59 notecards = 15 pages (4 cards per page)
Traditionally, risk has been defined as
Objective risk is defined as
An insurance company estimates its objective risk for 10,000 exposures to be 10 percent. Assuming the probability of loss remains the same, what would happen to the objective risk if the number of exposures were to increase to 1 million?
Uncertainty based on a person's mental condition or state of mind is known as
The long-run relative frequency of an event based on the assumption of an infinite number of observations with no change in the underlying conditions is called
Which of the following statements about a priori probabilities is correct?
An individual's personal estimate of the chance of loss is a(n)
A peril is
An earthquake is an example of a(n)
Dense fog that increases the chance of an automobile accident is an example of a
Faking an accident to collect insurance proceeds is an example of
Carelessness or indifference to a loss is an example of
Some characteristics of the judicial system and regulatory environment increase the frequency and severity of loss. This hazard is called
Taylor Tobacco Company is concerned that the company may be held liable in a court of law and ordered to pay a large damage award to a smoker harmed by the company’s cigarettes. The characteristics of the judicial system that increase the frequency and severity of loss are known as
A name that encompasses all of the major risks faced by a business firm is
Which of the following statements about financial risk is (are) true?
One of the speculative financial risks considered in an enterprise risk management program is the risk of loss because of adverse changes in commodity prices, interest rates, foreign exchange rates, and the value of money. This risk is called
Katelyn was just named Risk Manager of ABC Company. She has decided to create a risk management program which considers all of the risks faced by ABC—pure, speculative, operational, and strategic—in a single risk management program. Such a program is called a(n)
A pure risk is defined as a situation in which there is
The premature death of an individual is an example of a
Which of the following statements about speculative risks is true?
An automobile that is a total loss as a result of a collision is an example of which of the following types of risk?
All of the following are programs to insure fundamental risks EXCEPT
All of the following are examples of personal risks EXCEPT
Which of the following is a reason why premature death may result in economic insecurity?
Which of the following is (are) often consequences of long-term disability?
Which of the following is an example of consequential (indirect) loss?
The extra expense incurred by a business to stay in operation following a fire is an example of a(n)
Which of the following statements about liability risks is (are) true?
All of the following are burdens to society because of the presence of risk EXCEPT
Loss control includes which of the following?
Following good health habits can be categorized as
From the insured's perspective, the use of deductibles in insurance contracts is an example of
The use of fire-resistive materials when constructing a building is an example of
All of the following statements about risk retention are true EXCEPT
Which of the following is an example of a noninsurance risk transfer?
Curt borrowed money from a bank to purchase a fishing boat. He purchased property insurance on the boat. Curt had difficulty making loan payments because he did not catch many fish, and fish prices were low. Curt intentionally sunk the boat, collected from his insurer, and paid off the loan balance. This scenario illustrates the problem of
Jenna opened a successful restaurant. One night, after the restaurant had closed, a fire started when the electrical system malfunctioned. In addition to the physical damage to the restaurant, Jenna lost profits that could have been earned while the restaurant was closed for repairs. The lost profits are an example of
Brad started a pest control business. To protect his personal assets against liability arising out of the business, Brad incorporated the business. Brad's use of the corporate form of organization to shield against personal liability claims illustrates
ABC Insurance Company plans to sell homeowners insurance in five Western states. ABC expects that 8 homeowners out of every 100, on average, will report claims each year. The variation between the rate of loss that ABC expects to occur and the rate of loss that actually occurs is called
Williams Company installed smoke detectors, a sprinkler system, and fire extinguishers in its new manufacturing facility. These devices are all examples of
Which of the following statements about hedging is (are) true?
Cathy's car hit a patch of ice on the road. The car skidded off the road and hit a tree. The presence of ice on the road is best described as a(n)
Jim and Paula Franklin started a dry cleaning business. The business may be successful or it may fail. The type of risk that is present when either a profit or loss could occur is called
Ben is concerned that if he injures someone or damages someone's property he could be held legally responsible and required to pay damages. This type of risk is called a
MLX Drug Company would like to market a new hypertension drug. While the Food and Drug Administration (FDA) was testing the drug, it discovered that the drug produced a harmful side effect. When MLX learned of the FDA's test result, MLX abandoned its plan to produce and distribute the drug. MLX's reaction illustrates
ABC Insurance Company sells auto insurance in one state. Recently, the state legislature passed a law that limits the use of an individual’s credit history by insurers when selecting applicants to insure. This change in law will increase the possibility of unprofitable results for ABC. This type of hazard is an example of
All of the following are characteristics of the liability risk that most people face EXCEPT
Which of the following statements about chance of loss and risk is (are) true?
A risk that affects only individuals or small groups and not the entire economy is called a
Which of the following is an example of a commercial risk?
A special form of planned retention by which part or all of a give loss exposure is retained by the firm is called
The production facility for ABC Manufacturing is located in a flood plain. Although the risk of flood is low, ABC's risk manager is concerned that a flood could damage the plant and equipment. He received bids on flood insurance from two insurance agents, but decided the cost of coverage was too high relative to the risk. So he did not purchase flood insurance. Which risk management technique is ABC using with respect to the risk of flood?
A student who has skipped many classes and not studied the course material was surprised to learn there was a test when he showed-up for class. The student's mental uncertainty about whether or not he will pass the test is called
Rapid inflation, cyclical unemployment, war, hurricanes, and floods are all examples of
Five years ago, Shannon decided to start investing monthly in the common stock of ABC Telecom Company. Her financial well-being will be harmed if the price of ABC Telecom stock drops significantly. The risk of investment loss can be reduced if she invests in other companies and other types of financial assets. The risk Shannon faces with regard to her investments is a(n)
Frazier Electric keeps a paper copy of business records at the company’s headquarters. The company also has two back-up copies of business records stored in electronic files. The electronic files are kept in the event the paper records are damaged or destroyed. The back-up files illustrate which of the following risk control techniques?
Rather than storing all of its finished goods in a single location, Davis Company divides the finished goods between two warehouses. This simple risk control technique which is designed to limit losses should a warehouse fire occur is called
Some members of Congress are concerned that if one or two large U.S. banks fail, it could lead to the collapse of the entire U.S. financial sector. This risk is called