Risk management

Question 1

A probability of threat of damage, injury, liability, loss, or any other negative occurrence that is caused by external or internal venerability

Answer 1

Risk

Question 2

Possibility of losses associated with assets and earnings potential of a firm

Answer 2

Business risk

Question 3

Uncertainty associated with an investment decision

Answer 3

Market risk

Question 4

Uncertainty associated with a situation where only loss or no loss can occur
-No win situation

Answer 4

Pure risk

Question 5

Process for identifying, assessing, and prioritizing certain kinds of events happening to or having an impact on a business intending to reduce or eliminate risk
-The goal of any business

Answer 5

Risk management

Question 6

What are the types of risk to be considered?

Answer 6

1. Property risk
2. Liability risk
3. Personal risk
4. Financial risk

Question 7

Property ownership = property risk
-Real property
-Personal property

Answer 7

Property risk

Question 8

The cost to replace/ rebuild property at current prices
-cost to build

Answer 8

Replacement value

Question 9

Depreciated value of property
-insurance terms
-book value
-tied to a location

Answer 9

Actual cash value (ACV)

Question 10

Cause of loss either through natural events or through the actions of people
-Windstorms, earth quakes, flood, lightning

Answer 10

Peril

Question 11

Direct vs indirect loss:
1. ___: physical damage
2. ___: inability to perform operations due to ___ loss

Answer 11

1. Direct
2. Indirect

Question 12

Where does risk come in terms of liability risk?

Answer 12

1. Statutes
2. Contracts
3. Torts

Question 13

Liability risk from laws imposed
-Workers comp

Answer 13

Statutory liability

Question 14

Liability risk from contracts
- ___: assumes financial consequences of another party’s legal liability

Answer 14

Contractual liability
-Indemnification clause

Question 15

Liability risk that can arise due to injuries sustained because of the business
-Premises
-Operations
-Cars
-Employees
-Employment practices
-Professional services

Answer 15

Tort liability

Question 16

Types of product liability:
1. Defect resulting from a problem that occurs during the manifesting process, causing the product to subsequently not be made according to specifications
2. A defect resulting from a dangerous design even though the product was made according to specifications
3. Defect resulting from failure to convey to the user that hazards are associated with a product or to provide adequate instructions on safe product use

Answer 16

1. Manufacture defect
2. Design defect
3. Marketing defect

Question 17

Risk that directly affects individual employees but may have an indirect impact on the business as well
-Premature death
-Poor employee health
-Insufficient retirement income

Answer 17

Personnel risk

Question 18

What is the risk management processs?

Answer 18

Step 1. Identify and understand the risks
Step 2. Evaluate the potential severity of each risk
Step 3. Select methods to manage risks
Step 4. Implement the decision
Step 5. Review and evaluate

Question 19

Minimizing the potential losses by preventing, avoiding, and reducing risk

Answer 19

Risk control

Question 20

Methods of risk control:
Keeping loses from happening

Answer 20

Loss prevention

Question 21

Methods of risk control:
Choosing not to engage in hazardous activities
-Ex. employee trainings

Answer 21

Loss avoidance

Question 22

Methods of risk control:
Lessening the frequency, severity, or unpredictability of potential losses

Answer 22

Loss reduction

Question 23

The equitable transfer of the risk of a loss, from one entity to another
-Primarily used to hedge against the risk of a contingent or uncertain loss

Answer 23

Insurance

Question 24

What are the two types of insurance?

Answer 24

1. Property and casualty (business)
2. Life and health (people)

Question 25

Type of property/ casualty insurance:
Insures buildings and personal property. Can be insured up to replacement value or actual cash value
-Two common approaches
1. ___: identifies the specific peril covered
2. ___: all perils are covered except those expressly excluded

Answer 25

Property insurance
1. Named peril
2. All-risk

Question 26

Provision in property insurance policy that requires the owner to have at least 80% of what it would cost to rebuild the building or replace the personal property

Answer 26

Coinsurance clause

Question 27

Part of property insurance that protects the company during the period necessary to restore property damaged by insurance peril

Answer 27

Business interruption

Question 28

Type of property/ casualty insurance:
Provides monetary benefits to business that has experiences unforeseen perils

Answer 28

Casualty insurance

Question 29

Type of property/ casualty insurance:
Coverage for general liability loss exposure
-Premises liability
-Operations liability
-Product liability
-Completed operations liability
-Personal and advertising injury liability

Answer 29

Commercial general liability insurance (CGL)

Question 30

Type of property/ casualty insurance:
Coverage primarily against employee dishonesty
-Fund transfer fraud coverage that protects against criminal transfer of funds and hacking schemes

Answer 30

Crime insurance

Question 31

Coverage that provides benefits to employees injured at work

Answer 31

Worker’s comp

Question 32

Contract whereby the insurer assumes the risk of death of insured for a specific time with no cash surrender value
-Ex. 30 year term someone gets at age 30. They are no longer covered after age 60

Answer 32

Term life policy

Question 33

Insurance that covers an insured for life and accumulates cash surrender value
-Ex. payout no matter age

Answer 33

Whole life policy

Question 34

Insurance product combining features or both whole and term

Answer 34

Universal life policies

Question 35

What does an HMO (health maintenance organization) cover?

Answer 35

In network

Question 36

What does a PPO (preferred provider organization) cover

Answer 36

In and out of network

Question 37

Provides income to individuals who can no longer work because of disability

Answer 37

Disability insurance

Question 38

Insurance that protects a firm against losses due to the death of a key employee

Answer 38

Key life insurance