A peril basically is the cause of a loss. Such things as fires, floods, theft, illness and death are perils.
What is a Hazard?
A hazard is a condition that increases the probability that a peril will occur or tends to increase the severity of the loss when a peril occurs.
What is Risk?
Risk is defined as uncertainity with respect to possible losses. It refers to the inability to determine with definiteness the actual number and value of the claims that a benefit plan will have to meet.
Explain the concept of physical hazard?
A physical hazard is a physical condition, such as defective wiring in a building or the absence of fire-extinguising the chance of loss.
Explain the concept of moral hazard?
Exists when dishonesty or other character defects in an individual increase the chances of loss (ex. Arson, premiums are higher to all insureds. Insurers attempt to control moral hazard by underwriting & provisions.
Explain the concept of morale hazard?
Consists of carelessness or indifference that individuals have b/c they are covered by insurance and thereby protected against loss. (employees or medical providers scheduling unneeded medical test or medications)
Pure Risk vs. Speculative Risk
Pure risk involves situations where only 2 alternatives are possible - either the risk will not happen (no financial loss), or it will happen and a financial loss takes place. Many employee benefit coverages fall into this classification.