Risk Management Fundamentals
41 Questions
0 Views

Choose a study mode

Play Quiz
Study Flashcards
Spaced Repetition
Chat to Lesson

Podcast

Play an AI-generated podcast conversation about this lesson

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?

<p>Personnel loss exposure (B)</p> Signup and view all the answers

What does liability loss exposure relate to?

<p>Injury or damage suffered by another (A)</p> Signup and view all the answers

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

<p>Loss of an irreplaceable employee (A)</p> Signup and view all the answers

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

<p>Enhanced decision-making processes (D)</p> Signup and view all the answers

What does medical payments coverage pay for?

<p>Necessary medical expenses for anyone injured on the insured's property (C)</p> Signup and view all the answers

What does real property consist of?

<p>Land, structures permanently attached to it, and anything growing on the land (B)</p> Signup and view all the answers

What is the function of a personal umbrella policy?

<p>To provide an additional level of protection for large liability losses (C)</p> Signup and view all the answers

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

<p>Whether the underlying coverage requirements are met (C)</p> Signup and view all the answers

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

<p>The umbrella policy pays the extra $200,000 (C)</p> Signup and view all the answers

What characterizes losses that could potentially bankrupt an organization?

<p>High severity and high frequency (B)</p> Signup and view all the answers

What is the primary purpose of risk monitoring?

<p>To ensure the program functions as intended (B)</p> Signup and view all the answers

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

<p>Systematically reviewing operations (B)</p> Signup and view all the answers

How can employees support the risk management effort?

<p>By reporting problems and proposing solutions (A)</p> Signup and view all the answers

What does risk-based auditing focus on primarily?

<p>The areas with the highest risk (B)</p> Signup and view all the answers

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

<p>They help ensure consistent adherence to standards (A)</p> Signup and view all the answers

What is one potential goal of a Risk Management Department?

<p>To provide insurance and risk management solutions (D)</p> Signup and view all the answers

What is NOT a principle of risk-based auditing?

<p>Evaluating the financial health of all departments (C)</p> Signup and view all the answers

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

<p>They often lead to bankruptcy. (B)</p> Signup and view all the answers

Which factor is NOT considered in personal auto underwriting?

<p>Financial stability (C)</p> Signup and view all the answers

What primary data do telematics systems collect?

<p>Driver behavior and GPS location (B)</p> Signup and view all the answers

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

<p>Radius of operation (D)</p> Signup and view all the answers

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

<p>Annual revenue of the business (D)</p> Signup and view all the answers

What does the term 'moral hazard' refer to?

<p>Intentional or exaggerated loss (D)</p> Signup and view all the answers

What aspect does the property application provide information on?

<p>Loss history and COPE elements (B)</p> Signup and view all the answers

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

<p>Internal employee records (B)</p> Signup and view all the answers

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

<p>To apply an applicable rate and calculate policy premium (A)</p> Signup and view all the answers

What does a loss run report detail?

<p>An insured's history of claims over a specific period (D)</p> Signup and view all the answers

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

<p>Construction type and occupancy details (B)</p> Signup and view all the answers

What is the primary purpose of underwriting?

<p>To develop and maintain a growing, profitable book of business (D)</p> Signup and view all the answers

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

<p>Loss exposure (A)</p> Signup and view all the answers

How do underwriters help minimize adverse selection?

<p>By selecting applicants who are less likely to experience loss (C)</p> Signup and view all the answers

What is referred to as the capacity of an insurer?

<p>The amount of business an insurer can write (A)</p> Signup and view all the answers

What do underwriting guidelines specify?

<p>The attributes of an account for coverage eligibility (C)</p> Signup and view all the answers

What does a book of business refer to?

<p>A collection of policies with a common characteristic (C)</p> Signup and view all the answers

Which task is NOT performed by line underwriters?

<p>Developing insurance laws (C)</p> Signup and view all the answers

What happens when an insurer's capacity increases?

<p>The insurer can write more policies (A)</p> Signup and view all the answers

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

<p>Supporting producers and insureds (D)</p> Signup and view all the answers

Which is a potential result of effective underwriting?

<p>A more profitable book of business (C)</p> Signup and view all the answers

Flashcards

Loss Exposure

A possibility of loss that could affect an organization's assets, earnings, or operations. It refers to the potential for something bad to happen to an organization. For example, a manufacturing company faces the risk of fire damage to its factory.

Property Loss Exposures

Losses that occur due to damage or destruction of physical assets, such as buildings, equipment, or inventory. For example, a factory fire destroying machines and raw materials.

Liability Loss Exposures

The legal responsibility for injuries or damages caused to others. For example, a company selling faulty products that injure consumers.

Personnel Loss Exposures

The potential loss caused by the absence or loss of a key employee. For example, a company losing its CEO due to illness or resignation.

Signup and view all the flashcards

Risk Management

The process of identifying, analyzing, and responding to potential risks. It aims to minimize losses and protect an organization's assets.

Signup and view all the flashcards

Benefits of Risk Management

The benefits of effectively managing risks include cost reduction, increased capital, promoting intelligent risk-taking, maximizing profitability, and complying with legal requirements.

Signup and view all the flashcards

Steps in the Risk Management Process

The steps in the risk management process include identifying loss exposures, analyzing those exposures, examining the feasibility of different management techniques, selecting appropriate techniques, and implementing and monitoring the chosen techniques.

Signup and view all the flashcards

High Severity, High Frequency Losses

Losses with both high severity and high frequency are difficult to transfer and can lead to an organization's financial ruin.

Signup and view all the flashcards

Risk Monitoring

Regularly reviewing a program's effectiveness and ensuring it operates as intended.

Signup and view all the flashcards

Internal Controls

Systematic processes used to assess internal operations and compliance with organizational values, standards, and objectives.

Signup and view all the flashcards

Risk-Based Auditing

Prioritizing internal audit resources to areas posing the greatest risk to an organization, focusing on materiality and business objectives.

Signup and view all the flashcards

Risk Reporting

Documentation like safety manuals and data privacy plans helps maintain consistent adherence to standards.

Signup and view all the flashcards

Risk Management Department's Vision

The Risk Management Department aims to control and contain losses, ensuring customer satisfaction with products.

Signup and view all the flashcards

Underwriting

The process of evaluating applicants for insurance and deciding whether to offer coverage, as well as determining the terms of the policy.

Signup and view all the flashcards

Purpose of Underwriting

The main goal of underwriting is to help an insurer develop a profitable business by attracting good risks and minimizing bad risks.

Signup and view all the flashcards

Adverse Selection

The tendency of individuals more likely to experience a loss to be more likely to purchase insurance. This is because they perceive a higher risk.

Signup and view all the flashcards

Capacity

The amount of insurance business an insurer can write based on regulations and its own financial limits.

Signup and view all the flashcards

Underwriting Guidelines

Rules and guidelines that insurers use to assess the risks associated with potential policyholders.

Signup and view all the flashcards

Book of Business

A collection of insurance policies with common features like territory or coverage type, often owned by one insurer or agency.

Signup and view all the flashcards

Line Underwriters

The activities that underwriters perform daily, like selecting policyholders, classifying risks, setting prices, and managing their book of business.

Signup and view all the flashcards

Selecting Insureds

When insurers choose to insure someone based on careful evaluation.

Signup and view all the flashcards

Classifying and Pricing Accounts

Categorizing applicants based on risk factors to determine appropriate premium rates.

Signup and view all the flashcards

Recommending or Providing Coverage

Deciding whether to provide coverage and setting the terms of the insurance policy.

Signup and view all the flashcards

Real Property

Property consisting of land, buildings, plants, and anything permanently fixed to the land.

Signup and view all the flashcards

Physical Hazard

A tangible characteristic of something (like a building, person, or activity) that can increase the chance or severity of a loss, like a pool increasing the risk of accidents.

Signup and view all the flashcards

Personal Umbrella Policy

An insurance policy providing extra protection for large liability losses on top of existing policies. It can also cover claims not covered by other policies.

Signup and view all the flashcards

Underlying Coverage Analysis

Umbrella policies typically require that insured individuals have a certain amount of coverage under their primary policies. Underwriters analyze these to ensure adequate coverage.

Signup and view all the flashcards

How does Medical Payments Coverage work?

Medical Payment Coverage

Signup and view all the flashcards

Where does personal auto underwriting information come from?

Information gathered from sources like driver records, loss histories, and financial reports to assess the risk of insuring a person.

Signup and view all the flashcards

What is telematics?

The use of wireless communication devices in vehicles to track and transmit data to insurance companies or government agencies.

Signup and view all the flashcards

What are the commercial auto liability underwriting considerations?

Factors considered when underwriting commercial auto liability insurance, including vehicle size and weight, vehicle use, operational area, and special industry classifications.

Signup and view all the flashcards

What are the commercial auto physical damage underwriting considerations?

Factors considered when underwriting commercial auto physical damage insurance, including the age and value of the vehicle, its use and maintenance, and the concentration of vehicles within a fleet.

Signup and view all the flashcards

What is rating?

The process of applying a rate and rating plan to a specific risk to calculate the policy premium.

Signup and view all the flashcards

What is moral hazard?

A condition that increases the likelihood of a person intentionally causing or exaggerating a loss.

Signup and view all the flashcards

What information does the application provide?

Information gathered from the property application, including loss history, building characteristics (COPE), and property values.

Signup and view all the flashcards

What information do supplemental sources provide?

Information gathered from sources like risk management programs, financial statements, risk control reports, and property valuation guides.

Signup and view all the flashcards

What is a loss run?

A report detailing an insured's history of claims over a specific period.

Signup and view all the flashcards

What are the personal auto physical damage underwriting considerations?

Factors considered when underwriting personal auto physical damage insurance, including vehicle size, type, equipment, age, and condition.

Signup and view all the flashcards

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).

Studying That Suits You

Use AI to generate personalized quizzes and flashcards to suit your learning preferences.

Quiz Team

Related Documents

Risk Management PDF

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.

More Like This

Use Quizgecko on...
Browser
Open
Browser
Browser