risk management exam 1 practice questions 100% verified.

Which of the following is not a step in the risk management process? Identify risks Select appropriate risk management technique Implement and monitor decisions Pay for an incurred loss Evaluate the potential frequency and severity of a risk - Correct Answers Pay for an incurred loss Which of the following is not an approach to identify risks: Financial statement analysis Loss exposure checklists Flowcharts Severity/frequency matrix Contract analysis - Correct Answers Severity/frequency matrix Which of the following statements regarding the use of retention is (are) true? 1.Retention is best used for loss exposures that have a low frequency and a high severity. 2. A financially strong firm can have a higher retention level than a firm whose financial position is weak. 1 only 2 only both 1 and 2 neither 1 nor 2 - Correct Answers 2 only Bev lives in the suburbs and works downtown. She drives to work, and her most direct route to work would require her to pass through an area where carjackings and drive-by-shootings are common. Bev does not drive through this area. Instead, she uses a route which adds 10 minutes to her commute. Which risk management technique is Bev using with respect to the risk of injury while driving through the dangerous area? avoidance loss prevention noninsurance transfer planned retention loss reduction - Correct Answers avoidance All of the following are disadvantages of noninsurance transfers EXCEPT The party to whom the potential loss is transferred may be unable to pay. The transfer may fail because the contract language is ambiguous. The only potential losses that can be transferred are those that are not commercially insurable. The noninsurance transfer may be costly. All of the above - Correct Answers The only potential losses that can be transferred are those that are not commercially insurable. In reviewing his company's operations, a risk manager noticed that all of the company's finished goods were stored in a single warehouse. The risk manager recommended that the finished goods be divided among three warehouses to prevent all of the finished goods from being destroyed by the same peril. Dividing the finished goods among three warehouses illustrates duplication separation insurance loss prevention noninsurance transfer - Correct Answers separation A restaurant owner leased a meeting room at the restaurant to a second party. The lease specified that the second party, not the restaurant owner, would be responsible for any liability arising out of the use of the meeting room, and that the restaurant owner would be "held harmless" for any damages. The restaurant owner's use of the hold-harmless agreement in the lease is an example of retention self-insurance risk avoidance loss reduction noninsurance transfer - Correct Answers noninsurance transfer Which of the following statements about the use of deductibles is (are) true? I. They represent risk retention by insurance purchasers. II. They tend to increase the cost of adjusting small claims. A) I only B) II only C) both I and II D) neither I nor II - Correct Answers A) I only Which of the following conditions is (are) appropriate for using retention? I. Losses are difficult to predict. II. The worst possible loss is not serious. A) I only B) II only C) both I and II D) neither I nor II - Correct Answers B) II only Which of the following statements regarding the use of retention is (are) true? I. Retention is best used for loss exposures that have a low frequency and a high severity. II. A financially strong firm can have a higher retention level than a firm whose financial position is weak. A) I only B) II only C) both I and II D) neither I nor II - Correct Answers B) II only Which of the following statements about self-insurance is (are) true? I. It is a form of planned retention. II. State law usually prohibits its use for workers compensation. A) I only B) II only C) both I and II D) neither I nor II - Correct Answers A) I only All of the following are potential advantages of retention EXCEPT A) lower expenses. B) increased cash flow. C) encouragement of loss prevention. D) protection from catastrophic losses - Correct Answers D) protection from catastrophic losses