Question 1

Loss Transfer means:

Accepted Answer

A)   shifting the financial consequences of a loss to a third party
B)   shifting the financial consequences of a loss to a self-insurance program
C)   shifting the financial consequences of a loss to a well-diversified portfolio
D)   shifting the financial consequences of a loss to more wealthy group of peopleE) All of the above
F) B) and D)

Question 2

Volcanoes have catastrophic loss potential because they are limited in geographic impact.

Accepted Answer

A) True 
 B)False

Question 3

Which of the following is a false statement?

Accepted Answer

A)   Risk averse people will pay an insurance premium that is greater than the mathematically fair chance of loss in order to relieve themselves of uncertainty.
B)   A risk seeker is willing to assume risk.
C)   The mathematically fair price for insurance is the objective risk for the insurer multiplied by the maximum possible loss.
D)   Insurance is never a mathematically fair trade because the insurer adds several operating and other costs to loss costs when it calculates the premium.E) B) and C)
F) A) and C)

Question 4

The correct order of the steps in the Risk Management Process is:

Accepted Answer

A)   Establish Goals, Identify Potential Loss Exposure, Measure Potential Loss Exposure, Choose Risk Handling Techniques, Implement Techniques and Monitor Effectiveness
B)   Establish Goals, Choose Risk Handling Techniques, Identify Potential Loss Exposure, Measure Potential Loss Exposure, Implement Techniques and Monitor Effectiveness
C)   Establish Goals, Choose Risk Handling Techniques, Measure Potential Loss Exposure, Identify Potential Loss Exposure, Implement Techniques and Monitor Effectiveness
D)   Establish Goals, Measure Potential Loss Exposure, Identify Potential Loss Exposure, Choose Risk Handling Techniques, Implement Techniques and Monitor EffectivenessE) A) and D)
F) C) and D)

Question 5

Hazards may increase either the frequency or the severity of losses.

Accepted Answer

A) True 
 B)False

Question 6

The Chief Risk Officer is concerned primarily with the management of:

Accepted Answer

A)   operational risks
B)   financial risks
C)   strategic risks
D)   all of the aboveE) None of the above
F) B) and D)

Question 7

In the context of ERM, which of the following is an example of hazard risk?

Accepted Answer

A)   Human Resource losses
B)   Property losses
C)   Liability losses
D)   Supply Chain interruption lossesE) A) and B)
F) A) and C)

Question 8

If you were the risk manager of the World Trade Center buildings, what loss prevention or reduction technique could you have implemented before the 9/11/01 tragedy that might have made a significant difference in the number of lives lost?

Accepted Answer

A)   Guards on the roof of each building
B)   Evacuation procedures that required everyone to leave after any sign of loss
C)   Stronger exterior building materials
D)   Better background screening of all who were allowed to work in the buildingE) A) and B)
F) B) and C)

Question 9

The ideal insurance system:

Accepted Answer

A)   reduces the probability of accidental and fortuitous losses due to increased predictability
B)   requires the transfer of a large number of exposures to loss to a pool, where a fund exists in advance of losses having to be paid
C)   works best when a large proportion of the participants in the pool submits a claim
D)   eliminates all hazardsE) B) and C)
F) A) and D)

Question 10

Which one of the following losses is an indirect loss?

Accepted Answer

A)   Damage to a car when a tree falls on it
B)   Loss caused by an arsonist who burns down a building to collect insurance proceeds
C)   Monetary losses due to the inability to produce and sell goods when a machine is destroyed
D)   Monetary losses due to a legal liability claimE) B) and C)
F) None of the above

Question 11

Which of the following potential losses is not an example of a pure risk?

Accepted Answer

A)   Loss of a home by fire
B)   Theft of a car
C)   Loss of $10,000 in the stock market
D)   Theft of your wallet containing $100E) B) and C)
F) A) and D)

Question 12

In general, aggregate losses must be predictable in advance for an insurance system to work properly.

Accepted Answer

A) True 
 B)False

Question 13

Employee benefits have been strengthened in the last few years.

Accepted Answer

A) True 
 B)False

Question 14

The first step in the Risk Management Process is choosing appropriate risk handling techniques.

Accepted Answer

A) True 
 B)False

Question 15

Explain the financial definition and the legal definition of "insurance."

Accepted Answer

Financially, insurance is an arrangement...

Question 16

Which of the following is not a hazard?

Accepted Answer

A)   Storing one ton of dynamite in a garage
B)   Bad diet (eating lots of junk food) 
C)   Skating on thin ice
D)   Getting shot accidentally while deer huntingE) A) and B)
F) None of the above

Question 17

Risk retention is not a good idea if:

Accepted Answer

A)   the risk is unimportant
B)   you did not identify the risk
C)   the frequency is so low it almost will never happen
D)   the exposure is potentially catastrophicE) A) and D)
F) C) and D)

Question 18

Defective electrical wiring that may lead to a fire is an example of a:

Accepted Answer

A)   pure risk
B)   non-diversifiable risk
C)   speculative risk
D)   physical hazardE) None of the above
F) B) and D)

Question 19

Enterprise Risk Management is a comprehensive approach to corporate risk.

Accepted Answer

A) True 
 B)False

Question 20

Most speculative risks are insurable.

Accepted Answer

A) True 
 B)False

Exam 1: Introduction to Enterprise Risk Management and Insurance

Hazards may increase either the frequency or the severity of losses.

Correct AnswerverifiedShow Answer

Loss Transfer means:

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If you were the risk manager of the World Trade Center buildings, what loss prevention or reduction technique could you have implemented before the 9/11/01 tragedy that might have made a significant difference in the number of lives lost?

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The first step in the Risk Management Process is choosing appropriate risk handling techniques.

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Which one of the following losses is an indirect loss?

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Which of the following is not a hazard?

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Risk retention is not a good idea if:

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The ideal insurance system:

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Volcanoes have catastrophic loss potential because they are limited in geographic impact.

Correct AnswerverifiedShow Answer

Defective electrical wiring that may lead to a fire is an example of a:

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Which of the following is a false statement?

Correct AnswerverifiedShow Answer

The correct order of the steps in the Risk Management Process is:

Correct AnswerverifiedShow Answer

Enterprise Risk Management is a comprehensive approach to corporate risk.

Correct AnswerverifiedShow Answer

Most speculative risks are insurable.

Correct AnswerverifiedShow Answer

Explain the financial definition and the legal definition of "insurance."

Correct AnswerverifiedFinancially, insurance is an arrangement...View AnswerShow Answer

Employee benefits have been strengthened in the last few years.

Correct AnswerverifiedShow Answer

Which of the following potential losses is not an example of a pure risk?

Correct AnswerverifiedShow Answer

In general, aggregate losses must be predictable in advance for an insurance system to work properly.

Correct AnswerverifiedShow Answer

In the context of ERM, which of the following is an example of hazard risk?

Correct AnswerverifiedShow Answer

The Chief Risk Officer is concerned primarily with the management of:

Correct AnswerverifiedShow Answer

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Financially, insurance is an arrangement...
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