CPCU 500 Practice Exam 4

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. Avoidance. B. Loss prevention. C. Diversification. D. Loss reduction.

A. Avoidance.

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

A. 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. Defer cash outflows for retained loss reserves. B. Avoid paying residual market loadings in all jurisdictions C. Increase its cost of risk D. Retain high severity losses

A. Defer cash outflows for retained loss reserves.

"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. Limited form B. Basic form C. Broad form D. Intermediate form

A. Limited form

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

A. Loss prevention

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

B. Completely prevent customers' risk

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. Fortuitous. B. Definite. C. Independent. D. Pure risks.

B. Definite.

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. Fortuitous. B. Independent and not catastrophic. C. Definite and measurable. D. A large number of similar exposure units.

B. Independent and not catastrophic.

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. Pure risk B. Large number of similar exposure units C. Definite and measurable D. Independent and not catastrophic

B. Large number of similar exposure units

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

C. Blockchain

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

C. Loss prevention

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. Duplication. B. Loss prevention. C. Loss reduction. D. Avoidance.

C. Loss reduction.

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

C. Lower an organization's cost of risk.

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 avoidance C. Risk modification D. Risk retention

C. Risk modification

Diversification is a risk control technique that Select one: A. Divides an asset or operation into two or more separate units. B. Views the cause of accidents to be a result of business concentration and vertical integration. C. Spreads loss exposures over numerous projects, products, markets, or regions. D. Produces a copy or backup and keeps it in reserve.

C. Spreads loss exposures over numerous projects, products, markets, or regions.

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. Property C. Workers compensation D. Automobile

D. Automobile

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

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

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

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

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. Risk transfer B. Duplication C. Diversification D. Separation

D. 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 Select one: A. Avoidance. B. Duplication. C. Diversification. D. Separation.

D. Separation.