In risk management, how can a risk be transferred?
Correct Answer: C
The correct answer is C. By using contracts . Risk transfer is a risk management technique where one party shifts some financial responsibility for loss to another party. This can be done through insurance, but it can also be done contractually. Contractual risk transfer may include indemnity agreements, hold harmless clauses, waivers of subrogation, additional insured requirements, lease agreements, construction contracts, supplier agreements, service contracts, or subcontractor agreements. For example, a property owner may require a contractor to indemnify the owner for liability arising out of the contractor's work and to name the owner as an additional insured. Self-insuring is risk retention, not transfer, because the organization keeps the financial consequences of loss. Eliminating the risk is avoidance because the activity is discontinued or not undertaken. Reducing risk through loss prevention is risk control or risk reduction, not transfer. Brokers must understand contractual risk transfer because insurance programs must align with contracts. A client may assume a contractual obligation that is not fully insured unless the broker reviews the contract and arranges proper coverage. Course topic reference: Selecting Risk Techniques; Risk Transfer; Contracts; Indemnity Agreements; Additional Insured Requirements .
Question 27
How is the premium for a garage policy computed on a monthly average basis?
Correct Answer: A
The correct answer is A. Provides an adjustment at year end after charging a 100 percent advance premium . A garage policy may use a rating method that reflects the insured's fluctuating exposure throughout the policy term. Under a monthly average basis, the insurer charges an advance premium at policy inception and later adjusts the premium according to the actual exposure reported or calculated for the policy period. This method is useful for garage risks because the number of vehicles, inventory, dealer plates, or operational exposure may change during the year. The key point is that the insured pays an advance premium first, and the final earned premium is determined after the insurer reviews the exposure information. If the final premium is higher, the insured may owe additional premium; if lower, a return premium may apply subject to policy terms. Option B is incorrect because the monthly average method is not simply a quarterly reporting arrangement. Option C is wrong because it refers to a partial advance premium of 75%, not the stated method. Option D is reversed, because if the adjusted premium is greater, the insured owes more. Course topic reference: Automobile, Crime, and Bonds; Garage Policies; Premium Rating; Monthly Average Basis .
