CPCU 500- Becoming a Leader in Risk Management and Insurance
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Course
CPCU 500
Institution
CPCU 500
CPCU 500- Becoming a Leader in Risk
Management and Insurance
Risk - answeruncertainty of outcomes
The insurance industry is evolving as a result of two key, overarching factors that are
influencing virtually every aspect of the insurance value chain: - answerthe growing demand
for risk managem...
CPCU 500- Becoming a Leader in Risk
Management and Insurance
Risk - answer✔uncertainty of outcomes
The insurance industry is evolving as a result of two key, overarching factors that are
influencing virtually every aspect of the insurance value chain: - answer✔the growing demand
for risk management consulting
new technology that's helping organizations predict and prevent losses
Examples of Technology Used to Predict and Prevent Losses - answer✔Telematics- has greatly
influenced vehicle and driver safety
Law of Large Numbers - answer✔A mathematical principle stating that as the number of similar
but independent exposure units increases, the relative accuracy of predictions about future
outcomes (losses) also increases.
Oscar's custom-built vehicle looks like a sausage sandwich on wheels. He plans to drive it to
special events at schools around the country where it will serve as a mobile billboard to
promote his product. Oscar is surprised to learn that insurers are reluctant to insure his vehicle
because it fails to meet one of the ideal characteristics of an insurable risk. Which characteristic
is Oscar's vehicle least likely to meet?
Smart Product - answer✔An innovative item that uses sensors; wireless sensor networks; and
data collection, transmission, and analysis to further enable the item to be faster, more useful,
or otherwise improved.
Sensor - answer✔A device that detects and measures stimuli in its environment.
Wireless sensor network (WSN) - answer✔A wireless network consisting of individual sensors
placed at various locations to exchange data.
Big data - answer✔Sets of data that are too large to be gathered and analyzed by traditional
methods.
Internet of Things (IoT) - answer✔A network of objects that transmit data to computers.
Predictive analytics - answer✔Statistical and analytical techniques used to develop models that
predict future events or behaviors.
Data science - answer✔An interdisciplinary field involving the design and use of techniques to
process very large amounts of data from a variety of sources and to provide knowledge based
on the data.
These decisions can have far-reaching effects across the insurance value chain: -
answer✔Determining the appropriate coverage limits for an individual policy
Choosing whether to have a prospective customer elaborate on information provided in an
insurance application
Deciding what data to include in a predictive model and where it should come from
Determining whether a claim shows signs of fraud and should be reported to the special
investigation unit (SIU)
Deciding the best way to respond empathetically to a customer's claim
Determining how to describe your ideal job candidate for an open position to a recruiter or
hiring manager
What's the difference between occurrence and claims-made coverage - answer✔Under an
occurrence policy, coverage is triggered for losses that happen within the policy period, even if
the policy has expired. Under a claims-made policy, coverage is triggered for claims that occur
after the policy's coverage began (the retroactive date) and are reported within the policy's
reporting period.
social inflation - answer✔The increasing of insurance losses caused by higher jury awards,
increase in liberal treatment of claims by workers compensation boards, legislated rises in
compensation benefit levels (in some cases retroactively), and new concepts of tort and
negligence, among others.
These are some of the most common risk classifications - answer✔Pure and speculative risk
Subjective and objective risk
Diversifiable and nondiversifiable risk
Quadrants of risk (hazard, operational, financial, and strategic)
Several factors can affect speculative risk - answer✔Price risk—Uncertainty about cash flows
resulting from possible changes in the cost of raw materials and other inputs (such as lumber,
gas, or electricity), as well as cost-related changes in the market for completed products and
other outputs.
EXAMPLE- Four Grains Cereal Company signed a contract to deliver 250,000 boxes of cereal to a
national supermarket chain at a specified price per box of cereal six months from today.
Between now and when the grain to make the cereal is purchased, the cost of the grain may
increase. If the cost of this important ingredient increases, the profitability of the transaction
will be altered. This financial risk that Four Grains faces is
Input Price- Uncertainty of the price of the resources used to produce an organization's product
Output Price- Uncertainty regarding the price an organization can charge for its product
Credit risk- risk that customers or other creditors will fail to make promised payments as they
come due.—Although a credit risk is particularly significant for banks and other financial
institutions, it can also be relevant to any organization with accounts receivable.
Subjective and objective risks can differ in other ways as well: - answer✔Familiarity and control
Consequences over likelihood
Risk awareness
Quadrants of Risk - answer✔Hazard risks—These arise from property, liability, or personnel loss
exposures and are generally the subject of insurance.
Operational risks—These fall outside the hazard risk category and arise from people or a failure
in processes, systems, or controls, including those involving information technology.
EXAMPLE- Jean is the Risk Manager for a Fortune 1000 company. Her CFO has tasked her to
analyze vulnerabilities in the firm's supply chain. The adequacy of suppliers to meet an
organization's needs would be an example of which one of the following types of risk?
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