Chapter 1- Principles of Risk Management and Insurance

Risk

Uncertainty concerning the occurrence of a loss.

Loss exposure

Any situation or circumstance in which a loss is possible, regardless of whether a loss occurs.

Objective risk

The relative variation of actual loss from expected loss.

Subjective risk

Uncertainty based on a person’s mental state or condition.

Peril

Cause of the loss

Hazard

Condition that increases the chance of loss.

Physical hazard

Physical condition that increases the frequency or severity of loss.

moral hazard

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

Attitudinal hazard (morale)

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

Legal hazard

Refers to characteristics of the legal system or regulatory environment that increases the frequency of losses.

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 is possible. gambling.