Question 1

Which of the following statements about risk pooling as a form of insurance is correct?

Accepted Answer

A)  Lending institutions forcing consumers to buy insurance as a condition for financing is not an example of risk pooling. 
B)  Captive insurers diminish the need for risk pooling. 
C)  Duplication is a form of risk pooling. 
D)  In some cases the law requires firms to create them. 
A)  Lending institutions forcing consumers to buy insurance as a condition for financing is not an example of risk pooling. 
B)  Captive insurers diminish the need for risk pooling. 
C)  Duplication is a form of risk pooling. 
D)  In some cases the law requires firms to create them. D

Question 2

OSHA is a federal loss prevention law.

Accepted Answer

A) True 
 B)False  True

Question 3

Discuss the concept of funded risk assumption.

Accepted Answer

Funded risk assumption is when a firm sets aside cash, or another liquid investment, for usage when a loss occurs. A firm can also make a contingent funding arrangement with a bank. Hence the firm assumes the risk by creating a liquid or near liquid cash reserve.

Question 4

Assume that you own a fireworks manufacturing plant. A prospective insurer indicates it will not insure your property unless you take some loss prevention measures. Which of the following is the best loss prevention measure?

Accepted Answer

A)  Maintain your own fire department 
B)  Create two identical facilities, each having half the capacity of the original building 
C)  Put smoke alarms and fire sprinklers in each building 
D)  Do not mix ingredients until the last possible moment 
A)  Maintain your own fire department 
B)  Create two identical facilities, each having half the capacity of the original building 
C)  Put smoke alarms and fire sprinklers in each building 
D)  Do not mix ingredients until the last possible moment

Question 5

All of the following are ways of transferring risk mentioned in the text, except:

Accepted Answer

A)  competitive bidding 
B)  exculpatory clauses 
C)  hold-harmless agreements 
D)  creating an LLP or LLC 
A)  competitive bidding 
B)  exculpatory clauses 
C)  hold-harmless agreements 
D)  creating an LLP or LLC

Question 6

Which of the following statements about risk assumption is not correct?

Accepted Answer

A)  Risk assumption is also known as risk retention. 
B)  Risk assumption can be transferred through hedging. 
C)  Larger firms have a better ability to assume risk. 
D)  All of the above are correct. 
A)  Risk assumption is also known as risk retention. 
B)  Risk assumption can be transferred through hedging. 
C)  Larger firms have a better ability to assume risk. 
D)  All of the above are correct.

Question 7

Explain the difference between loss prevention versus loss reduction.

Accepted Answer

Loss prevention reduces the fr

Question 8

The transfer/retention risk management decision is unimportant and therefore risk managers should not waste their time on the decision.

Accepted Answer

A) True 
 B)False

Question 9

Assume you own an antique car. Your prospective insurance company indicates that they will not insure your car unless you take some loss prevention steps to avoid theft. Which of the following steps is the best loss prevention measure with regards to theft?

Accepted Answer

A)  Always keep a canvas cover over the car to hide it. 
B)  Never drive in rainy weather. 
C)  Never drive in big cities. 
D)  Store the car in a closed and locked garage. 
A)  Always keep a canvas cover over the car to hide it. 
B)  Never drive in rainy weather. 
C)  Never drive in big cities. 
D)  Store the car in a closed and locked garage.

Question 10

Lack of supply of insurance:

Accepted Answer

A)  can be the result of inefficient insurance regulation 
B)  is a reason why companies now get their insurance on Bermuda or the Cayman Islands 
C)  is no problem when it comes to risk against earthquakes 
D)  is no problem when it comes to private unemployment insurance 
A)  can be the result of inefficient insurance regulation 
B)  is a reason why companies now get their insurance on Bermuda or the Cayman Islands 
C)  is no problem when it comes to risk against earthquakes 
D)  is no problem when it comes to private unemployment insurance

Question 11

For centuries consumers have relied upon insurance to pay for unexpected losses.

Accepted Answer

A) True 
 B)False

Question 12

The size of a firm:

Accepted Answer

A)  has no impact on the ability to retain risk 
B)  is proportional to the amount of risk it is willing to take 
C)  determines whether a firm can hedge its risk 
D)  has an impact on its ability to absorb losses 
A)  has no impact on the ability to retain risk 
B)  is proportional to the amount of risk it is willing to take 
C)  determines whether a firm can hedge its risk 
D)  has an impact on its ability to absorb losses

Question 13

Which of the following types of risk lend themselves well to self-insurance?

Accepted Answer

A)  Car insurance and earthquake insurance 
B)  Workers' compensation and car insurance 
C)  Workers' compensation and health insurance 
D)  Health insurance and earthquake insurance 
A)  Car insurance and earthquake insurance 
B)  Workers' compensation and car insurance 
C)  Workers' compensation and health insurance 
D)  Health insurance and earthquake insurance

Question 14

Which of the following statements about duplication is correct?

Accepted Answer

A)  Duplication is in general too costly to be effective. 
B)  Duplication is in general effective when the cost is low. 
C)  Duplication stimulates supply-chain interruptions. 
D)  All of the above are correct. 
A)  Duplication is in general too costly to be effective. 
B)  Duplication is in general effective when the cost is low. 
C)  Duplication stimulates supply-chain interruptions. 
D)  All of the above are correct.

Question 15

Increasing litigation risk is one of the main drivers of the growth of organizational forms of business with limited liability characteristics.

Accepted Answer

A) True 
 B)False

Question 16

All of the following are ways of managing risk mentioned in the text, except:

Accepted Answer

A)  competitive bidding 
B)  transfer 
C)  avoidance 
D)  assumption 
A)  competitive bidding 
B)  transfer 
C)  avoidance 
D)  assumption

Question 17

If an individual causes a loss intentionally, we would say that person is a:

Accepted Answer

A)  careful person 
B)  physical hazard 
C)  moral hazard 
D)  risk manager 
A)  careful person 
B)  physical hazard 
C)  moral hazard 
D)  risk manager

Question 18

The insurer's efficiency and underwriting practices are much more important to the consumer than where the insurer is located, for example Bermuda or the Cayman Islands.

Accepted Answer

A) True 
 B)False

Question 19

Insurance increases moral hazard.

Accepted Answer

A) True 
 B)False

Question 20

What are the main considerations in determining the proper mix of retention and transfer in handling potential loss exposures?

Accepted Answer

The main considerations in making the tr

Exam 4: Risk-Handling Techniques: Loss Control, Risk Transfer, and Loss Financing

Which of the following statements about risk pooling as a form of insurance is correct?

OSHA is a federal loss prevention law.

Discuss the concept of funded risk assumption.

Assume that you own a fireworks manufacturing plant. A prospective insurer indicates it will not insure your property unless you take some loss prevention measures. Which of the following is the best loss prevention measure?

All of the following are ways of transferring risk mentioned in the text, except:

Which of the following statements about risk assumption is not correct?

Explain the difference between loss prevention versus loss reduction.

The transfer/retention risk management decision is unimportant and therefore risk managers should not waste their time on the decision.

Assume you own an antique car. Your prospective insurance company indicates that they will not insure your car unless you take some loss prevention steps to avoid theft. Which of the following steps is the best loss prevention measure with regards to theft?

Lack of supply of insurance:

For centuries consumers have relied upon insurance to pay for unexpected losses.

The size of a firm:

Which of the following types of risk lend themselves well to self-insurance?

Which of the following statements about duplication is correct?

Increasing litigation risk is one of the main drivers of the growth of organizational forms of business with limited liability characteristics.

All of the following are ways of managing risk mentioned in the text, except:

If an individual causes a loss intentionally, we would say that person is a:

The insurer's efficiency and underwriting practices are much more important to the consumer than where the insurer is located, for example Bermuda or the Cayman Islands.

Insurance increases moral hazard.

What are the main considerations in determining the proper mix of retention and transfer in handling potential loss exposures?

Introduction to Enterprise Risk Management and Insurance

Risk Identification

Risk Assessment and Pooling

Risk-Handling Techniques: Diversification and Hedging

Fundamentals of Insurance

Insurable Perils and Insuring Organizations

Insurance Functions

Insurance Markets: Economics and Issues

Insurance Regulation

Insurance Contracts

The Personal Auto Policy

Homeowners Insurance

Professional Financial Planning

Life Insurance Policies

Standard Life Insurance Contract Provisions and Options

Annuities

Health Insurance and Disability Income

Employee Benefits

Social Security

Unemployment and Workers Compensation Insurance

Commercial Property Insurance

Commercial Liability Insurance

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