CPCU 500

conditional value at risk

a technique to quantify the likelihood of losing a specific dollar amount that exceeds the VaR threshold

strategy map

a visual diagram showing the plans an organization develops to meet its strategic objectives

HAZOP

Comprehensive review of a process or system. A team of appropriate experts and stakeholders identifies the risks associated with a given process and recommends a solution. Primarily used to design complex, scientific systems such as those used in engineering, chemical, mechanical, electronic, and computer operations.

Working Capital

current assets - current liabilities

objective risk

the measurable variation in uncertain outcomes based on facts and data

subjective risk

the perceived amount of risk based on an individual's or organizations opinion

market value

the price at which property could be sold on the open market by an unrelated buyer and seller

risk threshold

the range or amount of risk that is acceptable

counterparty risk

the risk that the other party to an agreement will default

insurtech

the use of emerging technologies in the insurance industry

debt to assets ratio

total liabilities/total assets

Debt to Equity Ratio

total liabilities/total equity

Technique of operations review

views the cause of accidents to be a result of management's shortcomings

securitization

written instruments representing either money or other property, such as stocks and bonds

linear regression equation

y = mx +b; y is the dependent variable. x is the independent variable. b is the y-intercept. m is the slope of the line

book value

historical cost minus accumulated depreciation

biochemical sensors

home diagnostic tests, wearable fitness monitors, diabetes test strips/meters/patches

scenario analysis

identify risks and predict the potential consequences of those risks. cross-functional team works through different possibilities

centrality measure

in a social network context, the quantification of a node's relationship to other nodes in the same network

SIR

insured organization is responsible for adjusting and paying its own losses up to the defined amount

predictive approach

repetitive use from this approach

thermal sensors

smoke detectors, heat sensors, computer hardware sensors

causal factors

the agents that directly result in one event causing another

economic capital

the amount of capital required by an organization to ensure solvency at a given probability level, such as 99 percent, based on the fair value of its assets minus the fair value of its liabilities

economic value

the amount that property is worth based on the ability of the property to produce income

Acid-test (quick) ratio

(cash + short-term investments + current receivables) / current liabilities, a liquidity ratio

PESTLE Analysis

A framework used in strategic management for the purpose of assessing the external environment PESTLE is an acronym for political, economic, sociological, technical, legal and environmental.

risk control

A conscious act or decision not to act that reduces the frequency and/or severity of losses or makes losses more predictable.

hold-harmless agreement

A contractual provision that obligates one of the parties to assume the legal liability of another party.

transducer

A device that converts energy from one form to another

accelerometer

A device that measures acceleration, motion, and tilt

special purpose vehicle

A facility established for the purpose of purchasing income-producing assets from an organization, holding title to them, and then using those assets to collateralize securities that will be sold to investors.

hedging

A financial transaction in which one asset is held to offset the risk associated with another asset.

coefficient of variation

A measure of relative variability computed by dividing the standard deviation by the mean and multiplying by 100.

control indicator

A metric used to identify an organization's management of risk

empirical probability

A probability measure that is based on actual experience through historical data or from the observation of facts.

loss reduction

A risk control technique that reduces the severity of a particular loss.

key risk indicator

A tool used by an organization to measure the uncertainty of meeting a strategic business objective; leading not lagging

change analysis

An analysis that projects the effects a given system change is likely to have on an existing system.

Energy transfer theory

An approach to accident causation that views accidents as energy that is released and that affects objects, including living things, in amounts or at rates that the objects cannot tolerate.

Balance Sheet Equation

Assets = Liabilities + Net Worth

current ratio

Current Assets/Current Liabilities, a liquidity ratio.

risk criteria

Information used as a basis for measuring the significance of a risk.

SWOT analysis

Internal: Strengths, Weaknesses External: Opportunities, Threats

Porter's Five Forces

Model developed by strategy expert Michael Porter that identifies five competitive forces that influence planning strategies.

risk appetite

The amount of risk a company is willing to accept to achieve its goals and objectives.

functional replacement cost

The cost of replacing damaged property with similar property that performs the same function but might not be identical to the damaged property.

fiduciary duty

The duty to act in the best interests of another.

connected ecosystem

The emerging technologies applied to risk assessment and control link the physical domain to the virtual domain. Together, these domains linked by the emerging technologies create a

life safety

The portion of fire safety that focuses on the minimum building design, construction, operation, and maintenance requirements necessary to assure occupants of a safe exit from the burning portion of the building.

price risk

The potential for a change in revenue or cost because of an increase or a decrease in the price of a product or an input

expected value

The weighted average of all of the possible outcomes of a probability distribution.

Quadrant: Hazard Risk

Which quadrant? Arise from property, liability, or personnel loss exposures and are generally the subject of insurance. This is a pure risk.

Quadrant: Operational Risk

Which quadrant? arise from people or a failure in processes, systems, or controls, including those involving information technology. This is a pure risk.

Quadrant: Financial Risk

Which quadrant? arise from the effect of market forces on financial assets or liabilities and include market risk, credit risk, liquidity risk, and price risk. This is speculative risk.

Quadrant: Strategic Risk

Which quadrant? arise from trends in the economy and society, including changes in the economic, political, and competitive environments, as well as from demographic shifts. This is speculative risk.

limited form

X agrees to indemnify Y for claims resulting in X's sole fault

broad form

X agrees to indemnify Y for claims resulting in X's sole fault, X + Y joint fault, and Y's sole fault

intermediate form

X agrees to indemnify Y for claims resulting in X's sole fault, and X + Y joint fault

speculative risk

a chance of loss, no loss, or gain

standard deviation

a computed measure of how much scores vary around the mean score

exculpatory clause

a contractual provision purporting to excuse a party from liability resulting from negligence or an otherwise wrongful act

exposure indicator

a metric used to identify risk inherent to an organization's operations

cluester analysis

a model that determines previously unknown groupings of data

pure risk

a risk that presents the chance of loss but no opportunity for gain

classification tree

a supervised learning technique to segment data according to known attributes to determine the value of a categorical target variable

earnings at risk

a technique to assess earnings volatility by measuring the likelihood that earnings will be below a specific dollar amount over a specific period of time

Value at risk (VaR)

a technique to quantify financial risk by measuring the likelihood of losing more than a specific dollar amount over a specific period of time

control risk self-assesment

all employees work together to identify and evaluate the organization's risks and their controls.

risk tolerance

amount of risk an organization is able to accept

job safety analysis

an analysis that dissects a repetitive task, whether performed by a person or machine, to determine potential hazards if each action is not performed

large deductible plan

an organization's motive for this is to reduce its cost of risk. In addition, allows insured organization to benefit from the cash flow available on their reserves for retained losses

risk management framework focus

applying the RM process throughout the organization

descriptive approach

approach to solve a particular problem

Sequence of Events (Domino Theory)

chain of events that lead in succession to the resulting accident or injury

normal distribution

data is distributed evenly around a central data point and forms a bell curve

derivative

financial instrument whose value derives from other commodities or financial instruments

residual risk

level of risk remaining after actions are taken to alter the level of risk

leverage ratio

measure the degree to which a company has borrowed money

key performance indicators

measurements that define and measure the progress of an organization toward achieving its objectives

actuator

mechanical device that turns energy into motion or otherwise effectuates a change in position or rotation using a signal and energy source

noninsurance transfers

methods other than insurance by which a pure risk and its potential financial consequences are transferred to another party, such as leases, contracts, and purchase agreements

pathos

mode of persuasion appealing to emotion

logos

mode of persuasion for showing reason with evidence

ethos

mode of persuasion for showing/proving expertise and qualification

facilitated workshops

neutral party administers discussion. brainstorming with diverse groups in the organization to achieve goal

Delphi Technique

opinions of select group of experts to identify risks, survey inquiry. repeated until consensus is reached

radiant sensors

optical sensors, radar, radio frequency identification (RFID) tags

34.13%

percentage between 0 and 1 standard deviations

13.59%

percentage between 1 and 2 standard deviations

2.15%

percentage between 2 and 3 standard deviations

.13%

percentage less than three standard deviations

mechanical sensors

pressure sensors, flow sensors, motion detectors

Theoretical Probability

probability based on principles rather than actual experience

loss prevention

refers to measures that reduce the frequency of a particular loss