RMI Chapter 4 Quiz Questions CPCU 500

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

definite

One type of non insurance risk control transfer, a disclaimer of warranties, is used to

deny any express warranties made in conjunction with the sales of property

Due to the 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?

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?

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?

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

diversification

A1 Architectural Design relies on its historical files and blueprints. The partners of the 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?

duplication

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?

separation

The risk control technique that disperses a particular asset or activity over several locations and regularly relies on that asset or activity as part of an organization's working resources is

separation

Which one of the following risk control techniques might actually increase loss frequency?

separation

Diversification

spreads loss exposures over numerous projects, products, markets, or regions

Which one of the following is true about the liability involved in contracting services?

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.

In transferring risk to a transferee's insurer, which one of the following is an advantage for the transferor of using a named insurer endorsement?

the transferor's agents, employees, officers, and directors are considered insureds.

Statutory limitations on hold harmless agreements very in the

types of noninsurance transfers to which the statutes apply

Which one of the following is a major benefit that smart insurance contracts can provide to insurance customers?

Smart contracts can dramatically increase the speed of loss payments

Which one of the following statements is correct regarding characteristics of an ideally insurable loss exposure?

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

In both non insurance risk control and non insurance risk financing transfers

a contract is usually formed before any loss occurs

An exculpatory clause is

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 indelying policy is called

a following-form excess policy

Ideally insurable loss exposures are subject to losses that

are definite in time, cause, and location

Telematics devices allow organizations to accurately identify patterns of risk and predict risk and predict risk for which one of the following types of loss exposures?

automobile

Blithe Drug Manufacturing has developed a drug that cures obesity. However, the side effects are significant and potentially fatal. Blithe decides not to manufacturing and sell the drug. This is an example of

avoidance

The risk manager if 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?

avoidance

An advantage of a large deductible plan is that it allows the insured organization to

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?

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 it 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 non insurance risk financing transfer?

broad form

Under a large deductible plan, the amount the at the insurer incurs to adjust losses

can be inside or outside the deductible

Leasing is a useful non insurance risk control transfer because

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:

completely prevent customer's risk

Hold-harmless agreements are

comprised of two parties-the indemnity and the indemnitee

An organization may use a large deductible plan to fo which one of the following?

defer cash outflows for accidental losses

An organization may use a large deductible plan to do which one of the following?

defer cash outflows for retained loss reserves

Maxwell Company has just invested a large sum in new, highly-sophisticated computer equipment 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

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?

duplication

One example of a non insurance risk financing transfer is a

hold-harmless agreement

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

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?

intermediate form

Construction contracts typically hold the

landowner harmless for certain construction-related claims

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?

separation

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? Choose one answer. A. Definite and measurable B. Independent and not catastrophic C. Large number of similar exposure units D. Pure risk

large numbers of similar exposure units

When negotiating noninsurance risk transfer terms, risk management professionals should consider the

legal enforceability of contract provisions

Which one of the following statements is true regarding contracting for services as a non insurance risk control transfer?

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 claim, 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?

limited

A risk control technique that reduces the frequency of a particular loss is

loss prevention

Which one of the following is a risk control technique that reduces the frequency of a particular loss?

loss prevention

Which one of the following risk control techniques is generally used to reduce the frequency of a particular loss?

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. 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?

loss reduction

A risk control technique that reduces the severity of a particular loss is

loss reduction

Emerald Industries has just invested a large sum in a 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

loss reduction

The risk control technique that reduces the severity of a particular loss is which one of the following?

loss reduction

Large deductible plans

lower an organization's cost of risk

each of the risk control techniques of duplication, separation, and diversification

reduce the severity of loss associated with the organization's loss exposures

Concerning fundamental guidelines of contractual risk transfer management, it is wise to

require a certificate of insurance for the contractual liability before contract operations begin

A large deductible is similar to a self-insured retention in that both

require the insured organization to retain a relatively large amount of loss

A non insurance 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

risk control transfer

Internet of Things (IoT) devices, sensors, wearables, and telematics devices have had the greatest impact impact on which one of the following risk treatment techniques?

risk modification

An organization that operates warehouses in two locations is using the risk control technique of

separation