Risk Control and Mitigation Strategies Flashcards
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Read the first 7 Risk Control and Mitigation Strategies flashcards as text
A general contractor requires subcontractors to sign a hold-harmless agreement indemnifying the contractor for claims arising from the subcontractor's work. This is an example of:
Answer: Contractual transfer for risk control
A hold-harmless agreement contractually shifts the legal and financial responsibility for certain losses to another party.
Which of the following is a key weakness of relying on a hold-harmless agreement as a risk control measure?
Answer: The indemnitor may lack the financial resources to pay, or courts may not enforce the clause
A transfer is only as good as the indemnitor's ability to pay and the enforceability of the clause under state law.
A business incorporates each of its high-risk operations as a separate subsidiary to limit the parent's liability. This technique is best described as:
Answer: Noninsurance transfer through incorporation
Separate incorporation can shield the parent's assets by placing exposures in distinct legal entities.
A company leases its delivery vehicles rather than buying them, with the lessor bearing the risk of physical damage. What is the primary risk control effect?
Answer: The property loss exposure is transferred to the lessor
Leasing with the lessor responsible for physical damage transfers the property loss exposure through a noninsurance contract.
An organization sells products in several unrelated markets so that a downturn in one market is offset by stability in others. This risk control technique is:
Answer: Diversification
Diversification spreads business risk across different activities or markets whose losses are not highly correlated.
Which statement about separation and duplication is correct?
Answer: Both increase the number of exposure units, making losses more predictable
By increasing the number of independent exposure units, separation and duplication reduce severity and improve loss predictability.
Which of the following is a pre-loss loss reduction measure?
Answer: Installing fire walls between sections of a building
Fire walls are installed before any loss to limit how far a fire can spread, reducing severity in advance.