means that an individual is aware of the risk and deliberately plans to retain all or part of it
active retention
The tendency of persons with a higher-than-average chance of loss to seek insurance at standard rates
adverse selection
A technique to manage risk by avoiding it
avoidance
financial loss that results from the physical damage, destruction, or theft of the property, such as fire damage to a home
direct loss
changed federal law that earlier prevented banks, insurers, and investment firms from competing outside their core area. The federal Reserve has umbrella authority over bank affiliates that engage in underwriting insurance
Financial Modernization Act
a loss that is unforeseen, unexpected, and occur as a result of chance
fortuitous losses
A technique for transferring the risk of unfavorable price fluctuations to a speculator by purchasing and selling futures contracts on an organized exchange
hedging
a type 2 loss, prevention and retention are the most appropriate risk management techniques
High-frequency, low-severity
Restoring the insured to his or her approximate financial position prior to the occurrence of the loss
indemnification
a financial loss that results indirectly from the occurrence of a direct physical damage or theft loss. The additional living expenses after a fire
indirect loss
the pooling of fortuitous losses by transfer of such risks to insurers
insurance
activities to reduce the frequency of losses
Loss prevention
activities to reduce the severity of losses
Loss reduction
type 3 loss Transfer is the most appropriate risk management technique
Low-frequency, high-severity
dishonesty or character defects in an individual that increase the frequency or severity of loss
moral hazard
a method other than insurance by which a pure risk and its potential financial consequences are transferred to another party
noninsurance transfer
The long run relative frequency of an event base on the assumptions of an infinite number of observations and of no change in the underlying conditions
objective probability
The relative variation of actual loss from expected loss
objective risk
means risks may be unknowingly retained because of ignorance, indifference, or laziness
passive retention
ruled insurance was not interstate commerce, and that the states had the right to regulate the industry rather than the federal government
Paul v. Virginia
the cause of the loss
peril
a physical condition that increases the frequency or severity of the loss
physical hazard
spreading the losses incurred by the few over the entire group
pooling of losses
the Insurers right to sue a liable party.
principle of subrogation
