Risk Management and Insurance – Exam 1, 2026 – Study Material and
Practice Questions
uncertainty concerning the occurrence of the loss. used when possible outcomes are known
and can be statistically estimated - ANS✔✔ risk
Firms face a variety of pure risks that can have serious financial consequences if a loss occurs.
Which of the following best describes a liability risk - ANS✔✔ suits for defective products,
pollution, and sexual harassment
T/F Spreading loss of few over many is basically a means to allow the average Loss to be
substituted for actual loss - ANS✔✔ true
An insurance plan or arrangement typically includes which of the following characteristics: -
ANS✔✔ -pooling of losses
-payment of fortuitous losses
- risk transfer
Risk reduction is based on the ____________________________. - ANS✔✔ law of large
numbers
T/F For insurance to be an attractive purchase, the premiums paid must be substantially more
than the face value, or amount, of the policy - ANS✔✔ false
The tendency of persons with a higher-than-average chance of loss to seek insurance at
standard rates is known to the insurance industry as: - ANS✔✔ an adverse selection
T/F Both insurance and gambling, while not the same concept, do share a common attribute
and that is that they both socially productive - ANS✔✔ false
,T/F A fortuitous loss is unforeseen and unexpected by insured and occurs as a result of chance -
ANS✔✔ true
pure risk is: - ANS✔✔ situation in which there are only loss or no loss: Premature Death,
Catastrophic medical bills
T/F Worry and Fear! is an undesirable effect resulting from having insurance - ANS✔✔ false
T/F Enterprise risk management is no longer viewed as a strategic business discipline that
supports the achievement of an organization's business objectives by addressing the full
spectrum of its risks and managing the combined impact of those risks as an integrated risk
portfolio. - ANS✔✔ false: it is views as strategic business discipline
An expanded risk identification framework considers the different types of risks that an
organization faces. Which of the following is not one of those risks: - ANS✔✔ Liability risk
The total exposure that an organization is willing to accept, given the risk and return trade-off
for an individual risk or in aggregate for the portfolio of risk, is called the _______________
________________ (Hint: No capital letters needed, two words) - ANS✔✔ risk appetite
Non-insurance transfers are methods other than insurance by which a pure risk and its potential
financial consequences are transferred to another party. Which of the following is not an
advantage of a non-insurance transfer - ANS✔✔ insurers may not give credit for transfers
The fact that a firm may receive valuable risk management services is considered to be a(n)
_________________________________. - ANS✔✔ advantage of insurance
Referring to the previous question, which of those situations would likely be viewed by the
Senior Management of a Company to be a situation in which they might monitor, but not likely
, to expend resources (funds or personnel) to address? Select from the following choices that
which best answers the question: - ANS✔✔ demo graphic change
this is used to describe the risk management program and train new employees - ANS✔✔ risk
management manual
profitability is declining, underwriting standards are tightened, premiums increase and
insurance is hard to obtain - ANS✔✔ hard market
profitability is improving standards are loosened premiums decline and insurance becomes
easier to obtain - ANS✔✔ soft market
this statement outlines the firms objectives and policies, educates top level executives, gives the
risk manager greater authority and provides and provides standards for judging the risk
managers performance - ANS✔✔ risk management policy
T/F A risk management program can reduce a firm's cost of risk - ANS✔✔ True
Advantages of Retention include which of the following items: - ANS✔✔ -encourage loss
prevention
-save on loss costs, increase cash flow
-save on expenses
is any situation or circumstances on which a loss is possible, regardless of whether a loss
actually occurs. ex: defective products that may result in lawsuits - ANS✔✔ loss exposure
is when outcomes cannot be estimated - ANS✔✔ uncertainty
Practice Questions
uncertainty concerning the occurrence of the loss. used when possible outcomes are known
and can be statistically estimated - ANS✔✔ risk
Firms face a variety of pure risks that can have serious financial consequences if a loss occurs.
Which of the following best describes a liability risk - ANS✔✔ suits for defective products,
pollution, and sexual harassment
T/F Spreading loss of few over many is basically a means to allow the average Loss to be
substituted for actual loss - ANS✔✔ true
An insurance plan or arrangement typically includes which of the following characteristics: -
ANS✔✔ -pooling of losses
-payment of fortuitous losses
- risk transfer
Risk reduction is based on the ____________________________. - ANS✔✔ law of large
numbers
T/F For insurance to be an attractive purchase, the premiums paid must be substantially more
than the face value, or amount, of the policy - ANS✔✔ false
The tendency of persons with a higher-than-average chance of loss to seek insurance at
standard rates is known to the insurance industry as: - ANS✔✔ an adverse selection
T/F Both insurance and gambling, while not the same concept, do share a common attribute
and that is that they both socially productive - ANS✔✔ false
,T/F A fortuitous loss is unforeseen and unexpected by insured and occurs as a result of chance -
ANS✔✔ true
pure risk is: - ANS✔✔ situation in which there are only loss or no loss: Premature Death,
Catastrophic medical bills
T/F Worry and Fear! is an undesirable effect resulting from having insurance - ANS✔✔ false
T/F Enterprise risk management is no longer viewed as a strategic business discipline that
supports the achievement of an organization's business objectives by addressing the full
spectrum of its risks and managing the combined impact of those risks as an integrated risk
portfolio. - ANS✔✔ false: it is views as strategic business discipline
An expanded risk identification framework considers the different types of risks that an
organization faces. Which of the following is not one of those risks: - ANS✔✔ Liability risk
The total exposure that an organization is willing to accept, given the risk and return trade-off
for an individual risk or in aggregate for the portfolio of risk, is called the _______________
________________ (Hint: No capital letters needed, two words) - ANS✔✔ risk appetite
Non-insurance transfers are methods other than insurance by which a pure risk and its potential
financial consequences are transferred to another party. Which of the following is not an
advantage of a non-insurance transfer - ANS✔✔ insurers may not give credit for transfers
The fact that a firm may receive valuable risk management services is considered to be a(n)
_________________________________. - ANS✔✔ advantage of insurance
Referring to the previous question, which of those situations would likely be viewed by the
Senior Management of a Company to be a situation in which they might monitor, but not likely
, to expend resources (funds or personnel) to address? Select from the following choices that
which best answers the question: - ANS✔✔ demo graphic change
this is used to describe the risk management program and train new employees - ANS✔✔ risk
management manual
profitability is declining, underwriting standards are tightened, premiums increase and
insurance is hard to obtain - ANS✔✔ hard market
profitability is improving standards are loosened premiums decline and insurance becomes
easier to obtain - ANS✔✔ soft market
this statement outlines the firms objectives and policies, educates top level executives, gives the
risk manager greater authority and provides and provides standards for judging the risk
managers performance - ANS✔✔ risk management policy
T/F A risk management program can reduce a firm's cost of risk - ANS✔✔ True
Advantages of Retention include which of the following items: - ANS✔✔ -encourage loss
prevention
-save on loss costs, increase cash flow
-save on expenses
is any situation or circumstances on which a loss is possible, regardless of whether a loss
actually occurs. ex: defective products that may result in lawsuits - ANS✔✔ loss exposure
is when outcomes cannot be estimated - ANS✔✔ uncertainty
