Page 12 - EBOOK RISK MANAGEMENT

There are three terms closely related to risk which is peril, hazard, and loss. A risk is

the possibility of a loss and a peril is the cause of damage or loss. Hazards, on the
other hand, are things that increase the likelihood of a loss. Loss can be defined

as reduction or disappearance of economic value and it can be measured in

monetary terms. Hazards can be grouped under three categories that can increase
the chance of loss.

Moral Hazard
Character defects, dishonesty or
wrongful behavior in an individual
that increase the chance of loss. Morale Hazard
Examples, fraud claims by faking an
accident, arson, exaggerate their Indifferent attitude or carelessness to
injuries a loss because the presence of
insurance.
Examples, driving without wearing
Physical Hazard seatbelt, leaves the car keys in an
Physical conditions that unlocked car
increases the chance of
loss from certain perils.
Examples, heavy rains, Hazard
defective wiring, smoking
cigarettes.

Figure 1.3 Types of Hazard

Table 1.2 Relationship Between Hazard, Peril and Loss

HAZARD PERIL LOSS
Worn-out tyres Car accident Property damage
Bodily injury
Loss of profits

Poor wiring system Fire Property damage
Bodily injury
Loss of profits

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