Test 1A

The probability that an event that causes a loss will occur _______

• Speculative Risk

• Adverse selection

• Chance of Loss

All the following are direct losses EXCEPT

• A house is burglarized.

• A store loses RM200,000 in sales because a fire closes it down for two weeks.

• A corporation must pay RM1 million in ransom when its CEO is kidnapped.

• An delivery truck needs $15,000 in repairs after a collision.

Legal Hazard

• Characteristics of the legal or regulatory system that increase the frequency or severity of loss.

• A special form of planned retention by which part or all of a given loss exposure is retained by the firm.

• Dishonesty or character defects in an individual that increase the chance of a loss such as insurance fraud, inflating claims etc.

• The risk of being financially responsible for damage to another entity (3rd Party).

Which one of the following losses is an indirect loss?

• Damage to a car when a tree falls on it.

• Loss caused by an arsonist who burns down a building to collect insurance proceeds.

• Monetary losses due to the inability to produce and sell goods when a machine is destroyed.

• Monetary losses due to a legal liability claim.

Bodacious D, a famous singer, is performing at a concert. He does not have his body guards and security team present for the concert. A crazed fan runs up on stage, declares her love for Bodacious D, and throws herself at him. Bodacious D lands on the floor, and breaks his back. Which of these is the HAZARD(S), and which is the PERIL?

• The peril is not having a body guard present; the hazard is the crazed fan.

• The peril is being attacked by the fan, and the hazard is not having a body guard present.

• The peril is not having a body guard present, and the hazard is being pushed to the floor.

• The peril is both the crazed fan and the lack of security; there is no hazard in this case.

All the following are objectives of risk management EXCEPT

• To make efficient before‑the‑loss arrangements for an after‑the‑loss balance between resources needed and resources required to preserve operating effectiveness.

• Eliminate duplicate insurance coverage.

• To insure all exposures to loss

• Develop and maintain plant safety program.

Death, disability, accident, injury and retirement of employees are ______

• Personal risks

• Longevity

• Human resources loss exposures

• Earning loss exposures

Alarms, bike chains, helmets, seat belts, sprinklers, hurricane proofing home are example for _______.

• Moral Hazard

• Risk Control

• Pure Risk

• Risk Financing

Carelessness or indifference to loss because of the existence of insurance. Example, leave car unlocked because it is worth more stolen.

• Moral Hazard

• Morale Hazard

• Peril

• Physical Hazard

Mr. VanDelinder buys a RM50,000 car. Rather than buying insurance on the car, he sets aside RM30,000 in a savings account to cover possible losses due to any accident. He is _________.

• Self‑insuring

• Eliminating risk through the use of a contingency fund.

• Assuming risk.

• Decreasing his risk of physical loss