Risk avoidance Risk retention Risk reduction Risk transference Risk avoidance allows companies to eliminate risk but often negates the possibility of some additional profit Risk reduction ID: 780870
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Slide1
Selective Mobile company has been offered a great deal on a purchase of televisions from a company called Circuit City. They’ve never purchased televisions from Circuit City, so they’re hesitant to make such a large purchase. Finally, Circuit City offers to provide to you and your warranties for each of the dishwashers. This is an example of:
Risk avoidance
Risk retention
Risk reduction
Risk transference
Slide2Risk avoidance allows companies to eliminate risk, but often negates the possibility of some additional profit. Risk reduction means taking measures to decrease the likelihood of a loss. Risk transference
means transferring risk to someone else (usually through insurance), and
Risk retention
means assuming or accepting risk.
Slide3Selective Mobile company has been offered a great deal on a purchase of televisions from a company called Circuit City. They’ve never purchased televisions from Circuit City, so they’re hesitant to make such a large purchase. Finally, Circuit City offers to provide to you and your warranties for each of the dishwashers. This is an example of:
Risk avoidance
Risk retention
Risk reduction
Risk transference
Slide4Selective State Real Estate company has been offered a great deal on ten building properties in Cleveland, OH. The economy of Cleveland has been declining recently, but the Owner of Selective State Real Estate company expects it to recover soon. This could be an exceptional opportunity for Selective State but it’s also risky. In the end, Selective State decides not to purchase the properties. This is an example of:
Risk avoidance
Risk retention
Risk reduction
Risk transference
Slide5Selective State Real Estate company has been offered a great deal on ten building properties in Cleveland, OH. The economy of Cleveland has been declining recently, but the Owner of Selective State Real Estate company expects it to recover soon. This could be an exceptional opportunity for Selective State but it’s also risky. In the end, Selective State decides not to purchase the properties. This is an example of:
Risk avoidance -
seeks to avoid compromising events entirely by not taking an action that involves risk
Risk retention (acceptance) -
Acceptance
means that we accept the identified
risk.
Risk reduction -
deals with
reducing
the likelihood and severity of a possible loss.
Risk transference -
risk
management and control strategy that involves the contractual shifting of a pure
risk
from one party to another.
Slide6Selective State Real Estate company has been offered a great deal on ten building properties in Cleveland, OH. The economy of Cleveland has been declining recently, but the Owner of Selective State Real Estate company expects it to recover soon. This could be an exceptional opportunity for Selective State but it’s also risky. In the end, Selective State decides not to purchase the properties. This is an example of:
Risk avoidance
Risk retention
Risk reduction
Risk transference
Slide7Selective State Real Estate company has purchased ten building properties in Cleveland, OH. Selective State decides not to purchase insurance because funds are low. Selective State is practicing:
Risk avoidance
Risk retention
Risk reduction
Risk transference
Slide8Selective State Real Estate company has purchased ten building properties in Cleveland, OH. Selective State decides not to purchase insurance because funds are low. Selective State is practicing:
Risk avoidance -
Quentin’s Scooters decides not to open a new store on the coast of Florida in order to avoid the potential risks of unreliable employees
Risk retention -
Quentin’s Scooters retains the risk of damage to their company trucks by choosing not to purchase comprehensive insurance coverage for them.
Risk reduction -
Quentin’s Scooters reduces risk by renting a store, rather than buying a building for its shop.
Risk transference -
Quentin’s Scooters transfers the risk of wind & hail damage to the insurance company by purchasing property insurance for their building.
Slide9Selective State Real Estate company has purchased ten building properties in Cleveland, OH. Selective State decides not to purchase insurance because funds are low. Selective State is practicing:
Risk avoidance
Risk retention
Risk reduction
Risk transference
Slide10Risk avoidance is a risk management technique that:
Increases risk
Reduces risk
Counterbalances risk
Eliminates risk
Slide11Risk avoidance is a risk management technique that:
Risk avoidance is the elimination of hazards, activities and exposures that can negatively affect an organization's assets. Risk avoidance seeks to avoid compromising events entirely by not taking an action that involves risk
Example – Quentin’s Scooters decides not to open a new store on the coast of Florida in order to avoid the potential risks of unreliable employees, liability lawsuits, and windstorm damage.
Slide12Risk avoidance is a risk management technique that:
Increases risk
Reduces risk
Counterbalances risk
Eliminates risk
Slide13Which of the following is NOT a risk management technique
Risk equality
Risk reduction
Risk retention
Risk avoidance
Slide14Which of the following is NOT a risk management technique
Risk equality - NIIT
Risk reduction - Risk reduction is a strategy of dealing with risks that consists in taking some measures (countermeasure) to reduce the level of risk.
Risk retention - means that we accept the identified
risk.
Risk avoidance -
the elimination of hazards, activities and exposures that can negatively affect an organization's assets.
Slide15Which of the following is NOT a risk management technique
Risk reduction
Risk equality
Risk retention
Risk avoidance
Slide16Jamie needs more floor space in her antique furniture store, so she buys a storage building 3 miles away. She is worried about keeping the furniture in the storage building sage, so she puts in an alarm system and smoke detectors, Jamie is practicing:
Risk avoidance
Risk retention
Risk reduction
Risk transference
Slide17Jamie needs more floor space in her antique furniture store, so she buys a storage building 3 miles away. She is worried about keeping the furniture in the storage building sage, so she puts in an alarm system and smoke detectors, Jamie is practicing:
Risk avoidance -
Risk avoidance
seeks to avoid compromising events entirely by not taking an action that involves risk
Risk
retention -
Risk
Retention
is one of the strategies of dealing with
risks
.
Acceptance
means that we accept the identified
risk.
Risk reduction -
Risk reduction (mitigation)
deals with
reducing
the likelihood and severity of a possible loss.
Risk transference -
example is the purchase of an insurance policy, by which a specified
risk
of loss is passed from the policyholder to the insurer.
Slide18Jamie needs more floor space in her antique furniture store, so she buys a storage building 3 miles away. She is worried about keeping the furniture in the storage building sage, so she puts in an alarm system and smoke detectors, Jamie is practicing:
Risk avoidance
Risk reduction
Risk transference
Risk retention
Slide19Chuck hopes to purchase a new insurance policy for his car, but he has an extremely poor driving record. The insurance company decides to issue Chuck an insurance policy, but charges him a premium much higher than the average driver. The insurance company is practicing:
Risk transference
Risk reduction
Risk avoidance
Risk retention
Slide20Chuck hopes to purchase a new insurance policy for his car, but he has an extremely poor driving record. The insurance company decides to issue Chuck an insurance policy, but charges him a premium much higher than the average driver. The insurance company is practicing:
Risk transference - involves the contractual shifting of a pure
risk
from one party to another
Risk reduction – The insurance company has mitigated its risk by charging Chuck higher premiums.
Risk avoidance -
elimination of hazards, activities and exposures that can negatively affect an organization's assets.
Risk retention - Quentin’s Scooters retains the risk of damage to their company trucks by choosing not to purchase comprehensive insurance coverage for them.
Slide21Chuck hopes to purchase a new insurance policy for his car, but he has an extremely poor driving record. The insurance company decides to issue Chuck an insurance policy, but charges him a premium much higher than the average driver. The insurance company is practicing:
Risk transference
Risk reduction
Risk avoidance
Risk retention
Slide22Jim’s grocery store recently suffered a break-in. When an adjuster comes to investigate the crime, he asks Jim had any large fuel containers in the store. Jim does have propane tanks, but if he knows that, if the insurance company finds out, they will not indemnify him and he will be financially ruined. Jim tells the adjuster he does not. Which of the following most accurately describes Jim’s Statement to the adjuster?
Misrepresentation
Hard Fraud
Moral Hazard
Warranty
Slide23Jim’s grocery store recently suffered a break-in. When an adjuster comes to investigate the crime, he asks Jim had any large fuel containers in the store. Jim does have propane tanks, but if he knows that, if the insurance company finds out, they will not indemnify him and he will be financially ruined. Jim tells the adjuster he does not. Which of the following most accurately describes Jim’s Statement to the adjuster?
Misrepresentation - any false, distorted, or deceptive statements regarding any information relevant to an insurance contract.
Hard Fraud - getting into an accident on purpose so that you can claim the insurance money
Moral Hazard - when an insured person consciously and deliberately acts in a way that is more likely to result in a loss.
Warranty - Promise or guarantee that certain conditions will be met
Slide24Jim’s grocery store recently suffered a break-in. When an adjuster comes to investigate the crime, he asks Jim had any large fuel containers in the store. Jim does have propane tanks, but if he knows that, if the insurance company finds out, they will not indemnify him and he will be financially ruined. Jim tells the adjuster he does not. Which of the following most accurately describes Jim’s Statement to the adjuster?
Misrepresentation
Hard Fraud
Moral Hazard
Warranty
Slide25Knowingly preventing disclosure of materially relevant facts in an insurance case is called:
Warranty
Representation
Fraud
Concealment
Slide26Knowingly preventing disclosure of materially relevant facts in an insurance case is called:
Warranty - Promise or guarantee that certain conditions will be met
Representation - an insurance policy is an utmost good faith contract, it is based on factual statements, called representations
Fraud - deceiving an insurer to profit from an insurance policy
Concealment -
the act of hiding or not putting forward any relevant fact in front of the insurer that need to be revealed
Slide27Knowingly preventing disclosure of materially relevant facts in an insurance case is called:
Warranty
Representation
Fraud
Concealment
Slide28Chuck’s motorcycle policy states that the insurer may cancel coverage if a premium is more than 30 days late. However, Chuck is currently more than 30 days late, and has been so five times in the last year, and his insurer has done nothing about it. When Chuck gets into an accident and files a claim, which of the following is most likely to happen?
The insurer will pay the claim because of the express waiver they have made by not canceling Chuck’s policy the previous times he was late with his payments
The insurer will deny the claims and cancel Chuck’s policy because he is more than 30 days late with his payment
The insurer will deny the claim and cancel Chuck’s policy because of the implied waiver they have made by not canceling his policy the previous times he was late with his payments
The insurer will pay the claim because of the implied waiver they have made by not canceling Chuck’s policy the previous times he was late with his payments
Slide29Implied waiver - whenever it may be reasonably and fairly inferred from the act, omission or silence of the party who has the power of waiving.Express Waivers: may be oral or written. In either case, they are clear statements that a right is being given up. If your insurance company, for example, notifies you that it has not lapsed your policy for nonpayment of premiums, even though it had the right to do so, it has expressly waived that right.
Slide30Chuck’s motorcycle policy states that the insurer may cancel coverage if a premium is more than 30 days late. However, Chuck is currently more than 30 days late, and has been so five times in the last year, and his insurer has done nothing about it. When Chuck gets into an accident and files a claim, which of the following is most likely to happen?
The insurer will pay the claim because of the express waiver they have made by not canceling Chuck’s policy the previous times he was late with his payments
The insurer will deny the claims and cancel Chuck’s policy because he is more than 30 days late with his payment
The insurer will deny the claim and cancel Chuck’s policy because of the implied waiver they have made by not canceling his policy the previous times he was late with his payments
The insurer will pay the claim because of the implied waiver they have made by not canceling Chuck’s policy the previous times he was late with his payments
Slide31Which of the following statements applies to the concept of utmost good faith?
The insured must divulge the exact nature and potential of the risks being transferred to the insurer
Utmost good faith applies to the insured, but not the insurer
Utmost good faith is based upon the number of misrepresentations made in an application
The insurer can choose to suspend the utmost good faith requirement in an insurance contract, but only if the insured agrees
Slide32Utmost Good FaithThe Doctrine of Utmost Good Faith – To form an insurance contract, each party to the contract must substantially rely on the honesty and integrity of the other party.
When someone is applying for coverage, she must be completely honest about how much risk the insurer would be taking on by issuing him a policy.
Slide33Which of the following statements applies to the concept of utmost good faith?
The insured must divulge the exact nature and potential of the risks being transferred to the insurer
Utmost good faith applies to the insured, but not the insurer
Utmost good faith is based upon the number of misrepresentations made in an application
The insurer can choose to suspend the utmost good faith requirement in an insurance contract, but only if the insured agrees
Slide34In order to qualify for an insurance policy, Rosa’s Rare Rubies must agree to have a security guard on the premises 24/7. This is called a:
Representation
Warranty
Binder
Waiver
Slide35In order to qualify for an insurance policy, Rosa’s Rare Rubies must agree to have a security guard on the premises 24/7. This is called a:
Representation - an insurance policy is an utmost good faith contract, it is based on factual statements, called representations.
Warranty - Promise or guarantee that certain conditions will be met. Warranties are found on the conditions page
Binder - Insurance binders are contracts of temporary insurance pending the issuance of a formal policy or proper rejection of the application by the insurer.
Waiver - Waivers can be “express” or “implied”
Slide36In order to qualify for an insurance policy, Rosa’s Rare Rubies must agree to have a security guard on the premises 24/7. This is called a:
Binder
Warranty
Representation
Waiver
Slide37Josh applies for a homeowners policy with his agent, who gives him immediate temporary coverage. However, after checking Josh’s background information, the agent discovers that Josh’s has been convicted of arson, so his application is denied. What type of coverage did Josh have before the agent declined his application?
A warranty -
found on the conditions page, are guarantees that certain conditions in the contract will be met.
A representation – a statement or fact
A binder – temporary coverage for an insurance applicant until the policy is issued
An estoppel - legal principle that prevents an insurer from denying coverage if the insured has reasonably come to believe that he has coverage
Slide38When an applicant for a homeowners insurance policy lists the address, size, and description of his home, he is providing:
Declarations page
Misrepresentations
Factual misrepresentations
representation
Slide39When an applicant for a homeowners insurance policy lists the address, size, and description of his home, he is providing:
Declarations page - This page contains the name and address of the insured or policyowner, the policy term or period, the limits of liability, the amount of the policy premium, and any deductibles that may apply.
Misrepresentations - a false, distorted, or deceitful statement of fact or opinion, even if made unintentionally
Factual misrepresentations – NIIT
Representation – factual statements that an insurance policy is based upon
Slide40When an applicant for a homeowners insurance policy lists the address, size, and description of his home, he is providing:
Declarations page
Misrepresentations
Factual misrepresentations
Representation
Slide41Which of the following statements about the principle of estoppel is TRUE?
Estoppel essentially guarantees no increases in the policyholder premiums after a policy term expires
Estoppel protects the insurer from the effects of a warranty
Estoppel protects the insured party from an insurer who initially approves coverage, but then later denies coverage after the insured pays for repairs
Estoppel
allows an insurer to change the coverage in an insurance policy without the policyholder’s consent
Slide42EstoppelThe principle that precludes a person from asserting something contrary to what is implied by a previous action or statement of that person or by a previous pertinent judicial determination.
Slide43Which of the following statements about the principle of estoppel is TRUE?
Estoppel essentially guarantees no increases in the policyholder premiums after a policy term expires
Estoppel protects the insurer from the effects of a warranty
Estoppel protects the insured party from an insurer who initially approves coverage, but then later denies coverage after the insured pays for repairs
Esptoppel
allows an insurer to change the coverage in an insurance policy without the policyholder’s consent