CAIB 1 (Questions with complete answers)

Define in pure insurance terms "risk." correct answers The chance of financial loss to which an object of insurance is exposed. List the three categories of risk generally faced by people. correct answers Personal - loss of health/life Property - objects Liability - negligent actions result in injury/damage State 4 possible options people can chose to deal with risk and give a brief explanation and example of each. correct answers Avoidance - all chance of financial loss has been eliminated Controlling - taking measures to reduce the frequency and severity of losses Retention - keeping the risk deductibles Transfer - to others, in exchange for premium Give 2 examples of loss control measures that can be taken to reduce the frequency and severity of losses correct answers Installing intrusion detection equipment, installing fire detection equipment State 2 reasons why loss control measures are not a total solution in eliminating financial loss correct answers Equipment will not work 100% of the time, certain types of losses cannot be effectively controlled (wind, lightening) Which of the four possible options is generally not an effective means of dealing with risk? correct answers Avoidance Which of the four possible options is popular and practical means of dealing with risk? correct answers Transfer Explain, using an example of speculative risk correct answers Involves risk of financial gain OR loss. Ex. Gambling can win or lose