Compiled by A.

P A R T –I-
RISK AND RELATED TOPICS

CHAPTERI–INTRODUCTION
1.1 THE CONCEPT OF RISK

¾ Due to imperfect knowledge about the future, our actions are likely to result in outcomes which are different
from our expectations. This is something that is not desirable .Risk exists because there is no perfect
foresight about the future.
[

Because risk is undesirable and its consequences are, at times, damaging to individual, businesses and
the society as a whole, mankind is constantly developing its predictive ability through the constant
upgrading and refinement of its knowledge. The more mankind is knowledgeable about the future, the more
certain it will be concerning future events. But, the disappointing phenomenon is that perfect foresight about
the future is something impossible. Thus, risk becomes a fact of life that will remain side by side with the
activities of mankind.
¾ Every discipline has its own specialized terminology which has very simple meanings in every day usage
often take on different and complicated connotations when applied in a specialized field.
¾ This section mainly emphasized on the concept of risk.

Risk exists whenever the future is unknown.

Because the adverse effects of risk have plagued mankind since the beginning of time, individuals, groups and
societies have developed various methods for managing risk. Since no one knows the future exactly, everyone
is a risk manager for himself. i.e... Not by choice, but by sheer necessity.

Risk by itself has an adverse effect

Risk defined:
When someone states that there is risk in a given situation, the listener understands what is meant that in the given
situation there is uncertainty about the outcome, and that the possibility exists that the outcome will be unfavorable.
This loose intuitive notion of risk, which implies a lack of knowledge about the future and the possibility of some
adverse consequence, is satisfactory for conversational usage.

No comprehensive definition exists so far. It is defined in different forms by several authors with some differences in
the wordings used. The essence however is very similar. In general, risk refers to exposure to adverse
consequences.

Before we define risk for our purpose, it would be advisable to consider the various definitions given by different
scholars and practitioners to comprehend the basic concept of risk.

Compiled by A.M 1
 Compiled by A.M
Economists, satiations, decision theorists and insurance theorists have long discussed the concept of
“risk” and “uncertainty” in an attempt to arrive at a definition of risk.

Up to the present time, they have not been able to agree on a definition that can be used in each field with
the same facility, nor does it appears likely that they will not do so in the near future.
Risk management is still in its infancy as a body of theory. As a result, we find many contradictory definitions of risk
throughout the literature dealing with this phenomenon from the risk management or an insurance point of view.
One reason for these contradictions is that risk management or insurance theorists have attempted to borrow the
definition if risk used in other fields.
The term risk used in different ways; the following definitions given by different scholars and practitioners in the
field:
9 Risk is the chance of loss
9 Risk is the possibility of loss
9 Risk is uncertainly
9 Risk is the dispersion of actual from expected result
9 Risk is the probability of any outcome different from the one expected
9 Doubt
9 Worry
9 The exposure of adverse consequence
9 Undesirable events

Generally, it has bad/negative connotation

Let’s see if each definition means approximately the same thing, or has a different connotation, to decide the one
which is preferable, and which, if any, is suitable for out purpose.

Risk is the chance of loss

Many writers define risk as the “chance of loss” what exactly is meant by this term? Webster defines “chance of
loss” in two ways:

9 As “a possibility or like hood of something happening” and

9 As “…… a degree of probability”

One defect in the definition of risk as the “chance of loss” is that we cannot always be certain which of these two
meanings is intended.

On the other hand, “chance of loss” is often used to indicate a degree of probability in a given situation, and
many writers reject the definition of risk as the “chance of loss” because of the possible connotation of
probability.

When used to indicate a degree of probability the “chance of loss” is most frequently expressed as a percentage
or a fraction. In this context the chance of loss is simply the probability of loss. It indicates the probable number
and severity of loss out of a given number of exposures.

Compiled by A.M 2
 Compiled by A.M
Example: if you are offered a prize for drawing a white ball out of a box that contains nine black balls and one white
ball, your chance of loss is 9/10 or 90%.

Those writers argue that if “risk” and “chance of loss” (i.e. probability of loss) mean the same thing, the degree of
risk and the degree of probability should always be the same. Yet when the chance of loss (defined as the
probability of loss) is 100%, the loss is certain and there is no risk. Risk always has the implication that the outcome
is some how in question. When the chance of loss (probability) is either 100% or 0, the degree of risk is zero.

Risk is the possibility of loss

Another way of defining risk is to say that it is simply the possibility of loss. Note that when we define risk the
possibility of loss, no attention is given to the probability as long as it is not zero or one. The term
“possibility” means that the probability of event is between zero and one, and the very notion of risk
implies that the outcome is in question. This definition probably comes the closest to the notion of risk
used in everyday conversation. However, it is a rather loose definition, and does not tend itself to
quantitative analysis.

Risk is Uncertainty

Some writers have carried the relationship (risk and uncertainty) to its ultimate degree and maintain the risk
uncertainty. Unfortunately, like the term “chance of loss” the term uncertainty is ambiguous, it has several possible
meanings.
The first scholarly treatment of the area of risk in relation to insurance was The Economic Theory of Risk and
Insurance by Alan H.Willett originally published in 1901.Willett recognized that risk is commonly used in an
ambiguous manner and sought to construct a more precise definition. He arrived at the conclusion that the
uncertainties of the world are an illusion based on people’s imperfect knowledge.

A contribution of major significance in the area of risk theory as it relates to insurance was provided by Irving Pfeffer
in his Insurance and Economic Theory, for Pfeffer draws a distinction between risk and uncertainty.
According to Pfeffer, “uncertainty is a state of mind relative to a specific fact situation.”

On the other hand, According to Irving Pfeffer risk is a combination of hazards and is measured by
probability. Uncertainty is measured by degree of belief. Risk is a state of the real world; uncertainty is a
state of mind.

More than any other writer, Pfeffer focused on the contradiction inherent in defining risk as uncertainty.

(Reference: Irving Pfeffer, Insurance and Economic Theory)

Compiled by A.M 3
 Compiled by A.M
Frank H. Knight
Knight makes his distinction between risk and uncertainty as follows:

The term “Risk” may use to designate measurable uncertainty and the term “uncertainty” for the
unmeasurable one.

Based on Frank Knight’s distinction between measurable and unmeasurable uncertainties, knight points out that the
out comes of some types of events are calculable, while those of other types are not. If there are sufficient
statistical data available, we should be able to calculate the statistical probability of an occurrence. Since our
predictions will not always be completely accurate, there will be uncertainty surrounding the prediction, and knight
calls this uncertainty “Risk”

™ Decision theorists define risk as “Objectified Uncertainty”.

™ Insurance writers define risk as “Subjectified Uncertainty”.
™ Risk is the reality of the real world, but not belief.
™ Risk refers to uncertainty as to the loss.

For instance, if we know the loss occur, we may have a plan to cover that loss. Therefore, this is not a risk.

™ Risk becomes important if there is uncertainty as to the occurrence of the loss.

™ If we are certain, there is no risk
™ Under risky situation, the outcome is undesirable.
™ The degree of risk is inversely related to the ability to predict the future.
-The more the future is unpredictable and unmanageable, the greater will be the risk.
™ If the probability of the occurrence is 1 or 0, the degree of risk is zero.
™ If many outcomes are possible, the risk is not 0. The greater the variation, the greater the risk

1.2 NATURE AND SCOPE OF RISK

The degree of risk

The degree of risk implies “More risk” and “Less risk” to indicate a measure of the possible size of loss.
For those who define risk as uncertainty: the greater the uncertainly, the greater the risk. Risk is greatest
when there are two possible outcomes, each of which is equally likely to occur. In other words, they maintain
that uncertainty (risk) is at its highest point in the individual case when the probability of loss is 0.5 or 50%.

The “degree of risk” is related to the degree of probability of loss the likelihood of occurrence. We intuitively
consider those events with a high probability of loss to be “riskier” than those with law probability. High probability of
loss is “riskier” than law probability of loss.

If risk is defined as the possibility of an adverse deviation from a desired outcome that is expected or hoped for, the
degree of risk is measured by the probability of such an adverse deviation.

Compiled by A.M 4
 Compiled by A.M
Risk Versus uncertainty
Many textbooks use the terms risk and uncertainty interchangeably. The distinction between the two must be noted.
Although the two are closely related, quite many authors make a distinction between the two terms. Uncertainty
refers to the doubt as to the occurrence of a certain desired outcome. It is more of a subjective belief. Subjective in
the sense that “it is based on the knowledge and attitudes of person viewing the situation and different subjective
uncertainties are possible for different individuals under identical circumstances of the external world.”(Vaughan)
o Uncertainty is the doubt as to the occurrence of certain desired outcome.
o Uncertainty is the doubt that a person is aware of it or conscious as to the existence of the risk.
o Risk is the possible of adverse deviation from a desired outcome that is expected or hoped for.
o Uncertainty exists when the individual is aware of it. But risk exists when a person is aware of it or not.
o Uncertainty depends upon the person’s estimated risk.
o Unlike probability and risk, we cannot measure uncertainty by a commonly accepted yardstick.

Pfeffer noted the difference between risk and uncertainty a follows:

“Risk is a combination of hazards and is measured by probability; uncertainty is measured by the degree of
belief. Risk is a state of the world; uncertainty is a state of mind”.

The confusion that may arise in this definition is that whether or not risk is measured by probability rather than by
variability. A clear explanation made above is that risk is largely objective while uncertainty subjective.

Risk versus Probability

There exists also some confusion as to the difference between risk and probability. Part of the confusion arises due
to definitional problems. Where one defines risk as a chance of loss, it would be very difficult to make significant
difference between risk and probability. The other difficulty is whether or not probability measures risk. For example,
Pfeffer in his definition of risk stated that risk is measured by probability.
Probabilities are generally assigned to events that are expected to happen in the future. There may be a number of
possible events that will take place under given set of conditions; and these events may occur in equal or different
chance of occurrence. The weights given to each possible event may depend on prior knowledge, (toss of a
coin),pass experience ,statistical or mathematical estimation of relevant data or psychological belief,(subjective
probabilities).
Risk, on the other hand, refers to the variation in the possible outcomes. This means that risk depends on the entire
probability distribution,(Williams and Heins).It indicates the concept of variability. The concepts of risk and
probability are, therefore, two different things.

Probability is the long run chance/possibility of an occurrence

Probability varies between 0 and 1. If the probability is 0, that outcome will not occur. If the probability is 1, that
outcome will occur. The closer the probability is to 1, the more likely it will occur.

Compiled by A.M 5
 Compiled by A.M
Risk is a characteristic of the entire probability distribution, where as there is a separate probability for each
outcome.

Risk is at its highest pt; when the probability of loss is 0.5

The following example illustrates the distinction between risk and probability. Suppose the occurrence of a
particular event is to be considered. One extreme is that this event is certainly to take place. Thus, the probability
that this event will take place is 1.There is certainty as to the occurrence of this event with perfect foresight in this
regard. Accordingly, there is no risk. The other extreme is that the event will not take place at all .Hence; the
probability of occurrence is zero. Here, too, there is certainty and therefore, there is no risk. In between these two
extremes there could be several occurrences of the events with the corresponding probabilities of occurrence. This
puts us in a situation of uncertainty because it is difficult to exactly tell which of the many possible events will take
place. Under this situation there is risk. This is graphically depicted as follows:

Risk

0 0.5 1 Probability

Fig: Risk versus Probability graph / Probability Distribution/

The degree of risk is inversely related to the ability to predict which outcome will actually occur. If the risk is 0, the
future is perfectly predictable. If the risk in a given situation can be reduced, the future becomes more predictable
and more manageable.

Risk, Peril and Hazard

It is common for the terms “Peril” and “hazard” to be used inter changeably / synonymously with each other and
with “risk”. However, to be precise, it is important to distinguish these terms. All of them transmit bad taste or
feeling.

Peril: A peril is a contingency, which may cause a loss. Or: it refers to the specific cause of a loss.
Example: - Fire is the cause of destroying of things.
- Fire, windstorm, hail, theft…etc. Each of these is the source/cause of the loss that occurs,
therefore, called a peril.

Peril is also called as a loss producing agent. It is the source of a specific loss.

Hazard: A hazard, on the other hand is that the condition which creates or increases the probability of a loss
arising from a given peril. For example, one of the perils that can cause loss to automobile is collision. A

Compiled by A.M 6
 Compiled by A.M
condition that makes the occurrence of collisions more likely is an icy street. The icy street is the hazard and the
collision is the peril.

It is possible for something to be both a peril and hazard. For instance, sickness is a peril causing economic loss,
but it also a hazard that increases the chance of loss from the peril of premature death.

Hazards are normally classified into three categories:

1)Physical Hazards
- Physical hazards consist of those physical properties that increase the chance of loss from the various
perils.
- A physical hazard is a condition stemming from the physical characteristics of the exposure (object) and that
increases the probability and severity of loss from given perils.
For example:
- Type of construction,(wood, bricks)
- Location of property,(near burglar area, flood area, earthquake area)
- Occurrence of building,(dry cleaning, chemicals, super market)
- Working condition,(personal accidents)
- The existence of dry forests (hazard to fire), earth faults (hazard to earthquakes) and
icebergs (hazard to ocean shipping)
- Acids, working condition, etc.
- Such hazards may or may not be within human control.

2) Moral Hazard
- A moral hazard stems from the mental attitude of the insured person.
Example:
Dishonesty, fraudulent intention, exaggeration of claims, etc
- It refers to the increase of the probability of loss which results from evil tendencies in the character of the
insured person.
- It origins from the evil character of that insured person.
- Arises due to dishonest and fraudulent acts of the individual. A dishonest person, in the hope of collecting
from the insurance company, may internationally cause a loss, or may exaggerate the amount of a loss.
Example: Arson

3)Morale Hazard

- Results from a careless attitude on the part of insured persons toward the occurrence of losses.
- The purchase of insurance may create a morale hazard, since the realization that the insurance company
will bear the loss.
- It doesn’t involve dishonestly, but less concern on the matter.

Compiled by A.M 7
 Compiled by A.M
Example: The tendency of physicians to provide more expensive levels of care when costs are covered
by insurance.
- The inclination of juries to make larger awards when the loss is covered by insurance the so-called “deep
pocket” syndrome.

1.3 CLASSIFICATION OF RISK

- Risk may be classified in several ways according to their cause, their economic effort, or some other
dimension.

i. Financial Versus Non-Financial Risks

Financial risks - when the loss occurred has some financial implication. Or: when the risk is expressed in financial
terms.
Examples of financial risks include:
- Credit risk
- Foreign exchange risk
- Commodity risk and
- Interest rate risk.
Non–Financial risks - those risks which do not have or expressed in financial terms.
Example: The death of a person, an animal.

ii Static Risks Versus Dynamic Risks

Dynamic risks are those risks originates / resulting from changes in the overall economy such as price level
changes, changes in consumer taste, income distribution, technological changes, political changes and the like.
They are less predictable and hence beyond the control of risk managers.

They are risks associated with changes, especially changes in human wants and improvement in machinery and
organization.

For example: - Changes in the price level, consumer tastes, income and output, and technology.
-Urban unrest, increasingly complex technology, and changing attitude of legislatures and courts
about a Varity of issues.
Static risks: refers to those losses, which would occur even if there are no changes in the over all economy. They
are Losses arising from causes other than changes in the economy. Unlike dynamic risks, they are predictable and
could be controlled to some extent by taking loss prevention measures. Many of the perils fall under this category.

These are risks connected with losses caused by the irregular action of the forces of nature or the
mistakes and misdeeds of human beings.

Compiled by A.M 8
 Compiled by A.M
Example: Risks related to losses because of
- forces of nature/Flood, earthquake/, dishonesty, mistakes, both
moral and morale hazards

Static risks would be present in an unchanging economy. If we could hold consumer taste, output and income and
the level of technology constant, some individuals would still suffer financial losses. These losses arise as a result
of the perils of nature and the dishonesty of other individuals.

Dynamic risks normally benefit society over the long run since they are the result of adjustments to misallocation of
resources.

Dynamic risks usually affect a large number of individuals and are generally considered loss predictable, since they
occur with any precise degree of regularity, i.e. they don’t have regularity.

Unlike to Dynamic risks, static risks are not a source of gain to society. i.e. they usually result in a loss to society.

Static risks affect directly few individuals at most exhibit more regularly over a specific period of time and are
generally predictable.

Static and dynamic risks are not independent; greater dynamic risks may increase some type of static risks.

Example: -Uncertainty due to weather-related losses. This risk is usually considered to be static.
-Increased industrialization (technology) may be affecting global weather patterns and thereby
increasing this source of static risk.

iii Pure Risks versus Speculative Risks

The distinction between pure and speculative risks rest primarily on profit/loss structure of the underlying situation in
which the event occurs; there are only two distinct outcomes: Loss or no loss.
A. Pure Risk
- A pure risk exists when there is a chance of loss but no chance of gain/profit.
Example: Owner of an automobile faces the risk of a collusion loss.
- If collusion occurs, he will suffer a financial loss. If there is no collusion, the owner does not gain.
Most pure risks are insurable. They are always undesirable and hence people take steps to avoid such risks.

Pure risks are further classified as follows:

While it would impossible to list all the risks confronting an individual or business organization, we can briefly outline
the nature of various pure risks that we can face.
Pure risks that exist for individuals and business firms can be classified under one of the following:

A. Personal Risk
This refers to the possibility of loss to a person such as; Death, disability, loss of earning power, etc…

Compiled by A.M 9
 Compiled by A.M

These consist of the possibility of the loss of income or assets as a result of the loss of the ability to earn income.
Both individual and business face losses.
In general, earning power is subject to four perils:
i. Premature death
- Danger in person results death
Example: A known engineer may die because of accident. He was important for the
organization. Therefore, it is premature death. It is peril.

ii. Dependent old age

Example: If a person is retired, his income may decrease.
iii. Sickness or Disability
- For instance, if a person is sick, he may not generate income. This will result in a loss in income.
iv. Unemployment
Example: When a person is unemployed, he will not generate the income.
Unemployment can be classified in different ways.
a. Aggregate unemployment
- Which affect the entire economy
b. Selective /unstructured/ type of unemployment
- It affects a particular business organization
- For instance if the business organization is unable to compete the market, it will result
unemployment.
c. Personal unemployment
- It affects the worker/individual
Example: If a person is unemployed because of
o Disciplinary measures
o Preferring other jobs
o Lack of interest
B. Property risks
- Refers to losses associated with ownership of the property, such as destruction of property by fire. The
property can be building, car, etc.
- Property risks embrace two distinct types of loss:
i. Direct Loss
- It is the simplest to understand
- It refers to the loss with the actual/equivalent to the property.
Example: If a house is destroyed by fire, the owner of the property losses the value of the house.
This is a direct loss.
Compiled by A.M 10
 Compiled by A.M
ii. Indirect Loss or Consequential Loss

- Are losses that are going to be incurred because of the direct loss
- Is additional loss besides to direct loss
Example: If a house is destroyed by fire, the owner of the property losses the value of the house.
This is a direct lose. In addition to losing the value of the building itself, the owner of
the property no longer has a place to live; & during the time required to rebuild the
house, the owner will incur additional expenses. This loss of use of the destroyed
asset is an “indirect” or “consequential” loss.

These property risks in general can involve three types of losses:

(a) The loss of the property
- We call it direct loss.
(b) The loss of the use of the property or its income and
(c) Additional expenses occasioned by the loss of the property
- Indirect loss.
C. Liability Risks
- Refers to the international or unintentional injury or damage made to other persons or to their property. We
will be responsible for the risk. i.e.: One would be legally obliged to pay for the damages he inflicted upon
other persons or their property.
D. Risk arising from failure of others
- When another person agrees to perform a service for you, he/she undertakes an obligation which you hope
is met. When the person’s failure to meet this obligation, you will incur financial loss. Therefore, risk exists.
Example: Failure of a contractor to complete a construction project as scheduled or failure of
debtors to make payments as expected.

B. Speculative risk
A speculative risk exists when there is a chance of gain as well as a chance of loss. i.e. there is a possibility
of loss and gain.
Example: Gambling, Smuggling, keeping, dollar…… is a good example of a speculative risk.

Pure risks are always distasteful, but speculative risks posses some attractive features.
In a situation involving a speculative risk, society may benefit even though the individual is hurt.
For example: the introduction of a socially beneficial product may cause a firm manufacturing the
product it replaces to go bankrupt.
But in a pure-risk-situation society suffers (or share the risk) if any individual experiences a loss.
Normally only pure risks are insurable. Insurance is not concerned with the protection of individuals against
those losses arising out of speculative risks.

Compiled by A.M 11
 Compiled by A.M
Speculative risk is voluntarily accepted because of its two dimensional nature, which includes the possibility
of gain and loss.
Not all pure risks are insurable, and further insurable and uninsurable pure risks may also be made.
Static risks can be either pure or speculative risks.
Examples of pure static risks include:
- The uncertainties due to such random events of lightning, windstorms, and death.
-Business undertakings in a stable economic illustrate the concept of speculative static
risk.
Dynamic risks also can be either pure or speculative.
Speculative risks are generally uninsurable. They are dealt with hedging and other commercial techniques
.Examples include, foreign exchange risk, gambling, etc.

iv Subjective Versus Objective Risk

Some authors classify risk into objective and subjective, (Green, Williams and Heins).These two types of risk are
also mentioned as measurable and non-measurable risk.

A. Subjective risk
-It is also called as psychological uncertainty.
-Refers to the mental state of an individual as to the occurrence of certain event in a specific period of time.
:Refers to the mental state of an individual who experiences doubt or worry as to the outcome of a given event.
:It is the psychological uncertainty that arises from an individual’s mental attitude or state of mind.
B. Objective Risk

Objective risk / Statistical risk/ Objective risk has been defined as” the variation that exists in nature and
is the same for all persons facing the same situation” It is the sate of nature. However, each individual’s
estimate of the objective risk varies due to a number of factors. Thus, the estimate of objective risk which depends
on the person’s psychological belief is the subjective risk. The problem, however, is that it is difficult to obtain the
true objective risk in most business situation.
The characteristics of objective risk is that it is measurable. In other words, it can be quantified using statistical
techniques. For example, the variance or standard deviation is used as a measure of risk in finance. In some
situations, the coefficient of variation is used as a measure of risk.

-Refers to the variation when actual loss differs from expected loss. The objective risk can be measured by
the concepts of variation.
The concepts of variation are variance and standard deviation.
-It can be quantified or it can be expressed numerically.

Compiled by A.M 12
 Compiled by A.M

It differs from subjective risk primarily in the sense that is more precisely observable and therefore measurable.
o In general, objective risk is the probable variation of actual from expected experience.
o It can be quantified or it can be expressed numerically.

v Fundamental risks Versus Particular Risk

- The distinction between fundamental and particular risks is based on the differences in origin and
consequences of the losses.
- These risks are classified based on the origin and causes of loss.
(a) Fundamental Risk
- Involve those losses that are impersonal in origin and consequence.
- They are group risks caused for the most part by economic, social and political phenomena.
- They affect a large number of society
- Since these are group risks, impersonal in origin and effect, they are unpreventable at least for the
individual.
- They are not the fault of anyone.
Example: Risk associated with uncertainties, inaccuracies, and disharmonies, in the
economic system will result:
o Unemployment
o Inflation They Are Fundamental Risks
o Deflation
o War
- Risk associated with extraordinary natural disturbances such as:

o Drought
o Earthquakes Are Fundamental risks
o Flood
(b) Particular Risks
- Involve losses that arise out of individual events and that are felt by individuals rather than by the
entire group.
- Particular risks are risks personal in origin and effect.
- Are more readily controlled.
Example: The risk of death or disability from non-occupational causes.
- The risk of legal liability for personal injury or property damage to others.
Note: Particular risks are always pure risks, where as fundamental risks include pure and speculative risks.

1.4 WHY STUDY RISK?

Compiled by A.M 13
 Compiled by A.M

- “Man is the only case in nature where life becomes aware of itself”.
- People make various decisions in their life. However, man makes numerous choices and decisions on
uncertain conditions.
- People have to decide because we are living in the uncertain environment. Thus, risks must be taken.
Uncertainty is pervasive. We don’t know the future.
- Therefore, in order to minimize the adverse effect of risk, we have to study it.
- People in general are apprehensive. i.e. they don’t know at the future.
- When a person gets married, goes into business, decides to attend college, buys a house or does
innumerable other things that affect his life in any important way, he is naturally some what
apprehensive over the outcome.
- People dislike the decision in dark. They usually like the decision when the future is bright.

Illustration:
- Consider a person who may have an option to purchase a home by taking a loan from a bank to be repaid
within 20 years. Before he/she buys the house, he/she will raise various questions. Such as:

i) Is the level of my income high enough and certain enough to enable me make the payments for 20
years?
ii) How can I protect the investments for my family’s benefit in case I should die before the loan is rapid?
iii) Will my health permit me to continue to work for 20 years?
iv) Would it be better to rent rather than to buy and use my funds for other purposes?
v) How can I protect my investments in case of fire, flood, windstorm, or other peril?

Exercise:
1. What is objective risk? How does it differ from subjective risks?
2. Explain peril, hazard, physical hazard, moral hard, and morale hazard.
3. Indicate the major types of pure risks that are associated with great financial and economic insecurity
4. Why pure risk harmful to society? Explain
5. Distinguish between static and dynamic risks; fundamental and particular risks

Compiled by A.M 14