If you want to manage risk within your firm, you need to familiarize yourself with risk-management language; for a concise starting point, see Risk Management Overview.
Basic definitions
- Exposure: A situation, practice, or condition that might lead to a loss; an activity or resource (assets, people).
- Peril: A "cause" of loss; an event that might cause a loss.
- Hazard: A condition within an exposure that might lead to an incident; "a peril about to happen."
- Incident: An event that disrupts normal activities and might become a loss or claim; "a near miss." Lifecycle of an incident: pre-incident, incident, immediate post-incident, post-incident, rehabilitation (repair, recovery).
- Accident: An incident resulting in injury or damage to person or property which has, or will become, a loss or claim; "an unplanned event definite as to time and place that causes bodily injury or property damage."
- Occurrence: An accident with the limitation of time removed.
- Loss: A reduction in value.
- Claim: A demand or obligation for payment as a result of a loss.
- Frequency: The number of times an incident occurs.
- Severity: The monetary impact of a loss.
- Expected losses: Loss projections based on probability distributions and statistics; frequently developed using actuarial techniques.
For a complimentary review of the risks your business faces, please feel free to review our Risk Management in Business, or talk to an agent.
Frequently Asked Questions
What is the difference between a peril and a hazard?
A peril is the event that causes loss (like a flood); a hazard is a condition that increases the chance or severity of that peril (such as poor drainage).
How do frequency and severity affect insurance planning?
Frequency measures how often incidents occur while severity measures their monetary impact; together they help estimate expected losses and shape coverage and retention decisions.
When should I report an incident to my insurer?
Report incidents that result in injury, damage, or a potential claim as soon as possible; timely reporting helps preserve coverage and supports faster resolution.