AuraSynthetics, a biochemical manufacturing firm, invests heavily in developing a new bio-fertilizer, facing the possibility of either substantial market profits or a total loss of their research capital. During the development phase, a chemical reaction error causes an uncontrolled fire in the laboratory. The resulting property damage is catastrophic because the lab technicians ignored safety protocols and carelessly propped open the heavy fire doors to increase ventilation. Based on insurance risk management principles, which of the following accurately classifies these specific elements?
- The investment in the bio-fertilizer is a speculative risk; the fire is the peril; propping open the fire doors is a morale hazard.Answer
- BThe investment in the bio-fertilizer is a pure risk; the fire is the peril; propping open the fire doors is a physical hazard.
- CThe investment in the bio-fertilizer is a speculative risk; the fire is a physical hazard; propping open the fire doors is the peril.
- DThe investment in the bio-fertilizer is a speculative risk; the fire is the peril; propping open the fire doors is a moral hazard.
Answer
The investment in the bio-fertilizer is a speculative risk; the fire is the peril; propping open the fire doors is a morale hazard.
The correct answer accurately synthesizes all three insurance principles: the possibility of profit makes the investment a speculative risk; the fire acts as the immediate cause of loss (peril); and the indifferent, careless act of leaving fire doors open constitutes a morale hazard.
Step-by-Step Solution
Key Concept
Classification of Risk, Perils, and Hazards