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