Assignment 7 Questions

Which one of the following describes a benefit to businesses of making insurance part of an overall risk management program instead of relying solely on insurance? A. Improved access to affordable insurance B. Stimulating economic growth C. Reducing the number of persons dependent on society for support D. Increased use of exposure avoidance

A. A benefit to businesses of making insurance part of an overall risk management program instead of relying solely on insurance is improved access to affordable insurance.

Larger organizations often have a written risk management statement outlining procedures and authority for A. Implementing risk management techniques. B. Eliminating risk management techniques. C. Analyzing risk management techniques. D. Identifying risk management techniques.

A. Larger organizations often have a written risk management statement outlining procedures and authority for implementing risk management techniques.

Malvern Imports has several retail stores in a three-state area. They receive and store imports in a large central warehouse. The risk manager is considering ways to lower the severity exposure due to a fire loss to the warehouse. Which one of the following would most effectively decrease the severity exposure of fire loss to the warehouse? A. Separation B. Duplication C. Loss prevention D. Avoidance

A. Separation, using more than one warehouse, would most effectively decrease the severity exposure of fire loss to the warehouse.

Which one of the following is the goal of enterprise-wide risk management (ERM)? A. Coordinate loss reduction efforts B. Reduce risk management costs C. Decentralize control of business decisions D. Maximize the organization's value

D. The goal of ERM is to maximize the organization's value.

It is easier to gauge the potential severity of property losses than of liability losses because property loss exposures A. Are confined to the building and contents. B. Can be determined as an average according to the type of business. C. Have a calculable frequency. D. Typically have a finite value.

It is easier to gauge the potential severity of property losses than of liability losses because property loss exposures typically have a finite value.

When implementing selected risk management techniques, a risk manager must A. Base decisions on financial criteria. B. Base decisions on informal guidelines. C. Analyze the benefits of the risk management program. D. Determine how to allocate the costs of the program.

When implementing selected risk management techniques, a risk manager must determine how to allocate the costs of the program.

Loss exposure surveys, or checklists, are methods used to A. Examine the feasibility of techniques. B. Identify loss exposures. C. Analyze loss exposures. D. Monitor results.

B. Loss exposure surveys, or checklists, are methods used to identify loss exposures.

The monetary amount of damage that results from a loss is known as A. The deductible. B. Loss severity. C. Loss frequency. D. The retention.

B. The monetary amount of damage that results from a loss is known as loss severity.

Estimating how large the losses may be and how often they may occur is required under which one of the steps of the risk management process? A. Identifying loss exposures B. Analyzing loss exposures C. Examining the feasibility of risk management techniques D. Monitoring results

B. This is required under Step 2: Analyzing Loss Exposures

Which one of the following is true regarding enterprise-wide risk management (ERM)? A. ERM is an approach to risk management that focuses primarily on loss exposures associated with pure risk. B. In practice, implementation of ERM occurs at the departmental or business unit level. C. Implementation of ERM is fairly consistent among organizations, regardless of their size, nature, or complexity. D. ERM is an approach to managing all of an organization's key risks and opportunities.

D. ERM is an approach to managing all of an organization's key risks and opportunities.

What will individuals gain as a benefit of applying sound risk management to automobile loss exposures? A. No future increases in insurance premiums B. A loss free future C. Economic growth D. Greater peace of mind

D. Individuals will gain greater peace of mind as a benefit of applying sound risk management to automobile loss exposures.

Sho Ching is risk manager for Market Sales Company. Market Sales owns a large fleet of autos used by the sales employees. The fleet is insured with $1,000 physical damage deductibles. Sho Ching is concerned about an increasing frequency of auto accidents in recent years. Which one of the following is the best risk management option for addressing the increased frequency of accidents from the fleet of autos? A. Decrease the deductible to $500 B. Increase the deductible to $2,000 C. Implement loss reduction programs D. Implement loss prevention programs

D. The best management option for addressing the increased frequency of accidents is to implement a loss prevention program.

Which one of the following is true regarding loss histories? A. Changing environments have little effect on the quality of loss histories. B. Changes in an organizations operations have little effect on the quality of loss histories. C. Loss histories are not commonly used to identify loss exposures. D. The quality of loss histories depends on whether they are organized and consistent.

D. The quality of loss histories depends on whether they are organized and consistent.

The risk management technique that eliminates a loss exposure and reduces the chance of loss to zero is A. Loss Prevention. B. Loss reduction. C. Duplication. D. Avoidance.

D. The risk management technique that eliminates a loss exposure and reduces the chance of loss to zero is avoidance.

John Young is a risk manager of a medium-size business with both auto and real property exposures. John is looking for ways to save money on insurance premiums. John should consider A. Retaining the auto liability loss exposures. B. Retaining some or all of the auto physical damage exposures. C. Canceling the insurance and implementing noninsurance transfer techniques. D. Retaining the property loss exposures.

B. John should consider retaining some or all of the auto physical damage exposures.

Risk manager Maria Sanchez is evaluating her employer's current fleet of vehicles to ensure they are roadworthy and determine if any replacements are needed. Maria's activities are part of which one of the following steps in the risk management process? A. Analyzing loss exposures B. Monitoring results and revising the risk management program C. Identifying loss exposures D. Implementing the selected risk management techniques

B. Maria's activities replacing vehicles is part of monitoring results and revising the risk management program.

Risk management activities under the enterprise-wide risk management approach occur at the A. Business unit level. B. Corporate level. C. Departmental level. D. Regional level.

B. Risk management activities under the enterprise-wide risk management approach occur at the corporate level.

Katie and Kevin have a small stream in their back yard. Last year was exceptionally rainy and they were concerned about flood exposures to their home. They recently had a contractor regrade the back yard, building a large berm, which provides a raised barrier to divert the flow of water away from the house. In this situation, Katie and Kevin are using which one of the following risk management techniques? A. Separation B. Avoidance C. Loss prevention D. Loss reduction

C. Loss prevention is the risk management technique used.

The first step in the risk management process is to A. Implement the selected technique. B. Select the appropriate technique. C. Identify loss exposures. D. Analyze loss exposures.

C. The first step in the risk management process is to identify loss exposures.

Which one of the following best describes how effective risk management benefits insurers? A. Stimulating economic growth B. Causing fewer disruption in the social environment C. Increased ability to accurately predict future losses D. Encourages insurers to create innovative products and offer competitive prices

D. Effective risk management benefits insurers by encouraging insurers to be more innovative and competitive in the products and services they provide.

The last step in the risk management process is to A. Implement the selected technique. B. Select the appropriate technique. C. Identify loss exposures. D. Monitor results.

D. The last step in the risk management process is to monitor results.

Frank and Jan recently married and purchased their first home together. What is an effective way for Frank and Jan to begin identifying the liability loss exposures associated with their new home? A. Hire a professional risk manager B. Determine the value of the home and contents C. Purchase a homeowners insurance policy D. Inspect the home for loss exposures

D. They should inspect the home for loss exposures.

How might the monitoring and revising step in the risk management process be simply described? A. Check to make sure the decisions made are still valid and make changes as needed. B. Create a new workflow and identify new bottlenecks that have occurred. C. Make sure insurance is not being used as a substitute for loss control. D. Identify noninsurance transfers through hold harmless agreements.

A. Check to make sure the decisions made are still valid and make changes as needed.

Which one of the following statements describes the monitoring and revising step in the risk management process? A. Check to make sure the decisions made are still valid, and make changes as needed. B. Create a new workflow and identify new bottlenecks that have occurred. C. Make sure insurance is not being used as a substitute for loss control. D. Identify noninsurance transfers through hold-harmless agreements.

A. Check to make sure the decisions made are still valid, and make changes as needed... is the statement that describes the monitoring and revising step in the risk management process.

Businesses, individuals, and families that practice sound risk management can benefit society in all of the following ways, EXCEPT: A. Increasing interest in leisure activities B. Reducing the overall number of losses C. Controlling medical expenses through reduced injuries D. Stimulating economic growth

A. Sound risk management does not benefit society by increasing interest in leisure activities.

The dollar amount of damage that results from a loss is the loss A. Severity. B. Frequency. C. Prevention. D. Reduction.

A. The dollar amount of damage that results from a loss is the loss severity.

In managing loss exposures using the risk management process, the key to identifying loss exposures is A. Understanding how the household or organization operates. B. An organizational process flowchart. C. A financial analysis of customers and suppliers. D. Understanding the loss frequency and loss severity.

A. The key to identifying loss exposures is understanding how the household or organization operates.

The technique that is used to decrease the frequency and/or severity of losses is A. Risk control. B. Risk financing. C. Retention. D. Transfer.

A. The technique that is used to decrease the frequency and/or severity of losses is risk control.

Which one of the following identifies the two broad categories of risk management techniques? A. Risk control and risk financing B. Loss prevention and loss reduction C. Separation and duplication D. Insurance and noninsurance

A. The two broad categories of risk management techniques are risk control and risk financing.

Analyzing loss exposures requires A. Understanding how a household or organization operates. B. Estimating how large the losses may be and how often they may occur. C. A physical inspection of all locations, operations, and maintenance routines. D. Interviews and the analysis of a flowchart.

B. Analyzing loss exposures requires estimating how large the losses may be and how often they may occur.

Amy has decided to apply a retention risk management technique to reduce her automobile insurance premium. She is deleting the physical damage coverage (collision and other-than-collision) on her car. Her car is currently worth $3,000. She will be able to save $250 every six months. Based on informal guidelines for selecting risk management techniques, is this a good decision? A. Yes, Amy will save $500 per year. B. Yes, if Amy can afford to lose $3,000. C. No, because the plan does not include loss control. D. No, this type of coverage is required in most states.

B. Based on informal guidelines for selecting risk management techniques, is this a good decision? Yes, if Amy can afford to lose $3,000.

Chuck and Sally discovered they have flaking lead paint on the walls and trim inside their recently purchased house. They researched lead paint hazards and abatement techniques on the Internet and discovered the best action they can take is to remove loose paint chips and dust, replace the windows, and seal the walls with a paint designed for that purpose. Which one of the following risk management techniques does this activity involve? A. Avoidance B. Loss control C. Retention D. Noninsurance transfer

B. Chuck and Sally are implementing risk control procedures.

Individuals and families benefit from effective risk management in which one of the following ways? A. Increasing their personal cash flows by retaining rather than insuring their property exposures B. Continuing activities following an accident or other loss, and thus reducing inconvenience. C. Stimulating economic growth because fewer losses mean that more funds are available for other uses D. Creating a positive effect on an insurer's underwriting results

B. Individuals and families benefit from effective risk management by continuing activities following an accident or other loss, and thus reducing inconvenience.

Sound risk management benefits society in each of the following ways, EXCEPT: A. Causing fewer disruptions in the economic and social environment B. Increasing opportunity costs C. Reducing the number of people dependent on society for support D. Stimulating economic growth

B. Sound risk management benefits society in each of the following ways, EXCEPT: Increasing opportunity costs

A business buys multiple small warehouses to minimize the effects of a single loss. This is an example of A. Avoidance. B. Separation. C. Loss prevention. D. Duplication.

B. This is an example of separation.

Randy and Ida are concerned that a buried heating oil tank in their yard might be leaking, but they have decided that replacing that tank must wait until they have the funds in a year or two. Randy and Ida have discovered that pollution resulting from a leak would not be covered by their homeowners insurance policy. They fear the oil might seep into the water table and contaminate their neighbors' well water. Illness and damage that might result could be very expensive. Randy and Ida can purchase an endorsement that will provide coverage for this pollution exposure. The endorsement would cost $50 per year. Is this an effective risk management selection for Randy and Ida until they can replace the tank? A. Yes, they should do this indefinitely and not replace the tank. B. Yes, they are exchanging a large exposure for a little premium. C. No, they are spending a lot of money for little protection. D. No, each neighbor will have insurance to cover any damage to their wells.

B. Yes, they are exchanging a large exposure for a little premium.

Waking up on a cold February morning, Amy discovers the roads are icy and snow covered. Concerned about driving to work and possibly having an accident, she decides to take the day off. Amy's decision is an example of which one of the following risk management techniques? A. Loss prevention B. Loss reduction C. Avoidance D. Separation

C. Amy's decision is an example of avoidance.

Which one of the following best describes how effective risk management benefits society? A. Creating a positive effect on an insurer's underwriting results B. Providing more thoughtful consumers of insurance C. Causing fewer disruptions in the economic and social environment D. Increasing the types of charitable and governmental agencies available to the general public

C. Effective risk management benefits society by causing fewer disruption in the economic and social environment.

Exposures with the potential of low frequency but high severity should generally be A. Retained because they are fairly predictable. B. Retained because this would encourage loss control. C. Insured because they are highly unpredictable. D. Written with a large deductible to reduce premium costs.

C. Exposures with the potential of low frequency but high severity should generally be insured because they are highly unpredictable.

Jeff recently started a consulting business. One of his concerns is that he will be sued for giving erroneous advice to a client. Which one of the following would most likely be the best risk management technique for Jeff's use in this situation? A. Retention B. Avoidance C. Insurance D. Duplication

C. Insurance would most likely be the best risk management technique used in this situation.

Jane's son, Joe, is 15-years-old and he will obtain his driver's license this summer when he becomes 16. Joe has expressed an interest in driving Jane's car once he has his license. Jane owns a compact car and is concerned that Joe might be hurt if he is involved in an accident while driving her car. Jane has read reports indicating that people occupying sport utility vehicles suffer less severe injuries when involved in accidents. If Jane trades her compact car in for a sport utility vehicle, which one of the following risk management techniques will she be applying? A. Avoidance B. Loss prevention C. Loss reduction D. Noninsurance transfer

C. Loss reduction is the risk management technique that applies.

Properly estimating loss severity is essential in treating a loss exposure because the potential severity is a major consideration in determining whether to A. Use risk control or risk financing. B. Use loss avoidance or loss prevention. C. Insure or retain a particular loss exposure. D. Physically inspect or rely on a loss exposure survey.

C. Potential severity is a major consideration in determining whether to insure or retain a particular loss exposure.

There have been several recent burglaries in Sally's neighborhood. Which one of the following best describes a risk management technique and a corresponding example of that technique that Sally should consider due to the recent increase in burglaries? A. Separation, such as installing a new alarm system B. Loss reduction, such as keeping doors and windows locked C. Loss prevention, such as keeping doors and windows locked D. Loss prevention, such as installing a safe in her home

C. Sally should consider a loss prevention technique such as keeping doors and windows locked.

Which one of the following is true regarding loss exposure surveys? A. Households and organizations are likely to face all of the loss exposures detailed in surveys. B. Loss exposures for unique operations are usually identified on surveys. C. Surveys usually group questions on similar exposures together. D. Risk managers can depend solely on a comprehensive survey to identify loss exposures.

C. Surveys usually group questions on similar exposures together.

Some businesses require key executives to fly on different flights. This is an example of which one of the following risk control techniques? A. Avoidance B. Loss prevention C. Separation D. Duplication

C. This is an example of separation.

Traditionally, the risk management professional's role has been associated with loss exposures related to A. Business risk. B. Operational risk. C. Pure risk. D. Speculative risk.

C. Traditionally, the risk management professional's role has been associated with loss exposures related to pure risk.

In the selection of appropriate risk management techniques, financial management decisions are often made with the objective of A. Decreasing the worry factor. B. Decreasing expenses. C. Increasing the cost of risk. D. Increasing operating efficiency.

D. Financial management decisions are often made with the objective of increasing operating efficiency.

The last step in the risk management process, monitoring results and revising the risk management program, A. Is complete once expected results are achieved. B. Does not include complex decisions as do the previous steps of the risk management process. C. Is not a necessary step for households but is an important step for organizations since their needs often change over time. D. Is a return to the first step and begins the risk management process once again.

D. The last step in the risk management process, monitoring results and revising the risk management program, is a return to the first step and begins the risk management process once again.

Risk management departments of large organizations generally rely on a manual to inform others of how to identify new exposures, what risk management techniques are currently in place, how to report insurance claims, and other important information. This communication of risk management information is part of which one of the following steps in the risk management process? A. Analyzing loss exposures B. Monitoring results C. Examining the feasibility of techniques D. Implementing the selected risk management techniques

D. This is part of implementing the selected risk management techniques.