FIN 3440 Study Guide - Midterm Guide: False Arrest, Hurricane Andrew, Multicar
Document Summary
Definitions of risk: pure vs. speculative, pure risk is uncertainty of loss only (downside risk only-fire or flood to property, premature death by accident or illness). Insurance may increase existence of moral hazard (fire on purpose to get cash: degree of risk-amount of objective risk=relative variation of actual from expected losses, or range of variation around expected losses. Low frequency: high/high-these risks are often appropriate for loss control or risk avoidance=back injuries to employees; risks of fire or liability from sale of fireworks. Low/high-these risks are often appropriately transferred=destruction of building by fire; earthquake losses; product liability losses: high/low-these risks are often appropriately retained=shoplifting losses; normal levels of inventory spoilage. Low/low-these risks are generally appropriately retained=theft of shopping baskets; damage to shopping carts from collisions with automobiles in parking lots: risk financing-risks that are transferred or retained involve a cost.
