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Difficulty: MediumDefinition and Types of Risk

Match each specific business scenario to its correct technical insurance classification.

  • Investing company funds into a high-yield corporate bond fund that fluctuates in market value.Speculative Risk
  • The possibility of an unexpected tornado destroying the company's main manufacturing plant.Pure Risk
  • An icy, unsalted walkway at the entrance of a retail store that increases the chance of a customer slipping.Physical Hazard
  • A store manager failing to set the burglar alarm at closing time because the merchandise is fully covered by insurance.Morale Hazard

Answer

Investing bonds = Speculative Risk; Tornado = Pure Risk; Icy walkway = Physical Hazard; Unset alarm = Morale Hazard.
Each scenario perfectly aligns with its technical insurance definition: investments are speculative because they can gain value, natural disasters are pure risks because they only cause loss, physical conditions like ice are physical hazards, and apathy due to insurance is a morale hazard.

Step-by-Step Solution

1
Analyze the financial investment scenario.
Investing in bonds involves the potential for both profit and loss.
By definition, situations offering a chance of gain alongside a chance of loss are classified as speculative risks.
2
Analyze the tornado scenario.
A tornado can only cause damage (loss) or miss the property (no loss).
Situations that strictly involve loss or no loss, with no possibility of financial gain, are classified as pure risks.
3
Analyze the icy walkway scenario.
The ice is a tangible, environmental condition that increases the likelihood of an accident.
Tangible conditions that increase the chance of a peril occurring are classified as physical hazards.
4
Analyze the unset burglar alarm scenario.
The manager's failure to set the alarm stems from carelessness due to having insurance coverage.
An attitude of indifference or carelessness that increases the chance of loss is classified as a morale hazard.

Key Concept

Classification of Risk and Hazards
Estimated Time:1m 30s
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Topics

Definition and Types of Risk

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