Untitled Flashcards Set

Card 1

Q: The definition of risk contains which important components? A: I. Uncertainty, II. Economic loss
(Answer: D - I and II)

Card 2

Q: Which of the following are considered "burdens" of risk? A: a. Losses
b. Higher borrowing costs
c. Greater liquidity needs
d. All of the above (Answer: D)

Card 3

Q: The cost of risk includes: A: a. Outlays to reduce risk
b. Opportunity cost of forgone activities
c. Cost to finance potential losses
d. All of the above (Answer: D)

Card 4

Q: A risk that changes from year to year (e.g., oil prices) is: A: D - Dynamic

Card 5

Q: A risk that has only two outcomes (e.g., auto theft: loss or no loss) is: A: A - Pure

Card 6

Q: A risk that affects a large portion of the population (e.g., an economic downturn) all at once is: A: D - Fundamental

Card 7

Q: Examples of damages that could be paid as part of liability include: A: a. Settlements to injured parties
b. Legal fees
c. Fines
d. All of the above (Answer: D)

Card 8

Q: The definition of liability is: A: C - The risk of being held financially liable for “damages” to another party

Card 9

Q: Loss of income can be caused by: A: I. Death, II. Injury/Illness, III. Unemployment
(Answer: G - I, II, & III)

Card 10

Q: Slippery or icy roads increasing the likelihood of an auto accident is an example of: A: B - Physical hazard

Card 11

Q: The event that causes the loss is: A: D - Peril

Card 12

Q: A behavior problem when a person changes their attitudes or behaviors because they are insured is called: A: B - Moral hazard

Card 13

Q: How many steps are in the risk management process presented in Module 1? A: C - 4

Card 14

Q: Which of the following are considered steps in the risk management process? A: II. Identify risks, III. Select risk management techniques
(Answer: F - II and III)

Card 15

Q: Which of the following is true regarding the degree of risk? A: I. Represents the amount of objective risk present, II. Captures variation around expected loss
(Answer: D - I and II)

Card 16

Q: Which risk identification method is a review of loss history? A: E - Analysis of past losses

Card 17

Q: The best risk identification method is: A: E - Combination approach

Card 18

Q: When conducting risk evaluation, which measures the worst amount of loss that could result? A: B - Maximum possible loss

Card 19

Q: Difference between inherent risk and residual risk? A: A - Inherent risk is risk before management; residual risk remains after management

Card 20

Q: When conducting risk evaluation, which of the following are estimated for potential losses? A: D - Frequency and Severity

Card 21

Q: A plot of frequency versus severity is: A: D - Risk Map

Card 22

Q: Probability of an accident for LaPrade Manufacturing (500 accidents out of 10,000 deliveries)? A: B - 0.05

Card 23

Q: The measure of central tendency calculated by summing values and dividing by the number of observations: A: A - Mean

Card 24

Q: The coefficient of variation is calculated by: A: D - Standard deviation divided by the mean

Card 25

Q: Advanced risk measure used in enterprise risk management: A: D - Value at Risk

Card 26

Q: Which of the following would be considered “real property”? A: B - Your house

Card 27

Q: Increased expenses from relocating due to a power outage is an example of: A: B - Indirect loss

Card 28

Q: The four types of liability damages include: A: E - All of the above

Card 29

Q: Writing false information that damages someone’s reputation is: A: A - Libel

Card 30

Q: A legal injury or wrong to another that arises out of actions other than breach of contract is: A: C - Tort

Card 31

Q: What are the four elements of negligence?
A: E - Legal duty owed, breach of duty, damages, and proximate cause

Card 32

Q: Olivia's lawyer argues that Carter was partially at fault and should not collect damages. What negligence defense is being used?
A: B - Contributory negligence

Card 33

Q: S&C Construction is sued for Ian’s negligent act. What type of liability does it face?
A: E - Vicarious liability

Card 34

Q: Why are people more concerned about liability?
A: G - Weakening of defenses, expansion of vicarious liability, increased damage awards

Card 35

Q: Which of the following are common examples of liability?
A: D - All of the above

Card 36

Q: According to a risk map, which types of risk should be avoided?
A: C - High frequency, high severity

Card 37

Q: Risk avoidance, by definition, drives the probability of loss:
A: C - To zero

Card 38

Q: Benefits of loss control include:
A: E - Savings from fewer losses & lower costs for other risk management investments

Card 39

Q: Some costs of loss control include:
A: C - Dollar amounts invested to implement loss control

Card 40

Q: Paying future losses out of cash flows is known as:
A: A - Planned retention

Card 41

Q: Factors to consider when deciding to transfer or retain risk include:
A: G - Financial resources, ability to predict losses, ability to administer claims

Card 42

Q: Methods of transferring risk include:
A: D - Hold harmless agreement, hedging, diversification

Card 43

Q: Why should firms invest in risk management if investors can diversify?
A: D - Likelihood of future funds & real services offered by insurers

Card 44

Q: Key insurance principles include:
A: E - Indemnity & Subrogation

Card 45

Q: Which insurance principle allows an insurer to recover from a responsible third party?
A: C - Subrogation

Card 46

Q: One requisite of an ideally insurable risk is:
A: E - Large number of similar exposure units & Determinable and measurable loss

Card 47

Q: The requisite of an ideally insurable risk based on the law of large numbers is:
A: A - Large number of similar loss exposures

Card 48

Q: Which requisite of an ideally insurable risk is based on high per-loss claims costs?
A: E - Loss should be large (to insured)

Card 49

Q: Which requisite of an ideally insurable risk is based on keeping premiums affordable?
A: F - Probability of loss cannot be too high

Card 50

Q: What are the requirements for ALL contracts?
A: D - Legal Purpose & Legal Capacity to Contract

Card 51

Q: Which characteristic of an insurance contract states that values exchanged may not be equal?
A: A - Aleatory

Card 52

Q: Which is true of brokers?
A: B - Do not have authority to bind coverage

Card 53

Q: Which of the following is a principle of social insurance?
A: E - All of the above

Card 54

Q: Which of the following are values provided by insurance?
A: D - Creates stability & incentivizes loss control

Card 55

Q: Which of the following are social costs of insurance?
A: F - Insurers incur overhead & individuals may exaggerate losses

Card 56

Q: Steps for selecting a risk management technique include:
A: G - Avoid risks, implement loss control, select retention/transfer mix

Card 57

Q: Problems with risk avoidance include:
A: D - Some risks are unavoidable, some risks are worth taking, avoiding one risk may create another

Card 58

Q: Loss control is always used in conjunction with:
A: A - Retention/transfer

Card 59

Q: Loss _______________ focuses on reducing frequency while loss _______________ focuses on reducing severity.
A: B - Prevention; Reduction

Card 60

Q: _______________ is optimal for low-frequency and high-severity risks.
A: D - Transfer

Card 61

Q: Retention may be the best option if:
A: C - Losses are predictable

Card 62

Q: Advantages of retention include:
A: D - Savings, no premium taxes, control of claims process

Card 63

Q: Disadvantages of retention include:
A: C - Exposure to loss

Card 64

Q: Examples of alternative risk transfer include:
A: D - Captives & Securitization