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Exam 22: Bonus B: Managing Risk

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Question 51

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Trevino is a silversmith and works with various metals.At the end of the day,he reclaims and separates each metal by using an inexpensive toxic acid though other methods are available.The risk of fire as well as health dangers to Trevino is unknown.Trevino should:

A) dispose of the used acid by pouring it down the drain since the government will take care of any environmental issues that come from polluting the water.
B) get a fire insurance policy and make sure to visit the doctor regularly.
C) switch to another potentially less dangerous method of separating each metal.
D) pour it out in back of the studio in the gutter.

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

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Question 52

True/False

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Southern Deliveries has decided to manage risk by requiring drivers to wear seat belts,have a commercial driver's license,monitor any moving violations each driver obtains,and to be sure that this information is kept in the employee records.Furthermore Southern has decided to carry an insurance policy with a very large deductible,preferring to pay for small damages to its trucks out-of-pocket.Southern has built enterprise risk management into their organization.

A) True
B) False

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Question 53

True/False

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Managing risk includes things such as security failures,swine flu,and terrorist attacks,along with job-related accidents.

A well-designed and implemented risk-prevention program can eliminate the potential of loss.

Alberto is worried about the risk of potential flooding to his restaurant.He decides to buy insurance to cover this ________ risk.

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

Risk is a term that refers to the chance of loss,the degree of probability of loss,and the amount of possible loss.

Mini-Case The Bookworm is a bookstore and café located on a busy downtown main street in Denver.The owner,Waata Reader prides himself on the vast selection of books available in the shop.The store has three stories,with both stairs and an elevator to each level.In the back of the first floor is the café,which serves sweets and coffee drinks.Many times customers will linger there over a cup of coffee,deciding which book to purchase.Waata has expanded several times and now he has 22 people on the staff of the current,larger store. -One afternoon Waata was called to the café.One of Waata's staff had inadvertently spilled hot coffee on a customer's arm and the customer was left with a burn.Waata sent the customer off to the local hospital for treatment knowing that his __________ insurance would cover the claim.

An insurance company would not be willing to insure a risk if it:

One guideline to determine that a risk is generally insurable is:

Harmon works on a highway construction crew and frequently handles explosives.His friend Willie works as a bookkeeper for a retail store.The amount of workers' compensation premiums paid by Harmon's employer will probably exceed the premiums paid by Willie's employer.

John has decided that his neighbor Sam is quite careless and is in danger of burning his own house down.John tried to buy a fire insurance policy on Sam's house so that he could collect the payment when Sam inevitably burned down his own house.The insurance company would not allow John to purchase the policy because he did not have an insurable interest in the property.

The beginning of an effective risk management strategy is a good loss-prevention program.

The premium charged for workers' compensation insurance is the same for all workers,regardless of their occupation.

A ________ insurance company is owned by stockholders,just like any other investor-owned company.A ________ insurance company is owned by its policyholders.

Sasha has a small jewelry business with only four employees.He started his business month before last and so far he makes just enough to pay his bills each week.Yesterday,just before the end of his first quarter in business,he received a notice from the government indicating that he needed to provide evidence of workers' compensation insurance.Sasha:

Fairweather Farms is located on Florida's Gulf Coast and is primarily engaged in raising and harvesting citrus fruit.The owners of Fairweather Farms are correct in beginning to think about how the risk of climate change might impact their crops in the future.

The risk of damaging the global environment is:

An insurance premium is the fee charged by the insurance company in return for their promise to pay for all or part of a loss.

Risk management is concerned only with risks to individuals and businesses.