Section 2 - nature of insurance, risk, perils, and hazards

Question 1

Risk _____ is the process of analyzing exposures that create risk and designing programs to handle them.

Answer 1

Management

Question 2

True or false: “rates can be calculated to compensate for loss” is a characteristic of the law of large numbers

Answer 2

False

Question 3

Attempting to minimize the severity of potential losses is called risk _____

Answer 3

Reduction

Question 4

What type of risk involves the potential for loss with no possibility for gain?

Answer 4

Pure risk

Question 5

An insurer has a contractual agreement which transfers a portion of its risk exposure to another insurer. What type of contractual agreement is this?

Answer 5

Reinsurance contract

Question 6

What is the cause of a loss?

Answer 6

Peril

Question 7

For insurance purposes, similar objects, which are exposed to the same group of perils, are referred to as _____

Answer 7

Homogenous exposure units

Question 8

Which term describes the elimination of a hazard?

Answer 8

Risk avoidance 

Question 9

A hold-harmless clause is an example of risk _____

Answer 9

Transfer

Question 10

The law of large numbers enables an insurer to _____

Answer 10

Predict losses