CPCU 500- Becoming A Leader In Risk
Management And Insurance Questions And
Answers Graded A+.
Risk - correct 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: - correct 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 - correct answer.
Telematics- has greatly influenced vehicle and driver safety
Wearables
IoT Sensors
Smartphones
Cloud Storage
Predictive Models
Artificial Intelligence
Law of Large Numbers - correct 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 - correct 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 - correct answer. A device that detects and measures stimuli in its
environment.
Wireless sensor network (WSN) - correct answer. A wireless network consisting of
individual sensors placed at various locations to exchange data.
Big data - correct answer. Sets of data that are too large to be gathered and
analyzed by traditional methods.
Internet of Things (IoT) - correct answer. A network of objects that transmit data to
computers.
Predictive analytics - correct answer. Statistical and analytical techniques used to
develop models that predict future events or behaviors.
Data science - correct 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: -
correct 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 - correct 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 - correct 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 - correct 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 - correct 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: - correct answer.
Familiarity and control
Consequences over likelihood
Risk awareness
, Quadrants of Risk - correct 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?
Financial risks—These risks arise from market forces on financial assets or liabilities
and include market risk, credit risk, liquidity risk, and price risk. EXAMPLE- An
organization practicing holistic risk management would assess the cost of raw materials
and foreign exchange risk
Strategic risks—These arise from trends in the economy and society, including changes
in the economic, political, and competitive environments, as well as from demographic
shifts. EXAMPLE- A new computer chip that could position a company for explosive
growth is an example of
EXAMPLE- Hardware Store has been able to control its prices and inventory since it
has no competitors. A new highway currently being constructed is going to allow
increased competition for Hardware Store. According to the quadrants of risk, this risk of
increased competition falls into the category of
the four quadrants of risk focus on the source of risk and who has traditionally managed
it
Which one of the following best describes the categories of risk included in the
enterprise risk management model?
Hazard, Operational, Financial, Strategic
Pure risk - correct answer. A chance of loss or no loss, but no chance of gain.
Speculative risk - correct answer. A chance of loss, no loss, or gain.
Credit risk - correct answer. The risk that customers or other creditors will fail to
make promised payments as they come due.
One financial risk for an insurer is that the insured will not pay all of the premiums when
the premiums are due
