losses after they occur.

Retention

When no other method is available, losses are predictable, and the worst loss is not severe.

Captive Insurer

An insurer owned by a parent firm to insure its own risks.

Noninsurance Transfer

A way to transfer risk to another party without using insurance.

Indemnification

Compensation for damage or loss, ensuring the insured does not profit from a claim.

Principle of Indemnity

Insurer should not pay more than the actual amount of the loss.

Insurable Interest

The insured must stand to lose financially if a loss occurs.

Subrogation

The insurer can recover from a negligent third party any loss payments made to the insured.

Utmost Good Faith

A higher degree of honesty is required from both parties in an insurance contract.

Agencies in Insurance

An agreement where an agent has the authority to act on behalf of the insurer.

Negligence

Harm caused by the failure to exercise reasonable care.

Compensatory Damages

To cover actual losses such as medical expenses and property damage.

Punitive Damages

Awarded to punish the defendant for particularly egregious behavior.

Respondeat Superior

An employer is liable for the negligence of employees while acting within the scope of employment.

Attractive Nuisance

A dangerous condition on a property that may attract children and cause injury.