Chapter 2

Chapter 2 - Chapter2 InsuranceandRisk 1 All of the...

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Chapter 2 Insurance and Risk 1) All of the following are characteristics of insurance EXCEPT A) risk avoidance. B) pooling of losses. C) payment of fortuitous losses. D) indemnification. Answer: A Question Status: Previous Edition 2) Which of the following is implied by the pooling of losses? A) sharing of losses by an entire group B) inability to predict losses with any degree of accuracy C) substitution of actual loss for average loss D) increase of objective risk Answer: A Question Status: Previous Edition 3) According to the law of large numbers, what happens as the number of exposure units increases? A) Actual results will increasingly differ from probable results. B) Actual results will more closely approach probable results. C) Fundamental risk will decrease. D) Objective risk will increase. Answer: B Question Status: Previous Edition 4) According to the law of large numbers, what should happen as an insurer increases the number of units insured? A) The amount the insurer expects to pay in claims should decrease. B) Underwriting expenses should decrease. C) Actual results will more closely approach expected results. D) The insurer ʹ s profitability should become more variable. Answer: C Question Status: Previous Edition Chapter 2 Insurance and Risk 15 5) Characteristics of a fortuitous loss include which of the following? I. The loss is certain to occur. II. The loss occurs as a result of chance. A) I only B) II only C) both I and II D) neither I nor II Answer: B Question Status: Previous Edition 6) From the viewpoint of the insurer, all of the following are characteristics of an insurable risk EXCEPT A) The loss must be accidental. B) The loss should be catastrophic. C) The premium must be economically feasible. D) There must be a large number of exposure units.
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Answer: B Question Status: Previous Edition 7) From the standpoint of the insurer, all of the following are characteristics of an insurable risk EXCEPT A) The loss must be unintentional. B) The chance of loss must be calculable. C) The loss must be indeterminable. D) The loss must be measurable. Answer: C Question Status: Previous Edition 8) Why is a large number of exposure units generally required before a pure risk is insurable? A) It prevents the insurer from losing money. B) It eliminates intentional losses. C) It minimizes moral hazard. D) It enables the insurer to predict losses more accurately. Answer: D Question Status: Revised 16 Rejda · Principles of Risk Management and Insurance , Tenth Edition 9) The requirement that losses should be accidental and unintentional in order to be insurable results in which of the following? I. Decrease in moral hazard II. More accurate prediction of future losses A) I only B) II only C) both I and II D) neither I nor II Answer: C Question Status: Previous Edition 10) Which of the following is implied by the requirement that a loss should be determinable and measurable to be insurable?
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Chapter 2 - Chapter2 InsuranceandRisk 1 All of the...

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