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Exam 23: Managing Risk

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Question 1

True/False

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Self-insurance is the practice of setting aside money to cover routine claims and buying only "catastrophe" policies to cover big losses.

A) True
B) False

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Question 2

Multiple Choice

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Organizations spend about ________ percent of gross domestic product on insurance premiums.

A) 2
B) 5
C) 10
D) 20

E) All of the above
F) C) and D)

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C

Question 3

True/False

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Outsourcing helps some companies avoid risk.

Pure risk involves the chance of either a profit or a loss.

Some businesses will set aside money to cover routine losses and buy "catastrophe" policies to cover big losses. This is an example of which of the following?

Federal Housing Administration (FHA) insurance provides insurance to property owners in high-crime areas.

An insurance policy is a written contract.

Health savings accounts are managed care plans that have a high deductible.

Explain the difference between speculative risk and pure risk. Which type of risk is of more concern to businesspeople?

A firm that chooses to self-insure and cover losses out of its budget is said to

AutoPROs recalled thousands of tires when several people died in traffic accidents blamed on faulty tires. This is an example of which of the following?

One way to lower the need for outside insurance is to self-insure.

Workers' compensation insurance guarantees payment of wages, medical care, and rehabilitation services for employees who are injured on the job.

A surety bond protects employers from employee dishonesty.

Water sprinklers and smoke detectors can be used to minimize speculative risks.

Typically, the only option that firms have to deal with pure risk is to buy insurance.

Workers' compensation insurance is required in all states except Louisiana.

________ insurance provides benefits to the survivors of workers who die as a result of work-related injuries.

Risk management involves minimizing the losses from unexpected events.

Aqua Sprinkler Systems experienced increasing sales for several years. The firm expanded its product offerings, and now serves both commercial and residential customers. Which of the following situations would be considered an uninsurable risk for Aqua Sprinkler Systems?