Assignment 4 - Leveraging Tech and Insurance

Emerald Industries has just invested a large sum in new, highly-sophisticated computer equipment and building renovations. Emerald installed state-of-the-art smoke detection devices throughout the facility. Emerald's state-of-the-art smoke detection devices are an example of Select one: A. Loss prevention. B. Loss reduction. C. Avoidance. D. Duplication.

Loss reduction

Which one of the following risk control techniques is generally used to reduce the frequency of a particular loss? Select one: A. Avoidance B. Separation C. Loss reduction D. Loss prevention

Loss prevention

Private insurers are reluctant to provide windstorm insurance on coastal properties. This is because the loss exposures fail to meet the criterion that ideally insurable exposures must be Select one: A. Definite and measurable. B. Independent and not catastrophic. C. A large number of similar exposure units. D. Fortuitous.

Independent and not catastrophic.

Party A and Party B have entered into a contract specifying that Party A will hold Party B harmless from claims arising from their joint fault. This is an example of which one of the following forms of a hold-harmless agreement? Select one: A. Intermediate form B. Basic form C. Limited form D. Broad form

Intermediate form

A noninsurance transfer in which the transferor transfers a loss exposure to the transferee, thereby eliminating the possibility that the transferor will suffer a loss from the transferred exposures is a noninsurance Select one: A. Risk control transfer. B. Loss control mechanism. C. Pooling and funding mechanism. D. Risk financing transfer.

Risk control transfer

Internet of Things (IoT) devices, sensors, wearables, and telematics devices have had the greatest impact on which one of the following risk treatment techniques? Select one: A. Risk transfer B. Risk retention C. Risk avoidance D. Risk modification

Risk modification

Which one of the following is true about the liability involved in contracting services? Select one: A. In contracting for services, the party that transfers the risk must be an independent contractor, and the party that accepts the risk must be a subcontractor. B. If the subcontracted work is inherently dangerous to others, the party who hired the contractor is not liable for an injury to a third party caused by the contractor's negligence. C. If the party that hired the contractor is negligent in selecting the contractor, the contractor is directly liable for such negligence. D. The responsibility that certain duties be performed safely cannot be delegated to another party, such as the duty of common carriers to carry passengers safely.

The responsibility that certain duties be performed safely cannot be delegated to another party, such as the duty of common carriers to carry passengers safely.

The control technique that disperses a particular asset or activity over several locations and regularly relies on that asset or activity as a part of an organization's working resources is which one of the following? Select one: A. Duplication B. Risk transfer C. Separation D. Diversification

Separation

Which one of the following statements is correct regarding characteristics of ideally insurable loss exposures? Select one: A. A common function that insurance provides is a spreading of risk across a large number of similar exposure units within the same period. B. Intertemporal risk transfer, the spreading of risk through time, requires a large number of similar exposure units. C. One requirement of the law of large numbers is that past events occur under different circumstances in the future. D. Loss exposures such as homes and automobiles generally will not meet the ideally insurable requirement that the exposure be of a large number of similar exposure units.

A common function that insurance provides is a spreading of risk across a large number of similar exposure units within the same period.

In both noninsurance risk control and noninsurance risk financing transfers, Select one: A. The transfer becomes effective only when the transferee actually performs the action that rids the transferor of risk. B. A contract is usually formed before any loss occurs. C. The transferor has protection only after the funds to restore a loss are paid. D. The transferor has protection regardless of the transferee's bankruptcy.

A contract is usually formed before any loss occurs.

An exculpatory clause is Select one: A. The intentional relinquishment of a known right. B. A contractual provision that relieves one party from liability resulting from a negligent or wrongful act. C. The substitution of one party for another. D. The surety's right to seek reimbursement from the principal for the surety's payments.

A contractual provision that relieves one party from liability resulting from a negligent or wrongful act.

An excess liability insurance policy that covers a claim in excess of the underlying limits only if the loss is covered by the underlying policy is called Select one: A. A following-form excess policy. B. A layered policy. C. A true excess policy. D. An umbrella policy.

A following-form excess policy

Ideally insurable loss exposures are subject to losses that Select one: A. Result from unidentifiable causes. B. Are definite in time, cause, and location. C. Are immeasurable in terms of frequency or severity. D. Occur gradually over long periods of time.

Are definite in time, cause, and location.

Telematics devices allow organizations to accurately identify patterns of risk and predict risk for which one of the following types of loss exposures? Select one: A. Business income B. Automobile C. Property D. Workers compensation

Automobile

Blithe Drug Manufacturing has developed a drug that cures obesity. However, the side effects are significant and potentially fatal. Blithe decides not to manufacture and sell the drug. This is an example of Select one: A. Diversification. B. Loss reduction. C. Loss prevention. D. Avoidance.

Avoidance

The risk manager of a large manufacturing company has been asked by the CFO to develop a strategy to eliminate property damage at a particular site. Which one of the following risk control techniques can the risk manager use to reduce the probability of loss to zero? Select one: A. Separation B. Loss reduction C. Avoidance D. Loss prevention

Avoidance

An advantage of a large deductible plan is that it allows the insured organization to Select one: A. Increase its cost of risk compared with other insurance plans. B. Decrease its uncertainty about the cost of its retained losses. C. Benefit from the cash flow available on the retained loss reserves. D. Benefit from handling its own claims without insurer control.

Benefit from the cash flow available on the retained loss reserves.

Which one of the following technologies can provide the infrastructure upon which smart contracts are built and implemented? Select one: A. Machine learning B. Wearables C. Telematics D. Blockchain

Blockchain

A state wants to build a road through an environmentally-sensitive area. The area includes endangered flora and fauna, as well as wetlands. Build-Rite Construction expressed interest in the project, but is concerned about potential liability. Build-Rite agrees to build the road if the state assumes all responsibility for any liability arising out of the construction of the road. A state representative has signed-off on the contract, agreeing that the state will be responsible for all liability. This transfer of responsibility for fault illustrates which one of the following forms of noninsurance risk financing transfer? Select one: A. Nullification form B. Intermediate form C. Broad form D. Limited form

Broad form

Under a large deductible plan, the amount that the insurer incurs to adjust losses Select one: A. Is inside, or included, in the deductible. B. Is outside the deductible. C. Is prorated between the insured and the insurer based on the size of the loss. D. Can be inside or outside the deductible.

Can be inside or outside the deductible

Leasing is a useful noninsurance risk control transfer because Select one: A. The lessee retains the loss exposures resulting from property destruction. B. The lessee stands to lose the property's rental income in the event of damage to the property. C. The lessor loses the ability to use the property for the remainder of the lease in the event of damage to the property. D. Certain loss exposures accompany property ownership but do not accompany its use or occupancy.

Certain loss exposures accompany property ownership but do not accompany its use or occupancy.

Advancements in machine learning and artificial intelligence (AI) have helped insurers do all of the following, EXCEPT: Select one: A. Deliver policy information and payment options to a mobile device B. Customize policies to more closely align with customers' actual risk C. Completely prevent customers' risk D. Price insurance policies more precisely

Completely prevent customers' risk

Hold-harmless agreements are Select one: A. Standardized. B. Enforceable without legal consideration. C. Highly regulated. D. Comprised of two parties—the indemnitor and the indemnitee.

Comprised of two parties—the indemnitor and the indemnitee

An organization may use a large deductible plan to achieve the purpose of which one of the following? Select one: A. Increase its cost of risk B. Retain high severity losses C. Avoid paying residual market loadings in all jurisdictions D. Defer cash outflows for retained loss reserves.

Defer cash outflows for retained loss reserves.

Commercial general liability insurance policies written on an occurrence basis apply to bodily injury and property damage that occurs during the policy period. This provision supports the principle that insurable loss exposures must ideally be Select one: A. Independent. B. Fortuitous. C. Pure risks. D. Definite.

Definite

One type of noninsurance risk control transfer, a disclaimer of warranties, is used to Select one: A. Reinforce implied warranties of merchantability. B. Recognize and validate the assumption of contractual liability. C. Deny any express warranties made in conjunction with the sale of property. D. Deny an exculpatory clause.

Deny any express warranties made in conjunction with the sale of property

Due to fierce local competition, the CEO of Apex Manufacturing is planning to expand into other geographical markets. Which one of the following risk control techniques, dealing primarily with business risk, is the CEO applying? Select one: A. Segregation B. Duplication C. Separation D. Diversification

Diversification

Ivanhoe Corporation purchases stock in a bank and in a pharmaceutical manufacturer. Because these are unrelated industries, Ivanhoe hope that any losses in one stock will be more than offset by profits in another. Ivanhoe is using which one of the following risk management techniques? Select one: A. Separation B. Duplication C. Risk transfer D. Diversification

Diversification

The risk control technique that spreads loss exposure over numerous projects, products, markets, or regions is which one of the following risk management techniques? Select one: A. Risk transfer B. Diversification C. Duplication D. Separation

Diversification

When organizations invest their assets among a mix of stocks and bonds from companies in different industry sectors they are using the risk management technique of Select one: A. Diversification. B. Separation. C. Risk transfer. D. Duplication.

Diversification

A1 Architectural Design relies on its historical files and blueprints. The partners of the firm are discussing risk control measures that can be implemented to provide protection against property-related losses. Which one of the following would likely offer the best protection for this exposure? Select one: A. Avoidance B. Diversification C. Duplication D. Separation

Duplication

Maxwell Company has just invested a large sum in new, highly-sophisticated computer equipment and building renovations. Maxwell arranged to lease identical equipment at another location so that it could use the equipment in the event of a disaster at its location. Maxwell's lease of identical equipment at another location is an example of Select one: A. Duplication. B. Loss reduction. C. Separation. D. Diversification.

Duplication

The control technique that uses backups, spares, or copies of critical property, information, or capabilities and keeps them in reserve is which one of the following risk management techniques? Select one: A. Diversification B. Duplication C. Risk transfer D. Separation

Duplication

One example of a noninsurance risk financing transfer is a Select one: A. Disclaimer of warranties. B. Guaranty agreement. C. Waiver. D. Hold-harmless agreement.

Hold-harmless agreement.

Construction contracts typically hold the Select one: A. Contractor harmless for any negligence. B. Contractor harmless for any premises liability claims. C. Eventual tenant of the premises harmless for construction defects. D. Landowner harmless for certain construction-related claims.

Landowner harmless for certain construction-related claims.

Oscar's custom-built vehicle looks like a sausage sandwich on wheels. He plans to drive it to special events at schools around the country where it will serve as a mobile billboard to promote his product. Oscar is surprised to learn that insurers are reluctant to insure his vehicle because it fails to meet one of the ideal characteristics of an insurable risk. Which characteristic is Oscar's vehicle least likely to meet? Select one: A. Large number of similar exposure units B. Pure risk C. Definite and measurable D. Independent and not catastrophic

Large number of similar exposure units

When negotiating noninsurance risk transfer terms, risk management professionals should consider the Select one: A. Legal enforceability of contract provisions. B. Effect on the organization's relationship with its insurance broker. C. Reduction in insurer risk charges and premium taxes that might result. D. Effect on the organization's insurance program.

Legal enforceability of contract provisions

Which one of the following statements is true regarding contracting for services as a noninsurance risk control transfer? Select one: A. Liability loss exposures associated with an activity are not transferred easily, especially regarding harm to third parties. B. Organizations rarely use contracting to transfer loss exposures to organizations that are better able to control losses from a particular activity. C. The party that accepts the risk through contracting for services must be an independent contractor for the transfer to be effective. D. Personnel loss exposures associated with an activity cannot be transferred through subcontracting.

Liability loss exposures associated with an activity are not transferred easily, especially regarding harm to third parties.

"The contractor agrees to indemnify and hold harmless the owner against claims, damages, bodily injury, or property damage arising out of the contractor's work and caused by any act of omission of the contractor, his agents, and his employees." This is an example of which one of the following forms of a hold-harmless agreement? Select one: A. Intermediate form B. Broad form C. Basic form D. Limited form

Limited form

A risk control technique that reduces the frequency of a particular loss is Select one: A. Loss prevention. B. Loss reduction. C. Diversification. D. Duplication.

Loss prevention

A local shopping center reduced its net income loss after a fire by incurring additional expenses to shorten the time it takes to repair the damage and reopen the shopping center. Bob, the owner of the center, hired a contractor to work around the clock until repairs were completed. This reduced Bob's net income loss because he was able to repair the shops sooner. Bob's action is an example of which one of the following risk management techniques? Select one: A. Loss prevention B. Loss reduction C. Avoidance D. Diversification

Loss reduction

The risk control technique that reduces the severity of a particular loss is which one of the following? Select one: A. Loss prevention B. Avoidance C. Loss reduction D. Duplication

Loss reduction

A risk control technique that reduces the severity of a particular loss is Select one: A. Loss prevention. B. Diversification. C. Duplication. D. Loss reduction.

Loss reduction.

Large deductible plans Select one: A. Lower an organization's cost of risk. B. Provide that the insured settle all claims and bill the insurer for losses in excess of the deductible. C. Seldom require proof of financial security from the insured organization. D. Enable organizations to transfer the financial consequences of losses below the deductible level.

Lower an organization's cost of risk.

Each of the risk control techniques of duplication, separation, and diversification Select one: A. Cause losses to be less predictable but more manageable. B. Reduce the severity of loss associated with the organization's loss exposures. C. Work in combination to transfer the organization's loss exposures. D. Decrease the frequency of losses incurred by an organization.

Reduce the severity of loss associated with the organization's loss exposures.

Concerning fundamental guidelines of contractual risk transfer management, it is wise to Select one: A. Require a certificate of insurance for contractual liability before contract operations begin. B. Avoid being named as an additional insured on the transferee's policy. C. Be aggressive in negotiations—the more ruthless the better. D. Try to be as general and nonspecific as possible.

Require a certificate of insurance for contractual liability before contract operations begin.

A large deductible is similar to a self-insured retention (SIR) in that both Select one: A. Give the insurer complete control over claim handling. B. Require that the insured adjust and pay claims up to the deductible or SIR amount. C. Require the insured organization to retain a relatively large amount of loss. D. Provide detailed reports to the insurer on all claims.

Require the insured organization to retain a relatively large amount of loss.

An organization that operates warehouses in two locations is using the risk control technique of Select one: A. Loss prevention. B. Separation. C. Duplication. D. Diversification.

Separation

Cold Coolers, Inc., has its main warehouse in St. Louis. It also stores inventory in two warehouses in other cities to reduce the distance between their warehouses and retail locations. Cold Coolers is using which one of the following risk management techniques? Select one: A. Duplication B. Separation C. Diversification D. Risk transfer

Separation

Which one of the following risk control techniques might actually increase loss frequency? Select one: A. Loss prevention B. Separation C. Loss reduction D. Diversification

Separation

Which one of the following is a major benefit that smart insurance contracts can provide to insurance customers? Select one: A. Smart contracts can significantly increase the speed of premium payments. B. Smart contracts can dramatically increase the speed of loss payments. C. Smart contracts can provide broader coverage at a lower cost. D. Smart contracts can render a risk completely preventable.

Smart contracts can dramatically increase the speed of loss payments.

Statutory limitations on hold-harmless agreements vary in the Select one: A. Allowable complexity of the agreement. B. Cost or compensation associated with the agreement. C. Length of time that such transfers can be effective. D. Types of noninsurance transfers to which the statutes apply.

Types of noninsurance transfers to which the statutes apply.