Question 1

Which of the following is not a federal regulation or agency?

Accepted Answer

A)  EUREX 
B)  OSHA 
C)  CPSC 
D)  EPA 
A)  EUREX 
B)  OSHA 
C)  CPSC 
D)  EPA

Question 2

Which of the following statements about loss prevention is correct?

Accepted Answer

A)  All losses can be prevented. 
B)  Some losses cannot be prevented. 
C)  Loss prevention activities aim to minimize the impact of losses. 
D)  All of the above are correct. 
A)  All losses can be prevented. 
B)  Some losses cannot be prevented. 
C)  Loss prevention activities aim to minimize the impact of losses. 
D)  All of the above are correct.

Question 3

Which of the following statements about the loss control is not correct?

Accepted Answer

A)  Loss control is also known as risk control. 
B)  Loss control can be classified into two categories, namely loss prevention and loss reduction. 
C)  A number of activities associated with loss control simultaneously reduce both loss frequency as well as severity. 
D)  Risk transfer is an example of loss control. 
A)  Loss control is also known as risk control. 
B)  Loss control can be classified into two categories, namely loss prevention and loss reduction. 
C)  A number of activities associated with loss control simultaneously reduce both loss frequency as well as severity. 
D)  Risk transfer is an example of loss control.

Question 4

Which of the following statements about external and internal loss-financing techniques is not correct?

Accepted Answer

A)  Self-insurance is a form of internal loss-financing. 
B)  Risk retention is a form of internal loss-financing. 
C)  Insurance is a form of external loss-financing. 
D)  Captive insurance is a form of external loss-financing. 
A)  Self-insurance is a form of internal loss-financing. 
B)  Risk retention is a form of internal loss-financing. 
C)  Insurance is a form of external loss-financing. 
D)  Captive insurance is a form of external loss-financing.

Question 5

Loss prevention activities, if successful, may increase risk.

Accepted Answer

A) True 
 B)False

Question 6

Which of the following statements about hold-harmless agreements is correct?

Accepted Answer

A)  Hold-harmless agreements create moral hazard. 
B)  In a hold-harmless agreement, a party assumes a second party's financial responsibility in the case of a loss. 
C)  Hold-harmless agreements are created after a loss occurs. 
D)  All of the above are incorrect. 
A)  Hold-harmless agreements create moral hazard. 
B)  In a hold-harmless agreement, a party assumes a second party's financial responsibility in the case of a loss. 
C)  Hold-harmless agreements are created after a loss occurs. 
D)  All of the above are incorrect.

Question 7

All of the following are true about the CPSC, except:

Accepted Answer

A)  that it promotes companies to sell safe products 
B)  that it requires manufacturers and retailers to notify it of any hazardous products 
C)  that it provides for heavy fines for the noncompliance of firms with standards 
D)  that it is directly responsible for increasing the sale of more products 
A)  that it promotes companies to sell safe products 
B)  that it requires manufacturers and retailers to notify it of any hazardous products 
C)  that it provides for heavy fines for the noncompliance of firms with standards 
D)  that it is directly responsible for increasing the sale of more products

Question 8

All of the following are true about OSHA, except:

Accepted Answer

A)  that it promotes a safe working environment for all U.S. workers 
B)  that it encourages employers to remove all recognized hazards from the work environment 
C)  that it provides for heavy fines for employer noncompliance with standards 
D)  that it is directly responsible for reducing worker turnover 
A)  that it promotes a safe working environment for all U.S. workers 
B)  that it encourages employers to remove all recognized hazards from the work environment 
C)  that it provides for heavy fines for employer noncompliance with standards 
D)  that it is directly responsible for reducing worker turnover

Question 9

Explain the concept of self-insurance. Why is all self-insurance assumption, but not all assumption self-insurance?

Accepted Answer

Self-insurance is where an organization

Question 10

Taking a defensive driving course is an example of which one of the following:

Accepted Answer

A)  moral hazard 
B)  risk transfer 
C)  loss avoidance 
D)  loss prevention 
A)  moral hazard 
B)  risk transfer 
C)  loss avoidance 
D)  loss prevention

Question 11

It is a fact that supply chains have become increasingly more complicated in the past decade, with products moving across the globe. This means that:

Accepted Answer

A)  loss reduction measures also have become more important 
B)  there has been a growth of captive insurers 
C)  duplication as a risk mitigant has also become more important 
D)  hold-harmless agreements have become less relevant 
A)  loss reduction measures also have become more important 
B)  there has been a growth of captive insurers 
C)  duplication as a risk mitigant has also become more important 
D)  hold-harmless agreements have become less relevant

Question 12

If insurers have insufficient pricing information available for a particular exposure:

Accepted Answer

A)  they go bankrupt 
B)  they will need to create a larger risk pool 
C)  they will probably be unwilling to provide insurance for that particular loss exposure 
D)  they will assume more risk 
A)  they go bankrupt 
B)  they will need to create a larger risk pool 
C)  they will probably be unwilling to provide insurance for that particular loss exposure 
D)  they will assume more risk

Question 13

How do deductibles affect moral hazard?

Accepted Answer

Moral hazard refers to the concept that

Question 14

From the standpoint of the insured, deductibles in insurance contracts are a form of:

Accepted Answer

A)  risk transfer 
B)  loss control 
C)  risk retention 
D)  risk avoidance 
A)  risk transfer 
B)  loss control 
C)  risk retention 
D)  risk avoidance

Question 15

Assume that you own a house in rural Arkansas with a pier foundation (concrete blocks on each of the four corners). Your prospective insurance company indicates that they will not insure your home unless you take some loss prevention steps. Which of the following steps is the best loss prevention measure?

Accepted Answer

A)  Join a local volunteer fire department 
B)  Put fire extinguishers on the front porch, bathroom, and kitchen 
C)  Enclose the open foundation with bricks to stop trash and leaves from accumulating 
D)  Put a smoke alarm in every room 
A)  Join a local volunteer fire department 
B)  Put fire extinguishers on the front porch, bathroom, and kitchen 
C)  Enclose the open foundation with bricks to stop trash and leaves from accumulating 
D)  Put a smoke alarm in every room

Question 16

Which of the following pools would be the best subject for a fully-funded self-insurance arrangement?

Accepted Answer

A)  Automobile physical damage coverage for a national rental car chain, with 100 locations and approximately 3,000 automobiles of similar value at each location 
B)  Employment practices liability coverage for a petroleum refinery located in Texas 
C)  Medical malpractice liability coverage for all doctors and nurses employed by a group of 3 hospitals in Florida 
D)  $50,000 of life insurance on every employee of a life insurance company located in New York, with no physical exam required to obtain insurance 
A)  Automobile physical damage coverage for a national rental car chain, with 100 locations and approximately 3,000 automobiles of similar value at each location 
B)  Employment practices liability coverage for a petroleum refinery located in Texas 
C)  Medical malpractice liability coverage for all doctors and nurses employed by a group of 3 hospitals in Florida 
D)  $50,000 of life insurance on every employee of a life insurance company located in New York, with no physical exam required to obtain insurance

Question 17

Which of the following statements about captive insurers is not correct?

Accepted Answer

A)  They are typically a subsidiary of a larger firm or firms. 
B)  They are typically located in places where insurance regulation is less restrictive. 
C)  They capitalize on their size to mitigate risks. 
D)  They are typically located in places where insurance regulation is less costly. 
A)  They are typically a subsidiary of a larger firm or firms. 
B)  They are typically located in places where insurance regulation is less restrictive. 
C)  They capitalize on their size to mitigate risks. 
D)  They are typically located in places where insurance regulation is less costly.

Question 18

Risk Retention is not a good idea if:

Accepted Answer

A)  the risk is unimportant 
B)  you did not identify the risk 
C)  the frequency is so low it almost will never happen 
D)  the exposure is potentially catastrophic 
A)  the risk is unimportant 
B)  you did not identify the risk 
C)  the frequency is so low it almost will never happen 
D)  the exposure is potentially catastrophic

Question 19

Which of the following is true concerning the corporate taxation of insurance premiums and the treatment of uninsured losses?

Accepted Answer

A)  Both premiums and expected losses are deductible at the beginning of the year. 
B)  Uninsured losses are deductible only when they occur and premiums are deductible in the year paid. 
C)  Since payments for insured losses are 100% tax deductible, commercial insurance is economically inefficient. 
D)  Losses paid under the deductible amount are not tax deductible because the insured assumed the losses. 
A)  Both premiums and expected losses are deductible at the beginning of the year. 
B)  Uninsured losses are deductible only when they occur and premiums are deductible in the year paid. 
C)  Since payments for insured losses are 100% tax deductible, commercial insurance is economically inefficient. 
D)  Losses paid under the deductible amount are not tax deductible because the insured assumed the losses.

Question 20

There are no clear rules for choosing an appropriate risk-handling technique.

Accepted Answer

A) True 
 B)False

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

Which of the following is not a federal regulation or agency?

Which of the following statements about loss prevention is correct?

Which of the following statements about the loss control is not correct?

Which of the following statements about external and internal loss-financing techniques is not correct?

Loss prevention activities, if successful, may increase risk.

Which of the following statements about hold-harmless agreements is correct?

All of the following are true about the CPSC, except:

All of the following are true about OSHA, except:

Explain the concept of self-insurance. Why is all self-insurance assumption, but not all assumption self-insurance?

Taking a defensive driving course is an example of which one of the following:

It is a fact that supply chains have become increasingly more complicated in the past decade, with products moving across the globe. This means that:

If insurers have insufficient pricing information available for a particular exposure:

How do deductibles affect moral hazard?

From the standpoint of the insured, deductibles in insurance contracts are a form of:

Which of the following pools would be the best subject for a fully-funded self-insurance arrangement?

Which of the following statements about captive insurers is not correct?

Risk Retention is not a good idea if:

Which of the following is true concerning the corporate taxation of insurance premiums and the treatment of uninsured losses?

There are no clear rules for choosing an appropriate risk-handling technique.

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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