CSRM flashcards

32 cards. Read the term and the definition here. The deck at the top of this page is optional.

Frequency and severity

The two dimensions of loss exposure: frequency is how often losses occur in a period, and severity is the dollar size of each loss. Their product estimates expected loss.

Pure risk

A situation with only loss or no-loss outcomes, such as fire, injury, or liability claims. Insurers generally cover pure risk because outcomes are not chosen by the insured.

Speculative risk

A situation that can produce gain or loss, such as investing funds or expanding a program. It is generally not insurable because the possibility of gain creates moral hazard.

Peril versus hazard

A peril is the actual cause of loss, such as fire or theft. A hazard is a condition that increases the chance or size of loss, such as clutter or poor lighting.

Moral versus morale hazard

Moral hazard is dishonest conduct that creates loss, like faking a claim. Morale hazard is indifference or carelessness, like leaving doors unlocked, that raises loss probability.

Risk management process steps

Identify exposures, measure and analyze them, select techniques such as avoid, reduce, retain, or transfer, implement the chosen techniques, then monitor results and revise the program.

Loss prevention versus reduction

Loss prevention measures reduce how often losses occur, such as safety training. Loss reduction measures reduce severity after an event, such as sprinklers or first-aid response.

Frequency-severity matrix

A decision tool pairing likelihood and impact. Low/low suggests retention, high frequency with low severity suggests prevention, low frequency with high severity suggests insurance, and high/high suggests avoidance.

Probability of at least one loss

For n independent exposures each with loss probability p, the chance of one or more losses is approximately 1 minus (1 minus p) raised to n.

Probable Maximum Loss (PML)

The largest loss expected under normal conditions with protective features functioning, such as sprinklers and alarms. It is smaller than maximum possible loss and guides limit selection.

Maximum Possible Loss (MPL)

The worst-case total loss of an entire property if all protection fails, such as a total building loss. It sets the upper bound for exposure measurement.

Replacement cost valuation

The cost to repair or rebuild with new materials of like kind and quality without deducting depreciation. It usually exceeds actual cash value and produces higher property limits.

Actual cash value

Replacement cost minus depreciation. It reflects the current worth of damaged property and produces lower claim payments than replacement cost coverage for older assets.

Total cost of risk

The sum of insurance premiums, retained losses, deductibles or self-insured retentions, and administrative and safety costs. It is the full cost of the risk program.

Risk register

A structured inventory listing each identified exposure with its likelihood, impact, current controls, and owner. It ranks risks and supports priorities and budget requests.

Loss trending

Adjusting historical claim data for inflation, rising medical and repair costs, and changes in enrollment or activity levels before projecting future losses and premiums.

Avoidance

Eliminating an activity or exposure entirely, such as discontinuing a high-risk trip. It removes both frequency and severity but may sacrifice educational benefits.

Loss reduction

A risk control technique that lessens severity after a loss occurs, using measures such as sprinklers, first-aid kits, evacuation drills, and rapid response plans.

Separation and duplication

Separation distributes assets or activities across locations so one event cannot destroy all. Duplication keeps backups of critical records, equipment, or data.

Active versus passive retention

Active retention is a deliberate, funded decision to keep a risk. Passive retention happens by default when a risk is unrecognized or uninsured, which is dangerous.

Non-insurance risk transfer

Shifting financial consequences through contracts such as hold-harmless agreements, waivers, and leases. It transfers liability obligations but not all physical or operational risk.

Contractual risk transfer review

Checking indemnification and hold-harmless clauses, additional insured status, certificates of insurance, and waiver enforceability, especially for activities involving minors.

Self-insured retention

A specified amount the organization pays per claim before insurance responds. Unlike a deductible, the insured often handles claim administration and defense within the retention.

Insurance premium components

Expected losses plus insurer operating expenses, profit and risk charge, and taxes and fees. Credits or debits reflect loss experience, safety programs, and deductible levels.

Risk pooling

Members contribute premiums and share losses through a common pool. It stabilizes costs and fills coverage gaps, but members may face assessments if losses exceed pool funds.

Captive insurance company

A subsidiary insurer owned by the organization to formally fund retained risk. It requires capital, is regulated as an insurer, and provides control over coverage and claims.

Retention reserve funding

The actuarially estimated amount set aside to pay retained losses, equal to expected annual retained losses plus a margin for volatility. Unfunded retention is a hidden liability.

Deductible versus SIR trade-off

Raising a deductible or self-insured retention lowers premium but increases the reserve required. Lowering limits reduces premium while increasing retained severity exposure.

Cost allocation to departments

Charging premiums or internal charges back to departments or activities based on their exposure and loss history, which creates incentives for loss control.

Loss ratio

Incurred losses divided by premiums earned, expressed as a percentage. It measures whether premium is adequate for losses and signals the need for control or financing changes.

Certificate of insurance

A document verifying a vendor's or contractor's coverage, limits, and additional insured status. It should be obtained and reviewed before work begins on school property.

Claims administration duties

Report claims promptly, document the incident, preserve evidence, cooperate with the insurer, and track reserves and settlements because they affect future loss experience and premiums.