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WorksheetsCH01 Nature of Risk
Total questions: 75
Worksheet time: 25mins
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
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.
All of the following are methods used to pay retained losses, EXCEPT
credit line
funded reserve
insurance
current net income
Compare between peril and hazard. Provide an example to support you answer. (5 marks)
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.
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.
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
Nazran borrowed money from a bank to purchase a fishing boat. He purchased property insurance on the boat. Nazran had difficulty making loan payments because he did not catch many fish, and fish prices were low. Nazran intentionally sunk the boat, collected from his insurer, and paid off the loan balance. This scenario illustrates the problem of _________
Morale Hazard
Moral Hazard
Physical Hazard
Peril
Insurance is the best risk management tool when the chance of loss is _________________ and the loss severity is _____________________.
high, low
low, high
high, high
low, low
which one (1) concepts which are related to insurable interest
insurance compensation for damages or loss. When the term indemnity is used in the legal sense, it may also refer to an exemption from liability for damages
Insurance is that a person or organization can obtain an insurance policy on the life of another person
Which of these statement is correct ?
Peril : probable cause (such as an earthquake, fire, theft) that exposes a person or property to the risk of damage, injury, or loss, and against which insurance cover (policy) is purchased.
Physical Hazard : attitude and ethical conduct of the insured. It cannot be managed but can be avoided by declining to insure the risk.
Moral Hazard : Characteristic that increase the outcome of a loss for examples the wooden construction of building or the poor mechanical condition of a motorcycle.
Choose the true example of moral hazard
Wooden construction of building or the poor mechanical condition of a motorcycle.
Attitude and ethical conduct of the insured. It cannot be managed but can be avoided by declining to insure the risk.
i.Burning down own house to collect on fire insurance claim.
ii.Damage own car and issue fraud insurance claim and issue have unreasonable huge amount of claim.
Complete the sentences with ONE WORD:
A dirty kitchen is a serious health ................
These piles of cardboard are a potential fire .............. , so clear them up.
Icy conditions are causing a major road ..............
(a)
risk
hazard
danger
risk
menace
hazards
peril
danger
Risk is the uncertainty about a result.
True
False
Plane crashes is in the level of low frequency and high severity risk.
True
False
Hazards are normally classified into two categories; physical and moral hazards.
True
False
“It relates to the physical or tangible aspect of risks, which are likely to influence the occurrence and / or severity of a loss.” This statement refers to
Physical Hazard
Moral Hazard
Morale Hazard
Mental Hazard
‘Explosion’ can be best referred to…
Hazard
Loss
Peril
Risk
Most of the ___________risks are uninsurable since they are undertaken willingly in the hope of profit or gain.
Pure
Fundamental
Particular
Speculative
“The outcomes cannot be measured in monetary terms.”
This statement is referring to…
Pure Risk
Non-Financial Value Risk
Particular Risk
Speculative Risk
What is the Hazard ?
is a condition, property or situation with the potential for loss
Risk is a function of the probability of contact with (or exposure to) a hazard
Risk evaluation of identified hazards taking into account the existing controls and defences
Risk assessment of hazards identified through a review of the potential unsafe-acts
Types of hazard that refer to carelessness of person is______
Moral Hazard
Morale Hazard
Psychical Hazard
Legal Hazard
A (a) is any source of potential damage, harm or adverse health effects on something or someone.
Which ones can be considered hazards?
Movement of heavy loads
Poor lighting
Falling objects
Extreme weather conditions
Dangerous substances
What is the best way to prevent hazards?
By ignoring them
By identifying and controlling them
By working faster
By working alone
The following words -
i. Uncertainty
ii. The Degree of Risk
iii. Proximate Cause
are related to
Elements of risk
Elements of insurance
Elements of loss
Determined on the basis of historical data. It is about
Priori Probability
Judgemental Probability
Empirical Probability
A _____ is a cause of loss.
Peril
Loss
Hazard
The following statement is about -
i. the likelihood of an event happening ;
ii. the severity of the negative consequences of that event;
Concepts
Assets
Risks
"It affects the entire economy or a large number of persons or groups within the economy. "
This statement is about nature of _______.
Speculative Risk
Financial Value Risk
Fundamental Risk
Risk implies some form of ________ about an outcome in a given situation and normally the outcome will be unfavorable or undesirable.
uncertainty
usury
speculation
These statement of hazard -
i. Failure in safeguarding own property
ii. Drive recklessly
iii. Unhealthy lifestyles
is about
Morale Hazard
Physical Hazard
Moral Hazard
The following statements is about -
i. Direct loss;
ii. Indirect loss;
iii. Extra expenses.
Personal Risks
Property Risks
Liability Risks
The following statements is about -
i. have a high frequency and low severity incidents;
ii. a low frequency and high severity incidents.
Level of hazard
Level of risk
Level of dishonesty
An earthquake is an example of
A) a moral hazard.
B) a peril.
C) a physical hazard.
D) an objective risk.
From the viewpoint of the insurer, all of the following are characteristics of an ideally insurable risk EXCEPT
A) The loss must be accidental.
B) The loss should be catastrophic.
C) The premium must be economically feasible.
D) There must be a large number of exposure units.
A probability or threat of damage, injury, liability, loss, or any other negative occurrence.
Perils
Hazards
Risks
Dangers
Reckless driving, jumping off a cliff, stealing, racing motorcycles, carefree, careless lifestyle are the examples of ____ hazards
physical
moral
morale
financial
Which of the following is an example of a major personal risk?
Fire damage to a commercial building
Theft of personal property
Liability for injuries caused to others
Loss of income due to disability
Which of the following is an example of a commercial risk?
Loss of income due to disability
Theft of personal property
Liability for injuries caused to others
Fire damage to a commercial building
What is the burden of risk on society?
The cost of insurance premiums
The cost of losses that are not covered by insurance
The cost of implementing risk management techniques
The cost of government regulations related to risk
Which of the following is an example of a pure risk?
Investing in the stock market
Starting a new business venture
Driving a car
Purchasing a lottery ticket
Which are the following types of hazard available in risk ?
Morale
Moral
Physical
Mental
Premature death and damage to property caused by a fire are pure risks.
true
false
Uncertainty pertaining to the organization's goals and objectives and the organization's strengths, weaknesses, opportunities, and threats is called
operational risk
strategic risk
subjective risk
pure risk
What is shown from the picture?
Electrical hazard
Chemical hazard
machine related hazard
Physical hazard
What is shown from the picture?
Ergonomic hazard
Chemical hazard
Ergonomic hazard
Fire hazard
What do you see from the picture?
Chemical hazard
Ergonomic hazard
Physical hazard
Natural hazard
What are liability risks related to?
Risks of unemployment
Risks of being sued
Risks of property damage
Risks of premature death
The best description of severity of loss.
The loss of damage
The total amount of loss if events occurs
How many times events occurs
The likelihood of the event occurring
To measure the level of risk, likelihood is
how bad/severe the risk is.
how possible it is for the risk to happen.
the effect/consequence of the risk.
when the risk will happen.
Risk can be calculated as:
Likelihood x Consequence
Severity x Consequence
Consequence + Likelihood
Uncertainty / Impact
Risks can be assessed against which of the following criterion?
Probability
Proximity
Impact
All three
What is the primary goal of risk management?
To eliminate all risks entirely
To identify and assess potential risks
To accept all risks without mitigation
To increase the likelihood of risks occurring
Loss must be (a) , by chance and cannot be predicted.
The more numbers of potential insured there are for a similar loss, the LESS predictable will be the loss.
True
False
When drilling wood, what is the HAZARD?
Chemical burn of the eye.
Puncture wound.
Eye scratch.
Small pieces of wood becoming airborne and entering the eye.
Which is a characteristic of risk ?
Subjective
Measurable uncertainty
Unquantifiable
Non deliberate
Jim and Paula Franklin started a dry cleaning business. The business may be successful or it may fail. The type of risk that is present when either a profit or loss could occur is called
pure risk
speculative risk
liability risk
fundamental risk
_________________resulting losses are impersonal in origin, which cause losses that are caused mainly by economic, social and political phenomena
Pure risk
Particular risk
Fundamental risk
Liability risk
What is the best definition of hazard ?
Likelihood of harm in defined circumstances
Potential to cause harm
A person who is skilled in magic or who has magical powers
It is used to generally refer to risky situations whether big or small.
