Question 1

Risk managers are concerned with policy limits and deductible size contained in insurance contracts because:

Accepted Answer

A)  an increased deductible amount increases the policy's premium 
B)  the policy limit and the deductible are the only determinants of whether the policy will pay the claim 
C)  they determine how much of the exposure the insured retains and transfers 
D)  premiums set by policy limit and deductible are not tax deductible whereas uninsured losses are deductible 
A)  an increased deductible amount increases the policy's premium 
B)  the policy limit and the deductible are the only determinants of whether the policy will pay the claim 
C)  they determine how much of the exposure the insured retains and transfers 
D)  premiums set by policy limit and deductible are not tax deductible whereas uninsured losses are deductible

Question 2

Risk avoidance is the best risk management tool when the change of loss is ________ and the potential severity of loss is ________.

Accepted Answer

A)  low, low 
B)  high, high 
C)  low, high 
D)  high, low 
A)  low, low 
B)  high, high 
C)  low, high 
D)  high, low

Question 3

Which of the following are examples of loss reduction techniques? 
I. Wearing your seat belt while driving your car
II. Polio vaccinations
III. Keeping poisons locked up and out of reach of small children
IV. Wearing a helmet while skateboarding

Accepted Answer

A)  I and III only 
B)  I, II, and III only 
C)  I and IV only 
D)  I, II, III, and IV 
A)  I and III only 
B)  I, II, and III only 
C)  I and IV only 
D)  I, II, III, and IV

Question 4

All of the following are true about captive insurers, except:

Accepted Answer

A)  that they are located in locations like Bermuda 
B)  that claims-settlement often take longer 
C)  that the parent company or companies save on overhead and profits that they would otherwise pay to third insurance companies 
D)  that the parent company or companies are in some cases allowed to deduct their premiums from their tax liability 
A)  that they are located in locations like Bermuda 
B)  that claims-settlement often take longer 
C)  that the parent company or companies save on overhead and profits that they would otherwise pay to third insurance companies 
D)  that the parent company or companies are in some cases allowed to deduct their premiums from their tax liability

Question 5

All of the following are examples of loss financing, except:

Accepted Answer

A)  raising capital through selling stocks and bonds on the capital market 
B)  insurance 
C)  hedging 
D)  risk retention 
A)  raising capital through selling stocks and bonds on the capital market 
B)  insurance 
C)  hedging 
D)  risk retention

Question 6

Funded risk assumption:

Accepted Answer

A)  is typically done through a subsidiary on Bermuda or the Cayman Islands 
B)  increases moral hazard for the firm 
C)  is when a firm assumes by creating a liquid or near liquid cash reserve 
D)  is a form of risk transfer 
A)  is typically done through a subsidiary on Bermuda or the Cayman Islands 
B)  increases moral hazard for the firm 
C)  is when a firm assumes by creating a liquid or near liquid cash reserve 
D)  is a form of risk transfer

Question 7

Which of the following statements about risk-bearing financial institutions is not correct?

Accepted Answer

A)  They are a good example of creating self-insurance by the customers of these institutions. 
B)  They allow its customers to transfer their financial risks to the institution for a fee. 
C)  They capitalize on their size to mitigate risks. 
D)  They finance the cost of any losses by the fees they get from their customers. 
A)  They are a good example of creating self-insurance by the customers of these institutions. 
B)  They allow its customers to transfer their financial risks to the institution for a fee. 
C)  They capitalize on their size to mitigate risks. 
D)  They finance the cost of any losses by the fees they get from their customers.

Question 8

All of the following are examples of loss reduction, except:

Accepted Answer

A)  improved lighting in the work place 
B)  fire walls 
C)  salvage operations 
D)  training replacement personnel 
A)  improved lighting in the work place 
B)  fire walls 
C)  salvage operations 
D)  training replacement personnel

Question 9

Many captive insurance companies are located in states where insurance regulation is very strict.

Accepted Answer

A) True 
 B)False

Question 10

Loss exposures which are both high-frequency and high-severity in nature are best handled by assumption.

Accepted Answer

A) True 
 B)False

Question 11

Which tools are used by most individuals for handling the loss exposure of physical damage to their vehicles caused by collisions? 
I. Avoidance
II. Control
III. Retention
IV. Insurance

Accepted Answer

A)  II and IV only 
B)  I, II, and III only 
C)  II, III and IV only 
D)  I, II, III, and IV 
A)  II and IV only 
B)  I, II, and III only 
C)  II, III and IV only 
D)  I, II, III, and IV

Question 12

When the chance of loss is great and the potential for loss severity is also very high, insurance is the best approach to the risk management problem.

Accepted Answer

A) True 
 B)False

Question 13

Jim S. buys a $50,000 car. Rather than buying insurance on the car, he sets aside $30,000 in a savings account to cover possible losses due to an accident. He is:

Accepted Answer

A)  self-insuring 
B)  a moral hazard 
C)  assuming risk 
D)  decreasing his risk of physical loss 
A)  self-insuring 
B)  a moral hazard 
C)  assuming risk 
D)  decreasing his risk of physical loss

Question 14

Which of the following is not a form of internal loss-financing technique?

Accepted Answer

A)  Hedging 
B)  Risk retention 
C)  Self-insurance 
D)  Captive insurance 
A)  Hedging 
B)  Risk retention 
C)  Self-insurance 
D)  Captive insurance

Question 15

Small firms:

Accepted Answer

A)  will be unable to get insurance 
B)  are more likely to self-insure 
C)  face more moral hazard compared with larger firms 
D)  are more likely to be dependent on insurance compared with large firms 
A)  will be unable to get insurance 
B)  are more likely to self-insure 
C)  face more moral hazard compared with larger firms 
D)  are more likely to be dependent on insurance compared with large firms

Question 16

Which of the following statements about duplication and physical separation is not correct?

Accepted Answer

A)  Duplication is closely related to physical separation. 
B)  Like duplication, physical separation involves multiple and similar copies. 
C)  When a company engages in physical separation, it cannot also engage in duplication. 
D)  Both duplication and physical separation aim to minimize supply-chain interruptions. 
A)  Duplication is closely related to physical separation. 
B)  Like duplication, physical separation involves multiple and similar copies. 
C)  When a company engages in physical separation, it cannot also engage in duplication. 
D)  Both duplication and physical separation aim to minimize supply-chain interruptions.

Question 17

An automobile's airbag is primarily there for:

Accepted Answer

A)  loss prevention 
B)  loss avoidance 
C)  loss reduction 
D)  risk assumption 
A)  loss prevention 
B)  loss avoidance 
C)  loss reduction 
D)  risk assumption

Question 18

Which of the following statements about limited liability is correct?

Accepted Answer

A)  It is only provided to the owners of certain businesses. 
B)  Creditors cannot attach a claim to the personal assets of the owners of a limited liability company. 
C)  There are now more organizational forms of business with limited liability characteristics than in the past. 
D)  All of the above are correct. 
A)  It is only provided to the owners of certain businesses. 
B)  Creditors cannot attach a claim to the personal assets of the owners of a limited liability company. 
C)  There are now more organizational forms of business with limited liability characteristics than in the past. 
D)  All of the above are correct.

Question 19

Risk assumption is the best risk management tool when the change of loss is ________ and the potential severity of loss is ________.

Accepted Answer

A)  low, low 
B)  high, high 
C)  low, high 
D)  high, low 
A)  low, low 
B)  high, high 
C)  low, high 
D)  high, low

Question 20

"OSHA" stands for:

Accepted Answer

A)  Occupational Safety Hearings Administration 
B)  Occupational Servants and Homemakers Act 
C)  Obligatory Standards for Health Act 
D)  Occupational Safety and Health Act 
A)  Occupational Safety Hearings Administration 
B)  Occupational Servants and Homemakers Act 
C)  Obligatory Standards for Health Act 
D)  Occupational Safety and Health Act

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

Risk managers are concerned with policy limits and deductible size contained in insurance contracts because:

Risk avoidance is the best risk management tool when the change of loss is ________ and the potential severity of loss is ________.

Which of the following are examples of loss reduction techniques? I. Wearing your seat belt while driving your car II. Polio vaccinations III. Keeping poisons locked up and out of reach of small children IV. Wearing a helmet while skateboarding

All of the following are true about captive insurers, except:

All of the following are examples of loss financing, except:

Funded risk assumption:

Which of the following statements about risk-bearing financial institutions is not correct?

All of the following are examples of loss reduction, except:

Many captive insurance companies are located in states where insurance regulation is very strict.

Loss exposures which are both high-frequency and high-severity in nature are best handled by assumption.

Which tools are used by most individuals for handling the loss exposure of physical damage to their vehicles caused by collisions? I. Avoidance II. Control III. Retention IV. Insurance

When the chance of loss is great and the potential for loss severity is also very high, insurance is the best approach to the risk management problem.

Jim S. buys a $50,000 car. Rather than buying insurance on the car, he sets aside $30,000 in a savings account to cover possible losses due to an accident. He is:

Which of the following is not a form of internal loss-financing technique?

Small firms:

Which of the following statements about duplication and physical separation is not correct?

An automobile's airbag is primarily there for:

Which of the following statements about limited liability is correct?

Risk assumption is the best risk management tool when the change of loss is ________ and the potential severity of loss is ________.

"OSHA" stands for:

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

Filters

Risk avoidance is the best risk management tool when the change of loss is and the potential severity of loss is .

Risk assumption is the best risk management tool when the change of loss is and the potential severity of loss is .