RST Company has production facilities in Salt Lake City and Cleveland. The probability that in any given year a fire will damage the production facility in Salt Lake City is 5 percent. The probability that in any given year a fire will damage the Cleveland production facility is 4 percent. What is the probability that […]
Which statement about a company’s cost of risk is (are) true? I. Cost of risk includes insurance premiums and retained losses. II. Reducing the cost of risk increases profitability. A) I only B) II only C) both I and II D) neither I nor II ANSWER Answer: C
A useful measure for an organization to monitor is the total expenditures for treating loss exposures including retained losses, loss control expenses, insurance premiums, and other related expenses. This measure is called the organization’s A) cost of capital. B) cost of goods sold. C) cost of risk. D) cost of equity. ANSWER Answer: […]
Which of the following is least likely to occur during a “hard” insurance market period? A) difficulty in obtaining insurance B) tightening underwriting standards C) higher insurer profits D) increasing premiums ANSWER Answer: C
Purchasing health insurance illustrates the use of which personal risk management technique? A) avoidance B) risk transfer C) risk control D) risk retention ANSWER Answer: B
Which of the following statements about captive insurance companies is (are) true? I. A captive insurance company established by a U.S. company must be domiciled in the United States. II. A captive insurance company may be owned by several parents. A) I only B) II only C) both I and II D) neither I nor […]
Mark owns a 2006 sedan. The last time Mark renewed his auto insurance, he decided to drop the physical damage insurance on this vehicle. How is Mark dealing with the auto physical damage exposure in his personal risk management program? A) risk transfer B) passive retention C) avoidance D) active retention ANSWER Answer: […]
Which of the following statements concerning the selection of risk management techniques and insurance market conditions is (are) true? I. It’s easier to purchase affordable insurance during a “soft ” market than during a “hard” market. II. Retention is used more during a “soft” market than during a “hard” market. A) I only B) II […]
Discount Department Stores is a national retail chain. The company had one large, central warehouse. At the suggestion of the risk manager, the company decided to build four smaller regional warehouses so that a loss at the central warehouse would not be a catastrophic blow to the company’s distribution system. Splitting the inventory between four […]
Each accounting period, Harris Company Department Store charges a bookkeeping account for its estimated shoplifting losses. The method that Harris Company Department Store uses to fund its retained shoplifting losses is a(n) A) private insurance policy. B) captive insurer. C) credit line. D) unfunded reserve. ANSWER Answer: D
