Florida 2-15 Chapter 1

Physical Hazard

individual characteristics that increase the chance of peril. (Blindness or deafness)

Risk Pooling

organizing people into a group to collectively absorb the risk faced by each individual

Risk Retention

Accepting the risk and confronting it if and when it occurs. (Self-insurance)

Elements of Insurable Risk

1. Due to chance 2. Definite and measurable 3. Predictable 4. Not catastrophic 5. Loss exposure to be insured must be large 6. Insurance must not be mandatory 7. loss exposures to be insured must be randomly selected.

Hazard

Any factor that gives rise to a peril.

Risk Avoidance

Avoiding as many risks as possible. (Never flying, never driving, never investing)

insurance

Financial protection against loss or harm - An arrangement by which company gives customers financial protection against loss or harm such as theft or illness in return for premium payments.

Morale Hazard

Individual tendencies that arise from an attitude or state of mind causing indifference to loss. (Driving reckless with no fear of death)

Peril

Specific event causing loss and giving rise to risk. (Fire to a burning building)

Risk Reduction

Taking actions to reduce risk. (Installing a smoke alarm)

Moral Hazard

Tendencies that people may have that increase risk and the chance of loss. (Alcohol and drugs)

Law of Large Numbers

The larger the group, the more accurately losses can be predicted. the larger the number of individual risks combined into a group, the more certainty there is in predicting the amount of loss that will be incurred in any given period

Risk Transfer

The practice of passing on the risk in question to another entity, such as an insurance company.

Pure Risk

a risk that presents the chance of loss but no opportunity for gain. Insurable

Speculative Risk

risk in which either profit or loss is possible. NOT insurable