Texas Surplus Lines Exam Prep-Questions with
100% Correct Answers| Verified|
Physical Hazards (Objects) - ✔Physical hazards are physical conditions that increase the
chance of loss. For example, potholes on freeways and streets, slippery floors, unsanitary
conditions, congested traffic, and unguarded premises.
Risk Management - ✔People are exposed to risks every day. How they deal with them is called
risk management, a process that uses any combination of five risk management techniques:
Avoiding the risk
controlling (reducing) the risk
Sharing the risk
Retaining the risk
Transferring the risk
Risk Avoidance - ✔One way to manage a risk is simply to avoid it. For example, those who do
not own a car avoid the risk of having a car being stolen or damaged.
Risk Control - ✔If a risk cannot be avoided, it may be controllable through risk prevention or
risk reduction measures.
Risk Prevention - ✔Risk prevention measures reduce the likelihood that a loss will occur. For
example, shoveling snow off a sidewalk makes it less likely a visitor will slip and fall.
Risk Reduction - ✔Risk reduction measures reduce the severity of any loss that does occur.
Having fire extinguishers does not keep fires from starting, but when available and used, they
often limit fire damage.
, Risk Sharing (Pooling) - ✔Sharing the burden of a loss with others is one of the oldest ways to
manage risk. Under a risk-sharing arrangement, groups share the financial burden of a loss
suffered by any member of the group. Pooling is a modern example of risk sharing.
Risk Retention (Doing nothing option) - ✔Risk retention is simply accepting a risk and dealing
with a loss using personal funds. With Insurance policies, deductibles are a risk retention
device. Deductibles shift small losses to the policy-owner, leaving the Insurance to cover more
serious losses.
Risk Transfer (Modern Insurance) - ✔Modern Insurance is based on the risk management
technique called risk transfer. In exchange for paying a premium, an individual or business can
transfer the risk of loss to an insurance company through an Insurance policy. Should a covered
loss occur, the insurer will compensate the insured for the value of the loss up to policy limits.
Insurable Risk - ✔In order for a risk to insurable, it must be definite as to time, cause, location,
measurable, accidental, outside of the insured's control, and only a pure risks.
Adverse Selection (High Risk Insured's) - ✔Adverse selection means to "select against." It is
the tendency of those at greater-than-average risk of loss to seek Insurance. In other words,
people who are at the greatest risk of loss are also the ones most likely to do whatever is
necessary to buy insurance to cover that loss.
Law of Large Numbers (Likelihood, Probability) - ✔This mathematical concept says that what is
not predictable in a single instance becomes predictable the greater the number of similar
instances are being observed.
The law of large numbers makes it possible for insurance company actuaries (i.e., insurance
mathematicians) to predict losses among a group of similar risks, as long as there are a
sufficiently large number of risks to observe.
Exposure Unit - ✔Insurers measure exposure by assigning exposure units to the person,
property, or event for which insurance is being sought. Exposure units are influenced by the
100% Correct Answers| Verified|
Physical Hazards (Objects) - ✔Physical hazards are physical conditions that increase the
chance of loss. For example, potholes on freeways and streets, slippery floors, unsanitary
conditions, congested traffic, and unguarded premises.
Risk Management - ✔People are exposed to risks every day. How they deal with them is called
risk management, a process that uses any combination of five risk management techniques:
Avoiding the risk
controlling (reducing) the risk
Sharing the risk
Retaining the risk
Transferring the risk
Risk Avoidance - ✔One way to manage a risk is simply to avoid it. For example, those who do
not own a car avoid the risk of having a car being stolen or damaged.
Risk Control - ✔If a risk cannot be avoided, it may be controllable through risk prevention or
risk reduction measures.
Risk Prevention - ✔Risk prevention measures reduce the likelihood that a loss will occur. For
example, shoveling snow off a sidewalk makes it less likely a visitor will slip and fall.
Risk Reduction - ✔Risk reduction measures reduce the severity of any loss that does occur.
Having fire extinguishers does not keep fires from starting, but when available and used, they
often limit fire damage.
, Risk Sharing (Pooling) - ✔Sharing the burden of a loss with others is one of the oldest ways to
manage risk. Under a risk-sharing arrangement, groups share the financial burden of a loss
suffered by any member of the group. Pooling is a modern example of risk sharing.
Risk Retention (Doing nothing option) - ✔Risk retention is simply accepting a risk and dealing
with a loss using personal funds. With Insurance policies, deductibles are a risk retention
device. Deductibles shift small losses to the policy-owner, leaving the Insurance to cover more
serious losses.
Risk Transfer (Modern Insurance) - ✔Modern Insurance is based on the risk management
technique called risk transfer. In exchange for paying a premium, an individual or business can
transfer the risk of loss to an insurance company through an Insurance policy. Should a covered
loss occur, the insurer will compensate the insured for the value of the loss up to policy limits.
Insurable Risk - ✔In order for a risk to insurable, it must be definite as to time, cause, location,
measurable, accidental, outside of the insured's control, and only a pure risks.
Adverse Selection (High Risk Insured's) - ✔Adverse selection means to "select against." It is
the tendency of those at greater-than-average risk of loss to seek Insurance. In other words,
people who are at the greatest risk of loss are also the ones most likely to do whatever is
necessary to buy insurance to cover that loss.
Law of Large Numbers (Likelihood, Probability) - ✔This mathematical concept says that what is
not predictable in a single instance becomes predictable the greater the number of similar
instances are being observed.
The law of large numbers makes it possible for insurance company actuaries (i.e., insurance
mathematicians) to predict losses among a group of similar risks, as long as there are a
sufficiently large number of risks to observe.
Exposure Unit - ✔Insurers measure exposure by assigning exposure units to the person,
property, or event for which insurance is being sought. Exposure units are influenced by the
