Exam 3: Introduction to Risk Management

Which of the following statements concerning the selection of risk management techniques and insurance market conditions is (are)true? I.It's easier to purchase affordable insurance during a "soft" market than during a "hard" market. II.Retention is used more during a "soft" market than during a "hard" market.

Loss severity is defined as the

Discount Department Stores is a national retail chain.The company had one large,central warehouse.At the suggestion of the risk manager,the company decided to build four smaller regional warehouses so that a loss at the central warehouse would not be a catastrophic blow to the company's distribution system.Splitting the inventory between four regional warehouses illustrates which risk management technique?

Laura Evans is risk manager of LMN Company.Laura decided to retain certain property loss exposures.Which of the following is a method that Laura can use to fund the retained property losses?

Cal was just hired as XYZ Company's first risk manager.Cal would like to employ the risk management process.The first step in the process Cal should follow is to

Loss frequency is defined as the

All of the following are disadvantages of noninsurance transfers EXCEPT

Which of the following types of loss exposures may be appropriately handled through the purchase of insurance? I.High-frequency,low-severity loss exposures II.Low-frequency,high-severity loss exposures

Parker Department Stores has been hurt in recent months by a large increase in shoplifting losses.Parker's risk manager concluded that while the frequency of shoplifting losses was high,the severity is still relatively low.What is (are)the appropriate risk management technique(s)to apply to this problem?

David never stopped to consider the possible consequences of a long-term,permanent,disability.So David did not include disability income insurance in his personal risk management program.David is dealing with the risk of disability through

Which of the following statements about an excess insurance plan is true?

Members of Mid-South Petroleum Distributors,a trade group,had trouble obtaining affordable pollution liability insurance.The members formed a group captive that is exempt from many state laws that apply to other insurers.This group captive is called a(n)

All of the following statements about avoidance are true EXCEPT

Which of the following types of loss exposures are best handled by the use of avoidance?

All of the following are disadvantages of using insurance in a commercial risk management program EXCEPT

Acme Company has three identical manufacturing plants,one on the Texas Gulf Coast,one in southern Alabama,and one in Florida.Each plant is valued at $200 million.Acme's risk manager is concerned about the damage which could be caused by a single hurricane.The risk manager believes there is an extremely low probability that a single hurricane could destroy two or all three plants because they are located so far apart.What is the probable maximum loss associated with a single hurricane?

Acme Company has three identical manufacturing plants,one on the Texas Gulf Coast,one in southern Alabama,and one in Florida.Each plant is valued at $200 million.Acme's risk manager is concerned about the damage which could be caused by a single hurricane.The risk manager believes there is an extremely low probability that a single hurricane could destroy two or all three plants because they are located so far apart.What is the maximum possible loss associated with a single hurricane?

Low-frequency,low-severity loss exposures are best handled by

Abandoning an existing loss exposure is an example of

A college professor stores class grading records on a spreadsheet on her office computer.Each time she updates a grading file she makes a printout and a backup copy of the grading file.The professor is using which risk management method to address the risk of losing her class grading records?