Deck 3: Risk Management

Question 1

Immediately after Hurricane Katrina,many risk managers did not have access to their back-up data because:

A)they stored the back-ups in the same building or in nearby buildings, and they could not gain access to those locations for weeks.
B)they did not create back-up data in the first place.
C)FEMA seized possession of all evidence of the hurricane's devastation, including back-up files.
D)they stored the back-ups with Louisiana State Government's Back-Up Plan, and the building in which the files were located was destroyed in the hurricane.

Answer 1

A

Question 2

Loss prevention is the best risk management tool when the chance of loss is __________________ and the potential loss severity is __________________.

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

Answer 2

B

Question 3

Hurricane Katrina's losses overwhelmed many risk managers because they had not planned:

A)for any type of disaster
B)on resuming operations somewhere other than their original location
C)on any significant property losses
D)for a hurricane

Answer 3

B

Question 4

To apply the rules of risk management,the risk manager must know all of the following except:

A)the exact amount of losses the firm is going to have in a certain period of time
B)how to identify the loss potential to which the firm is exposed
C)how to measure the loss potential to which the firm is exposed
D)how to measure the benefits and costs of alternative risk bearing devices for given situations

Question 5

Risk avoidance is the best risk management tool when the chance of loss is ______________ and the potential severity of loss __________________.

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

Question 6

Assume 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 lost prevention measure?

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

Question 7

Which of the following is an appropriate method for calculating the financial impact on the firm that results from the loss of a key employee?

A)research comparable salaries on employment data websites
B)never let these employees be in the same building at the same time
C)a multiple of the key person's salary
D)calculate the net present value of the future salary owed to the employee under his/her existing employment contract.

Question 8

The pre?loss risk management job is best represented by which sequence of events?

A)identify, measure, insure exposures
B)identify, measure, consider alternatives, reevaluate decisions
C)loss prevention, consider alternatives, reevaluate decisions
D)risk reduction, risk transfer, insure, loss prevention

Question 9

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

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

Question 10

Loss prevention and control:

A)eliminate risk
B)are an alternative to self insurance
C)reduce the probability and severity of loss
D)directly minimize the probability of a natural disaster occurring

Question 11

A captive insurance company:

A)only provides loss control services
B)typically sells auto insurance to the public using independent agents
C)provides a mechanism for self insurance
D)only uses attorneys in fact

Question 12

Mr.VanDelinder 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 any accident. He is:

A)self insuring
B)eliminating risk through the use of a contingency fund
C)assuming risk
D)decreasing his risk of physical loss

Question 13

Installing a burglar alarm is an example of which one of the following:

A)loss reduction
B)consequential loss reserve
C)self insurance
D)loss prevention

Question 14

The most difficult and important step in the risk management process generally is:

A)evaluating risk
B)reviewing the program
C)selecting the best method(s)to handle the risk
D)identifying the risk

Question 15

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

A)join a local volunteer fire department
B)enclose the open foundation with bricks to stop trash and leaves from accumulating
C)put fire extinguishers on the front porch and in the kitchen
D)put smoke alarms in each room

Question 16

Risk assumption is the best risk management choice when the chance of loss is ___________ and the potential severity of loss is _______________.

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

Question 17

Which of the following would not normally be identified in the risk management process?

A)property exposures
B)speculative exposures
C)indirect loss exposures
D)operations exposures

Question 18

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

A)assumption
B)consequential loss reserve
C)self insurance
D)loss prevention

Question 19

If a private elementary school having a single building were to lose the building in a tornado,it is likely that the largest category of loss would be:

A)property taxes
B)indirect loss of income and continuing expenses until school returns to its normal status
C)liability loss
D)key personnel loss

Question 20

Risk retention is not a good idea if:

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 21

All the following are true about OSHA except:

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

Question 22

Which of the following statements about liability losses is true?

A)They arise from two sources: the obligation to pay legal damages, and the resulting bad publicity
B)The obligation to pay legal damages is always more expensive than the cost of defense
C)Defense costs can be expensive, unless the court finds that the plaintiffs claims are groundless
D)None of the above are true

Question 23

If the chance of loss is high and loss severity is high,generally the most appropriate risk management tool is:

A)risk transfer
B)risk reduction
C)risk assumption
D)risk avoidance

Question 24

Risk managers can identify potential property losses using:

A)walking tours
B)checklists
C)flowcharts
D)all of the above

Question 25

All of the following are examples of loss reduction except:

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

Question 26

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

A)Employment practices liability coverage for a petroleum refinery located in Texas
B)Automobile physical damage coverage for a national rental car chain, with 100 locations and approximately 3,000 automobiles of similar value at each location
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 27

To estimate potential property losses,risk managers must know:

A)the accounting book value of property
B)the replacement cost of property
C)the actual cash value of property
D)the original purchase price of property

Question 28

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 the reach of small children
IV)wearing a helmet while skateboarding
)

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

Question 29

All the following are objectives of risk management except?

A)to insure all exposures to loss
B)to make efficient before the loss arrangements for an after the loss balance between resources needed and resources required to preserve operating effectiveness
C)eliminate duplicate insurance coverage
D)develop and maintain plant safety program

Question 30

Insurance is the best risk management tool when the chance of loss is _________________ and the loss severity is _____________________.

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

Question 31

The risk manager is concerned primarily with the management of

A)physical loss of property
B)pure risks
C)only pure risks that cannot be insured
D)interest rate risk

Question 32

It is important for a retail store to quickly resume operations after a direct loss primarily because

A)looting will occur
B)retail merchandise goes out of style quickly
C)most property insurance contracts demand that operations resume immediately, or as soon as possible, after a direct loss
D)customers can be quickly and permanently lost if operations do not continue

Question 33

The Big Boy Toy Company's best seller is a futuristic radio-controlled car. The toy is manufactured using a custom mold designed especially for the company by a local artist. If anything were to happen to this mold,the company would have to stop manufacturing the toys until the artist could reproduce the mold. The risk managers primary concern regarding damage to this mold is probably the:

A)indirect loss that will result while production of the toy is halted
B)expense of paying the artist to reproduce the mold
C)extra cost of manufacturing additional toys while the car cannot be manufactured
D)direct damage to employees that will be laid off while production is halted

Question 34

Assume you own an antique car. Your prospective insurance company indicates 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 regard to theft?

A)store the car in a closed and locked garage
B)always keep a canvas cover over the car
C)never drive in rainy weather
D)don't drive in heavy traffic

Question 35

An automobile's airbag is primarily there for:

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

Question 36

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

A)10,000 U.S. postal vehicles in Nevada, each unit worth $18,000
B)500 U.S. Post Offices in Nevada, average value is $1,250,000 per office
C)80,000 outdoor U.S. post office mail boxes, each unit worth $200
D)$50,000 life insurance on all postal employees in Nevada who could pass a medical exam (over 3,000 postal employees)

Question 37

In making your personal risk management decisions,which method would be the most feasible and the most economical for handling chipped windshields on your automobile?

A)Avoid (don't drive)
B)Retain (pay for them yourself)
C)Insure (file a claim under your auto insurance)
D)Expose (remove your windshield from your car)

Question 38

When faced with a risk of loss that is low frequency?high severity in nature,a prudent risk manager would choose which of the following methods for handling the loss exposure?

A)Assumption
B)Avoidance
C)Transfer
D)Mediate

Question 39

Which tool or tools is/are used by most individuals for handling the loss exposure of physical damage to their vehicles caused by collisions?
I) AvoidanceII. Control III. RetentionIV. Insurance

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

Question 40

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

A)Risk transfer
B)Loss control
C)Risk avoidance
D)Risk retention

Question 41

Loss reduction and loss prevention are not the same thing.

Question 42

Provide a statement of the overall goal of the risk management function.

Question 43

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

Question 44

59 Describe the steps in the pre loss risk management process.

Question 45

The maximum probable loss is the most unlikely maximum amount of damage a peril might cause under typical circumstances.

Question 46

A sushi bar is concerned about lawsuits from customers who may become ill after eating raw fish. Avoidance is not an option,since a sushi bar's main product line is raw fish. Which of the following would be the most practical loss prevention technique the restaurant could use?

A)Post a sign in the restaurant that says "Not responsible for anything"
B)Requiring each customer to sign a legal waiver before serving them sushi
C)Posting a warning on the menu that explains the risks of consuming raw fish
D)Training servers to identify patrons who are feeling ill

Question 47

Risk avoidance and loss prevention are the same thing.

Question 48

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

Question 49

What are the three basic methods of dealing with risk in the risk management process?

Question 50

The damage caused by an indirect loss can be greater in amount than the damage caused by direct loss in the same occurrence.

Question 51

Loss prevention activities,if successful,may increase risk (uncertainty).

Question 52

PRIMA is a risk management association for people involved in public sector risk management.

Question 53

Self?insurance involves risk assumption.

Question 54

If you were the risk manager of the World Trade Center buildings,what loss prevention or reduction technique could you have implemented before the 9/11/01 tragedy that might have made a significant difference in the number of lives lost?

A)Guards on the roof of each building
B)Evacuation procedures that required everyone to leave after any sign of loss
C)Stronger exterior building materials
D)Better background screening of all who were allowed to work in the building

Question 55

OSHA is a federal loss prevention law.

Question 56

Book value is the best measure of a direct property loss.

Question 57

"OSHA" stands for:

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

Question 58

Fire sprinklers are an example of loss reduction.

Question 59

A production bottleneck could be best identified by using:

A)interviews with line employees
B)interview with upper management
C)accounting statements
D)flow chart

Question 60

Leasing is an example of risk assumption.

Question 61

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