RISK MANAG 2101 – Which of the following statements

Subject: General Questions / General General Questions
Question
Quiz 4
1. Which of the following statements concerning risk transfers of the financing types is (are)
true?
A.
B.
C.
D.
E.
F. The financial responsibility for the payment of a loss transferred to a third party?
The loss exposure itself is transferred to a third party.
A lease is an example a risk transfer of the financing type
The transfer is final and ultimate and cannot return.
A and C are true
A, B, C and D are all TRUE. 2. Insurance as a mechanism works best when?
A.
B.
C.
D.
E. Insurers have risk pools which are large
Insurers have risk pools which are homogeneous
Insurers have risk pools which are heterogeneous
A and B
A and C 3. If someone has high Pmax, this implies which of the following?
A. They have a high amount of subjective risk
B. They are willing to pay a high amount for insurance.
C. They would be more likely to self­insure a loss rather than purchase insurance against
that loss D. They are willing to pay premium exceeding the actuarial fair premium
E. A, B and D
4. An insurer uses underwriting to:
A. Classify risks into homogeneous categories for pricing purposes
B. Classify risks into heterogeneous categories for pricing purposes
C. Control adverse selection
D. Control moral hazard
E. A and C only
F. B and C only
5. Consider the concept of an actuarially fair premium. This is a premium for insurance which?
A.
B.
C.
D.
E. Is affordable for an insured
Has a large risk charge
Is sufficient to pay the expected loss only
Is tax deductible for an insured
Has a large expense loading 6. If a firm decides to self­insure, they may also purchase stop loss insurance because :
a.
b.
c.
d. They need the expertise of an insurer to settle claims and administer their program.
They are required by the law to do so
They want a tax deductible expenditure
They want to protect themselves against catastrophic losses that might arise. 7. Consider insurance contracts which would fully indemnify insureds. Which of the following statements is(are) true?
a. These contracts contain deductibles
b. These contracts would have a higher expected loss [ other things equal] as compared to contracts that did not fully indemnify insureds
c. These contracts have reduced moral hazard
d. A and B are true
e. A, B and C are true
8. When individuals make decisions under uncertainty, which of the following decision rules do they use?
a.
b.
c.
d.
e. Minimize expected loss
Minimize worry value
Minimize probability of largest loss
Minimize total cost
Minimize insurance premiums 9. Consider insurance contracts that would fully indemnify insureds. In general, these contacts?
a.
b.
c.
d. Minimize moral hazard
Minimize expected loss
Encourage moral hazard
Contain deductibles 10. Unfunded retention is typically used for which of the following type of loss exposure?
a.
b.
c.
d. High frequency, high severity
Low frequency, low severity
High frequency, low severity
Low frequency, low severity e. None of the above is appropriate for unfunded retention

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