Exam 3: Introduction to Risk Management

Which of the following statements about the use of a captive insurance company by a parent firm is true?

Bev lives in the suburbs and works downtown. She drives to work, and her most direct route to work would require her to pass through an area where carjackings and drive-by-shootings are common. Bev does not drive through this area. Instead, she uses a route which adds 10 minutes to her commute. Which risk management technique is Bev using with respect to the risk of injury while driving through the dangerous area?

All of the following are disadvantages of noninsurance transfers EXCEPT

Which of the following statements about a personal risk management program is (are) true? I.Insurance and retention are the only techniques used to handle potential losses. II.The steps in a personal risk management process are the same steps used by businesses.

Ryan decided to review his personal risk management program. His car is 10 years old, and he would receive little money from his insurer if the car was damaged or destroyed. Ryan decided to drop the physical damage insurance on the car. From a risk management perspective, dropping the physical damage insurance on the car is best described as

Purchasing health insurance illustrates the use of which personal risk management technique?

Low-frequency, low-severity loss exposures are best handled by

A restaurant owner leased a meeting room at the restaurant to a second party. The lease specified that the second party, not the restaurant owner, would be responsible for any liability arising out of the use of the meeting room, and that the restaurant owner would be "held harmless" for any damages. The restaurant owner's use of the hold-harmless agreement in the lease is an example of

A risk manager was asked to review all the loss exposures his company faces. The risk manager noted that the company obtained over 90 percent of its raw materials from one supplier. He voiced concern about business interruption if that supplier was closed for some reason. Acting on his recommendation, the company began to purchase raw materials from two other suppliers. Using multiple suppliers illustrates which risk control technique?

Which of the following types of loss exposures are best handled by the use of avoidance?

A risk manager is concerned with which of the following? I.Identifying potential losses II.Selecting the appropriate techniques for treating loss exposures

Parker Department Stores has been hurt in recent months by a large increase in shoplifting losses. Parker's risk manager concluded that while the frequency of shoplifting losses was high, the severity is still relatively low. What is (are) the appropriate risk management technique(s) to apply to this problem?

Which of the following statements concerning the selection of risk management techniques and insurance market conditions is (are) true? I.It's easier to purchase affordable insurance during a "soft " market than during a "hard" market. II.Retention is used more during a "soft" market than during a "hard" market.

Which of the following types of loss exposures may be appropriately handled through the purchase of insurance? I.High-frequency, low-severity loss exposures II.Low-frequency, high-severity loss exposures

A situation or circumstance in which a loss is possible, regardless of whether a loss occurs, is called a

All of the following statements about the administration of a risk management program are true EXCEPT

A useful measure for an organization to monitor is the total expenditures for treating loss exposures including retained losses, loss control expenses, insurance premiums, and other related expenses. This measure is called the organization's

Preloss objectives of risk management include which of the following? I.Preparing for potential losses in the most economical way II.Reduction of anxiety

Members of Mid-South Petroleum Distributors, a trade group, had trouble obtaining affordable pollution liability insurance. The members formed a group captive that is exempt from many state laws that apply to other insurers. This group captive is called a(n)

Which of the following statements about the use of deductibles is (are) true? I.They represent risk retention by insurance purchasers. II.They tend to increase the cost of adjusting small claims.