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Exam 3: Introduction to Risk Management

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Question 31

Multiple Choice

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All of the following are disadvantages of noninsurance transfers EXCEPT

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) All of the above
F) B) and C)

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Question 32

Multiple Choice

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A risk manager was asked to review all the loss exposures his company faces. The risk manager noted that the company obtained over 90 percent of its raw materials from one supplier. He voiced concern about business interruption if that supplier was closed for some reason. Acting on his recommendation, the company began to purchase raw materials from two other suppliers. Using multiple suppliers illustrates which risk control technique?

A) risk avoidance
B) duplication
C) separation
D) diversification

E) None of the above
F) B) and C)

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Question 33

Multiple Choice

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A restaurant owner leased a meeting room at the restaurant to a second party. The lease specified that the second party, not the restaurant owner, would be responsible for any liability arising out of the use of the meeting room, and that the restaurant owner would be "held harmless" for any damages. The restaurant owner's use of the hold-harmless agreement in the lease is an example of

Ryan decided to review his personal risk management program. His car is 10 years old, and he would receive little money from his insurer if the car was damaged or destroyed. Ryan decided to drop the physical damage insurance on the car. From a risk management perspective, dropping the physical damage insurance on the car is best described as

Bev lives in the suburbs and works downtown. She drives to work, and her most direct route to work would require her to pass through an area where carjackings and drive-by-shootings are common. Bev does not drive through this area. Instead, she uses a route which adds 10 minutes to her commute. Which risk management technique is Bev using with respect to the risk of injury while driving through the dangerous area?

A risk manager is concerned with which of the following? I.Identifying potential losses II.Selecting the appropriate techniques for treating loss exposures

Which of the following statements about the use of deductibles is (are) true? I.They represent risk retention by insurance purchasers. II.They tend to increase the cost of adjusting small claims.

A situation or circumstance in which a loss is possible, regardless of whether a loss occurs, is called a

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

Purchasing health insurance illustrates the use of which personal risk management technique?

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)

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

Which of the following types of loss exposures are best handled by the use of avoidance?

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

Preloss objectives of risk management include which of the following? I.Preparing for potential losses in the most economical way II.Reduction of anxiety

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

Which of the following statements concerning the selection of risk management techniques and insurance market conditions is (are) true? I.It's easier to purchase affordable insurance during a "soft " market than during a "hard" market. II.Retention is used more during a "soft" market than during a "hard" market.

Parker Department Stores has been hurt in recent months by a large increase in shoplifting losses. Parker's risk manager concluded that while the frequency of shoplifting losses was high, the severity is still relatively low. What is (are) the appropriate risk management technique(s) to apply to this problem?

Which of the following statements about a personal risk management program is (are) true? I.Insurance and retention are the only techniques used to handle potential losses. II.The steps in a personal risk management process are the same steps used by businesses.

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