Exam 2: Insurance and Risk

Ashley opened an all-you-can-eat buffet restaurant.The cost per-person was based upon what Ashley believed an average restaurant patron would consume.The restaurant began to lose money.Ashley concluded that her patrons had "above average" appetites,and were attracted to her restaurant because they could eat as much as they wanted while being charged an average price.A similar phenomenon exists in insurance markets.This problem is called

From the viewpoint of the insurer,all of the following are characteristics of an ideally insurable risk EXCEPT

According to the law of large numbers,what happens as the number of exposure units increases?

XYZ Insurance Company writes coverage for most perils which can damage property.XYZ,however,does not write flood insurance on property located in flood plains.Which requirement of an ideally insurable risk might be violated if XYZ wrote flood insurance on property located in flood plains?

Which of the following is a result of adverse selection?

Which of the following statements is (are)true concerning private insurance? I.Social insurance programs are private insurance programs. II.Both individuals and businesses purchase private insurance.

Inland marine insurance provides coverage for

The tendency for unhealthy people to seek life or health insurance at standard rates is an example of

Methods by which insurers may minimize or avoid catastrophic losses include which of the following? I.The use of reinsurance II.Concentrating coverage written in one geographic region

Which of the following types of risks is normally uninsurable by private insurers?

Gina would like to buy a house.She will pay 10 percent of the cost of the house as a down payment and borrow the other 90 percent from a mortgage lender.The home will serve as collateral for the loan.The lender requires Gina to purchase property insurance on the home so that the collateral supporting the loan will be protected.This scenario illustrates which of the following benefits of insurance to society?

All of the following are classified as casualty insurance EXCEPT

From the standpoint of the insurer,all of the following are characteristics of an ideally insurable risk EXCEPT

The term "multiple-line insurance" is used to describe a type of insurance that combines which of the following coverages into a single contract?

Which of the following statements regarding insurance and hedging is (are)true? I.Insurance involves the transfer of insurable risk while hedging handles risk that is typically uninsurable. II.Both insurance and hedging rely on the law of large numbers to reduce risk.

Which of the following types of risks best meets the requirements for being insurable by private insurers?

Why is a large number of exposure units generally required before a pure risk is insurable?

A group of farmers agreed that if any farmer suffered a property loss,the loss would be spread over the entire group.In this way,each farmer is responsible for the average loss of the group rather than the actual loss that the farmer sustained.Which characteristic of insurance is embodied in this agreement?

Alpha Insurance Company insures a broad range of risks,including whatever is not covered by fire,marine,and life insurers.Which term best describes the wide range of risks written by Alpha Insurance?

One branch of government insurance programs has a number of distinguishing characteristics.These programs are compulsory,they are financed by mandatory contributions rather than general tax revenues,and benefits are weighted in favor of low-income groups.These government insurance programs are called