Question 1

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 claim 
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 claim

Question 2

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 building 
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 building

Question 3

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

Accepted Answer

A) True 
 B)False

Question 4

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 above 
A)  operational risks 
B)  financial risks 
C)  strategic risks 
D)  all of the above

Question 5

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. 
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.

Question 6

Employee benefits have been strengthened in the last few years.

Accepted Answer

A) True 
 B)False

Question 7

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

Accepted Answer

Financially, insurance is an arrangement

Question 8

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

Accepted Answer

A) True 
 B)False

Question 9

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 Effectiveness 
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 Effectiveness

Question 10

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

Accepted Answer

A) True 
 B)False

Question 11

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 catastrophic 
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 catastrophic

Question 12

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 hunting 
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 hunting

Question 13

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 $100 
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 $100

Question 14

Most speculative risks are insurable.

Accepted Answer

A) True 
 B)False

Question 15

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

Question 16

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 hazard 
A)  pure risk 
B)  non-diversifiable risk 
C)  speculative risk 
D)  physical hazard

Question 17

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 hazards 
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 hazards

Question 18

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 people 
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 people

Question 19

Enterprise Risk Management is a comprehensive approach to corporate risk.

Accepted Answer

A) True 
 B)False

Question 20

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

Accepted Answer

A) True 
 B)False

Exam 1: Introduction to Enterprise Risk Management and Insurance

Which one of the following losses is an indirect loss?

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?

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

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

Which of the following is a false statement?

Employee benefits have been strengthened in the last few years.

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

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

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

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

Risk retention is not a good idea if:

Which of the following is not a hazard?

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

Most speculative risks are insurable.

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

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

The ideal insurance system:

Loss Transfer means:

Enterprise Risk Management is a comprehensive approach to corporate risk.

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

Risk Identification

Risk Assessment and Pooling

Risk-Handling Techniques: Loss Control, Risk Transfer, and Loss Financing

Risk-Handling Techniques: Diversification and Hedging

Fundamentals of Insurance

Insurable Perils and Insuring Organizations

Insurance Functions

Insurance Markets: Economics and Issues

Insurance Regulation

Insurance Contracts

The Personal Auto Policy

Homeowners Insurance

Professional Financial Planning

Life Insurance Policies

Standard Life Insurance Contract Provisions and Options

Annuities

Health Insurance and Disability Income

Employee Benefits

Social Security

Unemployment and Workers Compensation Insurance

Commercial Property Insurance

Commercial Liability Insurance

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