risk exam 1

) Among the properties owned by Hagen Company are five buildings constructed from cement blocks. Hagen did not include these buildings for coverage under its property insurance policy because losses to these structures occur so infrequently. When losses do occur, Hagen Company simply pays for the losses through cashflow or current assets. Hagen's method of dealing with losses to these buildings is called

Informal retention

Feldman Floor Coverings sells carpet and tile from five retail stores. Theft losses are almost nonexistent. Most customers pay by check or credit card, so little cash is kept on the premises. Most of the merchandise in the stores, floor coverings, is difficult to steal by customers. When theft losses occasionally occur, the losses are paid through current cash flow. This method of dealing with theft losses is called

Informal retention

IJ Insurance Company, the primary insurer, has a surplus line reinsurance agreement with KLM Insurance Company, the reinsurer. The line under the policy/agreement is $25,000, and the amount ceded is $100,000. What percentage of the policy premium would KLM receive and what percentage of the losses under the policy would KLM be responsible for paying

The total insurance coverage is $125,000, HIJ covers 20% of the cost (25,000 / 125,000) x 100 =20%). KLM would cover 80% of the cost (100,000 / 125,000) = 80%). KLM would receive 80% of the policy premium and be liable for 80% of the losses.

One reason that an organization might choose to protect an invention with a trade secret status rather than with a patent is that

A patent requires disclosure of the details of the invention.

Which of the following companies would be best suited for participating in an insurance pool?

A. A local school district that is purchasing new buses and looking to reduce its insurance expense by joining a workers' compensation pool.

A rating plan that adjusts the premium for the current policy period to recognize the loss experience of the insured organization during past policy periods is

A. An experience rating plan.

A facultative reinsurance agreement is written for a specified time period

A. And cannot be cancelled by either party unless contractual obligations, such as payment of premiums, are not met.

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

C. Can be inside or outside the deductible.

Which one of the following statements is correct regarding characteristics of ideally insurable loss exposures

. A common function that insurance provides is a spreading of risk across many similar exposure units within the same period.

Hold-harmless agreements are

C. Comprised of two parties—the indemnitor and the indemnitee.

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

A following-form excess policy.

An exculpatory clause is

A. A contractual provision that relieves one party from liability resulting from a negligent or wrongful act.

Not all trademarks are covered by the U.S. federal laws. One type of mark not receiving the protection of trademark law is

A. A generic mark.

Weldon Company has a fleet of tank trucks. Oil companies and service stations hire Weldon trucks to transport oil, gas, and diesel fuel. Because of difficulty in obtaining affordable insurance for environmental impairment liability, truckers liability and physical damage, and workers compensation, Weldon formed its own insurance subsidiary. The Vermont-based subsidiary collects premiums, issues policies, and pays Weldon's covered liability claims. The organization that Weldon Company formed is called a

A. Captive insurance company.

Conor needs to deliver an important message to his staff. He has scheduled a meeting in a conference room with his staff of 10 individuals. Which one of the following is the best way for Conor to use his body language to convey confidence in his message and interest in his staff?

A. Conor should sit up and lean slightly toward the audience.

Which one of the following is a disadvantage of using self-insurance rather than purchasing insurance?

A. Deferral of tax deductions

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

A. Definite

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

A. Duplication.

Which one of the following statements about correlation is true?

A. If two variables are perfectly positively correlated, if one variable increases, the other will increase in direct proportion.

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

A. Independent and not catastrophic.

An advantage of a self-insurance plan when compared with an insurance plan is that a self-insurance plan

A. Is less expensive over the long run.

The purpose of a self-insurance plan is to enable an organization to

A. Lower its long-term cost of risk by allowing it to pay for its own losses without incurring insurance costs.

Which one of the following statements is correct regarding the use of treaty and facultative reinsurance?

A. Most treaties require that all loss exposures within the treaty's terms be reinsured.

Which one of the following is true regarding patents?

A. Plant patents are granted on biologically asexually reproducing plants.

Which one of the following is a risk control measure that can be applied to copyright infringement? Select one:

A. Registration

Chemical Company relies on trade secrets to maintain its competitive advantage. How might Chemical Company's risk management professional ensure information confidentiality?

A. Requiring employees to sign a restrictive covenant in the form of a nondisclosure or a confidentiality agreement

Reinsurers may transfer part of the liability that they have accepted in reinsurance agreements to other reinsurers, known as

A. Retrocessionaires.

Which one of the following statements is true regarding valuing intellectual property?

A. The value of a piece of intellectual property may be used to determine the proportion of risk management resources that should be devoted to it.

Statutory limitations on hold-harmless agreements vary in the

A. Types of noninsurance transfers to which the statutes apply.

A patent used for the invention of a machine is a

A. Utility patent.

The type of patent most appropriate for an invention or a process that has some usefulness is a

A. Utility patent.

Which one of the following statements regarding correlation analysis is true

Abnormal observations and inaccurate data may skew correlation analysis

Jepson Manufacturing Company is a U.S.-based company with operations in Mexico, Canada, Brazil, and the Netherlands. Jepson purchases a nonadmitted policy in the U.S. and policies from admitted insurers in each of the countries in which it operates. This collection of admitted and nonadmitted policies used by multinational businesses is called

B. A controlled master program.

Which one of the following statements is true regarding a trade secret?

B. A trade secret remains in force for as long as the secret can be maintained.

The purpose of a retrospective rating plan is to

B. Adjust the premium for guaranteed-cost insurance to reflect the insured organization's current losses.

Advancements in machine learning and artificial intelligence (AI) have helped insurers do all of the following, EXCEPT:

B. Completely prevent customers' risk

The focus of risk control efforts regarding trade secrets should be on

B. Disclosure of information only to essential personnel.

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?

B. Diversification

An insured has an excess liability policy that covers a claim for damage, because the loss was covered by the underlying insurance. Which one of the following types of excess policy does the insured have?

B. Following-form excess liability policy

A trademark that has been entered on the U.S. Patent and Trademark Office (USPTO) Principal Register is automatically protected

B. For 10 years.

Which one of the following is a common problem with meetings that leaders should try to avoid?

B. Having the wrong people attend

A loss limit in the retrospective rating plan formula

B. Is applied on an individual loss basis to limit losses included in the formula.

A retrospective rating plan

B. Is insurance that is subject to a rating formula.

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

B. Loss prevention

Which one of the following statements about correlation and covariance is true?

C. Covariance measures the extent to which variables move together or independently.

If a pool has enough loss exposures to benefit from the law of large numbers, it can help members meet which one of the following risk financing goals?

B. Manage uncertainty

The characteristics of a captive insurer

B. Normally involve both retention and transfer.

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

B. Separation.

The way that an organization differentiates its services from its competitors services is a

B. Servicemark.

Which one of the following statements is true regarding the operation of retrospective rating plans?

B. The adjusted premium under a retrospective rating plan is subject to a maximum amount and a minimum amount agreed to in the policy.

If a captive insurer is established to provide coverage for loss exposures that the parent company has difficulty insuring privately, how does the captive insurer typically deal with such risks?

B. Through purchasing excess of loss reinsurance

Victor is the risk manager for Jones Incorporated. He decided that a bow-tie diagram would be the best method to convey a potential risk to the executive team. Victor will use the bow-tie diagram to do which one of the following

B. To identify the risk and list its possible causes and possible consequences on either side

Jessica is a risk manager for East Side Manufacturing. She needs to make a presentation to the executive team to help them make some risk management decisions. Jessica wants to provide the audience with the information that they need to make the decisions, and present it as succinctly as possible. Which one of the following methods should Jessica use?

C. Dashboard reporting

An excess liability insurance policy that does not depend on the provisions of the underlying coverage is called

C. A self-contained excess policy.

Ideally insurable loss exposures are subject to losses that

C. Are definite in time, cause, and location.

Which one of the following technologies can provide the infrastructure upon which smart contracts are built and implemented?

C. Blockchain

The duration of a patent right varies depending on the type of patent. Which one of the following patents last for 14 years from the date of issuance?

C. Design patent

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

C. Diversification.

Smith Enterprises is a national plastics distributor with property values in excess of $20 million spread throughout the country. Smith Enterprises wants to insure all of its property exposures with the same insurer. Which function of reinsurance would be most beneficial to Smith's primary insurer?

C. Increase large-line capacity

Which one of the following is a legal term for waiting too long to assert a legal right?

C. Laches

The maximum amount of insurance or limit of liability that an insurer will accept on a single loss exposures is called a

C. Line.

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

C. Loss prevention

Brooks Irrigation Services has designed plans for a new lawn sprinkler system. In order to safeguard their document and control infringement exposures, they have placed the notation © 2012 Brooks Irrigation Services on their published plans. This is known as a copyright

C. Notice.

All members of a pool share in the risk with the other members of the pool. This allows the pool to manage uncertainty and meet which one of the other risk financing goals?

C. Pay For Losses

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

C. Risk modification

Ed is investment manager of the Nellor Foundation, a charitable trust. Recently, Ed met with the president of the Foundation. Up until now, assets have been invested in financial assets. Ed told the president that after performing a simulation, he would like to add a high-yielding, higher risk real estate investment to the portfolio. When the president asked if it would be too risky, Ed replied, "It will actually increase expected returns while reducing risk." The purported reduction in risk occurs because

C. The real estate investment returns are negatively correlated with the other assets.

A patent has a limited life span depending on the type of patent; however, which one of the following types of intellectual property protection can be maintained indefinitely?

C. Trade secret

A captive insurer

Collects premiums, issues policies, and pays covered losses.

Which one of the following types of intellectual property protection automatically applies to any work of expression when it becomes fixed in a tangible medium

Copyright

Which one of the following types of excess liability policies would be least likely to create gaps between the excess and the underlying insurance layers?

D. Pure following-form excess liability policy

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

D. A following-form excess policy.

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

D. Avoidance.

Which one of the following is intended to protect the literal expression of an idea but not the idea itself?

D. Copyright

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

D. Defer cash outflows for retained loss reserves.

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

D. Definite.

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

D. Deny any express warranties made in conjunction with the sale of property.

William is the risk manager for a manufacturing company that has decided to expand its operations into several foreign countries. He and the executive team are debating whether they should rely on admitted insurers for insurance coverage in the foreign countries, or use their insurer domiciled in the U.S. For the executive team, which one of the following is an advantage of purchasing the insurance for their foreign operations through admitted insurers in those countries?

D. Doing business locally and complying with local laws will help integrate the company into the local economy and community.

Pacific Bar and Grill was having a problem with employees slipping and falling in the kitchen and bar areas. Rather than incur the cost to replace the floors with a new non-slip surface, the owners decided to require employees to wear slip-resistant shoes and monitor the floors for spills on a regular schedule. They are also keeping track of the number of employee slips and falls and the associated costs, as well as, the expenses involved with this risk management program. Which one of the following methods is Pacific Bar and Grill using to measure the effectiveness of this risk management process?

D. Feedback loop

Margo is a technology company analyst for a large investment company. To determine a market value for the companies she analyzes, Margo calculates the present value of the future cash flows that will be derived from the intellectual property these companies own. This valuation method is called the

D. Income approach.

In the United States, the formation and operation of workers compensation pools are regulated by the

D. Individual states.

Construction contracts typically hold the

D. Landowner harmless for certain construction-related claims.

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?

D. Large number of similar exposure units

A chemical manufacturing company has coverage under a typical commercial general liability (CGL) policy providing $1,000,000 in coverage for each occurrence. The company also has typical following-form excess liability insurance with $3,000,000 in coverage for each occurrence. A $2,000,000 loss occurs that is excluded by the CGL policy. The following-form excess liability policy would

D. Not cover the claim because it is not covered by the underlying policy.

The determination that an invention is actually a trade secret is

D. Often made by the courts.

An organization wants to create a trademark for its line of products. Which one of the following risk control measures for trademarks should the organization use to avoid the possibility of infringing on someone else's trademark?

D. Searches and watches

One reason that primary insurers purchase reinsurance for catastrophes is to

D. Stabilize insurer earnings.

Copyrights are generally owned by the person (author) who created the work, except when the work

D. Was created in the course of the author's employment.

Which one of the following statements is correct regarding the challenges of delivering messages to internal and external stakeholders?

D. When addressing individuals of different status levels, it is best to ask for ideas from lower-level persons before turning to those of higher standing.

which one of the following methods can be used by a risk management professional to provide high-level executives with the basic information necessary to understand where a risk issue should be ranked among other risk-related priorities

Dashboard reporting

Hugh was recently hired as a risk manager for Malvern Manufacturing. He is preparing for his first presentation to the employees working on the manufacturing floor. Hugh realizes that he needs to establish credibility with the audience in order to be persuasive. He decides that he will tell a couple of stories about how he has dealt with similar situations in the past. Which one of the following modes of persuasion is Hugh using

Ethos

A self-insured plan is usually combined with

Excess insurance to cover severe losses.

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

Loss reduction

Olivia is planning a meeting to explain a new cyber security procedure. She expects that the meeting will be impeded by hidden agendas. Which one of the following is the best way for Olivia to deal with potential hidden agendas

Olivia should start the meeting by asking participants to state their concerns or feeling about the procedure

Which one of the following statements regarding reinsurance is true

Reinsurance agreements typically require the primary company to retain part of its original liability

an insured has a commercial general liability policy with one insurer and an excess liability policy with another insurer. There are coverage gaps due to the excess policy's independence from the underlying policy for coverage determination. Which one of the following types of excess policy does the insured have?

Self-contained excess liability policy

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

Separation

If a captive insurer is established to provide coverage for loss exposures that the parent company has difficulty insuring privately, how does the captive insurer typically deal with such risks

Through purchasing excess of loss reinsurance

Which one of the following statements is correct regarding the master policy in a controlled master program?

b. The master policy covers all of the insured's international operations on a blanket basis helping to prevent a coverage gap.