Chapter 2: Final

Which of the following best describes the statement "The more times an event is repeated, the more predictable the outcome becomes"?

Law of large numbers

Which of the following is NOT an element of an insurable risk?

Loss must be catastrophic

Which of the following is considered to be any situation that has the potential for loss?

Loss exposure

Which of the following is considered to be an event or condition that increases the probability of an insured's loss?

Hazard

Which of the following refers to a condition that may increase the chance of a loss?

Hazard

Which of the following describes the increase in the probability of a loss due to an insured's dishonest tendencies?

Moral hazard

What is known as the immediate specific event causing loss and giving rise to risk?

Peril

All of the following circumstances must be met for loss retention to be an effective risk management technique, EXCEPT

Probability of loss is unknown

Which of these statements correctly describes risk?

Pure risk is the only insurable risk

Which of these techniques will remove the risk of losing money in the stock market by never purchasing stocks?

Risk avoidance

Which of the following would NOT be accomplished with the purchase of an insurance policy?

Risk is eliminated

Moral hazard is described as the

increased chance of a loss because of an insured's dishonest tendencies

The cause of a loss is referred to as a(n)

peril

A situation in which there is ONLY a chance of loss or no loss is a

pure risk

An insurer having a large number of similar exposure units is considered important because

the greater the number insured, the more accurately the insurer can predict losses and set appropriate premiums

Insurance represents the process of risk

transference

Insurance companies determine risk exposure by which of the following?

Law of large numbers and risk pooling

How do insurers predict the increase of individual risks?

Law of large number

Which of the following is a situation where there is a possibility of either a loss or a gain?

Speculative risk

Which of the following is NOT considered a definition of risk?

The cause of a loss

A hazard can be best described as

a condition that may increase the likelihood of a loss occuring

People with higher loss exposure have the tendency to purchase insurance more often than those at average risk. This is called

adverse selection