RISK MANAGEMENT PRACTICE TEST 2025/26
QUESTIONS WITH CORRECT ANSWERS.
Uncertainty based on a person's mental condition or state of mind is referred
to as which of the following?
a) objective risk
b) subjective risk
c) uncertainty
d) none of the above Answer - b) subjective risk
An insurer has 100,000 covered automobiles in both Atlanta and Memphis. The
chance of accidents in each city is 3%. For the years 2006-2009, Atlanta had
350, 300, and 250 accidents while Memphis experienced 300, 280, and 320
accidents. Which city is riskier?
a) Atlanta
b) Memphis
c) the risk is equal between the two cities
d) additional information is required to answer this question Answer - a)
Atlanta
The spreading of losses incurred by the few over the entire group, so that in
the process, average loss is substituted for actual loss is defined as which of the
following?
a) indemnification
b) insurance
c) pooling
, d) underwriting Answer - c) pooling
Which of the following statements is false regarding insurance versus
gambling?
a) insurance creates a new risk
b) gambling creates a new risk
c) gambling creates a situation where one party gains at another's expense
d) insurance aligns the incentives between insurer and insured Answer - a)
insurance creates a new risk
Which of the following is not a benefit of insurance?
a) indemnification for loss
b) source of investment funds
c) expense loadings
d) enhancement of credit Answer - c) expense loadings
Which of the following is not a pre-loss objective of risk management?
a) meeting legal obligations
b) survival of the firm
c) reducing anxiety
d) preparing for losses in an economical way Answer - b) survival of the firm
Retention, transfer, and commercial insurance are examples of which of the
following?
a) risk control
b) risk financing
c) both a and b
QUESTIONS WITH CORRECT ANSWERS.
Uncertainty based on a person's mental condition or state of mind is referred
to as which of the following?
a) objective risk
b) subjective risk
c) uncertainty
d) none of the above Answer - b) subjective risk
An insurer has 100,000 covered automobiles in both Atlanta and Memphis. The
chance of accidents in each city is 3%. For the years 2006-2009, Atlanta had
350, 300, and 250 accidents while Memphis experienced 300, 280, and 320
accidents. Which city is riskier?
a) Atlanta
b) Memphis
c) the risk is equal between the two cities
d) additional information is required to answer this question Answer - a)
Atlanta
The spreading of losses incurred by the few over the entire group, so that in
the process, average loss is substituted for actual loss is defined as which of the
following?
a) indemnification
b) insurance
c) pooling
, d) underwriting Answer - c) pooling
Which of the following statements is false regarding insurance versus
gambling?
a) insurance creates a new risk
b) gambling creates a new risk
c) gambling creates a situation where one party gains at another's expense
d) insurance aligns the incentives between insurer and insured Answer - a)
insurance creates a new risk
Which of the following is not a benefit of insurance?
a) indemnification for loss
b) source of investment funds
c) expense loadings
d) enhancement of credit Answer - c) expense loadings
Which of the following is not a pre-loss objective of risk management?
a) meeting legal obligations
b) survival of the firm
c) reducing anxiety
d) preparing for losses in an economical way Answer - b) survival of the firm
Retention, transfer, and commercial insurance are examples of which of the
following?
a) risk control
b) risk financing
c) both a and b
