FIL 250 Exam 2 Practice

Which of the following is NOT true? A. Talking with oneself is considered reflective communication. B. A disadvantage of transaction communication is that there is no exchange of ideas, values or beliefs. C. Transformational communication asks the bigger questions, and it increases the potential for broad support of initiatives. D. "Talking around the water cooler" or small talk at an airport are considered transformational communication.

"Talking around the water cooler" or small talk at an airport are considered transformational communication.

Which of the following would NOT be considered an ideally insurable risk?

health insurance for the elderly

By definition, risk management is a _________ process.

managerial

T/F: Higher standard deviations relative to the mean are associated with lower risk.

False

Which of the following is NOT true? A. Checklists are utilized only in the risk identification process as they don't provide enough detail for control techniques. B. All of the options provided are not true. C. Financial information can reveal the source of the organization's revenue and identify activities that draw the organizations cash flow. D. Flow chart analysis can uncover simple changes to procedures which can reduce or eliminate claims.

A. Checklists are utilized only in the risk identification process as they don't provide enough detail for control techniques.

Which of the following is NOT true regarding a forward contract? A. It gives an individual to buy or sell an asset, but not the obligation to do so. B. It species the price the buyer will pay at the time of delivery. C. It includes a description of the quantity and exact type fo the asset or commodity that will be delivered. D. It specifies the logistics, such as time, date, and place.

A. It gives an individual to buy or sell an asset, but not the obligation to do so.

All of the following are advantages of a member owned group captive insurance EXCEPT: A. Premiums are determined by underwriters and all they look at is the members claim record. B. Decisions regarding claims handling remain in the hands of the member companies. C. No longer are the member companies subject to the ups and downs of the insurance market. D. There is complete transparency of the process. You now where every dollar is spent.

A. Premiums are determined by underwriters and all they look at is the members claim record.

Workplace safety is important for all of the following reasons EXCEPT: A. Workplace safety is a key strategic risk and therefore it must be mitigated to reduce possible losses. B. Safety improves the quality of work and worker productivity. C. Employer's may be held liable for employees' work related diseases and injuries. D. It allows workers to focus on the quality of their work.

A. Workplace safety is a key strategic risk and therefore it must be mitigated to reduce possible losses.

Which of the following roles within in an insurance company is most involved with the determination of loss reserves?

Actuary

Both agents and brokers are intermediaries in insurance transactions. Which of the following statements is true?

Agents represent the insurer while brokers represent the insured.

Which of the following is NOT true? A. Net income risks from cyber include loss of service and revenue from being shutdown. B. Managing credit risk includes checking the credit worthiness of customers or vendors. C. A way to control financial risks is to limit the type and quantity of stocks in the investment portfolio. D. Hazards increase the likelihood or severity of an injury.

C. A way to control financial risks is to limit the type and quantity of stocks in the investment portfolio.

All of the following are post-loss goals of a crisis management program EXCEPT: A. Sustaining profits and stable earnings B. Restoring and/or maintaining operations C. Economy of operations D. Maintaining a positive public image.

C. Economy of operations

A closely held insurance company whose insurance business is supplied by and controlled by its owners is called a

Captive insurer

A ________ commission is paid by the reinsurer to the primary insurer for the placement of the reinsurance.

Ceding

All of the following are sources of crisis EXCEPT: A. Environmental and natural hazards B. Industrial or technological disasters C. Biological event or pandemic D. All of the above

D. All of the above

Which of the following is a definition of business ethics? A. Knowing what is right or wrong in the workplace; doing what is right B. The fundamental ground rules of our work lives C. The process of instilling into an organization's workforce a sense of how responsibly conduct business D. All of the above

D. All of the above

Jazmine just took a job at the local fast food restaurant. As part of her job, she must use the meat carving machine to make sandwiches. Jazmine's boss requires that she wear a metal, mesh glove. The glove is an example of: A. Personal protective equipment. B. A loss reduction measure. C. An operational risk mitigation technique. D. All of the options provided.

D. All of the options provided.

Advantages to using guaranteed cost coverage include: A. convenience since the business does not have to do anything other than pay premiums B. budget certainty because they know how much the premium will be and that is the extent of what they have to pay for that risk C. insurance premiums may be income-tax deductible as a business expense D. All those listed are advantages of guaranteed cost coverage

D. All those listed are advantages of guaranteed cost coverage

All of the following are disadvantages of captive insurance companies EXCEPT: A. Establishing a captive generally requires a substantial initial outlay of capital. B. The captive owner must be prepared that losses may be greater than expected. C. Participation in a captive may require more time of administrative, senior management and risk management personnel than does traditional insurance. D. Captives generally result in higher premiums for the line(s) of coverage placed in the captive.

D. Captives generally result in higher premiums for the line(s) of coverage placed in the captive.

Which of the following is NOT true regarding the crisis management program? A. It must anticipate future disasters and formulate preventive and preparatory measures to build disaster-resistant and disaster-resilient plans and operations. B. It must create and sustain broad and sincere relationships among individuals and organizations to encourage trust, advocate a team atmosphere, build consensus, and facilitate communication. C. It must use sound risk management principles to assign priorities and resources. D. It must value a philosophical approach to account for the emotions associated with a crisis.

D. It must value a philosophical approach to account for the emotions associated with a crisis.

Which of the following is NOT true regarding member owned group captive insurance? A. The businesses that form the captive generally have a strong business culture and care about their employee's safety and welfare. B. Because members of the captive all share in a small amount of collective risk, their insurance premiums go down C. They are generally formed by business owners who have consistently controlled their claims. D. Premiums not used for administrative expenses or to pay claims is retained so the captive can grow or expand.

D. Premiums not used for administrative expenses or to pay claims is retained so the captive can grow or expand.

Effective risk managers must take four key steps. These include all of the following EXCEPT: A. The risk manager needs to demonstrate the positive financial impact an effective risk management program can have on the organization. B. The risk manager must work with the formal and informal networks inside the organization to ensure that the risk manager is "plugged in" as a team player. C. The risk manager must communicate risk management results to appropriate levels of management, employees, and stakeholders. D. The risk manager needs to an understand that a successful risk manager can rest on the merits of past successes.

D. The risk manager needs to an understand that a successful risk manager can rest on the merits of past successes.

All of the following are true regarding derivatives EXCEPT: A. They can be used to mitigate risk or assume risk. B. It is a financial security with a value that is reliant upon an underlying asset. C. Can involve two or more parties. D. Underlying assets are limited to either stocks or bonds.

D. Underlying assets are limited to either stocks or bonds.

Devin's candy shop has only produced taffy for years; however, they are learning that the younger children in their town don't enjoy taffy as much as their older clients. Devin's decides to start offering fudge in addition to the taffy. This is an example of

Diversification

T/F: Body language consists of the mostly non-static posture of the sender and receiver's bodies.

False

T/F: Interest rate swaps are swaps in which a high fixed interest rate obligation is exchanged for a reduced fixed rate obligation.

False

T/F: Risk control is defined as any unconscious action or inaction to minimize, at no cost, the probability, frequency, severity or unpredictability of loss.

False

T/F: Step one of the communication process is that the sender creates a message by encoding the idea or information into symbols.

False

The concept of captive insurance companies is relatively new, having started in the late 1990s.

False

Which of the following types of insurance is considered a personal line of business?

Homeowners insurance

A hijacking of airplane is considered a ____________________ hazard.

Human

I Segregation involves providing a range or products and services used by a variety of customers; II Separation involves having a backup for critical systems or operations.

I is false: II is false

I. A foreign insurance company is one that is domiciled in a foreign nation. II. An insurance company is considered an alien insurer in all states other than the one it is domiciled in.

I is false: II is false

I. Self-insurance is a form of risk transfer. II. Deductibles are a form of risk retention.

I is false; II is true

I. Transferring risk from an insurer to a reinsurer allows the insurer to expand its volume by permitting additional insurance to be written. II. Insurers can limit their exposure to catastrophic losses through the purchase of specific types of reinsurance.

I. Is true; II. Is true

With a quota share reinsurance agreement, the primary insurer and the reinsurer share in: I. Premiums collected, at predetermined percentages II. Losses paid, at predetermined percentages

I. Is true; II. Is true

Aggregate Excess of Loss reinsurance is also known as: I. Excess per risks reinsurance II. Loss ratio reinsurance

I. is false; II. is true

As part of an interview process, a risk manager should determine if the outside provider has been involved in any recent litigation. If litigation is pending, it may: I. distract the provider the provider from the current program. II. show a lack of focus on the details necessary for the project.

I. is false; II. is true

I. An important step ethical behavior in risk management is to keep it separate from other management practices. II. The best way to handle ethical dilemmas is to prevent them in the first place.

I. is false; II. is true

A __________ is when and after the event has actually occurred.

Impact

According to the principle of __________________, the policyholder must be in a position to ___________ financially if a covered loss occurs.

Insurable interest; lose

Strategic risks include business risks which are _________ or under the purview of the organization.

Internal

Insurance for reinsurers is called a _______________.

Retrocession

The _____________________defines the organization's policy for managing risks and its relevance to the overall strategic plan, goals and objectives, including its risk management philosophy and ethical considerations.

Risk management policy statement

Which of the following about insurance regulation is true?

State guaranty funds in the U.S. are used to provide protection to consumers that have coverage with an insolvent insurer.

A __________ is a likely probability of an occurrence, however, the event has not occurred yet.

Threat

__________ is one of the most common ways to manage risks associated with people and their behavior.

Training

Reinsurance is a common way that insurers protect against catastrophic losses.

True

Subrogation prevents the insured from collecting twice for the same loss.

True

T/F: Captive insurance is a form of risk transfer.

True

T/F: Currency swaps are swaps in which the parties agree to exchange payments denominated in different currencies at specified fixed or floating exchange rates.

True

T/F: Effective risk management requires the efforts of everyone.

True

T/F: Engineering controls are devices or equipment that will lessen the chance of an accident.

True

T/F: Ethics is a branch of moral philosophy that defines right conduct and a good life.

True

T/F: Risk managers combine written, verbal and non-verbal communication to work with team members and to communicate before, during and after any situation or crisis.

True

T/F: The reinsurer that is assuming the risk from the primary reinsurer known as the retrocessionaire.

True

One of the most important aspects of being an effective risk manager is:

Understanding how to develop and maintain relationships within the corporate structure.

Which of the following roles within an insurance company classifies the insurance applicant to determine whether the company is willing to insure?

Underwriter

According to the risk heat map, which of the following is true?

When frequency is high and severity is high, the risk technique is avoidance.

Which of the following is NOT a pre-loss goal of the risk management program.

Working towards growth