Question 1

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

Accepted Answer

A)  captive insurance.
B)  excess insurance.
C)  primary insurance.
D)  umbrella insurance.E) A) and B)
F) All of the above

Question 2

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.

Accepted Answer

A)  I only
B)  II only
C)  both I and II
D)  neither I nor IIE) A) and C)
F) All of the above

Question 3

The U.S.government is concerned that terrorists might try to crash a vehicle filled 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?

Accepted Answer

A)  risk avoidance
B)  insurance transfer
C)  loss prevention
D)  noninsurance transferE) A) and B)
F) B) and C)

Question 4

Mark owns a 1998 sedan.The last time Mark renewed his auto insurance,he decided to drop the physical damage insurance on this vehicle.How is Mark dealing with the auto physical damage exposure in his personal risk management program?

Accepted Answer

A)  risk transfer
B)  passive retention
C)  avoidance
D)  active retentionE) A) and B)
F) A) and C) D

Question 5

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

Accepted Answer

A)  cost of capital.
B)  cost of goods sold.
C)  cost of risk.
D)  cost of equity.E) A) and D)
F) A) and C)

Question 6

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)

Accepted Answer

A)  reinsurance pool.
B)  Lloyd's association.
C)  alien insurer.
D)  risk retention group.E) B) and C)
F) A) and D)

Question 7

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

Accepted Answer

A)  avoidance.
B)  retention.
C)  insurance.
D)  noninsurance transfer.E) B) and D)
F) All of the above

Question 8

Loss frequency is defined as the

Accepted Answer

A)  probable size of the losses that may occur during some period.
B)  probable number of losses that may occur during some period.
C)  probability that any particular piece of property may be totally destroyed.
D)  probability that a liability judgment may exceed a firm's net worth.E) B) and D)
F) B) and C)

Question 9

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

Accepted Answer

A)  I only
B)  II only
C)  both I and II
D)  neither I nor IIE) B) and C)
F) A) and D)

Question 10

All of the following are disadvantages of noninsurance transfers EXCEPT

Accepted Answer

A)  The party to whom the potential loss is transferred may be unable to pay.
B)  The transfer may fail because the contract language is ambiguous.
C)  The only potential losses that can be transferred are those that are not commercially insurable.
D)  The noninsurance transfer may be costly.E) A) and B)
F) A) and D) C

Question 11

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

Accepted Answer

A)  risk transfer.
B)  passive retention.
C)  risk avoidance.
D)  active retention.E) A) and D)
F) C) and D)

Question 12

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

Accepted Answer

A)  evaluate potential losses faced by XYZ Company.
B)  formulate a treatment plan for XYZ Company's loss exposures.
C)  identify potential losses faced by XYZ Company.
D)  implement and administer a risk management plan for XYZ Company.E) B) and D)
F) A) and B)

Question 13

Which of the following statements about an excess insurance plan is true?

Accepted Answer

A)  The insurer does not participate in a loss until it exceeds the amount the firm has decided to retain.
B)  The insurer pays first up to some specified level; the insured then pays all losses exceeding the insurer's retention level.
C)  Losses in excess of a specified amount are not covered.
D)  The insured and insurer share equally in any loss that occurs.E) B) and D)
F) All of the above A

Question 14

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.

Accepted Answer

A)  I only
B)  II only
C)  both I and II
D)  neither I nor IIE) All of the above
F) None of the above

Question 15

Which of the following is least likely to occur during a "hard" insurance market period?

Accepted Answer

A)  difficulty in obtaining insurance
B)  tightening underwriting standards
C)  higher insurer profits
D)  increasing premiumsE) A) and B)
F) A) and C)

Question 16

The worst loss that is likely to happen is referred to as the

Accepted Answer

A)  maximum possible loss.
B)  probable maximum loss.
C)  frequency of loss.
D)  severity of loss.E) B) and D)
F) All of the above

Question 17

Which of the following is a source of information a risk manager could use to help identify pure loss exposures?

Accepted Answer

A)  commodity prices
B)  physical inspections
C)  currency exchange rates
D)  interest rate movementsE) A) and D)
F) C) and D)

Question 18

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

Accepted Answer

A)  The risk manager is an important part of a firm's management team.
B)  A risk management policy statement can be used to educate top executives about the risk management process.
C)  If a risk management program is properly designed,periodic review of the program is unnecessary.
D)  In order to properly identify loss exposures,the risk manager needs the cooperation of other departments.E) All of the above
F) A) and D)

Question 19

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.

Accepted Answer

A)  I only
B)  II only
C)  both I and II
D)  neither I nor IIE) All of the above
F) None of the above

Question 20

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

Accepted Answer

A)  The captive may not write outside,non-parent company,business.
B)  Captives are not permitted to use reinsurance,so any business insured by the captive stays with the captive.
C)  The captive may be used to insure loss exposures that the parent firm is finding difficult to insure with private insurers.
D)  Business placed with the captive is always considered retained risk and is never considered transferred risk.E) B) and C)
F) None of the above

Exam 3: Introduction to Risk Management

Correct Answer
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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.

Correct Answer
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Correct Answer
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Mark owns a 1998 sedan.The last time Mark renewed his auto insurance,he decided to drop the physical damage insurance on this vehicle.How is Mark dealing with the auto physical damage exposure in his personal risk management program?

Correct Answer
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D

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

Correct Answer
verified

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)

Correct Answer
verified

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

Correct Answer
verified

Loss frequency is defined as the

Correct Answer
verified

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

Correct Answer
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All of the following are disadvantages of noninsurance transfers EXCEPT

Correct Answer
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C

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

Correct Answer
verified

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

Correct Answer
verified

Which of the following statements about an excess insurance plan is true?

Correct Answer
verified
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.

Correct Answer
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Which of the following is least likely to occur during a "hard" insurance market period?

Correct Answer
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The worst loss that is likely to happen is referred to as the

Correct Answer
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Which of the following is a source of information a risk manager could use to help identify pure loss exposures?

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

Correct Answer
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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.

Correct Answer
verified

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

Correct Answer
verified

Exam 3: Introduction to Risk Management

Correct AnswerverifiedShow Answer

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.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Mark owns a 1998 sedan.The last time Mark renewed his auto insurance,he decided to drop the physical damage insurance on this vehicle.How is Mark dealing with the auto physical damage exposure in his personal risk management program?

Correct AnswerverifiedD

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

Correct AnswerverifiedShow Answer

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)

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Loss frequency is defined as the

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

All of the following are disadvantages of noninsurance transfers EXCEPT

Correct AnswerverifiedC

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Which of the following statements about an excess insurance plan is true?

Correct AnswerverifiedA

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.

Correct AnswerverifiedShow Answer

Which of the following is least likely to occur during a "hard" insurance market period?

Correct AnswerverifiedShow Answer

The worst loss that is likely to happen is referred to as the

Correct AnswerverifiedShow Answer

Which of the following is a source of information a risk manager could use to help identify pure loss exposures?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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D

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C

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A

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