TUTORIAL 1 - WEEK 2 (ASC173)

An earthquake is an example of

• A) a moral hazard.

• B) a peril.

• C) a physical hazard.

• D) an objective risk.

A peril is

• A) a moral hazard.

• B) the cause of a loss.

• C) a condition which increases the chance of a loss.

• D) the probability that a loss will occur.

Uncertainty based on a person's mental condition or state of mind is known as

• A) objective risk.

• B) subjective risk.

• C) objective probability.

• D) subjective probability.

Objective risk is defined as

• A) the probability of loss.

• B) the relative variation of actual loss from expected loss.

• C) uncertainty based on a person's mental condition or state of mind.

• D) the cause of loss.

From the viewpoint of the insurer, all of the following are characteristics of an ideally insurable risk EXCEPT

• A) The loss must be accidental.

• B) The loss should be catastrophic.

• C) The premium must be economically feasible.

• D) There must be a large number of exposure units.

Following good health habits can be categorized as

• A) loss prevention.

• B) risk retention.

• C) noninsurance transfer.

• D) personal insurance.

Which of the following is implied by the pooling of losses?

• A) sharing of losses by an entire group

• B) inability to predict losses with any degree of accuracy

• C) substitution of actual loss for average loss

• D) increase of objective risk

Which of the following is a characteristic of insurance?

• A) pooling of losses

• B) avoidance of risk

• C) payment of intentional losses

• D) certainty about specific losses that will occur

According to the law of large numbers, what happens as the number of exposure units increases?

• A) Actual results will increasingly differ from probable results.

• B) Actual results will more closely approach probable results.

• C) Nondiversifiable risk will decrease.

• D) Objective risk will increase.

The use of fire-resistive materials when constructing a building is an example of

• A) risk transfer.

• B) risk control.

• C) risk avoidance.

• D) risk retention.