Exam 3: Introduction to Risk Management

A situation or circumstance in which a loss is possible,regardless of whether a loss occurs,is called a

Purchasing health insurance illustrates the use of which personal risk management technique?

Each accounting period,Harris Company Department Store charges a bookkeeping account for its estimated shoplifting losses.The method that Harris Company Department Store uses to fund its retained shoplifting losses is a(n)

Which of the following statements regarding the use of retention is (are)true? I.Retention is best used for loss exposures that have a low frequency and a high severity. II.A financially strong firm can have a higher retention level than a firm whose financial position is weak.

The worst loss that is likely to happen is referred to as the

Which of the following statements about the use of a captive insurance company by a parent firm is true?

A restaurant owner leased a meeting room at the restaurant to a second party.The lease specified that the second party,not the restaurant owner,would be responsible for any liability arising out of the use of the meeting room,and that the restaurant owner would be "held harmless" for any damages.The restaurant owner's use of the hold-harmless agreement in the lease is an example of

The U.S.government is concerned that terrorists might try to crash a vehicle loaded with explosives into a U.S.embassy in a foreign country.Inside the gate to the embassy,they installed steel and cement posts in the road.These posts can be raised up from the ground to form a barrier against suicide bombers.The posts can be lowered back into the ground to allow safe vehicles to pass.This physical barrier system illustrates which risk management technique?

Which of the following is least likely to occur during a "hard" insurance market period?

Which of the following statements about self-insurance is (are)true? I.It is a form of planned retention. II.State law usually prohibits its use for workers compensation.

Morris Company self-insures its workers compensation loss exposure.The risk manager of Morris Company is concerned about the possible impact of a single catastrophic claim.She decided to set a retention limit of $500,000 per-claim,and to purchase insurance that will be begin to pay once Morris Company has paid $500,000 on a single claim.The insurance the risk manager purchased is called

Mark owns a 2009 sedan.The last time Mark renewed his auto insurance,he decided to drop the physical damage insurance on this vehicle.How is Mark dealing with the auto physical damage exposure in his personal risk management program?

All of the following statements about the administration of a risk management program are true EXCEPT

The property and liability insurance industry fluctuates between periods of increasing insurance rates and tight underwriting standards,and decreasing insurance rates and loose underwriting standards.Profitability in the industry follows these cyclical movements.What is this pattern of fluctuations called?

A risk manager was asked to review all the loss exposures his company faces.The risk manager noted that the company obtained over 90 percent of its raw materials from one supplier.He voiced concern about business interruption if that supplier was closed for some reason.Acting on his recommendation,the company began to purchase raw materials from two other suppliers.Using multiple suppliers illustrates which risk control technique?

Preloss objectives of risk management include which of the following? I.Preparing for potential losses in the most economical way II.Reduction of anxiety

Which of the following statements about a personal risk management program is (are)true? I.Insurance and retention are the only techniques used to handle potential losses. II.The steps in a personal risk management process are the same steps used by businesses.

All of the following are potential advantages of retention EXCEPT

A useful measure for an organization to monitor is the total expenditures for treating loss exposures including retained losses,loss control expenses,insurance premiums,and other related expenses.This measure is called the organization's

Melanie was just hired as the risk manager of JKL Company.The company president asked her to make a thorough review of all of the company's loss exposures.Melanie noted that many employees were too heavily invested in stock issued by the company in their 401-k plan.Melanie suggested that the employees change some of their investment holdings to mutual funds that invest in stock issued by different companies.The risk control method that Melanie suggested is