Question 1

Match the descriptions with their terms:
-_________________ describes the situation in which a risk is not transferred primarily because of ignorance regarding the potential severity and/or frequency of the loss.

Accepted Answer

Unplanned retention refers to a situation where risks are not transferred or mitigated because the individual or organization is unaware of the potential severity or frequency of the loss. This lack of action is typically due to ignorance or lack of understanding about the risk, rather than a strategic decision to retain the risk.

Question 2

Match the descriptions with their terms:
-A sprinkler system that is installed in an office building would be an example of _________________.

Accepted Answer

The answer of Match the descriptions with their terms:
-A sprinkler...

Question 3

Match the descriptions with their terms:
-The use of a deductible is a very common example of _____________ by a firm.

Accepted Answer

The use of a deductible in insurance policies is a form of risk retention, where the firm agrees to bear a certain amount of loss (the deductible) itself before the insurance coverage kicks in.

Question 4

Match the descriptions with their terms:
-A manufacturer transferring its product liability to the retailer of the product might do so through a/an _________________.

Accepted Answer

A hold-harmless agreement is a contractual arrangement where one party agrees to assume the liability of another party, effectively transferring the risk.

Question 5

Match the descriptions with their terms:
-The use of insurance is a common form of _________________.

Accepted Answer

The use of insurance is a common form of risk transfer, where the financial responsibility of a potential loss is shifted from the insured to the insurer.

Question 6

Match the descriptions with their terms:
-One who assumes risk that is typically associated with a business venture is a/an _________________.

Accepted Answer

An individual who assumes risk typically associated with a business venture is known as a speculator. Speculators actively engage in markets, betting on the future price movements of assets with the hope of making profits from those movements. They are willing to take on risk that others might avoid, with the aim of achieving financial gain.

Question 7

Match the descriptions with their terms:
-Distributing inventory among several warehouses to prevent a single peril from destroying the entire stock is described as _________________.

Accepted Answer

Separation involves distributing assets or operations over various locations to minimize the impact of a single loss, which aligns with the description of distributing inventory among several warehouses to prevent a single peril from destroying the entire stock.

Question 8

Match the descriptions with their terms:
-Installing a "kill switch" to a piece of machinery that is capable of dismembering an employee if operated improperly would be a form of _________________.

Accepted Answer

The answer of Match the descriptions with their terms:
-Installing a...

Question 9

When an entity avoids a risk

Accepted Answer

The correct answer is D because when an entity avoids a risk, the chance of a loss for that entity due to that risk is reduced to zero.

Question 10

Which of the following statements is true?

Accepted Answer

Duplication can increase the maximum possible loss because it involves creating copies of an asset or function. If both the original and the duplicate are affected by the same risk event, the total loss could be double that of having a single asset or function.

Question 11

The four basic techniques available for handling risk are:

Accepted Answer

The four basic techniques for handling risk include risk avoidance (eliminating the risk entirely), loss control (minimizing the potential loss from risks that cannot be avoided), risk retention (accepting the loss when it occurs), and risk transfer (shifting the risk to another party, often through insurance).

Question 12

The three most commonly used methods of loss control are:

Accepted Answer

Frequency reduction, severity reduction, and diversification are methods aimed at controlling and minimizing potential losses.

Question 13

Self-insurance differs from the establishment of a reserve fund in that

Accepted Answer

Self-insurance requires a large group of exposure units to accurately predict losses, whereas a reserve fund does not necessarily require this level of statistical predictability.

Question 14

The following conditions are suggestive of the types of situations where self-insurance by a business is possible and feasible, except:

Accepted Answer

Self-insurance typically involves a firm setting aside funds to cover potential losses, rather than relying on an outside company to manage these funds. The key to self-insurance is internal management and control over the funds, contrary to what option B suggests.

Question 15

Hedging is

Accepted Answer

The answer of Hedging is
...

Question 16

Risk transfer is most likely ideal for a risk with

Accepted Answer

Risk transfer is most suitable for risks that occur infrequently but have high potential severity, as it allows an organization to mitigate the impact of potentially catastrophic losses that it may not be able to absorb or manage effectively on its own.

Question 17

A non-insurance transfer of risk is

Accepted Answer

A disclaimer of implied warranty on a sales contract is a non-insurance transfer of risk because it shifts the risk from the seller to the buyer without involving an insurance policy.

Question 18

A tool that generally is not used to manage subjective risk is

Accepted Answer

Severity reduction is typically used to manage objective risks rather than subjective risks, which are more about perceptions and attitudes.

Question 19

A non-insurance transfer of risk is

Accepted Answer

A non-insurance transfer of risk involves shifting the risk to another party without using an insurance policy. In this case, a clause in a sales contract where the buyer assumes liability for damage done by the product is an example of transferring risk to another party through contractual means.

Question 20

Which of the following does not have to be present in order to start a self-insurance program?

Accepted Answer

A weak general financial condition is not a requirement to start a self-insurance program. In fact, a strong financial condition is generally necessary to support the potential costs associated with self-insurance, including the ability to prefund expected losses and absorb actual loss events.

Quiz 5: Risk Management Techniques: Noninsurance Methods

Match the descriptions with their terms: -_________________ describes the situation in which a risk is not transferred primarily because of ignorance regarding the potential severity and/or frequency of the loss.

Match the descriptions with their terms: -A sprinkler system that is installed in an office building would be an example of _________________.

Match the descriptions with their terms: -The use of a deductible is a very common example of _____________ by a firm.

Match the descriptions with their terms: -A manufacturer transferring its product liability to the retailer of the product might do so through a/an _________________.

Match the descriptions with their terms: -The use of insurance is a common form of _________________.

Match the descriptions with their terms: -One who assumes risk that is typically associated with a business venture is a/an _________________.

Match the descriptions with their terms: -Distributing inventory among several warehouses to prevent a single peril from destroying the entire stock is described as _________________.

Match the descriptions with their terms: -Installing a "kill switch" to a piece of machinery that is capable of dismembering an employee if operated improperly would be a form of _________________.

When an entity avoids a risk

Which of the following statements is true?

The four basic techniques available for handling risk are:

The three most commonly used methods of loss control are:

Self-insurance differs from the establishment of a reserve fund in that

The following conditions are suggestive of the types of situations where self-insurance by a business is possible and feasible, except:

Hedging is

Risk transfer is most likely ideal for a risk with

A non-insurance transfer of risk is

A tool that generally is not used to manage subjective risk is

A non-insurance transfer of risk is

Which of the following does not have to be present in order to start a self-insurance program?