Risk Management Fundamentals

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Questions and Answers

What type of loss does not include property such as land or buildings?

Personnel loss

Liability loss (correct)

Property loss

Operational loss

Which of the following is NOT a benefit of risk management?

Minimizing customer satisfaction (correct)

Maximizing profitability

Reducing costs

Increasing capital

What is the first step in the risk management process?

Identifying loss exposures (correct)

Examining feasibility

Analyzing loss exposures

Selecting risk management techniques

Which type of loss exposure could result from a key employee leaving the organization?

Personnel loss exposure Signup and view all the answers

What does liability loss exposure relate to?

Injury or damage suffered by another Signup and view all the answers

Which of the following is a core aspect of personnel loss exposure?

Loss of an irreplaceable employee Signup and view all the answers

What is a key outcome of promoting intelligent risk-taking in risk management?

Enhanced decision-making processes Signup and view all the answers

What does medical payments coverage pay for?

Necessary medical expenses for anyone injured on the insured's property Signup and view all the answers

What does real property consist of?

Land, structures permanently attached to it, and anything growing on the land Signup and view all the answers

What is the function of a personal umbrella policy?

To provide an additional level of protection for large liability losses Signup and view all the answers

What does an underwriter check when analyzing a personal umbrella policy application?

Whether the underlying coverage requirements are met Signup and view all the answers

What happens when Andrew's liability is $500,000 and his homeowners policy covers up to $300,000?

The umbrella policy pays the extra $200,000 Signup and view all the answers

What characterizes losses that could potentially bankrupt an organization?

High severity and high frequency Signup and view all the answers

What is the primary purpose of risk monitoring?

To ensure the program functions as intended Signup and view all the answers

Which of the following is part of internal controls used to monitor compliance?

Systematically reviewing operations Signup and view all the answers

How can employees support the risk management effort?

By reporting problems and proposing solutions Signup and view all the answers

What does risk-based auditing focus on primarily?

The areas with the highest risk Signup and view all the answers

What role do policy and procedure documentation play in risk reporting?

They help ensure consistent adherence to standards Signup and view all the answers

What is one potential goal of a Risk Management Department?

To provide insurance and risk management solutions Signup and view all the answers

What is NOT a principle of risk-based auditing?

Evaluating the financial health of all departments Signup and view all the answers

What is a consequence of high severity and high frequency losses to organizations?

They often lead to bankruptcy. Signup and view all the answers

Which factor is NOT considered in personal auto underwriting?

Financial stability Signup and view all the answers

What primary data do telematics systems collect?

Driver behavior and GPS location Signup and view all the answers

Which of the following is a consideration for commercial auto liability underwriting?

Radius of operation Signup and view all the answers

Which is NOT one of the considerations for commercial auto physical damage underwriting?

Annual revenue of the business Signup and view all the answers

What does the term 'moral hazard' refer to?

Intentional or exaggerated loss Signup and view all the answers

What aspect does the property application provide information on?

Loss history and COPE elements Signup and view all the answers

Which of the following is NOT a supplemental source of information considered by underwriters?

Internal employee records Signup and view all the answers

What is the primary function of 'rating' in underwriting?

To apply an applicable rate and calculate policy premium Signup and view all the answers

What does a loss run report detail?

An insured's history of claims over a specific period Signup and view all the answers

What can be defined as an essential element in assessing the quality of a property account?

Construction type and occupancy details Signup and view all the answers

What is the primary purpose of underwriting?

To develop and maintain a growing, profitable book of business Signup and view all the answers

Which term describes the possibility of loss due to certain conditions?

Loss exposure Signup and view all the answers

How do underwriters help minimize adverse selection?

By selecting applicants who are less likely to experience loss Signup and view all the answers

What is referred to as the capacity of an insurer?

The amount of business an insurer can write Signup and view all the answers

What do underwriting guidelines specify?

The attributes of an account for coverage eligibility Signup and view all the answers

What does a book of business refer to?

A collection of policies with a common characteristic Signup and view all the answers

Which task is NOT performed by line underwriters?

Developing insurance laws Signup and view all the answers

What happens when an insurer's capacity increases?

The insurer can write more policies Signup and view all the answers

What is one of the roles of underwriters in relation to producers and insureds?

Supporting producers and insureds Signup and view all the answers

Which is a potential result of effective underwriting?

A more profitable book of business Signup and view all the answers

Study Notes

Risk Management

Risk: Uncertainty about whether a loss will occur. It consists of uncertainty and loss.
Risk Management Process: Strategies to decrease the frequency or severity of losses, and/or pay for unexpected losses. Traditional risk management focuses on hazards. Enterprise risk management considers interrelationships of risks from many sources to maximize stakeholder value.
Pure Risk: Only results in a loss or no loss, no opportunity for gain. Example: Fire risk for an apartment building - either burns down or doesn't.
Speculative Risk: Can result in loss, no loss, or gain. Example: Market value of an apartment building increasing or decreasing.

Property Loss Exposures

Losses can be to real property (land, buildings) or personal property (furniture, equipment, computers).

Liability Loss Exposures

Legal responsibility for injuries or damages caused by an individual or organization. Example: Product recall causing damage or injury.

Personnel Loss Exposures

Possibility of loss due to a key employee leaving (retirement, resignation, layoff). Example: A key manager leaving.

Benefits of Risk Management

Reducing costs, increasing capital, promoting intelligent risk taking, maximizing profits, and complying with regulations.

Steps in the Risk Management Process

Identifying loss exposures
Analyzing loss exposures (loss frequency, severity, total losses, timing of losses)
Examining the feasibility of risk management techniques
Selecting appropriate risk management techniques
Implementing the selected risk management techniques
Monitoring results and revising the program

Risk Financing Techniques

Risk retention: Individuals/organizations plan to pay for losses themselves
Risk transfer: Shifts financial responsibility for losses to another party through contracts (mostly handled by insurance).

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Description

Test your knowledge on the principles of risk management with this quiz. It covers various aspects including loss types, risk exposure, and insurance policies. Challenge yourself to answer questions ranging from the basics to more advanced concepts in risk assessment.