ERM/Exam 3/Chapter 6

The board of directors of Insurance Company wants assurance that the company's recently-instituted "commitment to risk management" has been communicated to and accepted by all company employees. Which one of the following would be the best method to determine if employees had been informed of the commitment to risk management and had accepted it? Select one: A. Ask the internal audit department to administer a risk management questionnaire to employees. B. Ask senior management to prepare a report on the subject. C. Use a measure such as sales per employee or net income per employee to track performance. D. Check employee absenteeism before and after the policy was instituted.

A. Ask the internal audit department to administer a risk management questionnaire to employees.

The process of comparing the key risk indicators of an organization with those of other organizations in the same industry is known as Select one: A. Benchmarking. B. Hedging. C. Trend analysis. D. Root cause analysis.

A. Benchmarking.

Which one of the following statements about blockchain is true? Select one: A. Blockchain stores a record of transactions across a network of servers. B. Blockchain centralizes control of transaction data on a single computer server. C. Although blockchain can increase efficiency of operating systems, the tradeoff is data inaccuracy. D. While blockchain can reduce operational risks, it is easy to manipulate and hack.

A. Blockchain stores a record of transactions across a network of servers.

Insurance Company monitors key indicators of underwriting effectiveness. Some indicators they monitor include: percentage of business quoted that was written, application processing time, premium volume handled by underwriters, skill level of underwriters, and benchmarking between different underwriting offices. The indicators of underwriting performance Insurance Company uses are called A. Control indicators. B. Exposure indicators. C. System indicators. D. Process indicators.

A. Control indicators.

Chuck is Vice President of Claims for Insurance Company. The company has 37 adjusters in the field, and needs to hire four new adjusters. Chuck is curious about the relationship between prior experience of the adjuster and policyowner complaints. He collected data on the number of complaints for each adjuster on staff over time. Then he used a statistical technique to analyze the relationship between adjuster experience and complaints, and the trend of the relationship over time. The statistical analysis confirmed that that there were significantly fewer complaints with more experienced adjusters, and that the relationship grew stronger with more years of experience. The technique Chuck used to relate indicators to outcomes is called Select one: A. Regression analysis. B. SWOT analysis. C. Central tendency analysis D. Analysis of variance.

A. Regression analysis.

The level of confidence an organization places in the organization's risk management culture, practices, and procedures is called Select one: A. Risk assurance. B. Tolerable uncertainty. C. Probable maximum loss. D. Risk tolerance.

A. Risk assurance.

To be effective, a key risk indicator should be a a)Lagging indicator. B)Leading indicator. C)Loss ratio.

B)Leading indicator.

Which one of the following is an example of a report that would most likely contain both quantitative and qualitative data? Select one: A. A profit and loss statement B. A customer satisfaction survey C. A disaster recovery plan D. A financial statement

B. A customer satisfaction survey

Insurance Company monitors key indicators of underwriting effectiveness. Some indicators they monitor include: percentage of business quoted that was written, application processing time, premium volume handled by underwriters, skill level of underwriters, and benchmarking between different underwriting offices. The indicators of underwriting performance Insurance Company uses are called Select one: A. System indicators. B. Control indicators. C. Exposure indicators. D. Process indicators.

B. Control indicators.

Which one of the following statements is true regarding key risk indicators (KRI)? Select one: A. A KRI is the event or circumstance that directly led to a loss. B. A KRI is an effective predictor of external event risk. C. A KRI must be leading, rather than lagging, to be effective.. D. A KRI is a financial metric used to help define potential losses.

C. A KRI must be leading, rather than lagging, to be effective..

Sixth National Bank stores all of its financial records in an electronic data base. Sixth National customers are able to access their accounts on-line with a user identification number and a password. Last weekend, a computer hacker was able to breach the firewall of the electronic database and gain access to customer account data. This operational risk for Sixth National Bank is Select one: A. A credit risk. B. A process risk. C. A systems risk. D. An external event risk.

C. A systems risk.

Which one of the following statements is true regarding an effective risk reporting system? Select one: A. An effective reporting system should only include internal sources of information. B. Most organizations rely on reporting systems that provides quantitative data only. C. An effective reporting system provides efficient information flow up and down the lines of authority. D. An effective reporting system allows senior management to receive individual reports from each department.

C. An effective reporting system provides efficient information flow up and down the lines of authority.

Which one of the following statements is true concerning robotic process automation (RPA)? Select one: A. RPA cannot be used as part of business process management. B. RPA is more focused on the range of tasks that can be performed by a robot rather than the process of completing a task. C. When RPA is employed, it always involves the use of robots. D. Although RPA can help control some organizational risks, use of RPA can create other risks.

D. Although RPA can help control some organizational risks, use of RPA can create other risks.

Three HillsLaw is a legal firm specializing in multiple-plaintiff cases. One current case involves alleged birth defects caused by exposure to polluted groundwater. There are currently 78 plaintiffs represented in the pending legal action. Up-to-date records on the condition of each child is a critical operational concern. Three HillsLaw turned to a secured digital ledger system in which independent third parties (nurses, physicians, and parents) can update the status of individual children, and the record for the entire group is automatically updated. The latest update showed seven children have died, 14 have a terminal diagnosis, 27 have permanent disabilities, and 30 cases are listed as "developing" (awaiting definitive diagnosis). The secured distributed ledger system used by Three HillsLaw is called Select one: A. Telematics. B. Robotic process automation. C. Cryptocurrency. D. Blockchain.

D. Blockchain.

Which one of the following statements is true regarding operational risk? Select one: A. Operational risk is best managed during the course of business by an organization's front-line managers. B. Financial institutions and their regulators typically define operational risk to include market risk and credit risk. C. Most current methods of managing operational risk are informal. D. Operational risk is integrated in every activity of an organization.

D. Operational risk is integrated in every activity of an organization.

Risk indicators such as experience and authority levels apply to which one of the following operational risk classes? Select one: A. Systems B. Process C. External events D. People

D. People

One category of operational risk includes procedures and practices organizations use to conduct their business activities. This category is Select one: A. Technological risk. B. Business complexity risk. C. Systems risk. D. Process risk.

D. Process risk.

Local Petroleum Distributors (LPD) sells gas and diesel fuel to 72 independent gas stations and convenience stores. Receiving accurate data on the fuel needs of its customers is a critical operational concern. LPD installed sensors in the fuel storage tanks owned by each customer. At 11 PM each evening, the sensors send fuel data electronically to LPD. LPD receives the data, and a computer enters each record. The data are analyzed, and the analysis determines which retailers require a fuel shipment in the next three days. The electronic system has increased operational efficiency as shipments can be better coordinated, and retailers are no longer required to measure the fuel level and report manually. LPD's use of a computer to enter the data reported by the sensors is an example of Select one: A. Data analytics. B. Blockchain. C. Monte Carlo simulation. D. Robotic process automation.

D. Robotic process automation.

Which one of the following statements about risk management monitoring and reporting is true? Select one: A. Risk reports should be limited to objective information and not include subjective assessments. B. The silo reporting approach gives the board a more concise and useful picture than the integrated reporting approach. C. Risk reporting should give each risk faced by the organization equal treatment and avoid prioritizing risks. D. The most important characteristic of a risk report format is that it is useful to the user.

D. The most important characteristic of a risk report format is that it is useful to the user.

Which one of the following best describes the management of process risk? a)Process risk is best managed through training and development and performance management. b)Process risk is best managed through a framework of procedures and a mechanism to identify nonconforming practices. c)Process risk is best managed by developing procedures to manage market and credit risk. d)Process risk is best managed by using best practices acquired from competitors without their knowledge.

b. Process risk is best managed through a framework of procedures and a mechanism to identify nonconforming practices.