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 […]
Which of the following statements about the use of a captive insurance company by a parent firm is true? A) The captive may not write outside, non-parent company, business. B) Captives are not permitted to use reinsurance, so any business insured by the captive stays with the captive. C) The captive may be used to […]
Ryan decided to review his personal risk management program. His car is 10 years old, and he would receive little money from his insurer if the car was damaged or destroyed. Ryan decided to drop the physical damage insurance on the car. From a risk management perspective, dropping the physical damage insurance on the car […]
All of the following are disadvantages of noninsurance transfers EXCEPT A) The party to whom the potential loss is transferred may be unable to pay. B) The transfer may fail because the contract language is ambiguous. C) The only potential losses that can be transferred are those that are not commercially insurable. D) The noninsurance […]
An insurance policy specifically written and designed to meet the needs of an insurance purchaser is called a(n) A) manuscript policy. B) bureau policy. C) standard policy. D) excess policy. ANSWER Answer: A
Factors a risk manager must consider in selecting an insurer include which of the following? I. The availability of risk management services II. The financial strength of the insurer A) I only B) II only C) both I and II D) neither I nor II ANSWER Answer: C
Which of the following statements about an excess insurance plan is true? A) The insurer does not participate in a loss until the loss exceeds the amount the firm has decided to retain. B) The insurer pays first up to some specified level; the insured then pays all losses exceeding the insurer’s retention level. C) […]
ABC Insurance retains the first $1 million of each property damage loss and purchases reinsurance for that part of any property loss that exceeds $1 million. The insurance for property losses above $1 million is called A) excess insurance. B) liability insurance. C) coinsurance. D) primary insurance. ANSWER Answer: A
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 ANSWER Answer: A
All of the following are disadvantages of using insurance in a commercial risk management program EXCEPT A) There is an opportunity cost because premiums must be paid in advance. B) Considerable time and effort must be spent selecting and negotiating coverages. C) It results in considerable fluctuations in earnings after losses occur. D) Attitudes toward […]
