Deck 22: Bonus B: Managing Risk

Question 1

Fairweather Farms is located on Florida's Gulf Coast and is primarily engaged in raising and harvesting citrus fruit.The owners of Fairweather Farms are correct in beginning to think about how the risk of climate change might impact their crops in the future.

Answer 1

True

Question 2

There are two different kinds of risk: passive and active.

Answer 2

False

Question 3

Managing risk includes things such as security failures,swine flu,and terrorist attacks,along with job-related accidents.

Answer 3

True

Question 4

An entrepreneur takes a speculative risk when starting a new business.

Question 5

The chance of a fire is an example of a pure risk.

Question 6

Pure risk involves the chance of either a profit or a loss.

Question 7

The management of risk is a small part of global business.

Question 8

If a pure risk occurs a company loses money;but if the events do not occur,the company gains nothing.

Question 9

Outsourcing helps some companies avoid risk.

Question 10

The type of risk that is of most concern to businesspeople is speculative risk.

Question 11

Risk is a term that refers to the chance of loss,the degree of probability of loss,and the amount of possible loss.

Question 12

The beginning of an effective risk management strategy is a good loss-prevention program.

Question 13

One way to lower the need for outside insurance is to self-insure.

Question 14

Risk management is getting much simpler thanks to the Internet.

Question 15

Product recalls can reduce risk.

Question 16

Southern Deliveries has decided to manage risk by requiring drivers to wear seat belts,have a commercial driver's license,monitor any moving violations each driver obtains,and to be sure that this information is kept in the employee records.Furthermore Southern has decided to carry an insurance policy with a very large deductible,preferring to pay for small damages to its trucks out-of-pocket.Southern has built enterprise risk management into their organization.

Question 17

Businesses can often reduce the risk to which they are exposed.

Question 18

Speculative risk involves a chance of either profit or loss.

Question 19

Risk management involves minimizing the losses from unexpected events.

Question 20

An enterprise risk management (ERM)program has a goal of defining which risks the program will manage.

Question 21

The Pension Benefit Guaranty Corporation provides retirement benefits,life insurance,health insurance,and disability income insurance.

Question 22

When a firm that is self-insuring against risk decides to cover losses straight out of its budget,it is said to be "going bare."

Question 23

Self-insurance is the practice of setting aside money to cover routine claims and buying only "catastrophe" policies to cover big losses.

Question 24

Self-insurance makes more sense for firms that operate one large facility than it does for firms with facilities scattered all over the country.

Question 25

Typically,the only option that firms have to deal with pure risk is to buy insurance.

Question 26

The terrorist attack against the World Trade Center in 2001 is an example of pure risk.

Question 27

A well-designed and implemented risk-prevention program can eliminate the potential of loss.

Question 28

All-Star Manufacturing has decided to stop producing football helmets due to the potential size of losses involved in product liability cases.This is an example of avoiding risk as a risk management strategy.

Question 29

Insurance companies will provide coverage only for losses that are accidental.

Question 30

UPS requires their delivery people to wear seat belts as they drive their trucks.This is an example of self-insuring as a risk management strategy.

Question 31

"Going bare" is a much less risky strategy for self-insurance.

Question 32

An uninsurable risk is one that no insurance company will cover.

Question 33

Federal Housing Administration (FHA)insurance provides insurance to property owners in high-crime areas.

Question 34

Water sprinklers and smoke detectors can be used to minimize speculative risks.

Question 35

"Insurable interest" means that the policyholder is the one at risk to suffer a loss.

Question 36

Proctor & Gamble Inc.is ready to launch a new shampoo in the marketplace.They will incur a speculative risk.

Question 37

The federal government provides some insurance protection.

Question 38

Kuhlman Appliances produces all of its products in one gigantic production facility near an earthquake fault line.Kuhlman is the classic example of a firm that should use self-insurance to manage its risks.

Question 39

All risks are insurable.

Question 40

Any risk is insurable as long as you can pay the premium.

Question 41

Insurance companies make predictions such as how recent health trends will affect the number of heart attacks that men in the United States over the age of 45 will suffer.

Question 42

Health maintenance organizations put an emphasis on helping members stay healthy instead of on treating illnesses.

Question 43

An example of an uninsurable risk would be the potential losses suffered by Domino's Pizza resulting from a popular new product from Pizza Hut.

Question 44

A mutual insurance company is a nonprofit organization.

Question 45

According to the rule of indemnity,an insured person cannot collect more than the actual loss from an insurable risk.

Question 46

The car insurance premium charged for young male drivers is higher than the premium for young female drivers.This is due to the rule of indemnity.

Question 47

John has decided that his neighbor Sam is quite careless and is in danger of burning his own house down.John tried to buy a fire insurance policy on Sam's house so that he could collect the payment when Sam inevitably burned down his own house.The insurance company would not allow John to purchase the policy because he did not have an insurable interest in the property.

Question 48

Liability losses result from property damage or injuries suffered by others for which the policyholder is held responsible.

Question 49

The best strategy for a profit-seeking insurance company would be to specialize in providing protection to people in a specific geographical area.

Question 50

Typically,Health Maintenance Organizations (HMOs)offer members more flexibility in the choice of doctors and health care than other forms of health insurance providers.

Question 51

A mutual insurance company is owned by its policyholders.

Question 52

Property insurance covers losses from fires,accidents,or theft.

Question 53

An insurance premium is the fee charged by the insurance company in return for their promise to pay for all or part of a loss.

Question 54

The Ford Motor Company has an insurable interest in the lives of its top executives.

Question 55

Cary owns a life insurance policy on her husband Jay through Mutual of Cincinnati Life Insurance Company.As a policyholder,she also owns part of the company.

Question 56

An insurance company can use the law of large numbers to predict the number of people in your community that will have a car accident in a given month.

Question 57

A stock insurance company is owned by its policyholders.

Question 58

The law of large numbers states that if a large number of people are exposed to the same risk,a predictable number of losses will occur during a given period of time.

Question 59

An insurance policy is a written contract.

Question 60

A managed care HMO system is more expensive than comprehensive health insurance providers.

Question 61

Risk management is concerned only with risks to individuals and businesses.

Question 62

Preferred Provider Organizations (PPOs)offer members the opportunity to choose their own physicians.

Question 63

The chances of dying when young are much higher than the chances of becoming disabled when young.

Question 64

To save money,HMOs usually must approve treatment before it is given.

Question 65

One advantage of health savings accounts is that healthy people can use tax-deferred money to save for their future medical needs.

Question 66

Workers' compensation insurance is required in all states except Louisiana.

Question 67

Health savings accounts are managed care plans that have a high deductible.

Question 68

Product liability insurance covers liability arising out of defective products sold.

Question 69

Preferred Provider Organizations (PPOs)offer medical care that is usually more expensive than HMOs.

Question 70

Firms can take out term life-insurance policies on their top executives.

Question 71

Professional liability insurance is also sometimes known as malpractice insurance.

Question 72

The premium charged for workers' compensation insurance is the same for all workers,regardless of their occupation.

Question 73

An endorsement can provide additional coverage to a homeowner's policy for business equipment.

Question 74

Worldwide risks need to be prioritized so that international funds can be spent where they can do the most good.

Question 75

Workers' compensation insurance guarantees payment of wages,medical care,and rehabilitation services for employees who are injured on the job.

Question 76

Disability insurance replaces part of your income if you become disabled and can no longer work,but you usually must be disabled for a specified period of time before benefits are provided.

Question 77

A fidelity bond covers losses resulting from a second party's failure to fulfill a contract.

Question 78

Most homeowners' insurance policies automatically provide adequate coverage for small home-based businesses.

Question 79

Risks such as global warming are the concern of businesses and governments primarily in the U.S.

Question 80

A surety bond protects employers from employee dishonesty.