WorksheetsQUIZ (MPU 3333)
Total questions: 19
Worksheet time: 31mins
A condition that increases the chance of loss is called a (n)
indirect loss.
peril.
direct loss.
hazard.
A risk that affects the entire economy, or a large number of persons or group within the economy, is called a (n)
objective risk.
diversifiable risk.
nondiversifiable risk.
speculative risk.
An individual may commit an act that results in bodily injury or damage to someone's property. A court of law may order the person responsible for the wrongful act to pay damages to the party who was injured. This type of risk is called the
property risk.
nondiversifiable risk.
liability risk.
speculative risk.
Kyle opened a sporting goods store. After a fire damages the store, Kyle was forced to close the business for 4 weeks while repairs were completed. The loss of profits that could have been earned if the business had remained open is best described as a (n)
hazard.
peril.
indirect loss.
direct loss.
Which of the following statements is (are) true with respect to hazard?
I. Many physical hazards can be reduced through risk control measures.
II. Attitudinal hazard is more serious than moral hazard.
Neither I nor II
I only
II only
Both I and II
The spreading of losses incurred by a few individuals over a larger group, so that average loss is substituted for actual loss, is know as
loss indemnification.
pooling of losses.
transfer of risk.
fortuitous loss.
Claire does not own health insurance. For the past 2 weeks, she has been experiencing sharp abdominal pain. Given her condition, she would like to purchase health insurance. When higher-than-average risks (like Claire) are insured at average premiums, losses are higher than anticipated. What is this problem called?
Moral hazard
Speculation
Attitudinal hazard
Adverse selection
Insurers use a process of selecting and classifying insurance applicants to prevent individuals who have a higher-than-average probability of loss from obtaining insurance at average rates. This process is called
underwriting.
adjusting.
marketing.
producing.
Which of the following statements is (are) true with regard to insurance fraud?
I. Insurance fraud hurts insurers but does not affect policyholders.
II. Fraudulent claims are a cost of insurance to society.
Neither I nor II
I only
II only
Both I and II
All of the following risks are privately insurable, EXCEPT
legal liability arising out of negligent use of car.
adverse commodity price movements.
fire damage to personal property.
financial insecurity caused by the premature death of the family breadwinner.
The first step in the risk management process is to
select the appropriate techniques for handling losses.
implement and administer the program.
analyze potential losses.
identify loss exposures.
Risk manager must consider the range of outcomes that could occur. The worst loss that is likely to happen is called
the frequency maximum loss.
the severity maximum loss.
the probable maximum loss.
the possible maximum loss.
A written document that outlines the risk management objectives of a firm, as well as company policy with respect to the treatment of loss exposures, is called a
risk management information system.
risk management policy statement.
risk management specifications guide.
manuscript policy.
All of the following are methods used to pay retained losses, EXCEPT
credit line
funded reserve
insurance
current net income
Which of the following statements is (are) true with respect to the objectives of risk management?
I. A pre-loss objective of risk management is the reduction of anxiety.
II. A post-loss objective of risk management is the stabilization of earnings.
II only
I only
Both I and II
Neither I nor II
Explain the FOUR (4) types of hazard. (8 marks)
Discuss the THREE (3) risk control techniques. (9 marks)
Compare between peril and hazard. Provide an example to support you answer. (5 marks)
Define 'insurance'. (3 marks)
