RISK MANAGEMENT AND INSURANCE
Assignment I (10%)
I. Say true if the statement is correct and says false if it is incorrect (0.5 mark each)
1. There are both property risks and liability risks associated with operating an automobile.
2. Dynamic risks can be financial or/and non-financial risks.
3. Risk financing measures must be considered before the Risk manager considers the
application of any Loss prevention and Retention measures.
4. All classes of risks can be transferred from the insured to the insurer, who typically is in a
better financial position to pay the losses than the individual insured.
5. The use of fair market value in estimation of actual cash value of the lost property is a
perfect method.
II. Multiple Choices (0.5 mark each)
6. Which one is odd?
A. Research on fire protection equipment and appliances.
B. Construction using fire insensitive materials.
C. Automatic smoke detectors and fire alarms.
D. Tight quality control to prevent risk of product liability.
E. Refuse to own a property
7. In one of the following types of life insurance, policyholder can be paid only if he/she is
fortunate to survive up to the end of the endowment period.
A. Ordinary Endowment C. Pure Endowment
B. Limited Pay Whole Life D. Straight Whole Life Insurance
Insurance
8. This rider guarantees you the option of buying additional coverage regardless of the state
of your health at the time you request the additional insurance at premium rates based on
your attained age
A. Waiver of premiums D. Cost of Living Rider
B. Guaranteed insurability E. Waiver of Mortality Deduction
C. Accidental Death Benefit: Charges
9. The situation where one reinsurance company purchases reinsurance policy from another
reinsurance company is
A. Retrocession. C. Re-insurer
B. Retro ceding D. insurer
10. In Public Liability Policy, which one is correct?
A. The representative is treated as though he was the insured, and will be subject to the
terms and conditions of the policy.
B. Liabilities assumed by the insured through agreements with other parties are
insurable.
C. Liabilities in respect of injuries or illness under a contract of employment are
insurable.
D. Liabilities for damage to any property, land, building caused by vibration or
weakening of support, and any liability in respect of injuries to persons caused by
such factors are insurable
III. SHORT ANSWER (one mark each)
11. A large business complex was impacted directly by the tornado and damages many
business centers in the building. In addition, a sudden burst of heavy rain sent to shoppers
and increased the amount of damage and Massive crashes were heard as water tanks were
blown off roofs, crushing cars on the street below. The income lost from these business
centers is estimated to $0.5 million because of interruption of operation for a week.
Questions
1. What are the perils and hazards that lead to a loss?
2. Identify the direct losses occurred from the consequence.
3. Identify the indirect losses occurred from the consequence.
12. Differentiate between Organizational Charts and Physical Inspections
13. Differences between Term and Insurance and Pure Endowment
IV. WORK OUT (one mark each)
14. About 20% of all pro football players are injured during a given season. A team has four
star players. What is the probability that an insurer will compensate one of the star
players gets injured? (Hint; use binomial)
15. Suppose that bank customers arrive randomly on weekday afternoons at an average rate
of 3.2 customers every four minutes. What is the probability of getting 10 customers
during the four minute interval?
16. Suppose you buy insurance policy of 15,000 from Awash insurance co., 25,000 from nile
insurance co. and 20,000 from wogagen insurance co.. Assume you incurred a loss of 50,
000.
A. Using Contribution by equal share, how much the companies should pay you?
B. How much each pays if Primary and excess insurance law is assumed and its known
that Nile insurance is primary and awash insurance is excess?
