Chapter 2-Nature of Insurance, Risk, Perils and Hazards
A business becoming incorporated is an example of risk ____.
transfer
A hold-harmless clause is an example of risk
transfer
The Law of Large numbers enables an insurer to
predict losses
As the number of insured units increases, the number of losses decreases. True or False?
False
Which of the following is NOT an example of risk retention?
Not doing a business deal after deciding it would be too risky
Which of the following can be defined as a cause of a loss?
Peril
According to the law of large numbers, how would losses be affected if the number of similar insured units increases?
Predictability of losses will be improved
What type of risk involves the potential for loss with no possibility for gain?
Pure risk
An insurer has a contractual agreement which transfers a portion of its risk exposure to another insurer. What type of contractual arrangement is this?
Reinsurance contract
How can an insurance company minimize exposure to loss?
Reinsuring risks
Which of the following can be defined as "the potential for loss"?
Risk
Which of the following describes the act of insuring a risk against possible loss?
Risk transfer
Which one of these is NOT considered to be an element of an insurable risk?
Speculative risk
Risk ____ is the process of analyzing exposures that create risk and designing programs to handle them.
management
Purchasing insurance is an example of risk
transference