Question 1

Hedging is

Accepted Answer

A)  insurance, 
B)  used for speculative risks, 
C)  used for pure risks, 
D)  gambling. 
A)  insurance, 
B)  used for speculative risks, 
C)  used for pure risks, 
D)  gambling. B

Question 2

Match the descriptions with their terms:
-The use of insurance is a common form of _________________.

Accepted Answer

A)  frequency reduction 
B)  hedging 
C)  hold-harmless agreement 
D)  loss control 
E)  risk avoidance
F) risk retention
G) risk transfer
H) self-insurance
I) separation
J) severity reduction
K) speculator
L) unplanned retention 
A)  frequency reduction 
B)  hedging 
C)  hold-harmless agreement 
D)  loss control 
E)  risk avoidance
F) risk retention
G) risk transfer
H) self-insurance
I) separation
J) severity reduction
K) speculator
L) unplanned retention G

Question 3

The following conditions are suggestive of the types of situations where self-insurance by a business is possible and feasible, except:

Accepted Answer

A)  the firm should have a sufficient number of objects so situated that the objects are not subject to simultaneous destruction, 
B)  the firm must be willing to allow an outside company to administer the plan and manage the self-insurance fund in order to ensure objectivity, 
C)  the firm must have accurate records or have access to satisfactory statistics to enable it to make good estimates of expected losses, 
D)  the general financial condition of the firm should be satisfactory and the firm's management must be willing and able to deal with large and unusual losses. 
A)  the firm should have a sufficient number of objects so situated that the objects are not subject to simultaneous destruction, 
B)  the firm must be willing to allow an outside company to administer the plan and manage the self-insurance fund in order to ensure objectivity, 
C)  the firm must have accurate records or have access to satisfactory statistics to enable it to make good estimates of expected losses, 
D)  the general financial condition of the firm should be satisfactory and the firm's management must be willing and able to deal with large and unusual losses. B

Question 4

Match the descriptions with their terms:
-One who assumes risk that is typically associated with a business venture is a/an _________________.

Accepted Answer

A)  frequency reduction 
B)  hedging 
C)  hold-harmless agreement 
D)  loss control 
E)  risk avoidance
F) risk retention
G) risk transfer
H) self-insurance
I) separation
J) severity reduction
K) speculator
L) unplanned retention 
A)  frequency reduction 
B)  hedging 
C)  hold-harmless agreement 
D)  loss control 
E)  risk avoidance
F) risk retention
G) risk transfer
H) self-insurance
I) separation
J) severity reduction
K) speculator
L) unplanned retention

Question 5

The greater the total debt/net worth ratio, the greater the firm's ability to retain risk.

Accepted Answer

A) True 
 B)False

Question 6

The difference between the limited form and the intermediate form of hold-harmless agreements involves clauses about the losses the transferee pays for.

Accepted Answer

A) True 
 B)False

Question 7

Hold-harmless agreements reduce the original risk for the transferee.

Accepted Answer

A) True 
 B)False

Question 8

A sprinkler system is a concurrent loss control measure.

Accepted Answer

A) True 
 B)False

Question 9

Small businesses are more likely to use self-insurance than large businesses because large businesses typically have greater access to funds with which they can purchase commercial insurance.

Accepted Answer

A) True 
 B)False

Question 10

Risk retention can be planned or unplanned.

Accepted Answer

A) True 
 B)False

Question 11

A tool that generally is not used to manage subjective risk is

Accepted Answer

A)  obtaining more information, 
B)  group discussion, 
C)  systematically identifying and analyzing appropriate methods for dealing with risks, 
D)  severity reduction. 
A)  obtaining more information, 
B)  group discussion, 
C)  systematically identifying and analyzing appropriate methods for dealing with risks, 
D)  severity reduction.

Question 12

The four basic techniques available for handling risk are:

Accepted Answer

A)  risk avoidance, loss control, risk retention, and risk transfer, 
B)  risk avoidance, diversification, frequency reduction, and severity reduction, 
C)  risk retention, risk transfer, self-insurance, and loss control, 
D)  risk retention, loss control, self-insurance, and diversification. 
A)  risk avoidance, loss control, risk retention, and risk transfer, 
B)  risk avoidance, diversification, frequency reduction, and severity reduction, 
C)  risk retention, risk transfer, self-insurance, and loss control, 
D)  risk retention, loss control, self-insurance, and diversification.

Question 13

Funded retention involves making various pre-loss arrangements to ensure that money is readily available to pay for losses.

Accepted Answer

A) True 
 B)False

Question 14

Which of the following is not a form of severity reduction for a firm?

Accepted Answer

A)  a driver's education program aimed at preventing accidents among a company's employees, 
B)  the installation of fire extinguishers in order to contain a fire before it spreads, 
C)  employee training in first-aid procedures, 
D)  the installation of driver's side air bags in all of the company's vehicles. 
A)  a driver's education program aimed at preventing accidents among a company's employees, 
B)  the installation of fire extinguishers in order to contain a fire before it spreads, 
C)  employee training in first-aid procedures, 
D)  the installation of driver's side air bags in all of the company's vehicles.

Question 15

Match the descriptions with their terms:
-The use of a deductible is a very common example of _____________ by a firm.

Accepted Answer

A)  frequency reduction 
B)  hedging 
C)  hold-harmless agreement 
D)  loss control 
E)  risk avoidance
F) risk retention
G) risk transfer
H) self-insurance
I) separation
J) severity reduction
K) speculator
L) unplanned retention 
A)  frequency reduction 
B)  hedging 
C)  hold-harmless agreement 
D)  loss control 
E)  risk avoidance
F) risk retention
G) risk transfer
H) self-insurance
I) separation
J) severity reduction
K) speculator
L) unplanned retention

Question 16

When an entity avoids a risk

Accepted Answer

A)  the chance of a loss is zero, 
B)  the chance of a loss is only moderately reduced, 
C)  the probability of a loss due to that risk is zero, 
D)  the chance of a loss for that entity due to that risk is reduced to zero. 
A)  the chance of a loss is zero, 
B)  the chance of a loss is only moderately reduced, 
C)  the probability of a loss due to that risk is zero, 
D)  the chance of a loss for that entity due to that risk is reduced to zero.

Question 17

Which of the following is not an example of risk retention?

Accepted Answer

A)  self-insurance, 
B)  using a disclaimer of warranties clause on product packaging, 
C)  failure to identify a risk, 
D)  use of a reserve fund to prefund physical damage to company cars. 
A)  self-insurance, 
B)  using a disclaimer of warranties clause on product packaging, 
C)  failure to identify a risk, 
D)  use of a reserve fund to prefund physical damage to company cars.

Question 18

Risk retention means the voluntary assumption of risk.

Accepted Answer

A) True 
 B)False

Question 19

Match the descriptions with their terms:
-Risks that are considered too great to retain and too expensive to transfer might best be handled by means of _________________.

Accepted Answer

A)  frequency reduction 
B)  hedging 
C)  hold-harmless agreement 
D)  loss control 
E)  risk avoidance
F) risk retention
G) risk transfer
H) self-insurance
I) separation
J) severity reduction
K) speculator
L) unplanned retention 
A)  frequency reduction 
B)  hedging 
C)  hold-harmless agreement 
D)  loss control 
E)  risk avoidance
F) risk retention
G) risk transfer
H) self-insurance
I) separation
J) severity reduction
K) speculator
L) unplanned retention

Question 20

Match the descriptions with their terms:
-A significant amount of retention could be characterized as _________________.

Accepted Answer

A)  frequency reduction 
B)  hedging 
C)  hold-harmless agreement 
D)  loss control 
E)  risk avoidance
F) risk retention
G) risk transfer
H) self-insurance
I) separation
J) severity reduction
K) speculator
L) unplanned retention 
A)  frequency reduction 
B)  hedging 
C)  hold-harmless agreement 
D)  loss control 
E)  risk avoidance
F) risk retention
G) risk transfer
H) self-insurance
I) separation
J) severity reduction
K) speculator
L) unplanned retention

Exam 5: Risk Management Techniques: Noninsurance Methods

Hedging is

Match the descriptions with their terms: -The use of insurance is a common form of _________________.

The following conditions are suggestive of the types of situations where self-insurance by a business is possible and feasible, except:

Match the descriptions with their terms: -One who assumes risk that is typically associated with a business venture is a/an _________________.

The greater the total debt/net worth ratio, the greater the firm's ability to retain risk.

The difference between the limited form and the intermediate form of hold-harmless agreements involves clauses about the losses the transferee pays for.

Hold-harmless agreements reduce the original risk for the transferee.

A sprinkler system is a concurrent loss control measure.

Small businesses are more likely to use self-insurance than large businesses because large businesses typically have greater access to funds with which they can purchase commercial insurance.

Risk retention can be planned or unplanned.

A tool that generally is not used to manage subjective risk is

The four basic techniques available for handling risk are:

Funded retention involves making various pre-loss arrangements to ensure that money is readily available to pay for losses.

Which of the following is not a form of severity reduction for a firm?

Match the descriptions with their terms: -The use of a deductible is a very common example of _____________ by a firm.

When an entity avoids a risk

Which of the following is not an example of risk retention?

Risk retention means the voluntary assumption of risk.

Match the descriptions with their terms: -Risks that are considered too great to retain and too expensive to transfer might best be handled by means of _________________.

Match the descriptions with their terms: -A significant amount of retention could be characterized as _________________.

Introduction to Risk

Risk Identification and Evaluation

Property and Liability Loss Exposures

Life, Health, and Loss of Income Exposures

Insurance As a Risk Management Technique: Principles

Insurance As a Risk Management Technique: Policy Provisions

Selecting and Implementing Risk Management Techniques

Risk Management and Commercial Propertypart I

Risk Management and Commercial Propertypart II

Risk Management and Commercial Liability Risk

Workers Compensation and Alternative Risk Financing

Risk Management for Auto Ownerspart I

Risk Management for Auto Ownerspart II

Risk Management for Homeowners

Loss of Life

Loss of Health

Retirement Planning and Annuities

Employee Benefits: Life and Health Benefits

Employee Benefits: Retirement Plans

Financial and Estate Planning

Risk Management and the Insurance Industry

Functions and Organization of Insurers

Government Regulation of Risk Management and Insurance

Filters