Homework answers / question archive / University of Tennessee BIO 240 Quiz 1 1)Insurance is appropriate for loss exposures that have a low probability of loss but severity of loss is high (true or false) The risk management process occurs independently within an organization because it operates without restriction ( t or f )   Retention level is the dollar amount of losses that the firm will retain when using retention as a method of financing loss

University of Tennessee BIO 240 Quiz 1 1)Insurance is appropriate for loss exposures that have a low probability of loss but severity of loss is high (true or false) The risk management process occurs independently within an organization because it operates without restriction ( t or f )   Retention level is the dollar amount of losses that the firm will retain when using retention as a method of financing loss

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11. 4. Physical hazard
12. The cost of risk measures costs associated with treating the organization’s loss exposures and it includes insurance premiums, loss of control expenditures, taxes, and other expenses related to the risk management program. ( t or f )
13. Insurance company market conditions effect the decision risk managers make regarding risk financing because hard and soft markets determine pricing. ( t or f )
14. 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 will increase the possibility of unprofitable results for ABC. This type of hazard is an example of:
    1. Legal hazard
    2. Moral hazard
    3. Attitudinal Hazard
    4. Physical Hazard
15. All of the following are reasons for forming a captive insurance company except which one?
    1. To take advantage of a favorable regulatory environment
    2. To potentially reduce insurance costs
    3. To take advantage of wide access to insurance markets
    4. To obtain easier access to reinsurers
16. The probable number of losses that may occur during some period of time is referred to as what?
17. Retention is a risk financing technique where the firm’s retains financial responsibility for
    1. part or all of the costs that can result from a given loss
    2. Retention is best used for loss exposures that have a low frequency and high severity
    3. A financially strong firm can have a higher retention level than a firm whose financial position is weak
    4. Both a or b are true (?)
    5. Neither a or b are true
18. The cost of risk is a tool that measures the costs associated with treating the organization’s loss exposures ( t or f )
19. Risk retention can be active but not passive ( t or f )
20. The worst loss that can happen to a firm is referred to as the
    1. Maximum possible loss
    2. Probable maximum loss
    3. Frequency of loss
    4. Severity of loss
21. A situation or circumstance which a loss is possible, regardless whether a loss occurs is called what?