Exam 3: Introduction to Risk Management

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.

When Derrick became risk manager of Boller Company, he noticed that the company did not have a clear set of risk management objectives and a clearly-stated risk management philosophy. Derrick developed a written document stating the company's risk management objectives and risk management philosophy. This document is called a risk management

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?

Barb, who is self-employed, is the main breadwinner for her family. Barb does not have disability income insurance because she has never stopped to consider the impact of a long-term disability upon her family. Barb's treatment of the risk of disability is best described as

Cal was just hired as XYZ Company's first risk manager. Cal would like to employ the risk management process. The first step in the process Cal should follow is to

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?

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

Which of the following is a post-loss risk management objective?

All of the following statements about avoidance are true EXCEPT

Acme Company has three identical manufacturing plants, one on the Texas Gulf Coast, one in southern Alabama, and one in Florida. Each plant is valued at $200 million. Acme's risk manager is concerned about the damage which could be caused by a single hurricane. The risk manager believes there is an extremely low probability that a single hurricane could destroy two or all three plants because they are located so far apart. What is the probable maximum loss associated with a single hurricane?

Which statement about a company's cost of risk is (are) true? I.Cost of risk includes insurance premiums and retained losses. II.Reducing the cost of risk increases profitability.

Laura Evans is risk manager of LMN Company. Laura decided to retain certain property loss exposures. Which of the following is a method that Laura can use to fund the retained property losses?

Factors a risk manager must consider in selecting an insurer include which of the following? I.The availability of risk management services II.The financial strength of the insurer

Abandoning an existing loss exposure is an example of

Which of the following conditions is (are) appropriate for using retention? I.Losses are difficult to predict. II.The worst possible loss is not serious.

All of the following are potential advantages of retention EXCEPT

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)

To better understand her company's operations, a risk manager asked a production manager to draw a diagram tracing the steps in the production and distribution of the company's products. Such a diagram, which is useful in risk identification, is called a

Which of the following statements about captive insurance companies is (are) true? I.A captive insurance company established by a U.S. company must be domiciled in the United States. II.A captive insurance company may be owned by several parents.

A U.S. athletic equipment company has production plants in several Pacific Rim countries. Each plant is divided into separate production areas using six-foot thick concrete walls. The construction method is designed to prevent fire from spreading from one production area to another. Using thick concrete walls so that fire does not spread to another production area illustrates which risk control method?