INS test 2 ch. 3&4
Which one of the following statements is correct regarding characteristics of ideally insurable loss exposures? Select one: A. A common function that insurance provides is a spreading of risk across a large number of similar exposure units within the same period. B. Intertemporal risk transfer, the spreading of risk through time, requires a large number of similar exposure units. C. One requirement of the law of large numbers is that past events occur under different circumstances in the future. D. Loss exposures such as homes and automobiles generally will not meet the ideally insurable requirement that the exposure be of a large number of similar exposure units.
A. A common function that insurance provides is a spreading of risk across a large number of similar exposure units within the same period.
An exculpatory clause is Select one: A. A contractual provision that relieves one party from liability resulting from a negligent or wrongful act. B. The intentional relinquishment of a known right. C. The surety's right to seek reimbursement from the principal for the surety's payments. D. The substitution of one party for another.
A. A contractual provision that relieves one party from liability resulting from a negligent or wrongful act.
Which one of the following is a major benefit that blockchain technology provides to holistic risk management? Select one: A. Because of their security, blockchains can eliminate the need to verify the accuracy of risk management data. B. Blockchain technology can monitor driving habits by measuring acceleration, speed, braking, and distance traveled. C. Blockchains can monitor things such as heat, moisture, noise, and air quality. D. Blockchain technology allows organizations to share data through wireless internet and networking services.
A. Because of their security, blockchains can eliminate the need to verify the accuracy of risk management data.
The second step in the root cause analysis (RCA) process is charting the agents that directly result in one event triggering another event. In RCA, these agents are called Select one: A. Causal factors. B. Stimulus factors. C. Precedence factors. D. Hygiene factors.
A. Casual Factors
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. Definite. B. Fortuitous. C. Independent. D. Pure risks.
A. Definite
The use of risk quadrants to identify and categorize risk provides a framework for Select one: A. Holistic risk identification. B. Environmental risk identification. C. Emerging risk identification. D. Positive risk identification.
A. Holistic risk identification
A worker for Build-Rite Construction Company removed the pressure gauge and warning sticker from an air compressor. The pressure gauge automatically shuts off the compressor when the pressure gets too high. The sticker warned that an explosion could result if the pressure was too high. Without the pressure gauge in place, the air compressor exploded. The explosion killed one worker and severely injured another. If Build-Rite performs a root cause analysis (RCA) of this fatal accident, which one of the following might be determined to be a root cause? Select one: A. Inadequate training B. Removal of the pressure gauge C. Removal of the warning sticker D. Explosion of the air compressor
A. Inadequate training
Root cause analysis (RCA) encompasses a variety of tools, philosophies, and processes. There are several broadly defined RCA approaches, according to their basic approach or field of origin. Which one of the following approaches to RCA evolved from quality control procedures for industrial manufacturing? Select one: A. Production-based RCA B. Systems-based RCA C. Failure-based RCA D. Safety-based RCA
A. Production-based RCA
Risk manager Christine is analyzing the risks faced by her company, Clear Sky Technology. She assigns a rating based on the significance of the consequences of the various risks. Her four ratings are: Low, Medium-Low, Medium-High, and High. The ratings that Christine assigns are a Select one: A. Qualitative assessment. B. Quantitative assessment. C. Scenario analysis. D. Sensitivity analysis.
A. Qualitative Assessment
To accurately determine its level of risk, an organization must examine the effectiveness of its efforts to prevent losses from occurring and to reduce the severity of losses that do occur. An organization's efforts in this area are called Select one: A. Risk control. B. Risk transfer. C. Risk identification. D. Risk retention.
A. Risk Control
A systematic procedure that uses the results of other analysis techniques to identify the predominant determinants of an accident is called Select one: A. Root cause analysis. B. Fault tree analysis. C. "5 Whys" analysis. D. Failure mode and effects analysis.
A. Root Cause Analysis
Which one of the following is a major benefit that smart insurance contracts can provide to insurance customers? Select one: A. Smart contracts can dramatically increase the speed of loss payments. B. Smart contracts can render a risk completely preventable. C. Smart contracts can provide broader coverage at a lower cost. D. Smart contracts can significantly increase the speed of premium payments.
A. Smart contracts can dramatically increase the speed of loss payments
After a month in which three employees were seriously injured at company paper mills, Ashley, the risk manager of Bright White Paper Company, wanted some answers about the causes of employee injuries. Ashley independently contacted the plant manager and foreman at each of the company's plants. She asked each person to complete a confidential questionnaire regarding safety procedures. After receiving the responses to the questionnaire, Ashley summarized the results and asked the same questions again instructing each person to consider revising their responses based on the initial questionnaire results. The analysis revealed that new workers were not being properly trained and that a lax attitude toward safety was present at the majority of the plants. The team approach to risk identification Ashley employed is called Select one: A. The Delphi technique. B. HAZOP analysis. C. Scenario analysis. D. SWOT analysis.
A. The Delphi technique
In transferring risk to a transferee's insurer, which one of the following is an advantage for the transferor of using a named insured endorsement? Select one: A. The transferor's agents, employees, officers, and directors are considered insureds. B. The transferee or its insurer does not have to pay for the cost to defend the transferor for liability losses. C. The transferor may agree to provide periodic reports to the insurer. D. The transferee's insurer may have a right to inspect the transferor's business and financial records.
A. The transferor's agents, employees, officers, and directors are considered insureds.
A risk manager for an organization has proposed a meeting to ask a series of "What if?" questions to project the consequences for implementing alternative processes under consideration. Which one of the following system safety analysis techniques is the risk manager proposing? Select one: A. Technique of operations review approach B. Change analysis C. Sequence of events theory D. Job safety analysis
B. Change Analysis
An analysis that projects the effects a given system change is likely to have on an existing system is known as Select one: A. Energy transfer theory. B. Change analysis. C. Job safety analysis. D. Domino theory.
B. Change analysis
Modifying the contact surface or basic structure that can be affected by installing breakaway highway light poles or requiring front and side airbags in automobiles to cushion occupants' impact is a basic strategy of the Select one: A. Techniques of operations review approach. B. Energy transfer theory. C. Sequence of events theory. D. Change analysis.
B. Energy transfer theory
Home Appliance Company has decided to change its production method. Previously, small teams of workers assembled washers, dryers, and dishwashers. Under the new production method, an assembly-line will be used, with some functions performed by robotics. Before making the change, Home Appliance Company has created a team of experts from company personnel to identify all of the risks inherent in the new production method and to recommend measures to address these risks. The team will assemble in a facilitated workshop and follow these steps: Divide the production method into components Review each component to identify risk Identify causes and potential outcomes for each risk Develop a solution for each risk. This team approach is risk identification is called a Select one: A. Delphi technique. B. Hazard and operability (HAZOP) study. C. Facilitated workshop. D. SWOT (strengths, weaknesses, opportunities, threats) analysis.
B. Hazard and operability (HAZOP) study.
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. A large number of similar exposure units. B. Independent and not catastrophic C. Definite and measurable. D. Fortuitous.
B. Independent and not catastrophic
Construction contracts typically hold the Select one: A. Contractor harmless for any negligence. B. Landowner harmless for certain construction-related claims. C. Eventual tenant of the premises harmless for construction defects. D. Contractor harmless for any premises liability claims.
B. Landowner harmless for certain construction-related claims
When negotiating noninsurance risk transfer terms, risk management professionals should consider the Select one: A. Reduction in insurer risk charges and premium taxes that might result. B. Legal enforceability of contract provisions. C. Effect on the organization's relationship with its insurance broker. D. Effect on the organization's insurance program.
B. Legal enforceability of contract provisions.
A risk control technique that reduces the severity of a particular loss is Select one: A. Loss prevention. B. Loss reduction. C. Duplication. D. Diversification.
B. Loss reduction
Large deductible plans Select one: A. Seldom require proof of financial security from the insured organization. B. Lower an organization's cost of risk. C. Enable organizations to transfer the financial consequences of losses below the deductible level. D. Provide that the insured settle all claims and bill the insurer for losses in excess of the deductible.
B. Lower an organization's cost of risk
Harris Company is analyzing its workers compensation loss exposure. Harris Company retains most of the exposure and purchases excess insurance to cap its liability on any individual claim. Because Harris Company has a large work force, it can predict its workers compensation cost with some level of accuracy. For next year, the risk manager estimates that there is a 70% chance that workers compensation costs will be $6 million or less, a 25% chance workers compensation costs will be between $6 million and $8 million, and a 5% chance workers compensation costs will exceed $8 million. The type of analysis the risk manager performed is called Select one: A. Qualitative analysis B. Quantitative analysis. C. SWOT analysis. D. HAZOP analysis.
B. Quantitative analysis
A large deductible is similar to a self-insured retention (SIR) in that both Select one: A. Give the insurer complete control over claim handling. B. Require the insured organization to retain a relatively large amount of loss. C. Provide detailed reports to the insurer on all claims. D. Require that the insured adjust and pay claims up to the deductible or SIR amount.
B. Require the insured organization to retain a relatively large amount of loss.
nternet 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 avoidance B. Risk modification C. Risk retention D. Risk transfer
B. Risk modification
SE Industries has identified windstorm as a risk. The risk manager has assembled a team to project the potential consequences of windstorm. The team includes individuals from various functions within the organization. Which one of the following team approaches to risk identification is SE Industries using? Select one: A. HAZOP B. Scenario analysis C. SWOT analysis D. Delphi technique
B. Scenario Analysis
After one employee was involved in several workplace accidents, the risk manager and the industrial safety engineer concluded that these resulted from ancestry and social environment of the person. Which one of the following accident causation theories or approaches considers this an accident factor? Select one: A. Job safety analysis B. Sequence of events theory C. Technique of operations review D. Energy transfer theory
B. Sequence of events theory
Which one of the following theories of accident causation presumes that accidents are the result of a chain of accidental factors? Select one: A. Energy transfer theory B. Sequence of events theory C. Job safety analysis D. Technique of operations review approach
B. Sequence of events theory
Joe works in an auto garage. His work area is cluttered and disorganized. His supervisor is rarely in the area, and Joe lacks direction and proper training. Joe is injured when he receives a severe shock from improper grounding while using a piece of electrical equipment. This example best illustrates the accident causation theory of the Select one: A. Energy transfer theory. B. Technique of operations review (TOR) approach. C. Domino theory. D. Job safety analysis.
B. Technique of operations review (TOR) approach
From a system safety perspective, change analysis is an analysis Select one: A. That dissects a repetitive task to determine potential hazards if each action is not performed. B. That projects the effects a given system change is likely to have on an existing system. C. That identifies the critical components of a system and ranks the severity of losing each component. D. That uses the results of the other analysis techniques to identify the cause of the accident.
B. That projects the effects a given system change is likely to have on an existing system
Murray Trucking is interested in evaluating which risk factors are most likely to lead to the most costly accidents. They are evaluating risk factors such as speed, weather conditions, driver experience, distance traveled, and gross vehicle weight. Which one of the following statistical measurements would be useful for the risk manager when calculating the probability of the different risk factors causing severe accidents? Select one: A. Monte Carlo simulation B. Variance C. Inverse covariance D. Telematics
B. Variance
Which one of the following technologies can provide the infrastructure upon which smart contracts are built and implemented? Select one: A. Telematics B. Machine learning C. Blockchain D. Wearables
C. Block Chain
An excess liability insurance policy that covers a claim in excess of the underlying limits only if the loss is covered by the underlying policy is called Select one: A. An umbrella policy. B. A layered policy. C. A following-form excess policy. D. A true excess policy.
C. A following-form excess policy.
Northern Consolidated is evaluating the financial risk associated with its investment portfolio. The risk manager knows that as interest rates increase, bond values decrease. This relationship is known as Select one: A. Uncertainty. B. A positive correlation. C. A negative covariance. D. Optimization.
C. A negative covariance
Which one of the following statements about root cause analysis (RCA) is true? Select one: A. Root cause analysis is aimed at reducing the harmful effects of a loss once the loss has occurred. B. The first step in root cause analysis is analyzing causal factors. C. A root cause must produce effective recommendations for prevention of future accidents. D. Weather conditions and earthquakes can be considered root causes for some losses.
C. A root cause must produce effective recommendations for prevention of future accidents.
Ideally insurable loss exposures are subject to losses that Select one: A. Are immeasurable in terms of frequency or severity. B. Occur gradually over long periods of time. C. Are definite in time, cause, and location. D. Result from unidentifiable causes.
C. Are definite in time, cause, and location.
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. Property B. Workers compensation C. Automobile D. Business income
C. Automobile
An advantage of a large deductible plan is that it allows the insured organization to Select one: A. Decrease its uncertainty about the cost of its retained losses. B. Benefit from handling its own claims without insurer control. C. Benefit from the cash flow available on the retained loss reserves. D. Increase its cost of risk compared with other insurance plans.
C. Benefit from the cash flow available on the retained loss reserves.
Leasing is a useful noninsurance risk control transfer because Select one: A. The lessee retains the loss exposures resulting from property destruction. B. The lessor loses the ability to use the property for the remainder of the lease in the event of damage to the property. C. Certain loss exposures accompany property ownership but do not accompany its use or occupancy. D. The lessee stands to lose the property's rental income in the event of damage to the property.
C. Certain loss exposures accompany property ownership but do not accompany its use of occupancy.
Hold-harmless agreements are Select one: A. Highly regulated. B. Enforceable without legal consideration. C. Comprised of two parties—the indemnitor and the indemnitee. D. Standardized.
C. Composed of two parties-the indemnitor and the indemnitee
An organization may use a large deductible plan to do which one of the following? Select one: A. Retain high severity losses B. Increase its cost of risk C. Defer cash outflows for accidental losses D. Avoid paying residual market loadings
C. Defer cash outflows for accidental losses
The risk control technique that spreads loss exposure over numerous projects, products, markets, or regions is which one of the following risk management techniques? Select one: A. Risk transfer B. Separation C. Diversification D. Duplication
C. Diversification
vanhoe 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? Select one: A. Duplication B. Risk transfer C. Diversification D. Separation
C. Diversification
Alice is an assembly-line worker in an auto parts manufacturing plant. One day she notices some irregularities in the operation of the punch press. Concerned about meeting production goals, she continues to operate the punch press without reporting the malfunction. Later that day, the punch press shatters, injuring Alice and several of her co-workers. This example best illustrates the accident causation theory of the A. Energy transfer theory. B. Technique of operations review approach. C. Domino theory. D. Change analysis.
C. Domino Theory
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? Select one: A. Broad form B. Limited form C. Intermediate form D. Basic form
C. Intermediate form
Which one of the following system safety techniques is best suited to analyze repetitive human tasks performed in a sufficiently stable environment where most hazards are foreseen? Select one: A. Technique of operations review approach B. Sequence of events theory C. Job safety analysis D. Fault tree analysis
C. Job safety analysis
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. Definite and measurable B. Pure risk C. Large number of similar exposure units D. Independent and not catastrophic
C. Large number of similar exposure units
Which one of the following is a risk control technique that reduces the frequency of a particular loss? Select one: A. Duplication B. Separation C. Loss prevention D. Loss reduction
C. Loss prevention
Brendan is a new risk manager at a Shelton Manufacturing in North Carolina. Because the company has never experienced any consequences from a hurricane, the previous risk manager never really analyzed the risks associated with such an event. Brendan feels that a hurricane could trigger multiple far-reaching consequences and that the risk requires a thorough analysis. Due to Shelton Manufacturing's lack of historical data Brendan has decided to use a structured process that incorporates expert opinions into the probability estimations. Which one of the following types of risk assessment is Brendan using? Select one: A. Qualitative analysis B. Risk management technique C. Predictive technique D. Risk control technique
C. Predictive technique
Which one of the following types of risk analysis uses historical data to assign specific values to consequences and their probabilities to reach a numeric indication of the level of risk? Select one: A. Predictive analysis B. Qualitative analysis C. Quantitative analysis D. Expert analysis
C. Quantitative Analysis
SoCal Movie Company produces movies at a studio in Southern California. The risk manager decided to identify the range of potential consequences associated with various risks that the company faces. For example, if a severe earthquake occurred while the company was filming a movie, there could be deaths and injuries, destruction of movie sets, delays in production, costs associated with filming at an alternative location, and loss of reputation and good will. The type of analysis performed by the risk manager is called Select one: A. HAZOP analysis. B. Sensitivity analysis. C. Scenario analysis. D. SWOT analysis.
C. Scenario Analysis
An organization that operates warehouses in two locations is using the risk control technique of Select one: A. Loss prevention. B. Duplication. C. Separation. D. Diversification.
C. Separation
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. Diversification. B. Loss reduction. C. Loss prevention. D. Avoidance.
D. Avoidance
The risk manager of 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? Select one: A. Loss reduction B. Loss prevention C. Separation D. Avoidance
D. Avoidance
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 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 noninsurance risk financing transfer? Select one: A. Limited form B. Intermediate form C. Nullification form D. Broad form
D. Broad form
Under a large deductible plan, the amount that the insurer incurs to adjust losses Select one: A. Is prorated between the insured and the insurer based on the size of the loss. B. Is inside, or included, in the deductible. C. Is outside the deductible. D. Can be inside or outside the deductible.
D. Can be inside or outside the deductible
Advancements in machine learning and artificial intelligence (AI) have helped insurers do all of the following, EXCEPT: Select one: A. Deliver policy information and payment options to a mobile device B. Customize policies to more closely align with customers' actual risk C. Price insurance policies more precisely D. Completely prevent customers' risk
D. Completely prevent customers' risk
Due to 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? Select one: A. Duplication B. Separation C. Segregation D. Diversification
D. Diversification
A1 Architectural Design relies on its historical files and blueprints. The partners of 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? Select one: A. Separation B. Diversification C. Avoidance D. Duplication
D. Duplication
An organization practicing holistic risk management would assess the cost of raw materials and foreign exchange risk under which one of the following quadrants of risk? Select one: A. Operational risk B. Hazard risk C. Strategic risk D. Financial risk
D. Financial Risk
One example of a noninsurance risk financing transfer is a Select one: A. Waiver. B. Disclaimer of warranties. C. Guaranty agreement. D. Hold-harmless agreement.
D. Hold-harmless agreement
An organization has had a high percentage of repetitive stress injuries to workers in a particular phase of their production process. The risk manager has been asked to analyze these injuries from a system safety analysis perspective. Which one of the following techniques should the risk manager use to investigate these accidents? Select one: A. Failure mode and effects analysis B. Strategy analysis C. Future states analysis D. Job safety analysis
D. Job Safety Analysis
Which one of the following statements is true regarding contracting for services as a noninsurance risk control transfer? Select one: A. Personnel loss exposures associated with an activity cannot be transferred through subcontracting. B. Organizations rarely use contracting to transfer loss exposures to organizations that are better able to control losses from a particular activity. C. The party that accepts the risk through contracting for services must be an independent contractor for the transfer to be effective. D. Liability loss exposures associated with an activity are not transferred easily, especially regarding harm to third parties.
D. 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 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. Broad form B. Basic form C. Intermediate form D. Limited form
D. Limited form
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, 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? Select one: A. Loss prevention B. Diversification C. Avoidance D. Loss reduction
D. Loss reduction
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. Loss prevention. B. Avoidance. C. Duplication. D. Loss reduction.
D. Loss reduction
The use of risk quadrants to identify and categorize risk can provide a framework for risk identification. One quadrant includes such risks as loss of production due to a key supplier not delivering raw materials or a mechanical breakdown of equipment. This risk quadrant is Select one: A. Financial risk. B. Hazard risk. C. Strategic risk. D. Operational risk.
D. Operational risk
Each of the risk control techniques of duplication, separation, and diversification Select one: A. Work in combination to transfer the organization's loss exposures. B. Cause losses to be less predictable but more manageable. C. Decrease the frequency of losses incurred by an organization. D. Reduce the severity of loss associated with the organization's loss exposures.
D. Reduce the severity of loss associated with the organization's loss exposures
Concerning fundamental guidelines of contractual risk transfer management, it is wise to Select one: A. Avoid being named as an additional insured on the transferee's policy. B. Be aggressive in negotiations—the more ruthless the better. C. Try to be as general and nonspecific as possible. D. Require a certificate of insurance for contractual liability before contract operations begin.
D. Require a certificate of insurance for contractual liability before contract operations begin.
East Side Fitness has decided to merge with a yoga studio with two locations near-by. The owners believe that with this complimentary business, they will be able to increase the membership fees for current members and also grow the overall membership. Which one of the following quadrants of risk will be most influenced by this decision? Select one: A. Operational risk B. Hazard risk C. Financial risk D. Strategic risk
D. Strategic Risk