Insurance Risk Assessment & Management 4

Question 1

A company sets aside funds each year to pay for anticipated future losses rather than purchasing insurance. This is known as:

Accepted Answer

Self-insurance

Answer

Self-insurance involves an organization formally retaining risk by accumulating funds to cover expected losses instead of buying commercial insurance.

Question 2

Which principle holds that an insured should be restored to approximately the same financial position after a loss as before it?

Accepted Answer

Indemnity

Answer

The principle of indemnity prevents the insured from profiting from a loss by limiting recovery to the actual financial loss sustained.

Question 3

What type of risk involves the possibility of both financial gain and financial loss?

Accepted Answer

Speculative risk

Answer

Speculative risk involves three possible outcomes: gain, loss, or no change — such as investing in stocks or gambling.

Question 4

A company creates a subsidiary specifically to insure the risks of its parent company. This arrangement is called:

Accepted Answer

A captive insurer

Answer

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.

Question 5

Which of the following factors does an underwriter consider when evaluating the risk of insuring a property?

Accepted Answer

Construction type, occupancy, protection, and exposure (COPE)

Answer

Underwriters use the COPE framework — Construction, Occupancy, Protection, and Exposure — to assess property risk.

Insurance Practice Test

Insurance Practice Test

Insurance Risk Assessment & Management 4