Deck 11: Property Risk Management

Question 1

The Insurance Services Office (ISO) has an e-commerce endorsement that modifies insurance provided under commercial property coverage.Section I of the endorsement describes the electronic data coverage.

Answer 1

True

Question 2

If nonadmitted insurance is purchased where it is prohibited, claim payments must be made to the parent corporation, which then has to find a way to transfer the funds to the local subsidiary.

Answer 2

True

Question 3

Moral and morale hazards are lessened by deductibles.

Answer 3

True

Question 4

A franchise deductible is similar to a straight deductible, except that once the amount of loss equals the deductible, the entire loss is paid in full.

Question 5

Crackers are virtual vandals who try to poke holes in a company's security network.

Question 6

Under current laws, standard fire policies cannot exclude fires resulting from terrorism or nuclear attacks without legislative intervention.

Question 7

When a loss equals or exceeds the amount of insurance required by the applicable percentage of coinsurance, the coinsurance penalty is not part of the calculation because the limit is the amount of coverage.

Question 8

For property insurance, as long as coverage is at least 80 percent of the value of the property, the property is considered fully covered under the coinsurance provision.

Question 9

The major disadvantage with the franchise deductible from the insurer's point of view is that the insured is encouraged to inflate a claim that falls just short of the amount of the deductible.

Question 10

Physical property generally is categorized as either real or personal.

Question 11

Because of moral hazard issues, an insurer may prefer to value personal property at replacement cost new value.

Question 12

Global risk is the unique problems that arise when companies cross national borders.

Question 13

Premium payments for nonadmitted coverage are tax deductible, even in countries where nonadmitted coverage is permitted.

Question 14

The deductible clause stipulates a proportional payment of loss for failure to carry sufficient insurance.

Question 15

Collection of adequate statistical information is one of the few areas where an international risk manager does not face a problem.

Question 16

Buildings are examples of personal property.

Question 17

Property coverage pays benefits to a third party if you cause a loss or if someone causes you to have a loss, his or her liability insurance would pay benefits to you.

Question 18

A straight deductible is common in ocean marine marine cargo insurance, although it is stated as a percentage of the value insured rather than a dollar amount.

Question 19

The straight deductible is a modification of the disappearing deductible.

Question 20

Insurance coverage for business interruption is more likely to exist when the interruption is not from direct physical loss than when it is from a direct physical loss.

Question 21

Suppose in March you bought a $160,000 policy for a building with an actual cash value of $200,000, and the policy has an 80 percent coinsurance clause, which requires at least 80 percent of the value to be covered in order to receive the actual loss.In November, the actual cash value of the building has increased to $240,000.If the building suffers a $240,000 loss, what amount will the insurer pay?

A)$ 200,000
B)$ 240,000
C)$ 160,000
D)$ 192,000
E)$ 180,000

Question 22

Identify the type of deductible that requires payment for all losses less than a specified dollar amount.

A)Vanishing deductible
B)Straight deductible
C)Disappearing deductible
D)Waived deductible
E)Franchise deductible

Question 23

Potential terrorists are usually classified as _____ because their objective is to hit specific companies in order to bring systems down, steal data, or modify data to destroy its integrity.

A)carders
B)insiders
C)hackers
D)crackers
E)phreakers

Question 24

This element in insurance policies requires the insured to bear some portion of a loss before the insurer is obligated to make any payment.The purpose is to reduce costs for the insurer, thus making lower premiums possible.Identify this element.

A)Deductible
B)Waiver
C)Estoppel
D)Coinsurance
E)Carryover

Question 25

Because of moral hazard issues, an insurer may prefer to value personal property at _____ value, which considers depreciation of the property before valuation.

A)fair market
B)actual cash
C)real cost
D)intrinsic
E)replacement cost new

Question 26

Which of the following is a deductible whose amount decreases as the amount of the loss increases?

A)Demutualized deductible
B)Waived deductible
C)Disappearing deductible
D)Straight deductible
E)Franchise deductible

Question 27

Identify the vandals who want to break in to a company's security network and steal proprietary information for personal gain.

A)Hackers
B)Crackers
C)Insiders
D)Phreakers
E)Carders

Question 28

When property insurers offer coverage on this basis, they do not deduct depreciation in valuing the loss.This is the value of the lost or destroyed property if it were bought new or rebuilt on the day of the loss.Identify this basis for valuation for property coverage.

A)Fair market value
B)Actual cash value
C)Real cost value
D)Intrinsic value
E)Replacement cost new

Question 29

This clause has two provisions.First, it requires you to carry an amount of insurance equal to a specified percentage of the value of the property if you wish to be paid the amount of loss you incur in full, and second, it stipulates a proportional payment of loss for failure to carry sufficient insurance.Identify this clause.

A)Coinsurance
B)Waiver
C)Deductible
D)Duress
E)Estoppel

Question 30

In risk management, the distinction between real and personal property is relevant because:

A)when compared to real property, personal property is highly valued.
B)real property is a non-depreciating property, whereas, personal property depreciates.
C)dissimilar properties are exposed to perils with dissimilar likelihoods.
D)insureds would be more concerned about loosing, or being compensated for, personal property than real property.
E)risks exposures associated with personal property are not insured.

Question 31

Motorized vehicles, furniture, business inventory, clothing, and similar items are properties that are not permanently attached to something else, and therefore are movable.Identify this category of physical property.

A)Personal property
B)Virtual property
C)Non-depreciating property
D)Real property
E)Non-movable property

Question 32

If you have a $500 deductible on the collision coverage part of your auto policy, you pay the total amount of any loss that does not exceed $500.In addition, you pay $500 of every loss in excess of that amount.If you have a loss of $1,500, therefore, you pay $500 and the insurer pays $1,000.Identify this type of deductible.

A)Vanishing deductible
B)Franchise deductible
C)Waived deductible
D)Straight deductible
E)Disappearing deductible

Question 33

Suppose in January you bought a $160,000 policy for a building with an actual cash value of $200,000, and the policy has an 80 percent coinsurance clause, which requires at least 80 percent of the value to be covered in order to receive the actual loss.By the time the building suffers a $20,000 loss in November, its actual cash value has increased to $240,000.What amount will the insurer pay?

A)$ 24,000
B)$ 20,000
C)$ 16,000
D)$ 22,222.22
E)$ 16,666.67

Question 34

Nathan has a $400 deductible on the collision coverage part of his auto policy.He recently had a minor accident with damages to his automobile costing $380 dollars.To take advantage of his deductible, Nathan inflated his costs and argued with his insurer that the total damage incurred was $400.Identify the type of deductible in Nathan's policy.

A)Vanishing deductible
B)Waived deductible
C)Disappearing deductible
D)Straight deductible
E)Franchise deductible

Question 35

Suppose in June you bought an $80,000 policy for a building with an actual cash value of $100,000, and the policy has an 80 percent coinsurance clause, which requires at least 80 percent of the value to be covered in order to receive the actual loss.In December, the actual cash value of the building has increased to $120,000.If the building suffers a $120,000 loss, what amount will the insurer pay?

A)$ 100,000
B)$ 120,000
C)$ 80,000
D)$ 96,000
E)$ 90,000

Question 36

Which of the following represents permanent structures that if removed would alter the functioning of the property?

A)Personal property
B)Non-depreciating property
C)Mobile property
D)Real property
E)Virtual property

Question 37

Some private insurers also provide political risk insurance.Private insurers do not have the same restrictions as OPIC, and provide coverage in all countries if the insured is willing to pay the premium.

Question 38

If you have a $300 deductible on the collision coverage part of your auto policy, you pay the total amount of any loss that does not exceed $300.However, if you have a loss of $1,000, the insurer pays the entire amount, $1,000.Identify this type of deductible.

A)Vanishing deductible
B)Franchise deductible
C)Waived deductible
D)Straight deductible
E)Disappearing deductible

Question 39

Overseas Private Investment Corporation insurance is available in limited amounts and only in certain developing countries that have signed bilateral trade agreements with the United States for projects intended to aid development.

Question 40

Identify the correct statement about deductibles and its types.

A)It requires you to carry an amount of insurance equal to a specified percentage of the value of the property if you wish to be paid the amount of loss you incur in full.
B)The low frequency and high severity nature of most direct property losses makes deductibles particularly important.
C)The straight deductible is a modification of the disappearing deductible.
D)Deductibles help maintain reasonable premiums because they eliminate administrative expenses of the low-value, common losses.
E)Because it invites moral hazard, a franchise deductible is appropriate only when the insured is able to influence or control the amount of loss.

Question 41

This method of protecting e-mail allows the sender of an e-mail to scramble the contents of the document.Before the recipient can read the message, he or she needs to use a password for a private key.This method used for confidential e-mail communication is known as:

A)firewall.
B)encryption.
C)virtual private network.
D)gentrification.
E)worming.

Question 42

Summarize the advantages and disadvantages of opting for nonadmitted coverage for a US firm.

Question 43

Lack of qualified lawyers to handle cases that arise out of e-commerce disputes is another new risk.Identify the e-commerce property risk category appropriate for this risk.

A)Technological changes
B)Hardware and software thefts
C)Regulatory and legal changes
D)Internet-based telephony crimes
E)Trademark infringements

Question 44

Which of the following statements is true about nonadmitted coverage?

A)They are written by companies authorized to write insurance in the country where a risk exposure is located.
B)They use the country's currency for premiums and claims.
C)Premiums are tax deductible in countries where nonadmitted coverage is permitted.
D)If they are prohibited in a country, claim payments must be made directly to the local subsidiary.
E)They use English, utilize terms and conditions familiar to U.S.risk managers, and provide flexibility in underwriting.

Question 45

Distinguish between real property and personal property.

Question 46

Write a short note on the standard fire policy.

Question 47

We can group e-commerce property risks into broad categories.List these categories.

Question 48

When a company updates its computer system, its software package, or the process for conducting business using the computer system, business is interrupted while employees learn how to conduct business using the new system.The result of this downtime is lost revenue.Categorize this risk into one of the following e-commerce property risk category.

A)Technological changes
B)Hardware and software thefts
C)Regulatory and legal changes
D)Internet-based telephony crimes
E)Trademark infringements

Question 49

The Insurance Services Office (ISO) has an e-commerce endorsement that modifies insurance provided under commercial property coverage.Identify the correct statement about this endorsement.

A)Section I of the endorsement defines the period of coverage.
B)Section II of the endorsement describes the electronic data coverage.
C)Section III of the endorsement classifies covered and excluded perils.
D)Section IV of the endorsement defines the coverage of business income, extra expenses, and resumption of e-commerce activity.
E)Section V of the endorsement is for other provisions.

Question 50

Disputes over the rights to a domain name result from specific events.This event occurs when an individual or a business reserves a domain name that uses the trademark of a competitor.Identify this event.

A)Domainsquatting
B)Domain name cross-over
C)Domain name duplication
D)Domain name malfunctioning
E)Domain name hijacking

Question 51

Access to the company computer network, and the knowledge of how to use it, gives this group the potential to cause the most damage to a business.Identify the vandals in discussion.

A)Hackers
B)Crackers
C)Insiders
D)Phreakers
E)Carders

Question 52

A host nation takes away property of a private business firm according to the host country's laws, this inherent power of the state is known as:

A)expropriation.
B)indemnification.
C)reprivatization.
D)appropriation.
E)expatriation.

Question 53

Disputes over the rights to a domain name result from specific events.An event arises when a business or an individual reserves the well-recognized name or trademark of an unrelated company as a domain name with the intent of selling the domain name to the trademark holder.Identify this event.

A)Cybersquatting
B)Domain name hijacking
C)Reverse cybersquatting
D)Reverse domain name hijacking
E)Website hijacking

Question 54

List the major categories of global risk exposure.

Question 55

Coverage is affected by the codification of the legal system in the other countries.The code used in France, Belgium, Egypt, Greece, Italy, Spain, and several other countries does not treat liability for negligence in the same way as liability is treated under the United States system of common law.Any negligence not specifically mentioned in the code is dismissed.The common law system is based on legal precedence, and the judges play a much more significant role.Identify the codification of legal system in these countries.

A)Cartesian code
B)Alexandric code
C)Caesarian code
D)Napoleonic code
E)Kantian code

Question 56

This loss-control technique connects satellite offices with a central location.It allows remote users to gain secure access to a corporate network.Identify this technique.

A)Gentrification
B)Worming
C)Firewall
D)Virtual private network
E)Encryption

Question 57

Which of the following is a loss-control solution that protects the local area network (LAN) or corporate network from unauthorized access by protecting a network from intrusion by preventing access unless certain criteria are met?

A)Virtual private network
B)Encryption
C)Firewall
D)Gentrification
E)Worming

Question 58

Differentiate between hackers, crackers, and insiders.

Question 59

Explain deductibles and its types with examples.

Question 60

Why is this distinction between real and personal property relevant?

Question 61

Physical property that is mobile or not permanently attached to something else is considered _____ property.

Question 62

Frequent losses associated with property exposures are good candidates for _____ because their frequency minimizes risk and their small magnitude makes retention affordable.

Question 63

The Insurance Services Office (ISO) has an e-commerce endorsement that modifies insurance provided under commercial property coverage._____ of the endorsement defines the period of coverage as well as the coverage of business income, extra expenses, and resumption of e-commerce activity.

Question 64

Property insurers often offer coverage on a(n) _____ basis, which does not deduct depreciation in valuing the loss.

Question 65

The intent of insurance is to indemnify an insured.Payment on a(n) _____ value basis is most consistent with the indemnity principle.

Question 66

A house is _____ property, while a stereo and a car are _____ property.

Question 67

The first _____ policy came into effect during the late 1800s and came to be described as the generally accepted manner of underwriting for property loss due to fire.

Question 68

The U.S.government established an insurance program administered through the _____ in 1948.The types of coverage available include expropriation, confiscation, war risks, civil strife, unfair calling of guarantees, contract repudiation, and currency inconvertibility.

Question 69

_____ coverage involves contracts issued by a company not authorized to write insurance in the country where a risk exposure is located.

Question 70

Almost every home, family, and business has risk exposures because of the use of computers, the Internet, and the Web.This risk is referred to as _____ risk.

Question 71

Any multinational transaction, where payments are transferred from one currency to another, is subject to _____ risk.

Question 72

A(n) _____ deductible is appropriate only when the insured is unable to influence or control the amount of loss.

Question 73

_____ risk results from unanticipated governmental destabilization that disrupts an enterprise's profit-making ability.

Question 74

_____ occurs when a Web site operator knowingly deceives the user by redirecting the user to a site the user did not intend to view.

Question 75

A(n) _____ is a program or code that replicates itself inside a personal computer or a workstation with the intent to destroy an operating system or control program.When it replicates, it infects another program or document.