Insurance Risk Assessment & Management 3

Question 1

A business decides not to offer a product because the liability exposure is too great. This risk management strategy is called:

Accepted Answer

Risk avoidance

Answer

Risk avoidance involves eliminating the activity or exposure that creates the risk entirely, such as not offering a product to avoid its associated liability.

Question 2

Which of the following is an example of a physical hazard?

Accepted Answer

Icy roads that increase accident likelihood

Answer

A physical hazard is a tangible condition that increases the probability of a loss, such as icy roads, faulty wiring, or defective machinery.

Question 3

What is 'moral hazard' in the context of insurance?

Accepted Answer

Dishonest or fraudulent behavior that increases the chance of loss

Answer

Moral hazard refers to dishonest behavior or intentional misconduct by the insured that increases the probability or severity of a loss.

Question 4

Which risk assessment tool plots risks on a grid based on their probability and potential impact?

Accepted Answer

Risk matrix

Answer

A risk matrix (also called a heat map) is a visual tool that categorizes risks by plotting their likelihood against their potential severity.

Question 5

An insured who neglects to maintain their property because 'insurance will cover it' is demonstrating:

Accepted Answer

Morale hazard

Answer

Morale hazard (also called attitudinal hazard) is the indifference or carelessness that arises from knowing that insurance will cover losses.

Insurance Practice Test

Insurance Practice Test

Insurance Risk Assessment & Management 3