The risks most suited to treatment by insurance are those in which there is a low probability and a high potential severity Those risks most suited to treatment by loss prevention are those in which the probability and severity are both high With respect to the purchase of insurance, the rule "consider the odds" suggests that one should
Full Answer
How do you minimize the risk of uninsured losses?
minimize insurance expenditures. make certain that uninsured losses do not occur. minimize the adverse effects of losses and uncertainty connected with risks. guarantee the attainment of company goals will not be prevented by losses.
What are the different types of loss coverage?
This type of coverage is referred to as: a. Direct loss coverage b. Inconsequential loss coverage c. Hazardous conditions insurance d. Adverse selection coverage e. Indirect loss coverage
What does it mean to protect the insured against loss?
protect subsequent purchasers against loss resulting from a defective title transferred to them by the insured. defend the insured in the event of legal action in connection with losses not excluded by the policy. defend the insured in the event of legal action in connection with losses not excluded by the policy.
What are the objectives of preparing for potential losses?
First, the firm should prepare for potential losses in the most economical way. Second objective is the reduction of anxiety. certain loss exposures such as defective product causing a major lawsuit can cause greater anxiety than a small fire.
What type of risk involves the potential for loss and the possibility for gain?
Speculative risksSpeculative risks involve the possibility of loss and gain. Pure risks involve the possibility of loss only.
Which risk management step is concerned with the severity of a loss?
Risk avoidance and risk reduction are two strategies to manage risk. Risk avoidance deals with eliminating any exposure to risk that poses a potential loss, while risk reduction deals with reducing the likelihood and severity of a possible loss.
Which of the following is an example of retaining risk?
An insurance deductible is a common example of risk retention to save money, since a deductible is a limited risk that can save money on insurance premiums for larger risks. Businesses actively retain many risks — what is commonly called self-insurance — because of the cost or unavailability of commercial insurance.
Which of the following can be defined as potential for loss?
risk. Which of the following can be defined as "the potential for loss"? that the chance of loss be calculable.
What is loss control in risk management?
Loss control is a risk management technique that seeks to reduce the possibility that a loss will occur and reduce the severity of those that do occur. A loss control program should help policyholders reduce claims, and insurance companies reduce losses through safety and risk management information and services.
What is risk and loss management?
Risk management is the continuing process to identify, analyze, evaluate, and treat loss exposures and monitor risk control and financial resources to mitigate the adverse effects of loss. Loss may result from the following: financial risks such as cost of claims and liability judgments.
What is risk retention in risk management?
Risk Retention — planned acceptance of losses by deductibles, deliberate noninsurance, and loss-sensitive plans where some, but not all, risk is consciously retained rather than transferred.
What is risk retention strategy?
What is Risk Retention? Risk retention is the practice of setting up a self-insurance reserve fund to pay for losses as they occur, rather than shifting the risk to an insurer or using hedging instruments.
What is an example of risk retention When is this strategy most appropriate?
Examples of risk retention are self-insurance, insurance policy deductibles, and noninsurance. This strategy is most appropriate when both the probability of a risk materializing and the severity of its impact are low.
Which type of risk presents only the chance of loss or no loss?
Pure riskPure risk is a risk in which there is only a possibility of loss or no loss — there is no possibility of gain. Pure risk can be categorized as personal, property, or legal risk.
Which of the following risks may be protected against by insurance?
There are generally 3 types of risk that can be covered by insurance: personal risk, property risk, and liability risk. Personal risk is any risk that can affect the health or safety of an individual, such as being injured by an accident or suffering from an illness.
What is objective risk and subjective risk?
The objective risk is the relative variation of actual loss from expected loss. As the number of exposure units under observation increases, objective risk declines. The subjective risk is uncertainty based on one's mental condition or state of mind.
Question
Those risks most suited to treatment by loss prevention are those in which a. the probability is low and the potential severity is high. b. the probability and potential severity are both low. c. the probability and potential severity are both high. d. the probability is high and the potential severity is low. e. None of the above.
Insurance
Insurance is a tool used to manage risk. It entails buying financial protection against downside exposures from an insurance company in exchange for a fee, known as a premium.
Answer and Explanation: 1
The answer is c. the probability and potential severity are both high. This type of risk would be way to costly to assume and to insure.
How to manage life insurance?
manage the proceeds of life insurance payable at the time of death. make premiums paid for life insurance tax-deductible by the payer. manage the distributions of cash value from insurance policies. avoid â incidents or ownershipâ in life insurance that makes the proceeds taxable.
What are speculative risks?
speculative risks, enterprise risks, and financial risks. personal risks, property risks, liability risks, and risks arising out of the failure of others. personal risks, property risks, liability risks, and risks arising out of the failure of others.
What is a modified life insurance policy?
the common disaster clause. A life insurance policy that is written to insure two or more persons with the face amount payable upon the death of the first insured to die is called. a modified life policy. a convertible term policy. a joint and survivorship policy.
What is a group of health care providers?
is a group of health care providers contracted by an employer or insurer to provide services. is an insurer approved by the state commissioner of insurance. is a health insurer selected by a group of physicians. usually charges higher fees than other providers in the area.
When is an insurer obligated to pay damages?
the insurer is obligated to pay damages only when the insured is legally liable. the injured party has a direct claim against the insurance company. the insurer promises to defend any suits involving the type of liability insured. the injured party has a direct claim against the insurance company.
What is underwriting error?
the choice of the wrong insurance to fit a specific need. an underwriting error on the part of an insurance company. the tendency of the poorer than average risks to seek insurance to a greater extent than do the better than average risks. a loss situation in which the chance of loss cannot be determined.
What are the factors that determine the order of an insurance company?
The most important factors in selecting an insurance company, in order of importance are: financial stability, treatment of policyholders, and cost. cost, financial stability, and treatment of policyholders. agent, cost, and financial stability. treatment of policyholders, cost, and agent.
What is loss reduction?
3) Loss Reduction: refers to reducing the severity of a loss. ex: installing a sprinkler system to reduce damage by a fire. 1) Retention: means that a firm retains all or part of the losses that result from a loss. can be active or passive. determining the dollar amount of losses that a firm will retain.
What are the two objectives of risk management?
what are the 2 objectives of risk management? Definition. 1) pre-loss objectives: important objectives before a loss occurs include economy, reduction of anxiety, and meeting legal obligations. First, the firm should prepare for potential losses in the most economical way.
What is a captive insurer?
Definition. *losses can be paid by a captive insurer. --it is an insurer owned by a parent firm for the purpose of insuring the parent firm's loss exposures. single parent captive (pure captive) : is an insurer only owned by ONE parent company.
Why does a potential loss transfer fail?
disadvantages: the transfer of potential loss may fail because the contract language is so ambiguous. if the party to whom the potential loss is transferred is unable to pay the loss , the firm is still responsible for the claim. an insurer may not give credit for transfers an insurance costs may not always be reduced.
What is the second objective of a lawsuit?
Second objective is the reduction of anxiety. certain loss exposures such as defective product causing a major lawsuit can cause greater anxiety than a small fire. Final objective is to meet any legal obligations--. Companies have to follow govt regulations.
How to determine maximum uninsured loss?
2 methods: 1) a corporation can determine the maximum uninsured loss it can absorb without adversely affecting the company's earnings. (rule is that max retention should be set at 5% of the company's annual earnings) 2) a company can determine the max ret as a % of the firm's net working capital-between 1 and 5%.
What are the advantages and disadvantages of risk control techniques?
Definition. 1) Avoidance : -major advantage of this technique is that the chance of loss is reduced to zero if the loss exposure is never acquired. --two major disadvantages. first, the firm may not be able to avoid all losses. ex: cannot avoid the premature death of a key executive.