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Assignment No. 2

Northern Caribbean University

FNCE437: Risk Management & Insurance (K)

Darian Watts

May 26, 2021

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Assignment No. 2

Similar to the approach taken in Assignment Number One, the primary aim of this

Assignment is to broaden my – as well as my readers – knowledge. At the conclusion of this

assignment, a more vivid understanding of the words perils and hazards should be present (while

also being able to differentiate between the two), and the ability to define various types of

hazards as well, and lastly, a comprehension of the major social and economic burdens of risk on

society.

Peril and Hazard, two words which are often used interchangeably, both can cause

significant loss, but what are their true meanings? As stated in the Book Principles of Risk

Management and Insurance, a cause which results in property damage or some form of loss is

referred to as a Peril. A Hazard on the other hand, is an event or circumstance that causes or

increases the prevalence of loss[CITATION Rej16 \p "22, 23" \l 1033 ] . An example to bring both

words to a clearer light would be an individual getting into an accident (car crash) while driving

on a wet road, in this case due to the road being wet, this would be the hazard, we know this

because the wet road increased the possibility of an accident occurring, and due to the accident

resulting in a loss, the accident would be considered as the hazard.

With a better comprehension of the word Hazard, we can now review various types of

hazards, starting with Physical Hazards, followed by Moral Hazards, then Attitudinal Hazards

and Last but not least Legal Hazards, all definitions were gathered from the book previously

mentioned ‘Principles of Risk Management and Insurance’. Physical Hazard is a physical

condition which makes loss more likely or more severe. An example of this would be a ditch

(pothole) in the road, as this increases the possibility of an accident occurring. Moral hazard is

when a person's dishonesty or character flaws enhance the frequency or severity of loss. An
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example of this would be an individual purposely colliding their vehicle with another object, and

then stating that the collision was accidental, this is usually done with the intention of making a

financial claim. Attitudinal hazard is negligence or apathy to a loss, which increases the

probability or intensity of a loss. An example of this would be a driver changing lanes on the

highway without indicating to surrounding drivers their intention of changing lanes. Legal

hazards refer to features of the judicial system or regulatory environment that raises the

likelihood of occurrence of losses. An example of this would be laws in countries which see

Alcohol addiction as a Medical condition rather than a moral choice, in said countries insurance

companies are legally responsible to cover bills in relation to alcohol treatments that their

medical policy holders or medical facilities have submitted for such policy holders [CITATION

Rej16 \p 23 \l 1033 ].

As stated in the book Principles of Risk Management and Insurance, the major Social and

Economical Burdens of Society can be broken down into: the size of an emergency fund needing

to be larger, society being deprived of certain goods and services and the presence of worry and

fear[CITATION Rej16 \p 31 \l 1033 ]. In the case of the necessity of a larger emergency fund being

necessary, without insurance, covering a medical fee is far more difficult, and the end payment is

certainly larger. Another burden of risk on society is the loss of certain goods and services.

Rather than facing the possibility of paying lawsuits out of pocket or even simply compensating

a third-party due to damage of property, many individuals took the route of closing shop rather

than operating without insurance coverage. Many businesses which closed down in cases like

these produced goods/services which were sought after, however due to the high possibility of

charges being faced and the lack of insurance they simply closed, often times leaving a void of a

certain want. Lastly, the burden of risk on society being the actuality of worry and fear. People
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typically expect that nothing bad will happen to them and that their current condition of health

and economic well-being will remain. While feeding this hope, individuals are nonetheless

concerned about impending tragedies. This anxiety, which is a draining feeling, creates a sense

of insecurity and decreases one's well-being.

In conclusion, this assignment has expanded my comprehension of the differences as well

as the relations between Perils and Hazards, while also giving me a deeper understand of various

types of Hazards. At the same time, an awareness of the major social and economic burdens of

risk on society was also created. Hopefully, the aim of enlightening the reader of this assignment

was also achieved.

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References

Rejda, G. E., & McNamara, M. J. (2016). Principles of Risk Management and Insurance (13th

ed.). Edinburgh Gate, Harlow, England: Pearson Education. Retrieved May 2021, from

Kin.