FBLA

Objective Risk

The variation between the expected risk and the actual risk.

Subjective Risk

Someone's perceived risk based on personal mental conditions or state of mind.

Objective Probability

The long run relative frequency of an event based on historical data.

Subjective Probability

Someone's personal estimate of the chance of loss.

Peril

The cause of a loss.

Hazard

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

Physical Hazard

Physical conditions that increase the frequency or severity of loss.

Moral Hazard

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

Attitudinal/Morale Hazard

Carelessness or indifference to a loss which increases the frequency or severity of a loss.

Legal Hazard

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

Pure Risk

Situation in which there is only the possibility of loss or no loss (no gain).

Speculative Risk

Situation in which either profit or loss is possible.

Diversifiable/Particular Risks

Risk that affects only the individuals or small groups and not the entire economy.

Nondiversifiable/Fundamental Risk

Risks that affect the entire economy or large numbers of persons or groups within the economy.

Enterprise Risk

Term that encompasses all major risks faced by a business firm.

Strategic Risk

Uncertainty regarding the firm's financial goals and objectives.

Operational Risk

Risks from the firm's business operations.

Enterprise Risk Management

Risk management combined into a single unified treatment program for all major risks faced by a firm.

Financial Risk

The uncertainty of loss because of adverse changes in commodity prices, interest rates, foreign exchange rates, and the value of money.

Systemic Risk

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

Personal Risks

Risks that directly affect an individual or family.

Premature Death

Death of a family member with unfulfilled financial obligations.

Property Risks

Risk of having property damaged or destroyed from numerous causes.

Direct Loss

Financial loss that results from the physical damage, destruct, or theft of the property.

Indirect or Consequential Loss

Financial loss that results indirectly from the occurrence of a direct physical damage or theft loss.

Liability Risks

Risks of being sued or held liable for certain events that may occur because of your negligence.

Risk Control

Technique for reducing the frequency or severity of losses.

Avoidance

Avoiding a risk, such as staying out of high crime areas to prevent being mugged.

Loss Prevention

Technique to reduce the probability of losses, such as safe-driving courses to reduce auto accidents.

Loss Reduction

Reduce the severity of a loss after it occurs, for example, installing a sprinkler system to mitigate fire damage.

Duplication

Having back-ups or copies of important documents, materials, or property in case they are lost or destroyed.

Separation

The assets exposed to a loss are divided to minimize the loss of a single event, such as storing goods in different warehouses.

Diversification

Reduces the chance of loss by spreading the risk across different parties, such as having both domestic and foreign customers.

Risk Financing

Techniques that provide the payment of losses after they occur.

Retention

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

Active Retention

Conscious awareness of the risk and deliberate planning to retain it.

Passive Retention

Certain risks may be unknowingly retained due to ignorance or failure to identify the risk.

Self Insurance

Part of retention where part or all of a given loss exposure is retained by the firm.

Noninsurance Transfers

Risk is transferred to a party other than an insurance company, such as buying a service contract for a TV.

American Risk and Insurance Association (ARIA)

Premier professional association of risk management and insurance educators and professionals.

Insurance Definition

The pooling of fortuitous losses by transfer of such risks to insurers who agree to indemnify insured for such losses.

Law of Large Numbers

The greater the number of exposures, the more closely actual results will approach the probable results expected from historical averages.

Risk Transfer

Pure risks being transferred from the insured to the insurer who is typically in a stronger financial position to pay the loss.

Indemnification

The insured is restored to his or her approximate financial position prior to the occurrence of the loss.

Adverse Selection

The tendency of persons with a higher than average chance of loss to seek insurance at standard rates, which can lead to higher than expected loss levels.

Underwriting

Process of selecting and classifying applicants for insurance

Casualty insurance

Broad category of insurance that covers whatever is not covered by fire, marine, and life insurance, casualty lines include auto, liability, burglary and theft, works comp, and health insurance.

Social insurance

Government insurance programs with certain characteristics that distinguishes them from other government insurance plans. For example, Old-Age, Survivors, and Disability Insurance, commonly known as social security.

Social Security

Old-Age, Survivors, and Disability Insurance. Massive public income-maintenance program that provides retirement, survivor, and disability benefits to eligible individuals and families Must be 62 years or older or have blindness or disability with enough work credits.

Medicare

Part of Social Security that covers medical expenses for people 65 and older and certain disabled people under 65.

Unemployment Insurance (Government)

Provides weekly cash benefits to eligible workers who experience short-term involuntary unemployment. Typically paid up to 26 weeks after certain eligibility requirements are met.

FERS (Federal Employees Retirement System)

Provided retirement, survivor and disability benefits to federal employees hired after 1983.

FDIC (Federal Deposit Insurance Corporation)

Provides insurance on checking and savings accounts in commercial banks, credit unions, and saving and loan associations.

NFIP (national flood insurance program)

Makes property insurance available to homeowners and business firms who reside in flood zones.

Risk Management

Process that identifies loss exposures faced by an organization and selects the most appropriate techniques for treating the loss exposures. Steps are Identify hazards, measure and prioritize risks, select appropriate combination of techniques, the implement and monitor the risk management program ONLY FOR PURE RISKS.

Captive Insurer

Insurer owned by a parent firm for the purpose of insuring the parents firm's loss exposures.

Hold-Harmless Clause

Clause in contract where one party assumes legal liability on behalf of another party.

Risk Management Policy Statement

Outlines the objective of the policy.

Cost of Risk

Total costs associated with treating the organization's loss exposures. These costs include premiums paid, retained losses, risk control expenditures, outside risk management services, financial guarantees, internal administrative costs, and taxes and fees and other relevant expenses.

ERM vs Traditional RM

ERM encompasses all areas of an organization's exposure to risk including financial risk, operational risk, strategic risk, hazard risk, and additional risks as well.

ERM Process

State goal (FBLA), Risk identification, risk analysis, selection of risk treatment measures, monitoring/ program changes, affected by internal environment and external environment too.

Risk Register

Listing of the risks faced by an organization with pertinent information about each risk.

Risk Map

Grids which risks facing the organization are charged based on potential frequency and severity of the loss to the organization.

Risk appetite

Total exposure than an organization is willing to accept, given the risk and return tradeoff for an individual risk or in aggregate for the portfolio of risks.

Risk Tolerance

The amount of uncertainty that an organization is willing to accept.

Combined Ratio

Ratio of paid losses and loss adjustment expenses plus underwriting expenses to premiums.

Risk Management Information System (RMIS)

Computerized database that permits the risk manager to store, update, and analyze risk management data and to use such data to predict and attempt to control future loss levels.

Predictive Analytics

The analysis of data to generate information that will help make more informed decisions.

VAR (Value at Risk)

The worse probable loss is likely to occur in a given period under regular market conditions at some level of confidence.

Clash Loss

Occurs when several lines of insurance simultaneously experience large losses.

Stock Insurer

Corporation owned by stockholders. Objective is to earn profits for stockholders.

Mutual Insurer

Corporation owned entirely by the policy holders. No stockholders. Mainly controlled by executives who are elected by policyholders.

Advance Premium Mutual

Mutual insurance companies with premiums charged that are expected to cover all claims and expenses.

Assessment Mutual

Insurance where the company has the right to assess policyholders an additional amount if the insurer's loss is unfavorable.

Fraternal Mutual Insurer

Mutual insurance company that provides insurance to members of a religious, faith, ethnic, or social organization.

Nonadmitted Insurer

Insurer not licensed to do business in that state.

Blue Cross and Blue Shield Plans

Network of Health insurance companies that provide health insurance coverage to individuals, groups, and government programs.

Domestic Insurer

Insurer domiciled in the state.

Foreign Insurer

Out of state insurer that is chartered by another state.

Alien Insurer

Insurer chartered by a foreign country.

Twisting

Illegal practice of inducing a policyholder to drop an existing policy in one company and then replace it with a new policy in another company.

Coinsurance vs. Copay

Copay covers a set amount of money for a doctor's visit while Coinsurance covers a set percentage of the cost.

Affordable Care Act (ACA)

Act that made health insurance available to millions of uninsured Americans.

PPO

Healthcare plan that contracts with physicians, hospitals, and other healthcare providers to provide covered medical services to policyholders at discounted fees.

HSA

Tax exempt or custodial account established exclusively for the purpose of paying qualified medical expenses of the account beneficiary who is covered under a HIGH DEDUCTIBLE HEALTH INSURANCE PLAN.

HMO

Managed care plan that provides comprehensive healthcare services to its members for a fixed prepaid fee.

POS

Managed care plan that combines the basic characteristics of an HMO and a PPO but members have the option to select care outside the network.

Medicare Part A (Hospital Insurance)

Coverage for inpatient hospital stays and other benefits is covered by this.

Medicare Part B (Medical Insurance)

Voluntary program that covers medically necessary physician services and supplies, outpatient care, home health services, durable medical equipment, and other medical services.

Medicare Advantage Plans (Part C)

Private health insurance plans that are part of the total medicare program.

Medicare (Part D)

Prescriptions Drug Coverage. Medicare program available to all medicare beneficiaries.