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  • Definitions

    Terms and Definitions and FAQs

    Explore this resources page to find definitions of commonly used terms in the field along with answers to FAQs.

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  • Risk Management and Insurance Definitions

     

    Attitudinal hazard (morale hazard)–carelessness or indifference to a loss, which increases the frequency or severity of a loss.

    Hazard–a condition that creates or increases the frequency or severity of loss. There are four major types of hazards: physical hazard; moral hazard; attitudinal hazard (morale hazard); and legal hazard. 

    Legal hazard–characteristics of the legal system or regulatory environment that increase the frequency or severity of losses.

    Moral hazard–dishonesty or character defects in an individual that increase the frequency or severity of loss. 

     Nanoparticles: Ultrafine particles between 1 and 100 nanometers in size.

    Nanometer: Equal to one millionth of a meter.

    Nano-pollutants: The introduction of nano-sized contaminants in the natural environment.

    Nanotechnology: Per the National Nanotechnology Initiative, nanotechnology is defined as the manipulation of matter with at least one dimension sized from 1 to 100 nanometers.

    Nanotoxicology: A growing field created to study the potential health risks of nanotechnology.

    Nanoscale: A scale of 1-100 nanometers.

    National Institute for Occupational Safety and Health (NIOSH): The U.S. federal agency that conducts research and makes recommendations to prevent worker injury and illness. It is a division of the Centers for Disease Control and Prevention (CDC).

    National Nanotechnology Initiative (NNI): A U.S. Government research and development initiative involving the nanotechnology-related activities of 20 departments and independent agencies. The NNI is managed within the framework of the National Science and Technology Council (NSTC), the Cabinet-level council under the Office of Science and Technology Policy at the White House. 

    National Science Foundation (NSF): An independent federal agency created by Congress in 1950 "to promote the progress of science; to advance the national health, prosperity, and welfare; and to secure the national defense.”

    Permanent Life Insurance—This type of life insurance policy does not terminate at any specific time as long as premiums are paid. 

    Physical hazard–a physical condition that increases the frequency or severity of loss. 

    Pure risk–a situation in which there are only the possibilities of loss or no loss. 

    Speculative risk–as a situation in which either profit or loss is possible.

    Temporary Life Insurance—This type of life insurance provides coverage for a specific period. Term life insurance policies are a common temporary life insurance policy.

    Universal Life Insurance—This type of life insurance policy has adjustable premiums, death benefits, and cash value. It is different from a whole life policy because it does not have structured premiums.

     U.S. Environmental Protection Agency: An agency of the U.S. federal government and was created for the purpose of protecting human health and the environment by writing and enforcing regulations based on laws passed by Congress.

    U.S. Food and Drug Administration (FDA): Responsible for protecting the public health by assuring the safety, efficacy, and security of human and veterinary drugs, biological products, medical devices, our nation’s food supply, cosmetics, and products that emit radiation.

    Variable Life Insurance—This type of policy allows the owner to direct the investment of the cash value among separate accounts, and he or she bears the risk of the investment.

    Frequently Asked Questions

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    FAQ

    1. What is an example of pure risk?
    An example of a pure risk include: premature death, job-related accidents, catastrophic medical expenses, and damage to property from fire, lightning, flood, or earthquake.

    2. What is an example of speculative risk?
    An example of speculative risk includes: if you purchase 100 shares of common stock, you would profit if the price of the stock increases but would lose if the price declines. Other examples of speculative risks include betting on a horse race, investing in real estate, and going into business for yourself.

    3. What is an example of physical hazard?
    Examples of a physical hazard include: icy roads that increase the chance of an auto accident, defective wiring in a building that increases the chance of a fire, and a defective lock on a door that increases the chance of theft.

    4. What is an example of moral hazard?
    Examples of moral hazard include: faking an accident to collect from an insurer, submitting a fraudulent claim, inflating the amount of a claim, and intentionally burning unsold merchandise that is insured.

    5. What is an example of attitudinal hazard?
    Examples of an attitudinal hazard include: leaving car keys in an unlocked car, which increases the chance of theft, or changing lanes suddenly on a congested interstate highway without signaling. Careless acts like these increase the frequency and severity of loss.

    6. What is an example of legal hazard?
    Examples of a legal hazard include: adverse jury verdicts or large damage awards in liability lawsuits; statutes that require insurers to include coverage for certain benefits in health insurance plans, such as coverage for alcoholism; and regulatory action by state insurance departments that restricts the ability of insurers to withdraw from the state because of poor underwriting results.

    7. What is the cost of pure risks?
    The cost of pure risk is that the actual losses that occurs ; worry and fear about possible losses, inadequate preparation due to overestimation or underestimation of the likelihood of losses, and coast toof treat the risks. 

    8. How can I protect myself from legal risk?
    From an economic viewpoint, people can transfer the legal risk by payment of premium of a liability insurance policy by policy owner to insurers in a contract of indemnity.

    9. What are some of the technique for managing risk?
    There are five major techniques for managing risk: avoidance, loss control, retention, noninsurance transfers, and insurance.

    Nanotechnology

    1. What are the health risks associated with nanotechnology?

    According to the National Institute for Occupational Safety and Health, many of the health risks associated with nanomaterials are not yet understood. Of utmost concern, there are possibilities that uniquely engineered nanoparticles released in the air, called “free nanoparticles,” can be inhaled, particularly during the research and manufacturing processes, and exposure to these materials could cause serious lung or other health problems. Free nanoparticles can also be ingested, absorbed via dermal (skin) contact, or intentionally injected, all of which can have toxic consequences to the recipient. 

    2. What are some of the industries that use nanotechnology to develop products? 

    According to the Nanotechology Industries Association, some of the major industries using nanotechnology include chemicals and raw materials, energy, transportation, textiles and fabrics, medical devices and pharmaceuticals, electronics, agricultural (pesticides and herbicides), cosmetics and personal care, and recycling and waste.

    3. What are the potential economic risks associated with nanotechnology? 

    Economic risks could occur through sky-rocketing health care costs affecting workers in the nanotechnology industry, as well as the resulting class action lawsuits against major corporations employing these workers. Also, since nanotechnology leads to faster and cheaper production, nanotechnology could potentially impact the types and number of jobs that are available and potentially displace workers, thus increasing unemployment rates.

    4. What are the potential environmental risks associated with nanotechnology? 

    Many types of nanomaterials can be hazardous to the environment. These “nano-pollutants” can be released into the air or water during production and contaminate the soil, water, and plant life. There are also issues arising with the safe disposal of post-production nanomaterial wastes. 

    5. What are the potential societal effects associated with nanotechnology? 

    In addition to the toxicity impact on human health, nanotechnology can have negative effects on politics and human interaction. For example, there are concerns that the benefits of nanotechnology will not be distributed evenly and will create a wider wealth gap between affluent and developing nations. Also, unskilled laborers could be displaced by the use of nanotechnology in the workplace, increasing unemployment and lowering standards of living in the world.

    Money Laundering

     1. What is money laundering? Money laundering  is a process that crimi­nals use to convert dirty money-that is, money derived from illegal drug, ter­rorist, or other criminal activities-into clean or legitimate money. Money laundering is similar to washing clothes-you put in dirty clothes and after being washed, the clothes are clean.

    2. What constitutes a suspicious activity? Given the nature of money laundering and the clandestine practices that attend to it, there are no hard and fast rules that define exactly if or when a suspicious activity report is required or warranted. Every insurer subject to AML requirements must con­duct its own assessment to evaluate the money laundering risks it faces on the basis of its products, customer base, and customer activity. From this assess­ment will come a suspicious activity monitoring and reporting program that is unique to the company and its business.

    2. When must an insurance company report a suspicious transaction? An insurance company must report a suspicious transaction if it involves, separately or in the aggregate, at least $5,000 in funds or other assets and the insurance company knows, suspects, or has reason to suspect that the transaction involves the use of the insurance company to facilitate criminal activity; is designed to evade the requirements of the Bank Secrecy Act; involves funds from illegal activity or is intended to hide or disguise funds from illegal activity; or lacks apparent business or lawful purpose and the insurer, after reviewing all available facts, sees no reasonable explanation for it.

    3. When may an insurance company report a suspicious transaction? An insurance company may report any suspicious transaction it believes is relevant to the possible violation of any law or regulation, regardless of the amount of the transaction.

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