1. Insurance companies must be careful when underwriting because there is a tendency for above-average risks to seek insurance at the average cost.Unchecked, the problem can lead to higher than expected losses.What is this problem called?

2. One characteristic of insurance is that the losses suffered by a few people are spread over the entire group of insureds.This characteristic of insurance is called:

Multiple Choice:

1. When Professor McNamara lived in Memphis, he was afraid that his car would be stolen.He purchased "The Club," a brightly-colored metal device that locks on to the steering wheel.With "The Club" in place, the vehicle cannot be driven.Installing "The Club" is an example of:

a.risk transferc.risk control e.moral hazard

b.risk avoidanced.risk retention

2. Kansas City is a nine point favorite in tonight's National Football League game.If you place a wager on Kansas City to win by more than nine points, what type of risk has been created?

a.pure riskc.systemic riske.enterprise risk

b.objective risk d.speculative risk