CPCU 500 Exam Study Guide

In the context of risk, the chance of being injured while driving to and from work, loading a truck at work, moving furniture at home, or falling in an icy parking lot at the mall are all examples of

A. Possibilities.

B. Uncertainties.

C. Probabilities.

D. Losses.

A. Possibilities.

The statement, "There is a five percent chance that John will be injured in an automobile accident while driving to work tomorrow," is an example of

A. Quantifying risk.

B. Verifying risk.

C. Quantifying loss exposures.

D. Identifying hazards.

A. Quantifying risk.

Which one of the following is measurable and quantifies risk?

A. Probability

B. Possibility

C. Uncertainty

D. Feasibility

A. Probability

One of the elements of risk is uncertainty. Which one of the following best describes the uncertainty that risk involves?

A. Uncertainty as to how to manage potential losses

B. Uncertainty as to whether a negative outcome is possible

C. Uncertainty as to the type and timing of an outcome

D. Uncertainty as to whether insurance is available

C. Uncertainty as to the type and timing of an outcome

Hardware Store has been able to control its prices and inventory since it has no competitors. A new highway currently being constructed is going to allow increased competition for Hardware Store. According to the quadrants of risk, this risk of increased competition falls into the category of

A. Strategic risk.

B. Hazard risk.

C. Operational risk.

D. Financial risk.

A. Strategic risk.

Company G is a manufacturer of high profile golf equipment. The risk management professional for Company G is concerned about loss of business related to product design. Failing to respond to changing customer demand and preferences in the design of golf clubs could cost Company G significant market share. Categorized according to the quadrants of risk, this exposure to loss would be classified as a(n)

A. Strategic risk.

B. Financial risk.

C. Operational risk.

D. Hazard risk.

A. Strategic risk.

George has received an inheritance and is deciding what to do with the money. He has limited his options to four choices: donate all the money to his favorite charity, use the entire inheritance to buy a yacht, invest the inheritance in a small rental property, or use the entire amount to purchase T-bills. Which one of the following statements is true regarding the risk involved in George's options?

A. Donating his inheritance to charity is a pure risk; there is no uncertainty that the money will be gone and George will have no chance of profit.

B. Buying a boat is a nondiversifiable risk because George can only afford to purchase a single yacht.

C. The rental property presents both pure and speculative risk; property values may increase, and the building could burn down.

D. Purchasing T-bills is a pure risk because the interest rate payable is known, and the chance of loss is minimal.

C. The rental property presents both pure and speculative risk; property values may increase, and the building could burn down.

Risk can be classified as pure or speculative. Which one of the following is the best example of a speculative risk?

A. Acquiring a new television

B. Investing in shares of stock

C. Buying a new personal vehicle

D. Purchasing an insurance policy

B. Investing in shares of stock

Which one of the following statements is true regarding enterprise risk management (ERM)?

A. ERM is concerned with an organization's pure risk, primarily hazard risk.

B. The ERM framework encompasses all stakeholders in the organization.

C. In ERM, the risk management function is the responsibility of the safety manager.

D. ERM requires less communication than traditional risk management.

B. The ERM framework encompasses all stakeholders in the organization.

A risk management plan that considers all of the risks that an organization faces, including operational, financial, and strategic risks, is called

A. An enterprise risk management plan.

B. An open-perils risk management plan.

C. A protected cell risk management plan.

D. A hazard risk management plan.

A. An enterprise risk management plan.

The single largest impediment to successful implementation of an enterprise risk management (ERM) program is

Select one:

A. Traditional organizational culture with entrenched risk silos.

B. Lack of required skills to effectively implement an ERM program.

C. Lack of vision by the management team that leads to under-performance of the ERM plan and early termination.

D. Opposition from stakeholders—employees, stockholders, customers, and suppliers.

A. Traditional organizational culture with entrenched risk silos.

The consensus process by which the veracity of data is confirmed and verified is known as

Select one:

A. Telematics.

B. Machine learning.

C. The Internet of Things.

D. Mining.

D. Mining.

Which one of the following is a virtual ledger of data that has been verified, timestamped, encrypted, and protected against tampering?

Select one:

A. Artificial intelligence

B. The Internet of Things

C. Closed-loop system

D. Blockchain

D. Blockchain

Which one of the following is the network through which sensors and other smart products capture and transmit data?

Select one:

A. Blockchain

B. Cloud

C. Artificial intelligence

D. Internet of Things

D. Internet of Things

Insurers and risk managers can use the large volumes of data collected and organized through telematics to help improve results for which one of the following types of insurance?

Select one:

A. Health

B. Workers compensation

C. Automobile

D. Property

C. Automobile

Organizations find it difficult to establish a benchmark against which the performance of their risk management program can be assessed because it is difficult to assign a specific value to the

Select one:

A. Cost of implementing and administering risk management.

B. Cost of measures to prevent or reduce the size of potential losses.

C. Cost of residual uncertainty.

D. Cost of losses not reimbursed by insurance.

C. Cost of residual uncertainty.

The two benefits of risk management affecting individuals, organizations, and society are: it preserves financial resources by reducing expected losses and it

Select one:

A. Reduces the residual uncertainty associated with risk.

B. Increases productivity within the economy and improves overall standard of living.

C. Increases the attractiveness to investors.

D. Improves the allocation of productive resources.

A. Reduces the residual uncertainty associated with risk.

Which one of the following statements is true regarding risk management efforts on the part of individuals, organizations, and society in general?

Select one:

A. Organizations tend to exhibit a greater degree of risk aversion than do individuals.

B. The benefits that risk management efforts provide to individuals and organizations are not felt by society in general.

C. Risk management makes those who own or run an organization more willing to undertake risky activities.

D. Risk management tends to increase the deterrence effect of risk in organizations.

C. Risk management makes those who own or run an organization more willing to undertake risky activities.

Risk management programs should

Select one:

A. Operate economically and efficiently.

B. Incur substantial costs for slight benefits.

C. Be an autonomous part of the organization.

D. Not use benchmarking to compare costs.

A. Operate economically and efficiently.

Which of the following risk management program goals is an essential goal for all public entities?

Select one:

A. Growth

B. Continuity of operations

C. Earning stability

D. Survival

B. Continuity of operations

Aligning risks with the organization's risk appetite defines

Select one:

A. Compliance.

B. Tolerable uncertainty.

C. Social responsibility.

D. Value at risk.

B. Tolerable uncertainty.

The second step in the risk management process is analyzing loss exposures. Which one of the following is true regarding this step?

Select one:

A. Loss exposures are analyzed based on loss frequency, loss severity, total dollar losses, and timing in this step.

B. Loss exposures that could interfere with the achievement of the organization's goals are identified in this step.

C. A weakness of loss exposure analysis is that it is useful only for those types of losses that an organization has suffered in the past.

D. A major strength of loss exposure analysis is that the process is generally inexpensive.

A. Loss exposures are analyzed based on loss frequency, loss severity, total dollar losses, and timing in this step.

Which one of the following is the first step in the risk management process?

Select one:

A. Examine the feasibility of risk management techniques

B. Monitor results and revise the risk management program

C. Identify loss exposures

D. Analyze loss exposures

C. Identify loss exposures

A risk management program must be monitored and periodically revised, and that revision involves four steps. Which one of the following is one of those four steps?

Select one:

A. Establish results-based rather than activity-based standards of acceptable performance.

B. Compare actual results with the established performance standards.

C. Reduce any performance standards that have not been achieved by the actual results.

D. Return to the first step in the risk management process to identify new loss exposures.

B. Compare actual results with the established performance standards.

After identifying and analyzing loss exposures and evaluating and selecting the appropriate risk management techniques, the next step in the risk management process is to

Select one:

A. Monitor the results.

B. Revise the risk management program.

C. Implement the selected techniques.

D. Decide on risk financing techniques.

C. Implement the selected techniques.

Risk is a term that is regularly used and that is generally understood in context. As used in this discussion, which one of the following is one of the two elements within the definition of risk?

Select one:

A. Uncertainty of outcome

B. Likelihood of injury or damage to property

C. Probability of financial loss

D. Opportunity for profit

A. Uncertainty of outcome

Probabilities are stated as a decimal figure, a percentage, or a

Select one:

A. Stated constant.

B. Fraction.

C. Dollar amount.

D. Credibility factor.

B. Fraction.

To understand risk, one needs to know the probability of an outcome or event occurring. Which one of the following statements is correct with respect to probability?

Select one:

A. It is typically expressed verbally rather than numerically.

B. It can be used to decide which activities to undertake.

C. It verifies that risk is present, but does not quantify it.

D. It identifies what can be lost when a negative outcome occurs.

B. It can be used to decide which activities to undertake.

Risk involves the possibility of a negative outcome. Possibility means

Select one:

A. The likelihood of an event occurring.

B. That an outcome is unavoidable.

C. An identified and predictable outcome.

D. That an outcome may or may not occur.

D. That an outcome may or may not occur.

Billy owns a beach front cottage which has become his primary residence. Billy's primary concern is that his home will be hit by a hurricane and badly damaged or even destroyed. For Billy, this hurricane risk is a

Select one:

A. Strategic risk.

B. Subjective risk.

C. Market risk.

D. Speculative risk.

B. Subjective risk.

The focus of risk quadrants is different from the focus of risk classifications. While the classifications of risk focus on some aspect of the risk itself, the four quadrants of risk focus on

Select one:

A. Subjective and objective risks.

B. The source of risk and who has traditionally managed it.

C. Pure and speculative risks.

D. The determination of whether the risk is diversifiable.

B. The source of risk and who has traditionally managed it.

One approach to categorizing risks involves dividing risks into risk quadrants. The risks categorized as hazard risks are

Select one:

A. Traditionally handled by the chief financial officer.

B. Speculative risks that fall outside the operational risk category.

C. Fundamental to an organization's existence and business plans.

D. Traditionally managed by risk management professionals.

D. Traditionally managed by risk management professionals.

Risk can be classified as diversifiable or nondiversifiable. Which one of the following statements is true with respect to this type of risk classification?

Select one:

A. Private insurance tends to concentrate on nondiversifiable risks; government insurance is often suitable for diversifiable risks.

B. The distinction between diversifiable and nondiversifiable risks is clear; risks cannot fall under both classifications simultaneously.

C. Inflation, unemployment, and natural disasters, such as hurricanes, are examples of diversifiable risk.

D. Diversifiable risks tend not to be correlated so they can be managed through diversification or spread of risk.

D. Diversifiable risks tend not to be correlated so they can be managed through diversification or spread of risk.

Conrad Sales Company's vehicles are equipped with a device that allows them to locate each vehicle for tracking purposes. If a vehicle is stolen, the tracking devices can be used to recover the vehicle more quickly. Conrad Sales Company is using the risk management technique of

Select one:

A. Transfer.

B. Duplication.

C. Loss reduction.

D. Loss prevention.

C. Loss reduction.

Three main theoretical concepts explain why ERM works. Which one of the following correctly lists those three concepts?

Select one:

A. Objective setting, risk response, and monitoring

B. Internal environment, event identification, and control activities

C. Interdependency, correlation, and portfolio theory

D. Risk quantification, silo theory, and statistical correlation

C. Interdependency, correlation, and portfolio theory

Which one of the following is usually the single largest impediment to successful implementation of enterprise risk management (ERM)?

Select one:

A. The traditional organizational culture

B. The financial expense

C. The legal and regulatory requirements

D. The risk management information system

A. The traditional organizational culture

The use of data gleaned from sensors to react immediately to hazardous situations is known as

Select one:

A. Forward-thinking risk management.

B. Root cause risk management.

C. Real-time risk management.

D. Looking-backward risk management.

C. Real-time risk management.

Which one of the following products has led to significant improvements in supply chain management by allowing for the immediate identification of discrepancies and interruptions as well as timely actions that can prevent or reduce losses?

Select one:

A. Wearable exoskeleton

B. Accelerometer

C. Closed-loop system

D. Blockchain

C. Closed-loop system

Which one of the following is the network through which sensors and other smart products capture and transmit data?

Select one:

A. Artificial intelligence

B. Internet of Things

C. Blockchain

D. Cloud

B. Internet of Things

The consensus process by which the veracity of data is confirmed and verified is known as

Select one:

A. The Internet of Things.

B. Mining.

C. Telematics.

D. Machine learning.

B. Mining.

Which one of the following costs is part of the overall financial consequences of risk?

Select one:

A. The cost of benchmarking surveys

B. The cost of purchasing an asset

C. The cost of the value lost due to events that caused a loss

D. The cost of losses reimbursed by insurance

C. The cost of the value lost due to events that caused a loss

As part of its risk management program, a vending company installed a new top of the line security system with an expectation of fewer thefts and

Select one:

A. Higher expected losses.

B. Less residual uncertainty.

C. Increased anxiety.

D. Increased residual uncertainty.

B. Less residual uncertainty.

Delmond Manufacturing is opening a new manufacturing facility in a building that it purchased from a competitor. Using the information below, which one of the following represents the cost of risk of opening the new facility?

New building cost
$60.0 million
Safety system upgrades
$6.0 million
Insurance premiums
$1.5 million
Retained losses
$3.0 million
Risk management department budget at the site
$1.0 million

Select one:

A. $7.0 million

B. $10.0 million

C. $11.5 million

D. $71.5 million

C. $11.5 million (The cost of risk of opening the new facility is $11.5 million, calculated by adding $6 million of safety system upgrades + $1.5 million of insurance premiums + $3 million of retained losses + $1 million of risk management budget at the site)

Sean recently started a small consulting practice. Sean is the only employee of the business and the sole generator of revenue. Sean is very concerned that in the event that he becomes disabled due to an accident or disease there will be no revenue coming into the business. Which one of the following goals best identify Sean's concerns?

Select one:

A. Social responsibility and earnings stability

B. Legality and profitability

C. Tolerable uncertainty and earnings stability

D. Economy of risk management operations

C. Tolerable uncertainty and earnings stability

Which one of the following is essential to an effective risk management program?

Select one:

A. Increased cost of risk

B. Reduced waste of resources

C. Support from the community as a whole

D. Support of the organization's senior management

D. Support of the organization's senior management

An organization must meet the standard of care that it owes to others in order to ensure that

Select one:

A. Post-loss goals are in place.

B. Legal obligations are satisfied.

C. Operations are efficient.

D. Contracts are not breached.

B. Legal obligations are satisfied.

Two steps of the risk management process, when combined, constitute the process of assessing loss exposures. For this reason, they are probably the two most important steps in the process. These two steps are identifying loss exposures and

Select one:

A. Selecting the appropriate risk management techniques.

B. Implementing selected risk management techniques.

C. Examining feasibility of risk management techniques.

D. Analyzing loss exposures.

D. Analyzing loss exposures.

The owner of Harry's Hardware Store is interested in creating a risk management process to help mitigate risk. Harry has already developed much of the process and is currently working to purchase loss reduction devices and contract for loss prevention services. This is an example of which one of the following steps in the risk management process?

Select one:

A. Analyze loss exposures

B. Implement the selected risk management techniques

C. Select the appropriate risk management techniques

D. Identify loss exposures

B. Implement the selected risk management techniques

Which one of the following steps required to monitor and revise the risk management program refers to a proper standard that includes specifications for how results or performance will be measured, such as target activity levels or results?

Select one:

A. Correct substandard performance or revise standards that prove to be unrealistic

B. Establish standards of acceptable performance

C. Compare actual results with standards

D. Evaluate standards that have been substantially exceeded

C. Compare actual results with standards

Which one of the following is true regarding risk control techniques?

Select one:

A. They are usually used in isolation.

B. They minimize the frequency or severity of losses or make losses more predictable.

C. They generate funds to finance losses that cannot be prevented.

D. They ensure that the estimated frequency and severity of loss remain constant.

B. They minimize the frequency or severity of losses or make losses more predictable.

Which one of the following is correct with respect to the potential financial consequences of a property loss?

Select one:

A. When property is used to secure a loan, only the lender suffers financial consequences if that property is destroyed.

B. Bailees need to consider not only their owned property loss exposures, but also the exposures of property held for others.

C. Consumers or resellers of property do not suffer a financial loss unless they actually own property when it is damaged.

D. When a mortgaged property is destroyed, the mortgagor's loss is limited to the outstanding balance of the loan.

B. Bailees need to consider not only their owned property loss exposures, but also the exposures of property held for others.

A secured lender (secured creditor)

Select one:

A. Acquires conditional rights to property, such as the right to repossess it if loan payments are not made.

B. Holds property of others to perform work on it.

C. Has a direct ownership interest in the property.

D. Purchases insurance to cover the borrower's loss of use of the property should the borrower default on the loan.

A. Acquires conditional rights to property, such as the right to repossess it if loan payments are not made.

For insurance purposes, money and securities are separate from other types of contents because

Select one:

A. The insurance industry considers them uninsurable.

B. They are not susceptible to the same perils as other property.

C. The burden of proof for a loss is on the insurer.

D. They are highly susceptible to loss by theft.

D. They are highly susceptible to loss by theft.

When property is used to secure a loan, which of the following is exposed to loss?

Select one:

A. Neither the property owner nor the secured lender

B. The property owner only

C. The property owner and the secured lender

D. The secured lender only

C. The property owner and the secured lender

Angelina borrows money from the bank to purchase a house. The house serves as security for the loan. In this transaction, Angelina is the

Select one:

A. Mortgagor.

B. Secured creditor.

C. Mortgagee.

D. Bailor.

A. Mortgagor.

Because attorneys, physicians, architects, and engineers are considered to be experts in their fields and are expected to perform accordingly, what liability exposure do they face if a client is injured when such an expert fails to exercise the appropriate standard of care?

Select one:

A. Completed operations

B. Business operations

C. Professional liability

D. Products

C. Professional liability

A completed operations liability loss exposure differs from a products liability loss exposure in that the completed operations liability loss exposure

Select one:

A. Is based solely on strict liability rather than negligence or strict liability.

B. Arises out of the entity's completed work, including defective parts or materials furnished with the work.

C. Arises out of the entity's defective product, whether or not it has been installed as part of the finished work.

D. Is based solely on negligence and breach of warranty rather than strict liability.

B. Arises out of the entity's completed work, including defective parts or materials furnished with the work.

Telephone Company installs fiber-optic cable using a trenching machine that digs a trench, buries the cable, fills in the trench, and reseeds, all in one pass. The trenching machine can install cable in a fifty-home neighborhood in one day. Soon after the trenching machine passes by, a member of the community steps on the trenched area, sinks in, and breaks his leg. This is an example of a liability loss exposure arising out of

Select one:

A. Premises.

B. Products.

C. Completed operations.

D. Mobile equipment.

C. Completed operations.

Products liability loss exposures arise out of injuries or damage that result from an organization's

Select one:

A. Operations away from premises.

B. Manufacturing operations.

C. Types of bailments.

D. Defective product.

D. Defective product.

Anyone who owns or occupies property has a

Select one:

A. Pollution liability loss exposure.

B. Products liability loss exposure.

C. Professional liability loss exposure.

D. Premises liability loss exposure.

D. Premises liability loss exposure.

Dr. Donna Jenkins is a research chemist for PharmaCon, a large pharmaceutical company. Last year, she was responsible for 12 of the 14 patents awarded to PharmaCon. Clearly, the future prospects of the company would be damaged if Dr. Jenkins died or became severely disabled. In risk management parlance, Dr. Jenkins is considered

Select one:

A. An officer.

B. A protected employee.

C. A director.

D. A key employee.

D. A key employee.

The death of a shareholder in a close corporation is often a significant event for the corporation for which one of the following reasons?

Select one:

A. Shareholders in a close corporation also serve on the board of directors resulting in a disparity of shareholder votes.

B. The death or disability of one of the shareholders generally results in payment of dividends to the remaining shareholders.

C. Ownership in a close corporation is typically concentrated in just the few major shareholders, most of whom are also managers.

D. Key shareholders are paid high salaries and are difficult to replace.

C. Ownership in a close corporation is typically concentrated in just the few major shareholders, most of whom are also managers.

A company turnover rate well above company and industry averages could be a sign of

Select one:

A. Personnel problems that need to be addressed.

B. Claims-consciousness.

C. Financial problems that need to be addressed.

D. Employee slacking.

A. Personnel problems that need to be addressed.

Other than some type of merger, layoff, or organizational change, which one of the following is an example of a situation where an entire group of employees might leave an organization?

Select one:

A. When an organization offers excessive compensation

B. When statutes make it more attractive to pursue other career opportunities

C. When the economy is in a long term period of inflation

D. When employees follow a manager to a new organization

D. When employees follow a manager to a new organization

While involuntary employee separations may expose an organization to additional liability loss exposures, such as wrongful termination accusations, they generally are not considered a personnel loss exposure because

Select one:

A. The organization may not have a risk management person measuring personnel exposures.

B. The organization has determined that it is better off without that employee.

C. Employees leave organizations for non-business related reasons and therefore, are not considered a personnel loss.

D. The reasons for involuntary employee separations are too numerous and too varied to be measure with high accuracy.

B. The organization has determined that it is better off without that employee.

Net income losses can be caused by which one of the following?

Select one:

A. Decreases in expenses

B. Decreases in hazard risks

C. Increases in expenses

D. Increases in revenue

C. Increases in expenses

An auto dealer's showroom is destroyed by fire, and the dealer has to temporarily rent an adjacent building to use as a showroom. This is an example of

Select one:

A. A reduction in value.

B. An altered condition.

C. An extra expense.

D. Lost income.

C. An extra expense.

When property is lost or damaged, the value of the property is decreased. In addition to direct damage to the property, there could be indirect losses to the business. This latter type of loss is known as

Select one:

A. Deferred income.

B. Historical income.

C. Residual income losses.

D. Net income losses.

D. Net income losses.

Liability entries on an organization's balance sheet are particularly useful to the risk professional for identifying which one of the following loss exposures?

Select one:

A. Net income

B. Personnel

C. Obligations such as mortgage payments

D. Loss exposures that reduce revenue

C. Obligations such as mortgage payments

Which one of the following documents would best help to identify bottlenecks in an organization's operations that might present critical loss exposures?

Select one:

A. Risk assessment questionnaires

B. Flowcharts

C. Financial statements

D. Procedure manuals

B. Flowcharts

Which one of the following statements is true regarding the use of checklists and questionnaires to identify loss exposures?

Select one:

A. The completion of standardized checklists helps organizations describe in detail their specific loss exposures and shows how those loss exposures support or affect specific organizational goals.

B. The questionnaires developed by insurers, called insurance surveys, relate mainly to loss exposures for which commercial insurance is generally available.

C. Standardized risk assessment questionnaires can be used as the sole method to uncover an organization's loss exposures and reveal key information about those exposures.

D. An advantage of risk assessment questionnaires is that they can be completed with relatively little expense, time, and effort.

B. The questionnaires developed by insurers, called insurance surveys, relate mainly to loss exposures for which commercial insurance is generally available

Inspections often identify loss exposures that a review of the written descriptions of the organization's operations would not reveal. Which one of the following groups of individuals within the organization are best able to identify non obvious loss exposures to a person conducting an inspection?

Select one:

A. Regional management

B. Compliance review personnel

C. Front-line personnel

D. Risk professionals

C. Front-line personnel

In the context of identifying loss exposures, hazard analysis is a method
Select one:

A. Used to identify loss exposures arising exclusively from hazard risks.

B. That identifies conditions that increase the frequency or severity of loss.

C. Used specifically for identifying previously unidentified loss exposures.

D. Used to quantify or value potential loss exposures.

B. That identifies conditions that increase the frequency or severity of loss.

A commercial building may contain furniture, machinery and equipment, raw materials, and finished products. Which one of the following is the term generally used in property insurance policies to refer to all these types of property?

Select one:

A. Business personal property

B. Commercial property

C. Stock

D. Inventory

A. Business personal property

In property insurance, the term "property in transit" refers to which one of the following?

Select one:

A. Property while being moved from one building to another at the insured location only

B. Owned property while located anywhere other than the insured location

C. Mobile equipment while moving under its own power from one work location to another

D. Property while being transported by trucks, cars, buses, trains, airplanes, and ships

D. Property while being transported by trucks, cars, buses, trains, airplanes, and ships

For property insurance purposes, wall-to-wall carpeting is typically considered to be part of the building because it

Select one:

A. Is easy to value.

B. Is readily visible.

C. Is permanently attached to the building.

D. Tends to depreciate in value along with the building.

C. Is permanently attached to the building.

Property insurance policies not only protect the property owner but also generally protect a secured lender's interest in the financed property by

Select one:

A. Naming the lender on the owner's policy.

B. Issuing a mortgagee interest-only policy.

C. Sending the lender a letter of intent.

D. Issuing a separate policy.

A. Naming the lender on the owner's policy.

Which one of the following is an element of a loss exposure?

Select one:

A. A cause of loss

B. The verification of risk

C. The probability of a loss

D. The occurrence of a loss

A. A cause of loss

A building contractor uses lower grade materials than called for in the specifications for an office building. A year after the building was completed, a balcony collapses, injuring several employees and customers and causing damage to the building and contents. For the building construction company, this is an example of

Select one:

A. A completed operations liability exposure.

B. A products liability exposure.

C. A premises liability exposure.

D. An operations liability exposure.

A. A completed operations liability exposure.

Kid Smart manufacturing makes a line of childrens toys. The possibility that a child may be injured because of a defect in a Kid Smart toy is what type of liability loss exposure for this toy manufacturer?

Select one:

A. Completed operations

B. Business operations

C. Professional activities

D. Products

D. Products

A licensed electrician completes the job of rewiring a house and returns to his shop. With regard to this job, the electrician has a

Select one:

A. Professional liability loss exposure.

B. Premises liability loss exposure.

C. Business operations loss exposure.

D. Completed operations loss exposure.

D. Completed operations loss exposure.

The possibility that a plumbing contractor might start a fire at a customer's house while soldering a pipe is what type of liability loss exposure for the plumber?

Select one:

A. Completed operations

B. Business operations

C. Professional activities

D. Products

B. Business operations

County Janitorial Service has contracted with local bars and taverns to clean their restrooms on a daily basis. County's greatest liability exposure is probably

Select one:

A. Professional liability.

B. Completed operations.

C. Liquor liability.

D. Advertising liability.

B. Completed operations.

Which one of the following characteristics regarding kidnap and ransom are important for an international organization to consider in assessing personnel loss exposures?

Select one:

A. High frequency but low severity

B. Low frequency but high severity

C. Low frequency and low severity

D. High frequency and high severity

B. Low frequency but high severity

Which one of the following best identifies types of organizations that should be concerned with personnel loss exposures from a manager leaving for another organization?

Select one:

A. Sole proprietorships and close corporations, but not corporations with separation of ownership and control

B. Sole proprietorships, but not corporations with separation of ownership and control

C. Close corporations, but not sole proprietorships

D. Sole proprietorships, close corporations, and corporations with separation of ownership and control

D. Sole proprietorships, close corporations, and corporations with separation of ownership and control

SEB Holdings has grown into a multi-billion dollar financial services firm. For 38 years, Big Hal has been its CEO and has ruled the company with an iron first. Big Hal is 78 years old, and financial analysts are concerned about his health and longevity and how closely these factors relate to the company's success. Which one of the following might help assuage the analysts' concerns?

Select one:

A. Disability insurance on Big Hal

B. A letter attesting to Big Hal's good health

C. Key man retirement plan

D. A corporate succession plan

D. A corporate succession plan

Which one of the following is a financial consequence of personnel losses to an organization?

Select one:

A. Expenses of paying replacement employees more than departing employees

B. Costs of hiring new management personnel to manage a younger workforce

C. Cost allocations relating to departing employees' benefit plans

D. Losses to an organization's value caused by negative publicity

D. Losses to an organization's value caused by negative publicity

Josephine Redmond who is the sole proprietor of Dream Quilts, Inc., operates out of three branch offices with 17 employees. What happens to Josephine's business if she dies or retires?

Select one:

A. The disposition of the business must be resolved in a court of law.

B. The business is divided among the remaining partners.

C. The business ceases to exist.

D. The business is divided among the employees.

C. The business ceases to exist.

All for-profit organizations are exposed to net income losses. Net income is defined as

Select one:

A. Total revenue minus total expenses.

B. Total profit minus total expenses.

C. Total assets minus total liabilities.

D. Total income minus indirect losses.

A. Total revenue minus total expenses.

A net income loss exposure is a condition that presents the possibility of loss caused by a reduction in net income. In a given time period, net income equals revenue minus

Select one:

A. Costs of goods sold.

B. Expenses and income taxes.

C. Continuing expenses and outstanding liabilities.

D. Accounts payable and income taxes.

B. Expenses and income taxes.

Extra expenses are a common financial consequence of property losses. Which one of the following is an example of an extra expense?

Select one:

A. When a family's house is damaged, the family must pay rent to live in a hotel temporarily.

B. A fence worth $7,000 was damaged by a car, and the fence owner has to pay $2,000 to have the damage repaired.

C. When a grocery store in a mall burns, other nearby stores have to close and lose revenue until the grocery store is repaired.

D. Even though fire has made a building untenantable, the landlord must continue making mortgage and tax payments.

A. When a family's house is damaged, the family must pay rent to live in a hotel temporarily.

When a newspaper's printing press is damaged, the company may spend extra money to have the newspaper printed on another company's press. The additional cost of printing the newspaper is an example of which one of the following?

Select one:

A. Altered condition

B. Lost income

C. Extra expense

D. Reduction in value

C. Extra expense

The term "net income losses" is usually associated with

Select one:

A. Liability losses.

B. Missed opportunities.

C. Property losses.

D. Loss of goodwill.

C. Property losses.

Lucas is a building owner. He has contractually agreed to indemnify one of his tenants in the event that the tenant is found legally liable for a bodily injury claim that occurs on the leased premises. Which one of the following is the term for this contractual agreement?

Select one:

A. An insurable interest agreement

B. A hold-harmless agreement

C. A risk assessment agreement

D. An owner/tenant agreement

B. A hold-harmless agreement

In addition to document analysis, risk professionals may also conduct compliance reviews to identify loss exposures. Which one of the following is a benefit of conducting compliance reviews if the organization has adequate in-house legal and accounting resources?

Select one:

A. It requires infrequent monitoring.

B. It is a practical means for identifying loss exposures.

C. It is inexpensive to conduct.

D. It can conduct most of the compliance review itself.

D. It can conduct most of the compliance review itself.

Which one of the following is correct with respect to compliance reviews?

Select one:

A. Compliance reviews determine an organization's compliance with best practices of its industry.

B. Monitoring and maintaining compliance through compliance reviews can prevent significant losses that the organization would otherwise incur.

C. Compliance reviews may be completed at regular intervals, with little or no ongoing monitoring.

D. Compliance reviews are an inexpensive and easy way to identify loss exposures.

B. Monitoring and maintaining compliance through compliance reviews can prevent significant losses that the organization would otherwise incur.

Which one of the following statements is true regarding the use of inspections to identify loss exposures?

Select one:

A. A benefit of inspections is that they require no particular expertise and can be conducted by anyone within the organization.

B. Inspections typically serve to confirm loss exposure identified in written descriptions of an organization's operations.

C. All of an organization's loss exposures can be identified through inspection of critical sites within the organization.

D. To be effective, inspections should be accompanied by discussions with front-line personnel who can identify nonobvious loss exposures.

D. To be effective, inspections should be accompanied by discussions with front-line personnel who can identify non obvious loss exposures.

Which one of the following statements is true regarding the use of checklists and questionnaires to identify loss exposures?

Select one:

A. The completion of standardized checklists helps organizations describe in detail their specific loss exposures and shows how those loss exposures support or affect specific organizational goals.

B. The questionnaires developed by insurers, called insurance surveys, relate mainly to loss exposures for which commercial insurance is generally available.

C. Standardized risk assessment questionnaires can be used as the sole method to uncover an organization's loss exposures and reveal key information about those exposures.

D. An advantage of risk assessment questionnaires is that they can be completed with relatively little expense, time, and effort.

B. The questionnaires developed by insurers, called insurance surveys, relate mainly to loss exposures for which commercial insurance is generally available.

Jim's Computer Repair will often take customers' computers into the shop for repairs and service. While Jim has a customer's computer in his possession, he is in the role of

Select one:

A. A bailor.

B. An agent.

C. A bailee.

D. A secured lender.

C. A bailee.

Another term for cause of loss is

Select one:

A. Hazard.

B. Exposure.

C. Peril.

D. Negative outcome.

C. Peril.