RMI 300 Final Exam UPDATED ACTUAL Exam Questions and CORRECT Answers
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Course
RMI 300
Institution
RMI 300
RMI 300 Final Exam UPDATED ACTUAL
Exam Questions and CORRECT Answers
What are the 3 ways a company decides who takes on what risks? - CORRECT
ANSWER- -Better Opportunity to pool
-Better way to use loss control incentives
-Who has the benefit in taxes
Prevention - CORRECT ANSWER- Any measure...
RMI 300 Final Exam UPDATED ACTUAL
Exam Questions and CORRECT Answers
What are the 3 ways a company decides who takes on what risks? - CORRECT
ANSWER✔✔- -Better Opportunity to pool
-Better way to use loss control incentives
-Who has the benefit in taxes
Prevention - CORRECT ANSWER✔✔- Any measure that lessens the probability
(frequency) of loss but does not eliminate it
Reduction - CORRECT ANSWER✔✔- Any effort that lessens the size (severity) of losses
that do occur
Avoidance - CORRECT ANSWER✔✔- Marking decisions with the intention of eliminating
either (1) some existing potential for loss, or (2) a future potential for loss from a new
venture. In essence, these are lost opportunities
What are Premium Loadings? - CORRECT ANSWER✔✔- costs in excess of E(loss) before
considering investments
When is it not worthwhile to pay this excess in Premium Loadings? - CORRECT
ANSWER✔✔- -Value of insurer services less than the cost of those services
-For low severity events
-for high frequency events
-when estimation risk exists: correlated events and/or estimation uncertainity
,Moral Hazard - CORRECT ANSWER✔✔- Behavior that increases the frequency of bad
outcomes
Adverse Selection - CORRECT ANSWER✔✔- -Definition: the tendency of buyers with
higher than average expected losses to buy more coverage than buyers with lower than
average expected losses when charged the premium
-Generally present when: potential insureds have differing distributions of expected losses
and also possess greater knowledge ("asymmetric information") about their expected losses
than the insurer
-Effect of adverse selection: insurer unable to charge sufficient premiums for sustainable
business; insurance market falls apart
What should you do in an event that is low frequency and high severity? - CORRECT
ANSWER✔✔- Transfer
-loss reduction
What should you do in an event that is low frequency and low severity? - CORRECT
ANSWER✔✔- Retain!
What should you do in an event that is high frequency and high severity? - CORRECT
ANSWER✔✔- Avoidance
-transfer will be difficult because premiums will be very high
What should you do in an event that is high frequency and low severity? - CORRECT
ANSWER✔✔- Retain
-Loss prevention
What Insurance Policy provision should be in place for a low frequency and high severity
event? - CORRECT ANSWER✔✔- Limits
, What Insurance Policy provision should be in place for a low-frequency and low severity
event? - CORRECT ANSWER✔✔- Deductible
What Insurance Policy provision should be in place for a High-frequency and low severity
event? - CORRECT ANSWER✔✔- Deductible
What Insurance Policy provision should be in place for a High-frequency and high severity
event? - CORRECT ANSWER✔✔- Exclusions
For a flood
What are some Common Assumptions about decisions? - CORRECT ANSWER✔✔- -
Decisions are consistent
-Generally we are aware of what we know and we do not know
-Decisions are improved with more information
-Generally we are risk averse
What are the 4 biases that may cause difficulty? - CORRECT ANSWER✔✔- -Framing
-Retrievability/Availability
-Anchoring
-Bounded Awareness
Framing - CORRECT ANSWER✔✔- the way we define the decision to be made. Think of a
picture frame, which is a lens through which we see the situation. Some qualities are inside
and some outside
Status Quo Bias - CORRECT ANSWER✔✔- The likelihood that public policy will remain
the same when the public does not desire a policy change is higher than the likelihood that
policy will change when the public desires change
What to do when there is Framing? - CORRECT ANSWER✔✔- -restate/reframe the issue
before making a decision
-work towards neutral representations
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