Module 2

Question 1

Uncertainty of the actual number and value of claims a benefits plan with incur

Answer 1

Risk

Question 2

The cause of a loss, such as a fire or car accident

Answer 2

Peril

Question 3

A condition or action that increases the probability that a peril will occur

Answer 3

Hazard

Question 4

Behavior such as failure to replace the machine guards on manufacturing equipment is this type of hazard

Answer 4

Physical hazard

Question 5

A person who shops multiple doctors to get more opioids prescribed is this type of hazard

Answer 5

Moral hazard

Question 6

The act of not flossing one’s teeth regularly after getting dental insurance is this type of hazard

Answer 6

Morale hazard

Question 7

The type of risk with only 2 alternatives: financial loss or no financial loss

Answer 7

Pure risks

Question 8

The type of risk that can have 3 outcomes: loss, no loss, or gain

Answer 8

Speculative risks

Question 9

A risk handling technique where the risk is not assumed

Answer 9

Avoidance

Question 10

A risk handling technique that involves an action or mechanism to reduce the probability or severity of a loss

Answer 10

Control

Question 11

A risk handing technique where risk is assumed and paid for by the person suffering the loss

Answer 11

Retention

Question 12

A risk handling technique where one shifts the potential for financial harm to another party

Answer 12

Transfer

Question 13

A risk handling technique where the potential for financial loss is shifted to an insurer

Answer 13

Insurance

Question 14

A mechanism where the employee or employer pays money into a fund to cover any incurrence of loss

Answer 14

Insurance

Question 15

Process in insurance that works to make the victim of a loss whole again

Answer 15

Indemnification

Question 16

Administrative overhead costs such as office costs, commission, taxes, licensing taxes, and load adjustments

Answer 16

Loading

Question 17

The greater the number of exposures, the more closely the actual results will approach the probable results.

Answer 17

Law of large numbers

Question 18

With a large number of homogenous units, losses can be verified and measured. Losses should not be catastrophic.

Answer 18

Insurable risk

Question 19

The risk-handling alternative that is mutually exclusive from other risk-handling techniques

Answer 19

Avoidance

Question 20

When an organization
retains the risks related to providing employee benefits as opposed to an insurance company taking on the risks

Answer 20

Self-funding or self-insurance approach

Question 21

When individuals with higher-than-average risks join a group or may comprise a larger percentage of a group than anticipated because they will need and use the benefit

Answer 21

Adverse selection

Question 22

A technique in employee benefits that will mitigate the impact of adverse selection if participants were allowed to enroll as individuals

Answer 22

Group insurance technique

Question 23

This is reduced by characteristics of group technique (group eligibility, a steady flow of lives, a minimum # of persons, minimum portion participating, eligibility requirements, max benefit limits, etc.)

Answer 23

The risk of adverse selection