1. What is reinsurance and why is it used?
A. A method of transferring risk to another insurance company to
manage large claims
B. A process of eliminating all risks from an insurance portfolio
C. A strategy to increase the frequency of claims
D. A way to reduce the severity of individual claims
Answer: A) A method of transferring risk to another insurance
company to manage large claims
Rationale: Reinsurance is the practice of transferring a portion of an
insurer’s risk to another insurance company to manage and reduce the
financial burden of large claims.
Stuvia
2. What does the term 'peril' refer to in risk management?
A. A condition that increases the frequency of loss
B. A potential cause of loss
C. A financial loss resulting from an event
D. A method of transferring risk
Answer: B) A potential cause of loss
Rationale: A peril is an event or condition that can cause a loss, such as
fire, theft, or natural disasters.
Studypool
,3. Which of the following is an example of a physical hazard?
A. A company’s financial instability
B. A wet floor in a supermarket
C. A poorly drafted contract
D. A change in government regulations
Answer: B) A wet floor in a supermarket
Rationale: A physical hazard refers to a tangible condition that
increases the likelihood of a loss, such as a wet floor leading to slips and
falls.
Studypool
4. Which of the following is a major focus of enterprise risk
management (ERM)?
A. Only financial risk management within a business
B. Managing risks related to specific business units
C. Integrating risk management throughout the entire organization
D. Minimizing external threats to the organization
Answer: C) Integrating risk management throughout the entire
organization
Rationale: ERM focuses on identifying and managing risks across all
aspects of an organization, rather than limiting the process to one
specific area. (quizlet.com)
5. What is the concept of ‘loss severity’?
A. The likelihood that a loss will occur
, B. The extent of the financial damage caused by a loss
C. The frequency of losses in a given time period
D. The impact of a loss on an organization’s reputation
Answer: B) The extent of the financial damage caused by a loss
Rationale: Loss severity refers to the financial impact or damage caused
by a loss event, typically measured in terms of the dollar amount.
(quizlet.com)
6. Which of the following is an example of a moral hazard in insurance?
A. A person not taking care of their property because it is insured
B. A person using the insurance policy to cover the costs of an
unexpected event
C. A person seeking the lowest deductible when purchasing insurance
D. A person keeping insurance coverage up-to-date to prevent financial
loss
Answer: A) A person not taking care of their property because it is
insured
Rationale: A moral hazard occurs when someone takes on more risk
because they do not bear the full consequences of their actions, as seen
when someone neglects their property because they have insurance
coverage. (stuvia.com)
7. Which of the following is a characteristic of pure risk?
A. Possibility of gain or loss
B. Only the possibility of loss
A. A method of transferring risk to another insurance company to
manage large claims
B. A process of eliminating all risks from an insurance portfolio
C. A strategy to increase the frequency of claims
D. A way to reduce the severity of individual claims
Answer: A) A method of transferring risk to another insurance
company to manage large claims
Rationale: Reinsurance is the practice of transferring a portion of an
insurer’s risk to another insurance company to manage and reduce the
financial burden of large claims.
Stuvia
2. What does the term 'peril' refer to in risk management?
A. A condition that increases the frequency of loss
B. A potential cause of loss
C. A financial loss resulting from an event
D. A method of transferring risk
Answer: B) A potential cause of loss
Rationale: A peril is an event or condition that can cause a loss, such as
fire, theft, or natural disasters.
Studypool
,3. Which of the following is an example of a physical hazard?
A. A company’s financial instability
B. A wet floor in a supermarket
C. A poorly drafted contract
D. A change in government regulations
Answer: B) A wet floor in a supermarket
Rationale: A physical hazard refers to a tangible condition that
increases the likelihood of a loss, such as a wet floor leading to slips and
falls.
Studypool
4. Which of the following is a major focus of enterprise risk
management (ERM)?
A. Only financial risk management within a business
B. Managing risks related to specific business units
C. Integrating risk management throughout the entire organization
D. Minimizing external threats to the organization
Answer: C) Integrating risk management throughout the entire
organization
Rationale: ERM focuses on identifying and managing risks across all
aspects of an organization, rather than limiting the process to one
specific area. (quizlet.com)
5. What is the concept of ‘loss severity’?
A. The likelihood that a loss will occur
, B. The extent of the financial damage caused by a loss
C. The frequency of losses in a given time period
D. The impact of a loss on an organization’s reputation
Answer: B) The extent of the financial damage caused by a loss
Rationale: Loss severity refers to the financial impact or damage caused
by a loss event, typically measured in terms of the dollar amount.
(quizlet.com)
6. Which of the following is an example of a moral hazard in insurance?
A. A person not taking care of their property because it is insured
B. A person using the insurance policy to cover the costs of an
unexpected event
C. A person seeking the lowest deductible when purchasing insurance
D. A person keeping insurance coverage up-to-date to prevent financial
loss
Answer: A) A person not taking care of their property because it is
insured
Rationale: A moral hazard occurs when someone takes on more risk
because they do not bear the full consequences of their actions, as seen
when someone neglects their property because they have insurance
coverage. (stuvia.com)
7. Which of the following is a characteristic of pure risk?
A. Possibility of gain or loss
B. Only the possibility of loss
