Podcast
Questions and Answers
Which of the following is considered a category of loss exposure?
Which of the following is considered a category of loss exposure?
Tangible property includes items that cannot be touched.
Tangible property includes items that cannot be touched.
False
What are the two types of tangible property?
What are the two types of tangible property?
Real Property and Personal Property
Intangible property includes __________ such as stocks and bonds.
Intangible property includes __________ such as stocks and bonds.
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Which of the following does NOT fall under the category of property values?
Which of the following does NOT fall under the category of property values?
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Going Concern Value refers to the value of property when sold after a loss.
Going Concern Value refers to the value of property when sold after a loss.
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What needs to be done prior to repairs or replacement of damaged property?
What needs to be done prior to repairs or replacement of damaged property?
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What type of loss exposure occurs when a business cannot operate due to an insured peril?
What type of loss exposure occurs when a business cannot operate due to an insured peril?
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Increased rental expenses can occur due to property damage.
Increased rental expenses can occur due to property damage.
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Name one category under Decreases in Revenues that can affect a company's net income.
Name one category under Decreases in Revenues that can affect a company's net income.
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After a loss, tenants typically _____ the monthly rent for their space.
After a loss, tenants typically _____ the monthly rent for their space.
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Which of the following is NOT considered a decrease in revenues?
Which of the following is NOT considered a decrease in revenues?
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Expediting costs may include advertising costs and overtime salaries.
Expediting costs may include advertising costs and overtime salaries.
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What type of loss exposure arises from the possibility of legal action against an organization?
What type of loss exposure arises from the possibility of legal action against an organization?
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What does a balance sheet provide information about?
What does a balance sheet provide information about?
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The opinion letter is required to identify material changes made on financial statements.
The opinion letter is required to identify material changes made on financial statements.
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Name one method of identifying and analyzing loss exposures.
Name one method of identifying and analyzing loss exposures.
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The _______ provides information about the sources of a company's income and expenses.
The _______ provides information about the sources of a company's income and expenses.
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Which document includes details about unusual accounting policies?
Which document includes details about unusual accounting policies?
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All records and documents created by an organization should be reviewed for loss exposure analysis.
All records and documents created by an organization should be reviewed for loss exposure analysis.
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What type of meetings' minutes are valuable in the analysis of loss exposures?
What type of meetings' minutes are valuable in the analysis of loss exposures?
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What is the primary focus of loss prevention measures?
What is the primary focus of loss prevention measures?
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Loss reduction techniques are effective in completely eliminating losses.
Loss reduction techniques are effective in completely eliminating losses.
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What is the purpose of flow charts in an organization?
What is the purpose of flow charts in an organization?
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What does segregation of exposure units involve?
What does segregation of exposure units involve?
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Personal inspections are irrelevant when identifying loss exposures in a business.
Personal inspections are irrelevant when identifying loss exposures in a business.
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The legal and financial responsibility for a loss can be transferred through a __________.
The legal and financial responsibility for a loss can be transferred through a __________.
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What is a characteristic of unfunded reserves?
What is a characteristic of unfunded reserves?
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Name one internal source of information for identifying loss exposures.
Name one internal source of information for identifying loss exposures.
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The objective of risk control techniques is to reduce the frequency and _______ of losses.
The objective of risk control techniques is to reduce the frequency and _______ of losses.
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Retention techniques involve generating funds from external sources to pay for losses.
Retention techniques involve generating funds from external sources to pay for losses.
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What does exposure avoidance entail in risk control techniques?
What does exposure avoidance entail in risk control techniques?
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Describe what separation means in the context of segregating exposure units.
Describe what separation means in the context of segregating exposure units.
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External sources of information for identifying loss exposures can include trade agencies and fire departments.
External sources of information for identifying loss exposures can include trade agencies and fire departments.
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What is a limitation of flow charts?
What is a limitation of flow charts?
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Study Notes
Identification and Analysis of Loss Exposure
- Loss exposure is categorized into four types: Property values, Net income values, Liability loss, and Personnel loss.
Property Values
- Property values can be tangible (physical items) or intangible (legal rights).
Tangible Property
- Real Property: Includes land and fixtures (e.g., lighting, fencing).
- Personal Property: All tangible items excluding real estate (e.g., clothing, furniture).
- Debris Removal: Necessary after a loss for repair or replacement.
- Demolition Expense: Costs incurred for demolishing a building post-loss.
- Undamaged Property: May lose value after a loss, even if not directly affected.
- Increased Cost of Construction: Building codes may raise construction costs after a loss.
- Pair or Set Value: Loss of one item in a set affects the total value, but the undamaged item retains some value.
- Going Concern Value: The difference in property value if the company operates vs. if it gets sold after a loss.
Intangible Property
- Includes assets like securities, trademarks, copyrights, licenses, and leasehold interests.
Net Income Values
- Net Income: Calculated by subtracting expenses from revenues; loss can impact both.
Decreases in Revenues
- Business Interruption: Income loss when operations cease or are limited due to a loss.
- Contingent Business Interruption: Losses impacting suppliers or manufacturer operations away from the premises.
- Loss of Profits on Finished Goods: Potential profits not realized due to the incident.
- Reduced Rental Income: Tenants typically cease rent payments after a property loss.
- Decreased Collections: Loss of accounting documents can hinder the collection of receivables.
Increases in Expenses
- Increased Operating Expenses: Extra costs to keep business operations afloat.
- Increased Rental Expenses: Costs arising from renting alternate locations post-loss.
- Expediting Costs: Additional expenses to hasten recovery (advertising, overtime, rapid repairs).
Liability Loss
- Liability exposure arises from the potential for legal claims against the organization.
Methods for Identifying and Analyzing Loss Exposures
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Financial Statements:
- Balance Sheet: Lists assets and liabilities at each accounting period’s end.
- Operating Statement: Shows sources of income and expenses.
- Statement of Changes: Analyzes changes in net working capital.
- Opinion Letter: Details the basis of the financial statements prepared.
- Notes: Explains accounting policies and unusual transactions.
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Other Records: Important documents (meeting minutes, contracts, architectural plans) help reveal loss exposure changes.
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Flow Charts: Visualize activities but may not cover all loss exposures comprehensively.
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Personal Inspections: Direct assessments of company property can pinpoint loss exposures.
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Consultations with Experts: Engaging both internal personnel and external agencies (e.g., fire departments) can uncover valuable loss exposure information.
Risk Control Techniques
- Aim to minimize both frequency and severity of losses.
Techniques Include:
- Exposure Avoidance: Completely eliminates a risk.
- Loss Prevention: Implements measures that reduce the frequency of specific losses.
- Loss Reduction: Aims to lessen the severity of losses when they occur.
- Segregation of Exposure Units: Structures operations to avoid simultaneous losses; achieved through separation and duplication.
- Contractual Transfer: Shifts legal and financial responsibilities (e.g., through insurance).
Risk Financing Techniques
- Focus on managing inevitable losses, divided into two groups.
Retention Techniques
- Methods to fund losses internally, including:
- Current Expensing: Paying losses as they arise under current expenses, often uncertain in total costs.
- Unfunded Reserves: Advanced acknowledgment of potential business losses.
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Description
This quiz explores the initial step in risk management: identifying and analyzing loss exposure. It covers the different types of values that can be exposed to loss, including property, net income, liability, and personnel values. Test your understanding of these concepts to prepare for effective risk management strategies.
