| Term | Definition |
|---|
| Property loss exposure | A condition that presents the possibility that a person or organization will sustain a loss resulting from the damage - including the destruction, taking, or loss of use - of property in which that person or organization has a financial interest. |
| Tangible property | Property that has a physical form that can be seen or touched. |
| Real Property | Tangible property consisting of land, all structures permanently attached to the land, and whattever is growing on the land. |
| Personal Property | Tangible or intangible property other than real property. |
| Intangible property | Personal property that has no physical form. |
| Liability loss exposure | A condition that presents the possibility that a person or an organization will sustain a loss resulting from a claim alleging a person's or organization's legal responsibility for injury or damage suffered by another party. |
| Personnel loss exposure | A condition that presents the possibility of loss caused by a person's death, disability, retirement, or resignation that deprives an organization of the person's special skill or knowledge that the organization cannot readily replace. |
| Net income loss exposure | A condition that presents the possibility of loss caused by a reduction in net income. |
| Balance sheet | A statement of an organization's financial condition as of a particular date. |
| Income Statement | A financial report that shows the profit or loss for a specific period. |
| Statement of Cash Flows | A financial statement that shows an organization's cash receipts and cash payments during a specified period. |
| Flowchart | A diagram that graphically and sequentially depicts the activities of a particular organization or process. |
| Organizational chart | A graphical depiction of an organization's management structure. |
| Loss Frequency | The number of losses that occur within a specified period. |
| Law of large numbers | A mathematical principle stating that when the number of similar independent exposure units increases, the relative accuracy of predictions about future outcomes based on these exposure units also increases. |
| Loss Severity | The amount of loss, typically measured in dollars, for a loss that has occurred. |
| Maximum possible loss (MPL) | An estimate of the largest possible loss that might occur. |
| Probable maximum loss (PML) | The value of the largest loss that is likely to occur. |
| Prouty approach | A risk exposure analysis method that suggests how to treat loss exposures by classifying loss frequency and loss severity into broad categories. |
| Risk Control | A conscious act or decision not to act that reduces the frequency and severity of losses or makes losses more predictable. |
| Avoidance | A risk control technique that involves ceasing or never undertaking an activity so that the possibility of a future loss occurring from that activity is eliminated.` |
| Loss Prevention | A risk control technique that reduces the frequency of a particular loss. |
| Loss reduction | A risk control technique that reduces the severity of a particular loss. |
| Separation | A risk control technique that disperses a particular asset or activity over several locations and regularly relies on that asset or activity as a part of the organizaqtion's working resources. |
| Duplication | A risk control technique that uses backups, spares, or copies of critical property, information or capabilities and keeps them in reserve. |
| Diversification | A risk control technique that spreads loss exposures over numerous projects, products, markets, or regions. |
| Risk financing | A conscious act of decision not to act that generates the funds to pay for losses or offset the variability in cash flows that may occur. |
| Insurance | A risk financing technique that transfers the potential financial consequences of certain specified loss exposures from the insured to the insurer. |
| Noninsurance risk transfer | A risk financing technique that transfers all or part of the financial consequences of loss to another party, other than an insurer. |
| Hold-harmless agreement | A contract under which one party (the indemnitor) agrees to assume the liability of a second party (the indemnitee.) |
| Hedging | A financial transaction in which one asset is held to offset the risk associated with another asset. |
| Futures contract | An agreement to buy or sell a commodity or security at a future date at a price that is fixed at the time of the agreement. |
| Retention | A risk financing technique that involves assumption or risk in which losses are retained by generating funds within the organization to pay for the losses. |
| Pre-loss Funding | A funded retention arrangement under which money to fund losses is set aside in advance. |
| Current-loss funding | A funded retention arrangement under which money to fund retained losses is provided at the time of the loss or immediately after it. |
| Post-loss funding | A funded retention arrangement under which the organization pays for its retained losses sometime after losses occur, using borrowing (or some other method or raising additional capital) in the meantime. |
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