FREE Financial Management For Project Managers Risk Management Questions and Answers

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Which of the following claims about the difference between insurance and gambling is untrue?

Correct! Wrong!

Option a is false regarding insurance versus gambling. Insurance does not create a new risk; rather, it provides a mechanism to manage and mitigate existing risks.

What phrase best captures the phenomena where the real loss experience will resemble the expected loss experience the more exposure units there are?

Correct! Wrong!

The law of large numbers is a statistical principle that describes the phenomenon where, as the number of exposure units (individuals or events) increases, the actual observed outcomes (such as losses or accidents) become more consistent and predictable, approaching the expected outcomes based on probabilities.

In an insurance contract, the values transferred may not be equal and instead depend on an uncertain event. Due to this, the insurance contract is

Correct! Wrong!

The unequal value exchange based on an unpredictable event makes an insurance contract aleatory.Aleatory contracts have unknown outcomes and values. The insured pays a premium to the insurer for coverage of particular losses or events. The insured's potential payment from a covered loss is usually significantly greater than the premium paid. Insurance contracts are based on uneven value exchange.

What qualifies as a feature of an insurance contract and which of the following does not?

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Unlike commercial contracts, insurance contracts may not trade equal value. The insured pays a premium to the insurance company for financial protection against covered losses or catastrophes. This reward rarely matches anticipated losses. Insurance contracts are asymmetric, with the insured paying a tiny premium for future coverage

_____________ is excellent for high-frequency, low-severity losses.

Correct! Wrong!

Yes you are correct, loss prevention/loss reduction

The _____________ level is largely responsible for regulating insurance.

Correct! Wrong!

Insurance regulation primarily occurs at the state level in the United States. Each state has its own insurance department or regulatory body responsible for overseeing and regulating insurance activities within its jurisdiction. This includes regulating insurance companies, setting insurance rates, approving insurance products, and ensuring that insurance practices are fair and transparent.

In order to persuade Rex to buy the coverage, Rex's insurance agent offers him a discount on the premium. This is an illustration of the unethical behavior referred to as .

Correct! Wrong!

Rebating is unfair.Rebating includes giving a policyholder a portion of the insurance premium or other financial incentive to buy insurance. It distorts insurance pricing and underwriting and gives some policyholders an unfair advantage. Rebating affects fairness and actuarial concepts insurance companies use to set premiums.

Retention comes in a variety of forms, known as .

Correct! Wrong!

Yes you are correct, 2; active and passive

Which of the following describes the spreading of losses suffered by a select few across the entire group, replacing actual loss with average loss as a result?

Correct! Wrong!

The act of pooling involves distributing the cost of losses suffered by a small number of people or corporations among a wider group. In order to lessen the impact of individual losses, the group as a whole is averaged in this process. In this procedure, the actual loss of each individual is replaced with the average loss endured by the group.

Which of the following is not a prerequisite for a risk that can, in theory, be insured?

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An optimal insurance risk fits certain characteristics. Option d is not an ideal insurable risk, unlike a, b, and c. Insurable hazards are rarely catastrophic. Insurance firms may struggle to cover huge claims from catastrophic occurrences like natural disasters.

A(n) ____________ insurer is one that is owned by a parent company with the intention of covering the loss exposures of the parent company.

Correct! Wrong!

The act of pooling involves distributing the cost of losses suffered by a small number of people or corporations among a wider group. In order to lessen the impact of individual losses, the group as a whole is averaged in this process. In this procedure, the actual loss of each individual is replaced with the average loss endured by the group.

Which is not an insurance benefit?

Correct! Wrong!

Expense loadings are not a benefit of insurance; they are a cost associated with insurance policies. Expense loadings represent the administrative and operational costs that insurance companies incur when providing coverage. These costs include underwriting, administrative expenses, commissions, marketing, and other operational costs. Expense loadings are factored into insurance premiums to cover these costs and ensure the financial sustainability of the insurance company.

Which of the following is not a risk management pre-loss goal?

Correct! Wrong!

Risk management pre-loss objectives focus on pre-loss activities. These goals help the company prepare for losses. "Survival of the firm" is rarely a pre-loss risk management objective.

Atlanta and Memphis both have 100,000 vehicles that are covered by an insurance. Each city has a 3% chance of having an accident. Atlanta recorded 350, 300, and 250 accidents from 2006 to 2009, compared to 300, 280, and 320 accidents in Memphis. Which city carries more risk?

Correct! Wrong!

Yes you are correct, Atlanta

Which of the following are instances of retention, transfer, and commercial insurance?

Correct! Wrong!

Risk financing includes retention, transfer, and commercial insurance. Risk finance addresses how firms manage financial risk. These tactics minimize financial losses.

Which of the following describes uncertainty based on a person's mental state or state of mind?

Correct! Wrong!

Subjective risk refers to the uncertainty or risk that is perceived and experienced by an individual based on their mental condition, emotions, feelings, or personal judgments. It involves how an individual perceives and responds to potential risks, and it can vary from person to person due to different perceptions, attitudes, and emotions.

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