Risk Management Exam questions and answers 2024/2025
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Course
Risk Management
Institution
Risk Management
Risk Management Exam questions and answers 2024/2025.
Risk management is the process by which we try to manage the uncertainty surrounding the objectives. The purpose of the risk management process is to ensure that these objectives are attained.
Risk Management Exam
Risk - ANSUncertainty about outcomes that can be either positive or negative.
Risk Management - ANSThe process of making and implementing decisions
that enable an organization to optimize its level of risk.
-identify
-select techniques
Risk Management Process - ANS. Identify potential losses
• Measure and analyze the loss exposures
• Select the appropriate combination of techniques for treating the loss
exposures
• Implement and monitor the risk management program
Steps in the Risk Management Process - ANS1. Identify loss exposure
2. Measure and analyze the loss exposure
3. Select the appropriate combination of technique for treating the loss
exposure
include risk control ( use for the Hazard risk)
- Avoidance
- Loss prevention
- Loss reduction
And risk financing
- retention
- Non insurance transfers
- Insurance
4. Implement and monitor the risk management program
Measure and Analyze Loss Exposures - ANSEstimate for each type of loss
exposure:
- Loss frequency refers to the probable #number# of losses that may occur
during some time period
- Loss severity refers to the probable# size# of the losses that may occur
• Rank exposures by importance
• Loss# severity# is more important than loss frequency:
- The maximum possible loss is the worst loss that could happen to the firm
during its lifetime
- The probable maximum loss is the worst loss that is likely to happen
1. Risk control refers to techniques that reduce the frequency and severity of
losses
• Methods of risk control include:
- Avoidance
, - Loss prevention
- Loss reduction - ANSLoss prevention refers to measures that reduce the
frequency of a particular loss
- e.g., installing safety features on hazardous products
• Loss reduction refers to measures that reduce the severity of a loss after it
occurs
- e.g., installing an automatic sprinkler system
2. Risk financing refers to techniques that provide for the payment of losses
after they occur
Methods of risk financing include:
- Retention
- Non-insurance Transfers
- Commercial Insurance - ANSRetention means that the firm retains part or
all of the losses that can result from a given loss
- Retention is effectively used when:
• No other method of treatment is available • The worst possible loss is not
serious
• Losses are highly predictable
A risk manager has several methods for paying retained losses: - ANS-
Current net income: losses are treated as current expenses
- Unfunded reserve: losses are deducted from a bookkeeping account
- Funded reserve: losses are deducted from a liquid fund
- Credit line: funds are borrowed to pay losses as they occur
Self-insurance, or self-funding is a special form of planned retention by
which part or all of a given loss exposure is retained by the firm - ANSA risk
retention group (RRG) is a group captive that can write any type of liability
coverage except employers' liability, workers compensation, and personal lines
- They are exempt from many state insurance laws
A non-insurance transfer - ANSis a method other than insurance by which a
pure risk and its potential financial consequences are transferred to another party
- Examples include: contracts, leases, hold- harmless agreements
Advantages of Non-insurance transfer
- Can transfer some losses that are not insurable
- Less expensive
- Can transfer loss to someone who is in a better position to control losses -
ANSDisadvantages
- Contract language may be ambiguous, so transfer may fail
- If the other party fails to pay, firm is still responsible for the loss
- Insurers may not give credit for transfers
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