Risk Assessment & Management Flashcards
7 cards from real Insurance practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Risk Assessment & Management flashcards as text
A company sets aside funds each year to pay for anticipated future losses rather than purchasing insurance. This is known as:
Answer: Self-insurance
Self-insurance involves an organization formally retaining risk by accumulating funds to cover expected losses instead of buying commercial insurance.
Which principle holds that an insured should be restored to approximately the same financial position after a loss as before it?
Answer: Indemnity
The principle of indemnity prevents the insured from profiting from a loss by limiting recovery to the actual financial loss sustained.
What type of risk involves the possibility of both financial gain and financial loss?
Answer: Speculative risk
Speculative risk involves three possible outcomes: gain, loss, or no change — such as investing in stocks or gambling.
A company creates a subsidiary specifically to insure the risks of its parent company. This arrangement is called:
Answer: A captive insurer
A captive insurer is a subsidiary company established to insure the risks of its parent organization, combining elements of risk retention and formal insurance structure.
Which of the following factors does an underwriter consider when evaluating the risk of insuring a property?
Answer: Construction type, occupancy, protection, and exposure (COPE)
Underwriters use the COPE framework — Construction, Occupancy, Protection, and Exposure — to assess property risk.
What is the purpose of a hold-harmless agreement in risk management?
Answer: To transfer responsibility for losses from one party to another contractually
A hold-harmless (or indemnity) agreement is a contractual clause in which one party agrees to assume liability and protect another party from specified claims or losses.
Which of the following best describes 'exposure' in property and casualty insurance risk assessment?
Answer: The insured's vulnerability to neighboring properties' hazards
Exposure in the COPE framework refers to the susceptibility of insured property to loss from neighboring properties or external environmental hazards.