CPCU 500 all
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| What are the steps in the risk management process? | show 🗑
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| chance of loss | show 🗑
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| Diversifiable risk | show 🗑
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| Nondiversifiable risk | show 🗑
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| show | A term that encompasses all major risks faced by a business, including pure (hazard) risks, speculative risks, business and financial risks, even strategic risks.
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| show | 1. hazard risk 2. financial risk 3. operational risk 4. strategic risk
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| show | conditions that increase the frequency or severity of losses.
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| show | 1. Physical hazard 2. Moral hazard 3. Morale hazard 4. Legal hazard
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| show | A risk that is faced by businesses due to adverse changes in commodity prices, interest rates, or foreign exchange rates
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| Moral hazard | show 🗑
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| Morale hazard | show 🗑
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| Physical hazard | show 🗑
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| show | The possibility that a change in laws will ultimately increase losses (especially for insurers).
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| show | 1. Expected cost of paying losses (offset by potential gains) 2. Expenditures on risk management (in an attempt to reduce losses) 3. Cost of residual uncertainty
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| show | Any situation or circumstance in which a loss is possible, regardless of whether a loss occurs
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| Objective risk | show 🗑
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| show | uncertainty based on state of mind or opinions. Unlike objective risk, subjective risk is in the eye of the beholder.
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| show | a specific cause of loss (example: fire)
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| show | uncertainty regarding outcomes. Risk includes the uncertainty in the amount of the outcome and its timing. Also, one of the outcomes is negative
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| show | A situation in which there are only the possibilities of loss or no loss. That is, only bad outcomes are possible (downsided risk only)
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| Speculative risk | show 🗑
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| What are the three elements of loss exposures? | show 🗑
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| show | 1. property 2. liability 3. personnel (personal) 4. net income
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| Tangible vs. intangible property | show 🗑
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| show | a property owner can sustain loss from damage, destruction, or theft in which the owner has financial interest
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| show | the possibility that another party will make a claim that a person or business is responsible for their injuries or damages
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| show | possibility that the skills of a key employee will be lost due to injury, sickness, disability, or death
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| show | Possibility that net income will decline. Often result
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| show | 1. preparation for loss in the most cost effective manner 2. Keeps uncertainty at a tolerable level 3. Ensure legal obligations are satisfied 4. social responsibility
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| What are different levels of goals for risk management after a loss has occurred? | show 🗑
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| show | Financial loss that results from (is speciafally caused by) an insured peril
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| show | Financial loss occurring as the result of some other loss (also called consequential loss). An example is business interruption where a business is closed following a direct loss.
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| show | frequency of an event that can be estimated precisely, either by induction (such as mortality) or by the structure of the event (such as drawing an ace out of a standard deck of cards)
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| subjective probability | show 🗑
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| law of large numbers | show 🗑
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| Risk map or risk matrix | show 🗑
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| show | the probability of a loss occurring, or the number of losses occurring during a particular time period
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| Severity | show 🗑
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| show | risk control and risk financing
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| show | any technique that attempts to reduce the amount of losses experienced
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| risk financing | show 🗑
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| What are the costs of risk to society? | show 🗑
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| What are the benefits of risk management? | show 🗑
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| show | relevancy, complete, consistent, and organized
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| show | expected value, mean, median, and mode
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| show | variance, standard deviation, coefficient of variation, and tail percentiles (such as the 5th or 95th percentiles, called value at risk)
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| When forecasting outcomes using the normal distribution, what percentage of outcomes is predicted to be within one, two, and three standard deviations of the mean? | show 🗑
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| show | Document analysis, compliance review, inspections
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| List some examples of documents that are reviewed when identifying loss exposures | show 🗑
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| theoretical probability | show 🗑
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| show | estimate of the likelihood based on a sample of data
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| show | when increasing the amount of historical data for loss exposures (assuming the risk environment is similar) improves the accuracy of forecasting. (e.g., remember the accuracy of rolling the dice in class)
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| probability distribution | show 🗑
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| discrete probability distribution | show 🗑
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| continuous probability distribution | show 🗑
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| show | using the theoretical probability distribution, the expected value is the weighted average of the outcomes, where the weights are theoretical probabilities
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| show | a single number that attempts to represent a distribution of outcomes. (e.g., the "middle" of the distribution)
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| mean | show 🗑
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| median | show 🗑
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| mode | show 🗑
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| show | a measure of how spread out a probability distribution is. If the dispersion is high, measures of central tendency are less reliable since some outcomes are far away from the middle of the distribution
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| show | the "average" squared deviation from the mean. first, you must calculate the mean. next, subtract the mean from each data point and square this result. finally, add up these squared deviations and divide by the number of observations minus one (n-1)
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| standard deviation | show 🗑
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| show | a measure of dispersion that relates the standard deviation of a distribution to its mean. useful for comparing the dispersion of two distributions.
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| loss frequency | show 🗑
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| loss severity | show 🗑
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| total dollar losses | show 🗑
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| show | the total value of loss exposures that can be caused by any one particular event
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| show | a two dimensional graph that depicts both the frequency of losses (horizontal access) and the severity (vertical access)
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| Prouty approach | show 🗑
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| show | the weight (or confidence) attached to historical data when forecasting future events
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| collectively exhaustive | show 🗑
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| Mutually exclusive | show 🗑
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| show | indicates the likelihood of falling below a specific value
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| show | percentiles that are close to the minimum and maximum of a dataset. tail percentiles give a measure of the worst case scenario with a particular probability (like the 5th or 95th percentile)
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| cumulative probability distribution | show 🗑
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| What are four dimensions of loss exposures? | show 🗑
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| Risk control | show 🗑
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| Avoidance | show 🗑
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| Loss prevention | show 🗑
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| Loss reduction | show 🗑
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| List six risk control techniques | show 🗑
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| Separation | show 🗑
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| Duplication | show 🗑
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| show | A risk control technique to spread loss exposures across several different products, markets, or locations.
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| What are the four major goals of risk control? | show 🗑
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| show | Based on the occupancy of a building, these are required construction, operation, and maintenance requirements to assure that people have a safe exit in the event of a fire
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| What does the acronym "COPE" stand for? | show 🗑
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| What are the six steps to the business continuity process? | show 🗑
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| show | avoidance, loss prevention, and loss reduction
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| proactive avoidance | show 🗑
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| show | abandonment of risky activities, often after experiencing significant losses
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| engineering approach to risk control | show 🗑
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| human behavior approach to risk control | show 🗑
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| premises liability | show 🗑
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| show | liability that arises from the normal activities of a business such as property damage and/or bodily injury (e.g., auto liability by delivery personnel is an example)
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| show | liability that arises after work has been completed for customers, such as an improperly installed plumbing fixture that causes property damage
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| show | liability that arises due to the defect of distributed goods
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| show | liability that arises from employee injuries while performing their job
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| show | liability incurred by professionals, such as lawyers or accountants, who don't exercise the higher standard of care toward others as required by their occupation
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| show | liability incurred by managers and their employers as a result of engaging in wrongful acts that injure shareholders, employees, or others
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| show | Availability/Pay for losses, Manage the cost of risk (admin, risk mgmt), Manage cash flow variability, Maintain appropriate liquidity, Comply with legal/contractual requirements
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| Retention | show 🗑
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| Risk transfer | show 🗑
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| When compared with risk transfer (insurance), what are the advantages of retention? | show 🗑
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| show | Reduced exposure to large losses, reduced cash flow / earnings volatility, professional loss control and claims administration services
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| What are some organization specific characteristics that affect the selection of risk financing measures? | show 🗑
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| Primary insurance layer | show 🗑
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| Excess insurance layer(s) | show 🗑
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| show | A type of liability insurance that often sits between primary coverages (such as auto and general liability) and excess coverage.
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| show | A risk financing technique that is a carefully designed form of retention where the organization evaluates loss exposures and develops internal systems to track losses and fund them with payments that look like premiums.
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| Large deductible plan | show 🗑
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| Captive insurer | show 🗑
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| show | Similar to a group captive, where an insurer is formed to provide liability insurance for several parent companies' loss exposures.
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| show | A risk financing technique that involves very large premiums and only transfers a small portion of the risk of an organization to an insurer.
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| show | A risk financing technique where a group of organizations come together to provide protection in the event of a loss.
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| Retrospective rating plan | show 🗑
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| show | A type of risk transfer that does not involve insurance. It is a contractual arrangement to assign financial responsibility when there is a relationship between organizations
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| show | securitization, hedging with derivatives, and contingent capital
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| (insurance) securitization | show 🗑
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| hedging | show 🗑
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| contingent capital arrangement | show 🗑
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| What are methods of retention? | show 🗑
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| show | a conscious decision of an organization that recognizes a loss exposure and decides to pay subsequent losses directly
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| show | unplanned retention, where a business does not recognize its exposure to a loss and by default must pay for losses if they occur
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| guaranteed cost insurance | show 🗑
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| show | a type of retention where an organization prefunds losses based on formal analysis and establishes claims services.
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| large deductible plan | show 🗑
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| show | an insurance subsidiary that is owned by only the parent company
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| show | an insurance company formed and owned by several companies, often from the same industry, who are looking to insure their own losses
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| catastrophe (cat) bonds | show 🗑
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| show | hazard, operational, financial, strategic
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| show | Enhanced decision making and improved risk communication
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| show | foreign exchange, interest rate, commodity price, and equity price (also credit risk)
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| show | expand categories of risk, integration with organizational strategy, performance metrics, top level risk manager (organizational structure)
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| show | board of directors and top managers of company discuss, develop, and refine overall business strategies for the company
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| show | strengths, weaknesses, opportunities, and threats
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| How is decision making enhanced by companies adopting ERM? | show 🗑
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| show | more consensus by managers, more acceptance and cooperation by all stakeholders
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| What are the three specific risks identified in banking standard called Basel II? | show 🗑
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| Describe the law of large numbers | show 🗑
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| show | "Only sick people buy insurance". Adverse selection is the tendency of persons with higher-than-average chance of loss to seek insurance at average rates which, if not controlled by an insurer's underwriters, results in higher-than-expected loss levels.
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| show | Property and liability coverage for businesses, non-profit organizations, and government agencies. Not personal lines coverage
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| What is commercial general liability (CGL) insurance? | show 🗑
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| show | An unforeseen and unexpected loss that occurs as a result of chance
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| show | Compensation to the victim of a loss in an attempt to make them financially whole by payment, repair, or replacement
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| show | Spreading of losses incurred by the few over an entire group of insureds, so that in the process, average loss is substituted for actual loss.
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| What the requirements of ideally insurable risk? | show 🗑
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| show | Occurs when a pure risk is transferred from the insured another party (such as an insurer) who is typically in a stronger financial position to pay the loss than the insured
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| show | indemnification for losses, improved financial security/peace of mind, enhances credit (by protecting collateral), may help comply with legal requirements, promotes risk control activity, insurers are a source of investment capital, reduces social burden
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| show | using insurance may be more expensive because of insurer expenses and profit, moral hazard (such as fraud)
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| What are reasons for governments to get involved in insurance markets? | show 🗑
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| What is a contract of adhesion? | show 🗑
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| show | Unlike a commutative contracts in which dollar values exchanged by both parties are equal, an aleatory contract is one in which specific dollar values exchanged may not be equal
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| What is the broad evidence rule? | show 🗑
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| show | A contract with provisions that qualify or place limits on the insurer’s promise to perform
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| show | transfer of legal rights of a contract to another party
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| show | loss payment should bring the policyholder's financial position back to where it was before a loss occurred. the insurer should not pay MORE than the amount of loss so the policyholder does not profit from insurance
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| In the context of insurance, what is the end result of the principle of utmost good faith? | show 🗑
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| What is subrogation? | show 🗑
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| What is a unilateral contract? | show 🗑
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| What is a bilateral contract? | show 🗑
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| show | Policy that pays the face amount of insurance regardless of actual cash value if a total loss occurs (e.g., life insurance)
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| show | contains unique information about the insurance contract including the insured’s name, address, property to be insured, policy limits, policy period, and premium
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| What is the insuring agreement? | show 🗑
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| What is an endorsement (or rider)? | show 🗑
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| In the context of an insurance policy, what are exclusions? | show 🗑
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| show | provisions inserted in an insurance contract that qualify or place limits on the insurer’s promise to perform
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| show | these are the major sections of an insurance contract: Declarations, insuring agreement, conditions, and exclusions
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| What is the difference between monoline and multiline policies? | show 🗑
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| What is the difference between a self-contained policy and a modular policy? | show 🗑
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| show | offer/acceptance, consideration, legally competent parties, legal purpose
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| What are some reasons for exclusions in insurance contracts? | show 🗑
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| actual cash value (ACV) | show 🗑
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| show | The amount of loss that must be absorbed by the policyholder before insurance provides any payment. the deductible amount is subtracted from the total loss payment that would otherwise be paid
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| show | common in disability insurance, it is a deductible in days - the period during which benefits are not paid or the period of time that must elapse before benefits are payable
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| show | an insurance to value requirement, meaning that the policyholder must maintain a policy limit at a stated percentage of its insurable value (80% is typical)
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| principle of insurable interest | show 🗑
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| negligence | show 🗑
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| compensatory damages | show 🗑
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| What are the methods for determining actual cash value? | show 🗑
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| show | ownership, secured creditors, contractual rights, factual expectancy, representation of another party
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| What are some legal bases for demonstrating insurance interest in life insurance? | show 🗑
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| bailee | show 🗑
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| show | several parties have entire ownership, including survivorship interest
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| show | same as joint tenancy, but between a husband and wife
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| show | joint partial ownership, but survivorship interest remains with heirs of owners, not surrendered to surviving owners
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| Agreed value policy | show 🗑
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| functional valuation | show 🗑
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