Risk Management Quiz

Which of the following conditions is (are) appropriate for using retention?

• Losses are difficult to predict.

• The worst possible loss is not serious.

Which of the following statements about the use of deductibles is (are) true?

• They represent risk retention by insurance purchasers.

• 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

• A) deductible.

• B) loss exposure.

• C) loss avoidance.

• D) peril.

Risk management is concerned with

• A) the identification and treatment of loss exposures.

• B) the management of speculative risks only.

• C) the management of pure risks that are uninsurable.

• D) the purchase of insurance only.

Loss severity is defined as the

• A) probable size of the losses which may occur during some period.

• B) probable number of losses which 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.

Abandoning an existing loss exposure is an example of

• A) avoidance.

• B) retention.

• C) noninsurance transfer.

• D) insurance transfer.

The worst loss that could ever happen to a firm is referred to as the

• A) maximum possible loss.

• B) probable maximum loss.

• C) frequency of loss.

• D) severity of loss.

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

• A) retention.

• B) self-insurance.

• C) insurance.

• D) noninsurance transfer.

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

• A) commodity prices

• B) physical inspections

• C) currency exchange rates

• D) interest rate movements

Which of the following is a post-loss risk management objective?

• A) treating loss exposures in the most economical way

• B) continuing operations

• C) reduction of anxiety

• D) meeting externally imposed legal obligations