Question

44. All of the following statements are FALSE regarding common indirect loss exposures EXCEPT

(Choose from the following options)
1. An indirect loss includes loss of income or extra expenses resulting from the direct loss to the property.
2. Any property loss can lead to an indirect financial consequence loss such as reduction in the value of the property.
3. A reduction in the value of property is often referred to as an indirect loss.
4. An indirect loss occurs directly and usually immediately when a covered cause of loss affects the covered property.

Answer 1

The only true statement about indirect loss exposures is that they include loss of income or extra expenses resulting from direct property loss. These indirect financial consequences arise when directly damaged property impedes normal operations causing loss of income for a business.

Step-by-step explanation:

The question asks which statement is TRUE regarding common indirect loss exposures. The correct answer is: An indirect loss includes loss of income or extra expenses resulting from the direct loss to the property. Indirect losses are financial consequences that occur as a result of a direct loss but are not themselves the direct damage to the property. For instance, if a business facility is damaged due to a fire (direct loss), the business may suffer from loss of income due to the inability to operate normally (indirect loss).

Moral hazard and insurance premiums are significant concepts in understanding insurance and imperfect information. Aninsurance company may face challenges if it raises premiums to cover high-risk losses as it may deter lower-risk individuals from purchasing insurance. This reflects the importance of maintaining balanced premiums across different risk levels.