PRINCIPLES OF RISK MANAGEMENT AND INSURANCE
REVISION: Try your level best to get answers for these questions
Give yourself marks or ask a friend to do so.
1. Differentiate between the types of risk in the following pairs.
(a) Pure and speculative risks
(b) Diversifiable and non-diversifiable risks
2. Individuals who are in charge of handling loss exposures for corporations, municipalities, universities, etc., are called “risk managers.” Why are the identification of hazards and the preparation for perils important in risk management? What types of physical hazards confront the risk manager of your college or university?
3. Explain the way in which attitudinal hazard and moral hazard increase the chance of loss.
4. What is adverse selection? How do insurance companies attempt to avoid the problem of adverse selection?
5. If a risk cannot be insured by a private company, does that mean that the risk cannot be insured?
6. How do insurance and gambling differ?
7. Name two personal loss exposures, two property loss exposures, and two liability loss exposures that may be considered in a personal risk management program.
8. What is the underwriting cycle? Be sure to discuss a “hard insurance market” and a “soft insurance market” in your answer.
9. Differentiate between (1) independent, (2) dependent, and (3) mutually exclusive events.
10. How does the principle of insurable interest help to reduce moral hazard?
11. Katia was trying to sell her home. In listing the many positive features of the home, Katia said, “...and I just paid for my homeowners insurance for another year. If you buy the house, I’ll throw in free homeowners insurance for a year!” What do you think of Katia’s offer?
12. What is the difference between an insuring agreement that provides named-perils coverage and an insuring agreement that provides all-risk (open-perils) coverage?
13. Why are exclusions used in insurance contracts?
14. Why do insurers include definitions of terms in the insurance contract?
15. Why are endorsements and riders used in insurance contracts?
16. In what situations may the negligence of one person be attributed (transferred) to another person?
17. In addition to medical errors by physicians, what are the other reasons why patients sue physicians?
18. Last Saturday, Janet and her daughter had lunch at the local franchise of a national fast-food chain. As they were returning to their car, a driver who had just picked up his order at the drive-through window sped around the corner of the restaurant and hit Janet and her daughter. Janet received multiple lacerations and five broken bones. Her daughter was not physically injured, but since witnessing the accident she has been traumatized. In filing her lawsuit, why did Janet name the car driver, the franchise owner, and the national fast-food chain as defendants? What types of damages may be awarded to Janet and her daughter as a result of this incident?
19. Homeowners insurance is a multiple-line policy. What three types of coverage are provided through a homeowners policy?
20. What impact do territory, use of the vehicle, and age of the driver have upon automobile insurance premiums?
21. What approaches are available for compensating automobile accident victims?
22. What are the basic characteristics of inland marine floaters?
23. What are the major classes of ocean marine and inland marine insurance?
24. What are the major general liability loss exposures that businesses face?
25. How does products liability differ from completed operations liability?
26. What is errors and omissions insurance? Who needs to purchase this type of liability coverage?
27. What are the major differences between surety bonds and insurance?
28. What are the major types of surety bonds?
29. What costs are associated with premature death?
30. How can the purchase of life insurance be justified from an economic standpoint?
31. How do the typical life insurance needs of a single adult who has no children differ from the typical life insurance needs of a single parent?
32. Aisha lied about her age when she purchased a life insurance policy. She said she was 32 on the application, when she was really 35. Upon her death, the insurer discovered Aisha’s correct age. How will this situation be resolved?
33. Jane wants to purchase life insurance coverage. She calculated how much life insurance she needs and what type of policy to purchase, and she found a low-cost policy. Her final question to the agent was, “Tell me about the financial strength of your company.” The agent replied, “I represent an A rated company in the Top 100 list.” What follow-up questions (2) should Jane ask?
34. What tax benefits are available to qualified retirement plans?
35. List the basic characteristics of social insurance programs.
36. What are the differences between insurance agents and brokers?
37. What are the primary methods of marketing life insurance coverage?
38. What is the role of underwriters in the insurance industry?
39. Where do underwriters obtain the information they need to make their decisions?
40. In the context of insurance, what is meant by the term “production”?
41. How do an insurance company’s assets differ from the assets of other business firms? What are the two major liabilities of property and casualty insurance companies?
42. What are the two major sources of income for an insurance company?
43. Why is regulation of the insurance industry necessary?
44. What are the three principal methods of regulating insurers?
45. Regulators are concerned with a number of financial characteristics of insurers. One measure is the difference between an insurer’s assets and its liabilities. This measure is known as an insurer’s: (a) policyowners’ surplus (b) reserves (c) risk-basedcapital (d) admitted assets
End.