Podcast
Questions and Answers
Which of the following best defines preferred risks?
Which of the following best defines preferred risks?
- Risks that have a higher potential for loss.
- Risks that are avoided to eliminate hazards.
- Risks that are retained through self-insurance.
- Risks that are considered great for the insurance company with a lower potential for loss. (correct)
Which of the following actions is not part of the risk management process?
Which of the following actions is not part of the risk management process?
- Executing a course of action
- Ignoring the measures taken (correct)
- Detecting the potential loss exposure
- Selecting a method to reduce risk
Risk avoidance involves which of the following?
Risk avoidance involves which of the following?
- Minimizing the severity of a potential loss
- Eliminating a hazard (correct)
- Transferring risk to another party
- Retaining risk through self-insurance
Installing smoke alarms is an example of which risk management strategy?
Installing smoke alarms is an example of which risk management strategy?
Which risk treatment method is typically used when losses are highly predictable and not severe?
Which risk treatment method is typically used when losses are highly predictable and not severe?
Buying insurance to manage risk is an example of which method?
Buying insurance to manage risk is an example of which method?
Which of these is an example of risk transfer?
Which of these is an example of risk transfer?
Risk management involves periodic reviews of which of the following?
Risk management involves periodic reviews of which of the following?
Which of the following is the best way to transfer risk?
Which of the following is the best way to transfer risk?
What does risk sharing typically involve?
What does risk sharing typically involve?
Which risk management tool involves taking actions to eliminate damage or loss?
Which risk management tool involves taking actions to eliminate damage or loss?
Which of the following is an example of loss prevention?
Which of the following is an example of loss prevention?
What does risk pooling primarily involve?
What does risk pooling primarily involve?
How do insurers typically prevent catastrophic loss?
How do insurers typically prevent catastrophic loss?
Study Notes
Preferred Risks
- Preferred risks are advantageous for insurance companies and have a lower potential for loss, resulting in lower premiums.
- These risks are considered desirable for insurance companies.
Risk Management
- Risk management is the process of analyzing exposures that create risk and designing programs to handle them.
- It involves detecting potential loss exposure, selecting a method to reduce risk, executing a course of action, and reviewing measures taken periodically.
Treatment of Risk / Methods of Handling Risk
- Risk can be managed through various strategies, including risk avoidance, risk reduction, risk retention, risk transfer, risk sharing, and risk pooling.
Risk Avoidance
- Risk avoidance involves eliminating a hazard to eliminate risk.
- Example: avoiding skydiving to eliminate the risk of dying in a skydiving accident.
Risk Reduction
- Risk reduction involves minimizing the severity of a potential loss.
- Example: installing smoke alarms to reduce the risk of a total loss from a house fire.
- Example: quitting smoking to reduce health risks.
Risk Retention
- Risk retention involves self-insurance, where an individual or organization retains the risk of loss.
- Example: not purchasing an extended warranty on a toaster, retaining the risk of needing to replace it.
Risk Transfer
- Risk transfer involves passing risk from one party to another, typically through an insurance contract.
- Buying insurance is the best way to transfer risk.
- Example: incorporation and hold-harmless clauses.
Risk Sharing
- Risk sharing involves multiple parties assuming a portion of the risk and receiving benefits under the system.
- Example: copayment and deductible cost-sharing programs in medical insurance.
Risk Pooling
- Risk pooling, also known as loss sharing, spreads risk by sharing the possibility of loss over a large number of people.
- Example: insurance companies functioning through pooling of all their insured's risk.
Reinsurance
- Reinsurance is the spreading of risk from one insurer to one or more other insurers.
- Example: insurers minimizing exposure to substantial loss by reinsuring risks.
Loss Prevention
- Loss prevention involves taking actions to eliminate damage or loss.
- Example: constructing a building using masonry materials, removing flammable materials, or de-icing an aircraft's wings.
- It is a method used to identify and analyze risk and to control losses.
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Description
Learn about preferred risks and the process of risk management in insurance, including detecting potential loss exposure, selecting methods to reduce risk, and executing a course of action.
