Evaluating Potential Losses and Risks Concepts
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Questions and Answers

What is Loss Frequency a measure of?

  • The dispersion within a set of data
  • How often the loss occurs (correct)
  • The symmetry of the loss
  • The size of the loss

Which technique is considered the best approach if possible?

  • Avoidance (correct)
  • Loss control
  • Retention
  • Insurance

What does Maximum Probable Loss refer to?

  • The most likely loss for an activity (correct)
  • The symmetry of the loss curve
  • The largest possible loss for an activity
  • The dispersion within a set of data

Which method is the most widely used for transferring risk?

<p>Insurance (A)</p> Signup and view all the answers

What is a critical aspect for the risk manager to have in order to be effective?

<p>Periodic review (B)</p> Signup and view all the answers

Why is continual evaluation of every step important in risk management?

<p>To adapt to technological changes (A)</p> Signup and view all the answers

When should a business consider purchasing insurance coverage according to the text?

<p>When the premium is lower than the present value of expected loss (A)</p> Signup and view all the answers

Which characteristic defines fortuitous losses in insurance?

<p>Accidental and unintentional (C)</p> Signup and view all the answers

What do insurance companies provide related to risk, according to the text?

<p>Indemnification and fortuitous loss coverage (C)</p> Signup and view all the answers

What is Loss Severity a measure of in risk evaluation?

<p>How big the loss is (D)</p> Signup and view all the answers

In risk management, what is the critical aspect of understanding both loss frequency and loss severity for a risk manager?

<p>Evaluating risk (B)</p> Signup and view all the answers

Which measure in risk evaluation deals with the largest possible loss for an activity without the element of chance?

<p>Maximum Possible Loss (A)</p> Signup and view all the answers

What is the most commonly used technique in risk management for transferring risk according to the text?

<p>Insurance (C)</p> Signup and view all the answers

Why is cooperation with other departments critical for a risk manager?

<p>To effectively handle contracts and risk exposures (B)</p> Signup and view all the answers

What is the main reason behind businesses purchasing insurance coverage according to the text?

<p>To transfer risk to another party for a sum certain (A)</p> Signup and view all the answers

What distinguishes fortuitous losses from intentional losses in insurance coverage?

<p>Fortuitous losses involve accidental and unintentional events (C)</p> Signup and view all the answers

What does the law of large numbers primarily contribute to in insurance?

<p>Greater predictability of actual losses (C)</p> Signup and view all the answers

Why can't insurance be purchased for an intentional loss according to the text?

<p>Because intentional losses involve hitting someone with a car (C)</p> Signup and view all the answers

What is one of the key reasons why continual evaluation of every step is emphasized in risk management?

<p>To ensure that base assumptions remain valid (B)</p> Signup and view all the answers

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