Helios Energy Corporation is expanding its operations through three specific actions:
1. Purchasing currency futures to capitalize on expected exchange rate fluctuations for imported materials.
2. Constructing a new solar farm in a geographic region historically prone to severe hailstorms.
3. Utilizing a highly efficient but brittle glass for the solar panels that shatters more easily than standard materials.
From an insurance risk classification standpoint, which of the following statements accurately defines the risk elements present in this expansion scenario?
- The currency futures represent a speculative risk, the hailstorm is a peril, and the brittle glass is a physical hazard.Answer
- BThe currency futures represent a pure risk, the hailstorm is a physical hazard, and the brittle glass is a peril.
- CConstructing the farm in a hail-prone area represents a speculative risk, and the brittle glass represents a morale hazard.
- DThe currency futures represent a speculative risk, the hailstorm is a peril, and the brittle glass represents a morale hazard.
Answer
The currency futures represent a speculative risk, the hailstorm is a peril, and the brittle glass is a physical hazard.
Currency futures offer the possibility of either a financial gain or a loss, classifying them as an uninsurable speculative risk. A hailstorm is the actual active cause of property damage, which meets the definition of a peril. Finally, the brittle nature of the glass is a physical, tangible characteristic that increases the property's susceptibility to damage, definitively making it a physical hazard.
Step-by-Step Solution
Key Concept
Risk, Peril, and Hazard Classification