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CPCU 500 - Foundations of Risk Management and Insurance exam with answers
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CPCU 500 - Foundations of Risk Managementand Insurance exam with answers
CHAPTER |1 |
What |are |the |two |elements |of |risk? |- |correct |answer |--Uncertainty |of |outcome |- |Time |of |the |outcome
|and |type |of |outcome |are |uncertain
-possibility |of |a |negative |outcome |- |at |least |1 |outcome |is |negative
What |is |the |difference |between |probability |and |possibility? |- |correct |answer |-Possibility |- |an |outcome
|or |event |may |or |may |not |occur. |It |does |not |quantify |the |risk, |only |verifies |the |risk |is |there
Probability |- |the |likelihood |than |an |outcome |will |occur, |quantifies |the |risk. |It |is |measurable |and |has |
value |between |zero |and |one
How |does |probability |help |an |organizations |risk |management |exposure? |- |correct |answer |--by |
understanding |the |probability |of |an |exposure, |an |organization |can |focus |its |risk |management |efforts |
to |avoid |it.
-helps |organization |decided |what |projects |and |activities |to |undertake
How |does |classifying |a |risk |help |an |organizations |risk |management |process? |- |correct |answer |--can |
help |with |assessing |risk |cause |many |risks |in |the |same |classification |have |similar |attributes
-helps |manage |risks
-helps |administrative |function |of |RM |by |helping |to |ensure |the |risks |in |same |class |are |less |likely |to |be |
overlooked
-Compare |pure |risk |with |speculative |risk
-why |is |it |important |to |distinguish |between |the |2 |what |making |risk |management |proceduces |- |correct
|answer |-pure |risk |- |change |of |loss |or |no |loss |but |no |gain
speculative |risk |- |involves |a |chance |of |gain
|type |of |SR |includes: |price |risk |and |credit |risk |(financial |investments |involve |a |distinct |set |of |
speculative |risks)
, its |important |when |making |RM |decisions |cause |the |2 |types |must |often |be |managed |different. |*most |
insurance |policies |are |not |designed |to |handle |speculative |risks*
*insurable |risks |are |generally |classified |as |pure, |objective, |and |diversafiable*
- |How |does |subjective |and |objective |risk |differ? |- |correct |answer |-subjective |risk |- |perceived |amount |
of |risk |based |on |individuals |or |organizations |opinion
objective |risk |- |measurable |variation |in |uncertain |outcomes |based |on |facts |and |data
where |they |differ |(see |page |1.8):
1. |Familiarity |and |control |
2. |consequences |over |likelihood
3. |Risk |Awareness
-Contracts |diversifiable |and |nondiversifiable |risk? |- |correct |answer |-diversifiable |risk |- |is |not |highly |
correlated |and |can |be |managed |through |diversification
non-d |risk |- |is |correlated, |losses |and |gains |occur |together |(type: |systemic |risk |- |potential |for |a |major |
disruption |in |the |function |of |an |entire |market |or |financial |system
- |Describe |the |quadrants |of |risk |- |correct |answer |-way |of |categorizing |risk |is |putting |them |in |
quadrants:
-hazard |risk |- |property, |liability, |and |personnel |loss, |generally |the |subject |of |insurance
-operational |risks |- |fall |outside |hazard |cat, |arise |from |people |or |failure |in |process, |system, |or |control, |
including |info |tech
-financial |risks |- |effect |of |market |forces |on |financial |assets |or |liabilities |and |include |market |risk, |credit
|risk, |liquidity |risk |and |price |risk
-strategic |risks |- |arise |from |trends |in |the |economy |and |society, |including |changes |in |econ, |political |
and |competitive |environments, |as |well |as |from |demographic |shirts
*see |graph |on |1.10*
What |are |the |3 |components |to |constitute |the |financial |consequence |of |risk |faced |by |individuals |or |
organizations? |- |correct |answer |-- |expected |cost |of |losses |or |gains
- |expenditures |on |RM
- |cost |of |residual |uncertainty
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