According to the law of large numbers, how would losses be affected if the number of similar insured units increases?
a. The higher the exposure, the higher the cost of each loss
b. No effect on predicting losses
c. Predictability of losses will be improved
d. Ability to predict losses decreases
Predictability of losses will be improvedA business becoming incorporated is an example of risk
How can an insurance company minimize exposure to loss?
a. risk concealing
b. reinsuring risks
d. risk assumption
reinsuring risksAn insurer has a contractual agreement which transfers a portion of its risk exposure to another insurer. What type of contractual arrangement is this?
a. coinsurance contract
b. mutuality contract
c. reinsurance contract
d. reciprocity contract
reinsurance contractWhich term describes the elimination of a hazard?
a. risk avoidance
b. risk retention
c. risk transference
risk avoidanceWhich of these statements regarding insurance is false?
a. One way insurers deal with catastrophic loss is through reinsurance
b. As the number of units increases, the number of losses decreases
c. Speculative risk cannot be insured
d. Pure risk can be insured
As the number of units increases, the number of losses decreasesFor insurance purposes, similar objects which are exposed to the same group of perils are referred to as
a. homogenous perils
b. similar exposure units
c. homogeneous exposure units
d. common hazards
homogeneous exposure unitsRisk is the process of analyzing exposures that create risk and designing programs to handle them.
managementWhich of the following can be defined as a cause of a loss?
Which of these statements is NOT a characteristic of the law of large numbers?
a. Individual losses can be predicted based on past experience
b. Group losses can be predicted based on past experience
c. Losses can be predicted in large groups with a higher degree of accuracy
d. Rates can be calculated to compensate for losses
Rates can be calculated to compensate for lossesWhich of the following can be defined as "the potential for loss"?
The law of large numbers enables an insurer to
a. predict losses
b. avoid adverse selection
c. classify rates
d. assure company profits
predict lossesWhat type of risk involves the potential for loss with possibility for gain?
a. speculative risk
A hold-harmless clause is an example of risk
Which of the following describes the act of insuring a risk against possible loss?
a. Risk avoidance
b. Risk transfer
c. Hazard reduction
d. Loss management
Risk transferABC Company is attempting to minimize the severity of potential losses within its company. The company is engaged in risk
An insurable risk requires
a. that the chance for both a loss or gain exists
b. the loss must be catastrophic
c. that the chance of loss be calculable
d. that the loss must be incalculable
that the chance of loss be calculableWhat type of risk involves the potential for loss AND the possibility for gain?
speculativeWhich of the following is NOT an example of risk retention?
a. Becoming aware of a risk and taking no action
b. Self-insuring a given risk
c. Deciding a business deal is risky but going through with it anyways
d. Not doing a business deal after deciding it would be too risky
Not doing a business deal after deciding it would be too riskyPurchasing insurance is an example of risk
transferenceWhich one of these is NOT considered to be an element of an insurable risk?
a. Speculative risk
c. Loss cannot be catastrophic
d. Loss must be due to chance