Principles of risk management and insurance rejda pdf download

In this way, each farmer is responsible for the average loss of the group rather than the actual loss that each farmer sustained. Which characteristic of insurance is embodied in this agreement? XYZ, however, does not write flood insurance on property located in flood plains. Which requirement of an ideally insurable risk might be violated if XYZ wrote flood insurance on property located in flood plains? A There must be a large number of similar exposure units.

B The loss should not be catastrophic. D The losses must be determinable and measurable. The warranty may be purchased at the time of sale or at any time within the first year after the appliance was purchased.

The warranty fee after the date of purchase is twice the time-of-purchase fee. When asked why the fee was higher after the date of purchase, ABC's president said, "Buying a warranty is voluntary.

We've noted that those who buy the warranty after the purchase date have a greater need for service. Since the premiums collected are not needed to pay losses and expenses immediately, the funds can be loaned to business firms. Because of this fact, insurance benefits society by A enhancing credit. B providing a source of investment funds. C indemnifying losses. D providing an incentive for loss prevention. The LMN homeowners policy combines property and casualty insurance in the same contract.

Insurance policies combining property and casualty coverage in the same contract are called A mono-line policies. B multi-year policies. C multiple-line policies. D manuscript policies.

Answer: C Question Status: Previous Edition 31 One branch of government insurance programs has a number of distinguishing characteristics. These programs are compulsory, they are financed by mandatory contributions rather than general tax revenues, and benefits are weighted in favor of low-income groups. These government insurance programs are called A welfare programs. B social insurance programs. C casualty insurance programs. D private insurance programs. She will pay 10 percent of the cost of the house as a down payment and borrow the other 90 percent from a mortgage lender.

The home will serve as collateral for the loan. The lender will not make the loan to Gina unless the home is insured. Using insurance to secure the collateral for a loan illustrates which of the following benefits of insurance to society?

A enhancement of credit B reduction of fear and worry C source of investment funds D incentives for loss prevention Answer: A Question Status: Previous Edition 33 ABC Insurance Company calculated the amount that it expected to pay in claims for each policy sold. Rather than selling the insurance for the amount it expected to pay in claims, ABC added an allowance to cover the cost of doing business, including commissions, taxes, and acquisition expenses.

This allowance is called a n A policyowner dividend. B premium. C expense loading. D rate credit. Last year, JKL insured homeowners. According to the law of large numbers, what should happen if JKL insures 2, homeowners this year?

A The total number of claims filed by JKL policyowners should decrease. B The total dollar value of claims will decrease. C The average size of loss will decline in value. D The actual results will more closely approach the expected results. Answer: D Question Status: Previous Edition 35 Apex Insurance Company wrote a large number of property insurance policies in an area where earthquake losses could occur. When the president of Apex was asked if she feared that a severe earthquake might put the company out of business, she responded, "Not a chance.

We transferred most of that risk to other insurance companies. B speculating. C reinsurance. D loss avoidance. Answer: C Question Status: Previous Edition 36 According to the law of large numbers, what should happen as an insurance company increases the number of loss exposures that it insures? A Fewer losses should be expected to occur. B The amount of premiums needed to cover losses should decrease. C The volatility of the insurance company's underwriting results should increase.

D The difference between actual and expected results should decrease. Answer: D Question Status: Previous Edition 37 Which of the following statements regarding insurance and hedging is are true? Insurance involves the transfer of an insurable risk while hedging handles risk that is typically uninsurable. Insurance transactions can reduce objective risk, while hedging typically involves only risk transfer and not risk reduction.

Duplication 5. Separation 6. Diversification B. Risk Financing 1. Retention 2. Noninsurance transfers 3. Because the car is old and has a limited market value, collision insurance should not be purchased.

Retention can be used to deal with the exposure. Liability insurance. Because the exposure has the potential for causing a catastrophic loss, auto liability insurance should be purchased.

The policy should contain a deductible. The dollar value of the loss of a disposable contact lens is small. Loss control. The waterbed should be carefully checked for possible leaks to reduce the possibility of damage to the apartment. As an alternative, an endorsement can be added to a homeowners policy to cover the liability exposure. Michael should pick a new running route. Life insurance. The loss of tuition would have been replaced by life insurance. Historically, many insurance authors have defined riskin terms of uncertainty.

Risk is uncertainty concerning the occurrence of a loss. As the number of exposure units under observation increases, objective risk declines. Accordingly, objective risk is measurable and statistical; subjective risk is personal and not easily measured.

Hazard is a condition that creates or increases the chance of loss. Moral hazard is dishonesty or character defects in an individual that increase the chance of loss. Attitudinal hazard morale hazard is carelessness or indifference to a loss. Legal hazard refers to characteristics of the legal system or regulatory environment that increase the frequency or severity of losses. Speculative risk is defined as a situation where either profit or loss is possible.

It is a risk that can be reduced or eliminated by diversification. In contrast, nondiversifiable risk is a risk that affects the entire economy or large numbers of persons or groups within the economy. It is a risk that cannot be reduced or eliminated by diversification.

These risks include pure risk, speculative risk, strategic risk, operational risk, and financial risk. Enterprise risk management considers all risks faced by a corporation as described in a above. Pure risks associated with great financial and economic insecurity include the risks of premature death, insufficient income during retirement, old age, poor health, and unemployment.

In addition, persons owning property are exposed to the risk of having their property damaged or lost from numerous perils. Finally, liability risks are also associated with great financial and economic insecurity. Pure risk is a burden to society for at least three reasons: a The size of an emergency fund must be increased. A direct loss is a financial loss that results from the physical damage, destruction, or theft of property.

Indirect loss results from or is the consequence of a direct loss. Major risks faced by business firms include property risks, liability risks, loss of business income,cyber security and identity theft,crime exposures, human resources exposures, foreign loss exposures, intangible property exposures, and government exposures.

They include the following 1 Avoidance. This means a certain loss exposure is never acquired, or an existing loss exposure is abandoned. For example, a drug manufacturer can avoid lawsuits associated with a dangerous drug by not producing the drug. Certain activities are undertaken that reduce the frequency of a particular loss. One example of loss prevention is periodic inspection of steam boilers to prevent an explosion.

This refers to measures that reduce the severity of a loss after it occurs. One example of loss reduction is an automatic sprinkler system in a department store that can reduce the severity of a fire loss.

This technique refers to have back-up or duplicate copies of important documents or property in the event a loss occurs. This technique reduces the chance of loss by spreading the loss exposure across different parties. The assets exposed to loss are separated or divided to minimize the financial loss from a single event. They include the following 1 Retention.

This means that an individual or business firm retains part or all of the losses that can result from a given loss exposure. This means that a risk is transferred to another party other than an insurance company. For example, the risk of a defective television set can be shifted or transferred to the retailer by the purchase of a service contract by which the retailer is responsible for all repairs after the warranty expires.

An auto insurance policy can be purchased covering the negligent operation of an automobile. Risk Accounting and Risk Management for Accountants.

Risk Management. Principles of Hotel Management. Risk Management: Value at Risk and Beyond. Occupational Hygiene and Risk Management. Event Risk Management and Safety. Recommend Documents. Filipovic Co-Chair M. Koller C. Hipp A. Pelsser E. Pitacco U. Orbanz Co-Chair EA Risk Management: Principles and Practices Foreword According to modern portfolio theory, risk and return go hand in hand.

But risk whether portfolio risk, firm r