Registered Insurance Brokers of Ontario (RIBO) Practice Exam

A hazard in insurance terms can best be defined as?

1. A financial risk increase

2. A physical condition that increases likelihood of loss

3. A policy exclusion from coverage

4. A legal liability for damages

The correct answer is: A physical condition that increases likelihood of loss

A hazard in insurance terminology refers specifically to a physical condition that increases the likelihood of a loss occurring. This definition emphasizes that hazards contribute to the potential for risk, as they can make a particular situation or object more susceptible to danger or losses. For example, in a property insurance context, a hazard could be a lack of proper maintenance in a building that makes it more likely to suffer damage from various perils such as fire or water damage. Understanding hazards is crucial in assessing risk and determining appropriate insurance coverage. Recognizing various physical, operational, or environmental factors that heighten risk allows insurers and brokers to make informed decisions regarding underwriting and pricing policies. The other options do not accurately describe what a hazard is in the context of insurance. Financial risk related to an investment or product is a broader concept, and while it is relevant to insurance, it doesn't specifically define a hazard. Policy exclusions pertain to what is not covered under a policy, which is outside the scope of what a hazard represents. Lastly, legal liability for damages refers to obligations arising from legal claims made against someone, which again is different from the concept of a hazard, which relates to the condition that might increase risk, not the consequences of risk.