Question 1

Identify the natural peril that is generally insurable.

Accepted Answer

Windstorm is a natural peril that is generally insurable because it is a common occurrence that can cause significant damage to property.

Question 2

Which of the following statements correctly differentiate between perils and hazards?

Accepted Answer

Perils are specific events or circumstances that can cause losses, such as fires, theft, or natural disasters. Hazards, on the other hand, are conditions or situations that increase the likelihood or severity of a peril occurring, such as storing flammable materials in a building (increasing the risk of fire) or icy roads (increasing the risk of car accidents).

Question 3

In a meeting with the board of directors, the risk manager said, "There were three instances of product liability against our firm last year." He is referring to the:

Accepted Answer

The risk manager is referring to the "frequency of losses," which indicates how often losses occur, in this case, three instances of product liability within a year.

Question 4

Identify the hazard that generally exists when a person can gain from the occurrence of a loss.

Accepted Answer

Moral hazard occurs when a person or entity has an incentive to increase exposure to risk because they do not bear the full cost of that risk. In the context of insurance, for example, a person who has insurance may take greater risks or act more carelessly because they know any loss will be covered by the insurance policy.

Question 5

What are perils? What are the different types of perils?

Accepted Answer

The answer of What are perils? What are the different...

Question 6

Carelessness or lack of concern can be categorized as a:

Accepted Answer

Morale hazard refers to an individual's carelessness or indifference to loss because of the existence of insurance, which can lead to riskier behavior.

Question 7

Explain the relationship between risk and uncertainty.

Accepted Answer

The answer of Explain the relationship between risk and uncertainty....

Question 8

Identify the natural peril that is generally difficult to insure.

Accepted Answer

Earthquakes are generally difficult to insure due to their unpredictable nature and the potential for massive damage over a wide area, which presents a high risk for insurance companies.

Question 9

Explain the different types of risk attitudes.

Accepted Answer

The answer of Explain the different types of risk attitudes....

Question 10

Craig is a reckless driver.He is careless because his Porsche is insured and he knows that losses incurred will be covered.This is an example of a:

Accepted Answer

Moral hazard occurs when an individual takes excessive risks because they know that the losses will be covered by insurance. In this case, Craig is a reckless driver because he knows that his Porsche is insured and that any losses incurred will be covered.

Question 11

Risk professionals refer to hazards as:

Accepted Answer

Hazards are conditions that increase the likelihood or severity of a loss. They do not directly cause loss but make losses more likely or more severe when a peril occurs.

Question 12

Slippery roads, which often increase the number of auto accidents is an example of:

Accepted Answer

Slippery roads are an example of physical hazards because they are a physical condition that increases the chance of an accident or loss.

Question 13

Identify the human peril that is generally insurable.

Accepted Answer

Vandalism is generally considered an insurable peril under many property insurance policies because it involves intentional damage or destruction of property, which can be assessed and quantified for coverage purposes.

Question 14

Identify the human peril that is generally difficult to insure.

Accepted Answer

Terrorism is generally difficult to insure against because it is unpredictable and can result in massive losses, making it a high-risk event for insurance companies.

Question 15

How is moral hazard different from morale hazard? Explain.

Accepted Answer

The answer of How is moral hazard different from morale...

Question 16

Differentiate between diversifiable and nondiversifiable risks.Provide examples for each.

Accepted Answer

The answer of Differentiate between diversifiable and nondiversifiable risks.Provide examples...

Question 17

Which of the following is an economic peril?

Accepted Answer

Employee strikes are considered an economic peril as they can disrupt business operations and lead to financial losses.

Question 18

In a meeting with the board of directors, the risk manager said, "Each of the product liability claims against our firm last year cost us an average of $125,000 and a total of $375,000." He is referring to the:

Accepted Answer

The severity of losses refers to the average cost per claim, which in this case is $125,000. The total cost of $375,000 also relates to the severity of the claims.

Question 19

Identify the hazards that involve behavior that can be construed as negligence or that border on criminality.

Accepted Answer

Moral hazard involves behavior that can be construed as negligence or that borders on criminality.

Question 20

Write a note on enterprise risk management (ERM).

Accepted Answer

The answer of Write a note on enterprise risk management...

Quiz 1: The Nature of Risk: Losses and Opportunities