CPCU 500 Exam Questions- Managing Evolving Risks

Ideally insurable loss exposures are subject to losses that

Are definite in time, cause, and locatio

Emerald Industries has just invested a large sum in new, highly-sophisticated computer equipment and building renovations. Emerald installed state-of-the-art smoke detection devices throughout the facility. Emerald's state-of-the-art smoke detection devices are an example of

Loss reduction

The risk control technique that reduces the severity of a particular loss is which one of the following?

Loss reduction

Large deductible plans

Lower an organization's cost of risk

A local shopping center reduced its net income loss after a fire by incurring additional expenses to shorten the time it takes to repair the damage and reopen the shopping center. Bob, the owner of the center, hired a contractor to work around the clock until repairs were completed. This reduced Bob's net income loss because he was able to repair the shops sooner. Bob's action is an example of which one of the following risk management techniques?

Loss reduction

Which one of the following valuation standards is most appropriate for valuing products that are relatively indistinguishable from one another, such as agricultural products, oil, or precious metals?

Market value

A municipal water plant installed water flow sensors and water pressure sensors on the water pipes leaving the plant. The sensors make sure water is flowing properly and that there are no leaks or clogs which could produce a loss. These types of sensors are

Mechanical sensors

The occupancy class characterized by a large # of ppl who gather in a space that is relatively unfamiliar to them is

Mercantile

Which one of the following risk control techniques might actually increase loss frequency?

Separation

WOTF theories of accident causation presumes that accidents are the result of a chain of accidental factors?

Sequence of events theory

Which one of the following is a major benefit that smart insurance contracts can provide to insurance customers?

Smart contracts can dramatically increase the speed of loss payments

According to the law of large numbers, as the number of exposure units insured increases

The relative accuracy of predictions about future losses increases

An employee benefit plan fiduciary has a duty of prudence, meaning that

The fiduciary must carry out the duties with the skill, prudence, and diligence of a prudent person familiar with such matters

Which one of the following is the goal with strategic risk?

The goal is to use information about strategic risks to make informed decisions that optimize the risk-reward ratio.

The relationship between two basic measures is critical for risk mangt in assessing risk and deciding whether and how to manage it

likelihood and consequences

Motley Manufacturing is considering locating one of its facilities in northern California, but is concerned about the possibility of loss due to which one of the following natural hazards, which has one of the highest loss exposures for this phenomenon in this part of the country?

Earthquake

Creative Catering has a 15 year old vehicle that was originally built to prepare and serve sandwiches and drinks at various outdoor functions such as car shows, sporting events, etc. The vehicle is of low value but it generates approximately $100,000 a year in sales. The risk management professional will primarily be concerned about its

Economic value

Which one of the following provides a measure of the maximum potential damage associated with an occurrence?

Exposure

One of the reasons that building occupancies affect life safety is that diff occupancies have diff

Features that affect safe exits from a building

Insurance Deals primarily with

Puer risks

Risk manager Christine is analyzing the risks faced by her company, Clear Sky Technology. She assigns a rating based on the significance of the consequences of the various risks. Her four ratings are: Low, Medium-Low, Medium-High, and High. The ratings that Christine assigns are a

Qualitative assessment.

Harris Company is analyzing its workers compensation loss exposure. Harris Company retains most of the exposure and purchases excess insurance to cap its liability on any individual claim. Because Harris Company has a large work force, it can predict its workers compensation cost with some level of accuracy. For next year, the risk manager estimates that there is a 70% chance that workers compensation costs will be $6 million or less, a 25% chance workers compensation costs will be between $6 million and $8 million, and a 5% chance workers compensation costs will exceed $8 million. The type of analysis the risk manager performed is called

Quantitative analysis

Which one of the following types of risk analysis uses historical data to assign specific values to consequences and their probabilities to reach a numeric indication of the level of risk?

Quantitative analysis

Which one of the following risk management objectives is critical for a manufacturer seeking new capital from investors, stockholders, and creditors?

Reduce the deterrent effects of hazard risks

A systematic procedure that uses the results of other analysis techniques to identify the predominant determinants of an accident is called

Root cause analysis

Which one of the following is one of the five steps of the risk management process?

Scan environment

WOTF is true about preventive analytics

Uses smart products and data analytics to identify root loss causes and their implicaitions.

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

Operational risk is integrated in every activity of an organization

Which one of the following statements is true regarding the basic measures that apply to risk management?

. Consequences measure the degree to which an occurrence could positively or negatively affect an organization.

The number of auto physical damage claims for fleet vehicles at Right-a-Way Delivery Service in any year is normally distributed. Next year, the expected number of fleet vehicle physical damage claims is expected to be 712 with a standard deviation of 25. Based on this information, what is the probability that between 737 and 762 auto physical damage claims will occur next year?

13.6% Correct. The probability that between 737 and 762 auto physical damage claims will occur next year is 13.6%. This is the percent of outcomes that fall between 1 and 2 standard deviations. In a normal distribution, the percent of all outcomes falling within 1 and 2 standard deviations is 13.59%.

An insurer is beginning to write business in a new state. The claim manager, Carla, wants to know how many new claim representatives to hire to accommodate the additional volume of claims. Based on the marketing department's estimate and industry data, Carla has determined the mean number of new claims to be 2,000, with a standard deviation of 1,000 in a normal distribution. If a claim representative can typically adjust 600 claims per year, and Carla wants at least 66% certainty that she has enough representatives, which one of the following represents how many representatives she will need to hire?

5 Correct. Carla's 66% certainty will fit within one standard deviation of the mean. The number of new claims will then be 3,000, and since one claim manager can adjust 600 claims in a year, 5 additional representatives can handle the volume (3,000/600).

In a normal distribution 34.13% of all outcomes are within one standard deviation above the mean. The portion between one and two standard deviations above the mean contains 13.59% of all outcomes. What percentage of the total outcomes is between two standard deviations below the mean and two standard deviations above?

95.44%. The percentage of the total outcomes between two standard deviations below the mean and two standard deviations above 95.44%. The area between the mean and two standard deviations above the mean contains 47.72% (34.13 + 13.59) of the outcomes, and since every normal distribution is symmetrical, another 47.72% of all the outcomes fall within the area between the mean and two standard deviations below the mean. 47.72 + 47.72 = 95.44.

Which one of the following statements is true regarding an effective risk reporting system?

An effective reporting system provides info flow up and down the lines of authority

Northern Consolidated is evaluating the financial risk associated with its investment portfolio. The risk manager knows that as interest rates increase, bond values decrease. This relationship is known as

A Covariance

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

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

Which one of the following statements is correct regarding characteristics of ideally insurable loss exposures?

A common function that insurance provides is a spreading of risk across a large number of similar exposure units within the same period

In both noninsurance risk control and noninsurance risk financing transfers,

A contract is usually formed before any loss occurs.

An exculpatory clause is

A contractual provision that relieves one party from liability resulting from a negligent or wrongful act

Which one of the following is an example of a report that would most likely contain both quantitative and qualitative data?

A customer satisfaction survey

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

A customer satisfaction survey

An excess liability insurance policy that covers a claim in excess of the underlying limits only if the loss is covered by the underlying policy is called

A following-form excess policy.

Classifying risk appropriately can help in managing risk. Which one of the following statements is correct with respect to the classifications of risk?

A pure risk is a chance of loss or no loss, but no chance of gain.

Employers face a number of potential loss exposures due to federal legislation and state laws. Of the various types of Employment Practices Liability (EPL) claims, which one of the following is a major type of EPL claim?

A retaliation claim

Which one of the following statements about root cause analysis (RCA) is true?

A root cause must produce effective recommendations for prevention of future accidents.

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 is A. A special purpose vehicle B. A catastrophe bond. C. A forward contract. D. An insurance derivative.

A special purpose vehicle.

Company G is a manufacturer of high profile golf equipment. The risk management professional for Company G is concerned about loss of business related to product design. Failing to respond to changing customer demand and preferences in the design of golf clubs could cost Company G significant market share. Categorized according to the quadrants of risk, this exposure to loss is classified as

A strategic risk

Probability analysis is best suited for organizations that have

A substantial volume of data on past losses

Hi-Tech Phones has been working on two new models of their flagship smart phone. The Research and Development department has been working on a touch-based phone and a voice-activated phone. Which one of the following is a tool that could be used to assess the risks of developing and marketing either or both of these phones? B. A tree map. C. A topographic map. D. A heat ma

A. A risk map

A risk manager for a grocery store wants to see if there is a correlation between the frequency of customer slip and fall accidents, and the time of day. Which one of the following is a relatively simple data analysis technique that the risk manager could use to determine this correlation? Select one: A. Bubble plot B. Classification tree C. Cluster analysis D. Regression analysis

A. Bubble plot

Determining earnings-at-risk (EaR) entails modeling the influence of factors such as A. Changes in the prices of products and production costs on an organization's earnings. B. The potential for both positive and negative credit risk for the organization. C. Employee satisfaction and other subjective variables that can be used for financial organizations but not nonfinancial organizations. D. Differences in the prices of products from competitors' prices.

A. Changes in the prices of products and production costs on an organization's earnings.

Tom, the regional manager at Westfork Mutual, has planned a community service day for all employees. He has asked his two assistant managers, Julian and Leah, to spread the word to other employees and encourage them to attend. Based on centrality measures of the company's email traffic, Tom is confident that Julian will spread the word to more employees more quickly through email than will Leah. Tom's confidence is based on Julian's high score in which one of the following centrality measures? A. Closeness B. Association C. Betweenness D. Degree

A. Closeness Correct. Based on Westfork's email traffic, Julian has a higher closeness to the other employees than Leah. Therefore, it can be assumed that he will spread the word about the community service day to more people more quickly through email.

Hold-harmless agreements areSelect one:A. Comprised of two parties—the indemnitor and the indemnitee.B. Enforceable without legal consideration.C. Highly regulated.D. Standardized.

A. Comprised of two parties—the indemnitor and the indemnitee.

Jeremy purchased some long-term corporate bonds when he retired. He plans to use the periodic interest payments from the bonds to supplement his other sources of retirement income. However, some of the companies that issued the bonds that Jeremy purchased may become insolvent and unable to make periodic interest payments. This risk that Jeremy took when he invested in the corporate bonds is called A. Credit Risk B. Price risk. C. Interest rate risk. D. Exchange-rate risk.

A. Credit Risk

Encouraging the expression of feelings as well as facts and following up with employees on the problems they report are two ways that managers and supervisors can Select one: A. Cultivate two-way communication. B. Facilitate active listening. C. Maintain control of the conversation. D. Support diverse groups.

A. Cultivate two-way communication.

Which one of the following statements is correct regarding formulating an organization's long-term strategies? A. Long-term strategies to improve performance and/or create a competitive advantage, are based on the organization's goals and analysis of internal and external environments. B. All parts of an organization play a role in formulating an organization's long-term strategies. C. Formulating an organization's long-term strategy involves determining the "who," "what," and "when" responsibilities of each department. D. A long-term strategy should be an aspirational description of what an organization will accomplish in the long-term future.

A. Long-term strategies to improve performance and/or create a competitive advantage, are based on the organization's goals and analysis of internal and external environments.

Which one of the following is a data analysis technique that operates in a way similar to the human brain? Select one: A. Neural networks B. Structured data. C. Internal data. D. Databases.

A. Neural networks

A predictive approach to data analytics involves A. Providing a method to be used repeatedly to provide information. B. Providing information to solve a particular problem. C. Providing sensors that predict accidents.

A. Providing a method to be used repeatedly to provide information.

Which one of the following is the first step in the text mining process? A. Retrieve and prepare text with preprocessing techniques B. Evaluate the model C. Create a model using data mining techniques D. Create structured data from unstructured data (words)

A. Retrieve and prepare text with preprocessing techniques

During which one of the following stages of the strategic management process would an organization use methods such as Porter's Five Forces Analysis and PESTLE Analysis?

Analyzing Environments

Which one of the following statements is most accurate? A. The text in organizational files, social media posts, news stories, consumer reviews, and so forth is not automatically meaningful to a machine or an algorithm. B. Most text is automatically meaningful to an algorithm. C. Text mining is only effective for structured data. D. Text in organizational files, social media posts, news stories, consumer reviews, and so forth is an example of structured data.

A. The text in organizational files, social media posts, news stories, consumer reviews, and so forth is not automatically meaningful to a machine or an algorithm.

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

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

Widget Manufacturing Company has noticed that its loss frequency and severity has increased in the past two years as its production has increased. In order to better forecast loss frequency and severity, Widget Manufacturing Company should consider using A. Trend analysis. B. Empirical probability analysis. C. Theoretical probability analysis. D. Distribution analysis.

A. Trend analysis.

Clark's Electronics is considering launching new technology for the medical industry. Before investing major resources in the project, the company decided to perform a SWOT analysis. The fact that there are new medical industry regulations pending would fall under which one of the following quadrants of a SWOT analysis? A. threats B. Opportunities C. Weaknesses D. Strengths

A. threats

Directors & officers are considered to have met their duty of care if they have met 2 diff standards. WOTF is one of these standard?

Act in a manner believed to be in the corporations best interests.

In an effort to reduce expenses, increase profitability, and reduce human errors; ABC Insurance Company decided to automate most of its personal lines underwriting function. The company now uses standardized application forms that are submitted electronically to one of the company's regional offices. At each regional office, a computer with a scanner reads the applications. The computer has been programmed with acceptable answers to the questions. If the answers on the application are all acceptable, the policy is automatically issued. Rejected applications are automatically forwarded to a human underwriter who reviews them. The use of this technology has reduced the company's expense ratio by two and a half percent, and reduced the time it takes to issue a policy. ABC Insurance Company's use of computers to evaluate applications electronically is an application of

Artificial intelligence

The predictive approach to data-driven decision making would be most appropriate for which one of the following situations? A. A contractor is concerned about rising employee injuries at a jobsite. B. A transportation company is looking for a way to optimize routes and improve fuel efficiency. C. A restaurant is looking for a more reliable supplier of seafood. D. A marketing company is concerned about higher than average employee turnover at its Atlanta office.

B. A transportation company is looking for a way to optimize routes and improve fuel efficiency.

An organization practicing holistic risk management would assess the cost of raw materials and foreign exchange risk under which one of the following quadrants of risk?

Financial risk

Nancy, the general liability claims manager, is concerned about a significant rise in claim frequency in the state of New Jersey during the past 18 months. She cannot identify the cause of the increase and has asked James, a data analyst, to help. James decides to develop a model to analyze the dataset of New Jersey claims, and see if any previously unknown grouping can be identified for further analysis. Which one of the following data analysis techniques is James using? A. Classification tree B. Cluster analysis C. Correlation matrix D. Linear regression analysis

B. Cluster analysis Correct. James is using cluster analysis to identify previously unknown groupings of data.

After meeting with an external expert on climate change, an organization's risk professional will need to do all of the following, EXCEPT: A. Assess the potential severity of the risks to the organization B. Communicate all of the potential risks cited by the external expert to the board of directors C. Identify those risks that are most likely to affect the organization D. Recommend a treatment technique for risks with severe potential

B. Communicate all of the potential risks cited by the external expert to the board of directors

After being promoted to a supervisory position, Henry decided that he needed to work on becoming an active listener. All of the following are elements of active listening, EXCEPT: Select one: A. Response B. Introduction of new ideas C. Attention D. Suspension of judgement

B. Introduction of new ideas

Fluctuations in the value of stocks or bonds due to interest rate changes is an example of

Financial risk

In order to achieve collaboration, group leaders must A. Promote competition among members of the group. B. Remain focused on preventing stakeholders from straying from the common goal. C. Remain focused on achieving the goals of their individual groups. D. Focus on the worker's personality rather than results.

B. Remain focused on preventing stakeholders from straying from the common goal.

A main difference between decision trees and event trees is

B. That event trees analyze the consequences of accidental events rather than decisions.

Lucas, a risk professional for Jones Incorporated, recently met with experts from the utility industry to discuss the potential loss of supply and risks to the infrastructure. Lucas must now decide which risks, and proposed treatments, need to be communicated to the board of Jones Incorporated. Lucas should make this decision based on Select one: A. Whether any government regulations are involved or not. B. The organization's risk appetite and tolerance levels. C. The supply source involved. D. Whether the risk in natural or man-made.

B. The organization's risk appetite and tolerance levels.

Regression analysis assumes that the variable being forecast A. Can only be used when time is a variable. B. Varies predictably with another variable. C. Stays constant and does not change over time. D. Can only be used when production is a variable.

B. Varies predictably with another variable.

The descriptive approach is applied Select one: A. When an insurer or risk manager is deciding what type of computer technology to purchase. B. When an insurer or risk manager has a specific problem. C. To process information received from the Internet of Things. D. Repeatedly to provide information for data-driven decision making.

B. When an insurer or risk manager has a specific problem.

The risk control measures used to protect ppl and property from the adverse effects of hostile fires are collectively called

Fire Safety

The process of comparing the key risk indicators of an organization with those of other organizations in the same industry is known as

Benchmarking

An advantage of a large deductible plan is that it allows the insured organization to

Benefit from the cash flow available on the retained loss reserves

In addition to metal detectors, many airports have installed a 2nd type of scanning tech 4 checked baggage & cargo to detect explosives based on air samples. Which sensor used for risk assemt and control?

Biochemical sensors (home diagnosis tests, wearable fitness monitors, diabetes tests)

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

Blockchain

Which one of the following is described as a distributed database that serves as a collectively shared ledger?

Blockchain

The life safety code req that many buildings or structures should have

Fire alarms

The important first step in a decision-making model is to A. Prepare the data. B. Assign a data scientist. C. Define the problem.

C. Define the problem.

Technological advancements have led to access to unprecedented volumes and types of data. Social media posts are an example of which one of the following types of data? A. Internal unstructured data B. Internal structured data C. External unstructured data

C. External unstructured data

Which one of the following is a technique that can destroy motivation, rather than build it? A. Seeking feedback on yourself from peers, managers, and subordinates B. Seeking stakeholder input when making decisions C. Promoting competition among units D. Requesting equipment, staff, and other resources needed to support stakeholders

C. Promoting competition among units

Statutory limitations on hold-harmless agreements vary in the

C. Types of noninsurance transfers to which the statutes apply.

The National Ocianic (NOA) Monitors tsunami risk. Using the tsunami detection buyous (smart prod) illustrates

CAT management

Under a large deductible plan, the amount that the insurer incurs to adjust losses

Can be inside or outside the deductible

The second step in the root cause analysis (RCA) process is charting the agents that directly result in one event triggering another event. In RCA, these agents are called

Causal factors

Leasing is a useful noninsurance risk control transfer because

Certain loss exposures accompany property ownership but do not accompany its use or occupancy.

A risk manager for an organization has proposed a meeting to ask a series of "What if?" questions to project the consequences for implementing alternative processes under consideration. Which one of the following system safety analysis techniques is the risk manager proposing?

Change analysis

A post-loss action for a flood cause of loss is

Clearing of drains of debris

Advancements in machine learning and artificial intelligence (AI) have helped insurers do all of the following, EXCEPT:

Completely prevent customers' risk

Autonomous Vehicle Applications (AVA) is a start-up company that develops safety technologies that can be sold to companies that are producing autonomous vehicles. One technology AVA is developing allows an autonomous vehicle to detect, extract, and analyze images; and then to respond to the images. For example, the technology would detect a presence in a crosswalk, extract the image, and a computer would analyze the image. When the image was determined to be a human being, the vehicle would slow down or stop until the crosswalk was clear. This technology, which is designed to capture and analyze images, and to act on the recognition of the image; is called

Computer vision

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

Connected ecosystem

Some buildings have modest economic value but still have high replacement costs. One prime reason for this might be because of

Construction styles that are large or ornate

Which of the following risk management program goals is an essential goal for all public entities?

Continuity of operations

Shelton Manufacturing executives are growing increasingly concerned about wildfires and the potential effects on supply chain management. As the risk professional, Carla has been asked to meet with experts on the subject and report back to the executive team. Which one of the following should Carla do before meeting with external wildfire experts? Select one: A. Carla should try to learn as much as possible about wildfires, so she can impress the wildfire experts. B. Carla should speak with internal subject-matter experts in hopes that she can avoid needing the external wildfire experts. C. Carla should solicit questions from internal experts and submit them to the external wildfire experts. D. Carla should research the field and get a working understanding of wildfires.

D. Carla should research the field and get a working understanding of wildfires.

Which one of the following is an example of exploratory data analysis? A. Classification trees B. Clustering C. Association rule learning D. Correlation matrix

D. Correlation matrix

Samuel was recently hired as a risk management professional for Parker Property Management. He has been asked by senior management to review the organization's current insurance policies to make sure that the organization is adequately protected, and also see if there are any opportunities to save on the premiums. Samuel must do which one of the following through internal communication before he will be able to complete this task? Select one: A. Become familiar with industry regulations B. Identify all of the risks that the organization faces C. Earn the confidence of the organization's board of directors D. Determine the organization's risk appetite

D. Determine the organization's risk appetite

An organization can use securitization to exchange A. Liabilities for mortgage receivables. B. Debt for income-producing assets. C. Cash for income-producing assets. D. Income-producing assets for cash.

D. Income-producing assets for cash.

When an ee retires or resigns, the most significant loss to the organization is typically the

Future value that the individual would have provided to the organization

Olivia is planning a meeting to explain a new cyber security procedure. She expects that the meeting will be impeded by hidden agendas. Which one of the following is the best way for Olivia to deal with potential hidden agendas? A. Olivia should start the meeting by stating that she does not expect everyone like the new procedure, but they must accept it. B. Olivia should hold a separate meeting for those individuals who she suspects have a hidden agenda. C. Olivia should refuse to take questions during her meeting, and request that any questions be forwarded to her in writing after the meeting. D. Olivia should start the meeting by asking participants to state their concerns or feeling about the procedure.

D. Olivia should start the meeting by asking participants to state their concerns or feeling about the procedure.

If an insurer wants to determine the numerical value for a known target variable, it is most likely to use A. Association rule learning. B. Cluster analysis. C. A classification tree. D. Regression.

D. Regression.

Which one of the following statements about the use of drones is true?

Drones may be equipped with cameras that relay data in real-time

Risks from accidental loss, including the possibility of loss or no loss defines

Hazard Risk

William is a project manager for Parker International. He has been assigned a key project with a short deadline. William realizes that this project is going to require revising the job duties of some individuals and a collaborative effort from of all team members. When revising job duties, William should do which one of the following? A. Focus on the individuals' personality rather than results B. Overload some individuals with more work than others C. Rely on the most senior individuals to take on additional duties D. Try to enrich individuals' work rather than merely expand it

D. Try to enrich individuals' work rather than merely expand it

An organization may use a large deductible plan to achieve the purpose of which one of the following?

Defer cash outflows for retained loss reserves

Commercial general liability insurance policies written on an occurrence basis apply to bodily injury and property damage that occurs during the policy period. This provision supports the principle that insurable loss exposures must ideally be

Definite (in time)

One type of noninsurance risk control transfer, a disclaimer of warranties, is used to

Deny any express warranties made in conjunction with the sale of property.

A1 Architectural Design relies on its historical files and blueprints. The partners of the firm are discussing risk control measures that can be implemented to provide protection against property-related losses. Which one of the following would likely offer the best protection for this exposure?

Duplication

Wrongful termination claims can sometime allege implied employment contracts arising from wotf types of docs?

EE handbook

A financial analyst wants to evaluate the effect that a predicted increase in the cost of steel will have on the net income of East Side Manufacturing. Which one of the following measurement techniques should the analyst use? A. Conditional value at risk B. Cost at risk C. Value at risk D. Earnings at risk

Earnings at risk

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

Econ val

Home Appliance Company has decided to change its production method. Previously, small teams of workers assembled washers, dryers, and dishwashers. Under the new production method, an assembly-line will be used, with some functions performed by robotics. Before making the change, Home Appliance Company has created a team of experts from company personnel to identify all of the risks inherent in the new production method and to recommend measures to address these risks. The team will assemble in a facilitated workshop and follow these steps: Divide the production method into components Review each component to identify risk Identify causes and potential outcomes for each risk Develop a solution for each risk. This team approach is risk identification is called a

Hazard and operability (HAZOP) study

In remodeling the primary office location, Phil, who is a partner in his family's construction business, found asbestos in the attic of the building. He is concerned not only about the current tear-out exposure but is also aware that asbestos may have resulted in unidentified harm. In the "quadrants of risk," Phil's concern about the asbestos most likely falls into which one of the following quadrants of risk?

Hazard risk

One of the levels of risk a business faces is the risk of accidental loss, including the possibility of loss or no loss. This category of risk is

Hazard risk

WOTF is an ex of wearable?

Helmets that monitor fatigue

An organization has had a high percentage of repetitive stress injuries to workers in a particular phase of their production process. The risk manager has been asked to analyze these injuries from a system safety analysis perspective. Which one of the following techniques should the risk manager use to investigate these accidents?

Job safety analysis

WOTF system safety techniques is best suited to analyze repetitive human tasks performed in a sufficiently stable environment where most hazards are foreseen?

Job safety analysis

Construction contracts typically hold the

Landowner harmless for certain construction-related claims

When negotiating noninsurance risk transfer terms, risk management professionals should consider theSelect one:A. Reduction in insurer risk charges and premium taxes that might result.B. Legal enforceability of contract provisions.C. Effect on the organization's relationship with its insurance broker.D. Effect on the organization's insurance program.

Legal enforceability of contract provisions

An organization must meet the standard of care that it owes to others in order to ensure that

Legal obligations are satisfied.

Which one of the following uses infrared light to detect nearby objects?

Lidar

"The contractor agrees to indemnify and hold harmless the owner against claims, damages, bodily injury, or property damage arising out of the contractor's work and caused by any act of omission of the contractor, his agents, and his employees." This is an example of which one of the following forms of a hold-harmless agreement?

Limited form

If an organization directly securitized its income-producing assets without using a special purpose vehicle (SPV) as an intermediary, investors A. Should not consider the overall credit risk of the organization. B. Would avoid investing in the organization altogether. C. Should examine individual borrowers' payments to the organization. D. Must consider the overall credit risk of the organization.

Must consider the overall credit risk of the organization

The traditional definition of risk management reflects the traditional concept of risk as

Negative

Directors' and officers' fiduciary duties include the duty of

Obedience

Which one of the following is a possible cause of ergonomic stress?

Office lighting

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?

Operational risk

Which one of the following statements is true regarding the nature of probability? The type of probability most commonly used by risk management professionals is theoretical probability. B. Probabilities deduced solely from historical data may change as new data are discovered or the environment changes.

Probabilities deduced solely from historical data may change as new data are discovered or the environment changes

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

Process Risk

An organization that operates warehouses in two locations is using the risk control technique of

Separation

Strategic risk can be created and affected by external factors or internal factors. Which one of the following is considered an internal factor? A. Changes in regulations B. Resource allocation C. Competitive pressures D. Changes in labor market

Resource allocation

Julian was having a conversation with Tania, one of his employees. At one point, Julian said, "What I hear you say is that you would like to take on more responsibility. Is that correct?" Which one of the following elements of active listening was Julian illustrating? A. Collaboration B. Response C. Attention D. Suspension of judgement

Response

Owners' equity represents the capital contributed by an organization's owners plus the organization's A. Treasury stock. B. Net worth. C. Retained earnings.

Retained earnings

WOTF stmt is true regarding sources of risk affecting property exposures?

Risk control techniques can usually manage the likelihood and consequences of human risk sources to some extent

Last year, three Metro City firemen died responding to a fire at a chemical plant, when they were overcome by toxic fumes. In response, Metro City is purchasing advanced first responder gear. It includes special flame retardant suits with chemical and explosive fume sensors, air quality sensors, and heat sensors. Responders will also wear special watches that will track a responder's pulse, respiration, and blood pressure; and helmets that include video cameras. All of these sensors will feed data to a computer in real-time. The computer will analyze the data and issue threat levels and evacuation orders, if necessary. The protective gear Metro City will purchase and the data transmission and analysis capability illustrate the use of

Smart products

Which one of the following risk management program goals enhances an organization's reputation?

Social responsibility

WOTF is a pre-loss action for the flood cause of loss?

Stock disaster supplies

WOTF is the mot intangible & abstract of the 4 risk quadrants?

Strategic risks

Risk managers today differ from traditional risk managers in WOTF ways?

They attempt to min threats & optimize opportunities

Which one of the following best explains how most smart products potentially improve risk management?

They generate big data to which advanced analytics can be applied

aligning risks with the organization's risk appetite defines

Tolerable uncertainty

Buildings constructed of reinforced concrete have been successful withstanding this disaster, but building all structures in this manner is neither practical or economical. This statement pertains to WOTF disasters?

Tornado

one enterprise risk management (ERM) approach to categorizing risks involves dividing risks into 4 quads. The hazard risks are

Traditionally managed by RM pros

Jean is a director on the board of an apparel promotion company. Towards the company, Jean owes a duty of: a) Undivided time b) Profitability c) Divided loyalty d) Undivided loyalty

Unidivided loyalty

A company's management team is preparing to conduct a SWOT analysis as part of its strategic management process. Which one of the following questions can the management team expect to answer as a result of the SWOT analysis?

Will this organization's current business strategies still allow it to achieve its goals, or is a change required?

Maintaining roof and wall systems, including roof tie-downs, in good repair and providing adequate supports for outside structures is a pre-loss action for

Windstorm

Liability loss exposures associated with an activity are not easily transferred, especially those that involve harm to third parties. For example, if negligence by a property owner's landscaping contractor creates a hazard that injures a visitor on the owner's property, the contractor would be primarily liable

restricting the rule exempting the person who hires an independent contractor (the principal) from liability for the independent contractor's torts. So they have established some exceptions to this rule: The principal is directly liable for negligence in selecting the contractor, giving directions, or failing to stop any unnecessary dangerous practices of which the principal was aware. The principal's responsibility for certain duties to be performed safely cannot be delegated to another party. The owner of an apartment building, for example, cannot transfer to a contractor its duty to keep common areas safe. If the subcontracted work is inherently dangerous to others (such as blasting or excavating near a public highway), the principal that hired the contractor can be held liable for a third-party injury caused by the contractor's negligence.

The level of confidence an organization places in the organization's risk management culture, practices, and procedures is called

risk assurance

After one ee was involved in several workplace accidents, the risk manager and the ind safety engineer concluded that these resulted from ancestry and social env of the person. WOTF accident causation theories considers this

sequence of events theory

Mutual Fund Company (MFC) offers a wide array of mutual fund options to investors. Each mutual fund has a different fund objective and set of investment guidelines that apply to the fund. While MFC gives considerable freedom to its fund portfolio managers, they are required to abide by the fund's investment guidelines. To monitor compliance, MFC developed a computer algorithm. The computer algorithm continuously monitors each fund's compliance with investment guidelines. If a fund manager violates the investment guidelines, the computer immediately notifies MFC's internal control director, and corrective action is taken. MFC's use of the computer algorithm to monitor investment compliance and to provide notification when corrective action is necessary illustrates use of

Artificial intelligence

Which one of the following technologies can provide the infrastructure upon which smart contracts are built and implemented?

Blockchain

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

Control Indicators

The orginal cost of a property is known as the

Historical cost

WOTF types of personal losses usually develops more slowly as a result of some organic/inorganic agent being absorbed, ingested, inhaled, or impairs a function of the body?

Illness

A worker from build-rite construction co. removed the pressure gauge and warning sticker from an air compressor. If build-rite performs a root cause analysis of this fatal accident WOTF

Inadequate training

On a local television program, a financial reporter stated, "There will be big news this week about Sixth National Bank's bad real estate development loans. Unless they get acquired soon, the bank will be broke." The next morning, long lines of depositors waited outside of each Sixth National Bank branch. When the branches opened, depositors began withdrawing their funds. Sixth National Bank did not have enough funds to pay all the depositors and had to close early, which only further compounded the problem. Which one of the following financial risks is Sixth National Bank facing by not having enough cash on hand to meet the immediate demand? A. Credit risk. B. Default risk. C. Liquidity risk. D. Exchange rate risk.

Liquidity risk

Mid-State Packing Company, a meat processing company, is the largest private sector employer in Metro City. First National Bank of Metro City loans money to Mid-State Packing Company and to many of the employees of Mid-State. The problem with First National Bank of Metro City loaning money to both the business and many employees of the business is that

Loan defaults are likely to be highly correlated.

Which one of the following is an example of a noncurrent liability? A. Short-term debt B. Long-term notes payable C. Unearned revenue D. Accounts payable

Long term notes payable

Which one of the following is a risk control technique that reduces the frequency of a particular loss?

Loss prevention

An org implements a new procedure that req ee who travel to take diff flights rather than traveling together. This is an ex f wotf risk control tech?

Separation

A new computer chip that could position a company for explosive growth is an example of

Strategic risk

Eastside fitness has decided to merge with a Yoga studio with 2 locations nearby. WOTF quadrants of risk will be most influenced by this decision?

Strategic risk

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

Strategic risk.

Catastrophes such as recent earthquakes and the 2011 tsunami in Japan pointed out a need for many organizations to evaluate and manage their

Supply-chain risk

Which one of the following commonly used categories of operational risk includes risks associated with technology and equipment?

Systems

Which one of the following statements is true about an organization's balance sheet? A. Total assets must equal total liabilities on the balance sheet. B. The balance sheet summarizes revenues and expenses for an accounting period. C. Total liabilities minus owners' equity equals total assets on the balance sheet. D. The balance sheet shows the financial position of a business on a specific date.

The balance sheet shows the financial position of a business on a specific date.

WOTF is true regarding the evolution of risk and risk management?

The definition of risk has evolved to included +/- attributes

One of the ways in which probabilities can be developed is theoretically. Which one of the following is an example of an event for which probability can be determined theoretically?

The number of times heads can be expected to turn up over multiple coin tosses

Which one of the following statements is true regarding a generic model of a securitization?

The organization sells income-producing assets to an SPV in exchange for cash

Clear-Rite Company specializes in the clean-up of hazardous chemical spills. Workers performing clean-up operations must use safety suits to prevent exposure to the chemicals. The suits include pulse and respiration monitors, body temperature sensors, and chemical sensors. The monitors and sensors report data to a mobile operations center which is deployed to each clean-up site. The pulse and respiration monitors and the sensors that are part of the protective gear are called

Wearable technologies

One of the characteristics of individuals and groups of individuals that affects susceptibility to injury or death caused by a building fire is

age

Risk indicators such as experience and authority levels apply to which one of the following operational risk classes?

PPL

Vandenberg Company retains workers compensation medical expenses. The risk manager ran a regression using workers compensation medical costs as the dependent variable and company payroll (in actual dollars) as the independent variable. Results of the regression were: y = .098 x + 5.20 Next year's payroll is expected to be $3,750,000. As medical costs continue to rise at a rate higher than inflation, the risk manager would like to adjust the expected medical costs upward by 10%. Based on this information, what are the expected workers compensation medical costs for next year? A. $372,227 B. $404,256

. $404,256 Correct. Based on this information, the expected workers compensation medical costs for next year are $404,256. y = mx + b, where b = y-intercept and m = slope. Payroll is the independent variable x axis and WC medical costs are the dependent variable y axis. y = .098 (3,750,000) + 5.20, y = 367,505.20; 367,505.20 × 1.10 = 404,255.72.

Magruder Company would like to estimate the number of workers compensation claims to expect next year. Magruder's risk manager ran a regression analysis in which the number of workers compensation claims was the dependent variable and the number of payroll hours worked (in thousands) was the independent variable. The y-intercept from the regression was 3.8. The slope coefficient was 1.4. The risk manager believes that next year Magruder workers will work 80,000 payroll hours. Based on this information, approximately how many workers compensation claims should the risk manager expect next year?

116 Correct. y = mx + b, payroll is the independent x axis and claims is the dependent y axis. y = 1.4 (80) + 3.8 = 115.8, rounded to 116 claims next year.

The balance sheet provides a snapshot of an organization's financial condition A. At the start and end of a business day. B. For at least two points in time for comparison purposes. C. Over one 12 month period. D. At a given point in time.

At a given point in time

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?

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

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? A. Check employee absenteeism before and after the policy was instituted. B. Ask the internal audit department to administer a risk management questionnaire to employees. C. Ask senior management to prepare a report on the subject. D. Use a measure such as sales per employee or net income per employee to track performance.

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

The basic accounting equation on which the balance sheet is structured is

Assets = Liabilities + Net Worth

The basic accounting equation on which the balance sheet is structured is A. Assets = Liabilities + Net Worth B. Liabilities = Assets + Net Worth C. Net Worth = Liabilities + Assets D. Assets = Liabilities - Net Worth

Assets = Liabilities + Net Worth

The risk manager of a large manufacturing company has been asked by the CFO to develop a strategy to eliminate property damage at a particular site. Which one of the following risk control techniques can the risk manager use to reduce the probability of loss to zero?

Avoidance

Traunton Manufactuing is considering a new manufacturing process that involves the use of a highly explosive chemical. After much analysis, Traunton abandons the idea in favor of a process that does not use the chemical. The risk control technique Traunton has chosen to address the human resource risk is

Avoidance

Modifying the contact surface or basic structure that can be affected by installing breakaway highway light poles or requiring front and side airbags in automobiles to cushion occupants' impact is a basic strategy of the

Energy transfer theory

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

Blockchain stores a record of transactions across a network of servers

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

Blockchain stores a record of transactions across a network of servers

Big data includes A. Unstructured data only. B. Neither structured nor unstructured data. C. Structured data only. D. Both structured and unstructured data.

Both structured and unstructured data

Earthquake-resistant construction, used in buildings under three stories tall, that integrates roof and floor diaphragms that can flex to transmit and distribute the forces an earthquake exerts on a structure, is called

Box action design

Risk can be classified as pure or speculative. Which one of the following is the best example of a speculative risk?

Investing in shares of stock

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

Control indicators

In an effort to grow its personal lines book, an insurer decides to offer discounts on homeowners and personal auto insurance to the employees of its largest business lines account. Which one of the following risk measures is most likely to increase as a result of this marketing decision?

Correlation

One financial risk for an insurer is that the insured will not pay all of the premiums when the premiums are due. This type of risk is called A. Credit risk B. Interest rate risk. C. Underwriting risk. D. Price risk

Credit Risk

An important liquidity measure for a business is its working capital. Working capital is equal to A. Total assets minus current assets. B. Total assets minus total liabilities. C. Owners' equity minus current liabilities. D. Current assets minus current liabilities.

Current assets minus current liabilities

Jones, Inc. buys grain from local farmers and re-sells the grain to a number of customers. Jones, Inc. has been approached by Snack Cracker Company. Snack Cracker would like to purchase wheat and corn from Jones, Inc. to use in the crackers it produces. Snack Cracker would like to pay for the grain within 30 days of the date the grain is delivered. As Snack Cracker is a new customer, Jones, Inc. asked to review its financial statements. Which balance sheet ratio would best assist Jones, Inc. in determining if Snack Cracker can pay for the grain within 30 days of the sale? A. Equity-to-assets ratio B. Current ratio C. Debt-to-assets ratio D. Debt-to-equity ratio

Current ratio

Certain types of property losses such as drought, flood, and earthquake are referred to as natural because

It is beyond human control

Ivanhoe Corporation purchases stock in a bank and in a pharmaceutical manufacturer. Because these are unrelated industries, Ivanhoe hope that any losses in one stock will be more than offset by profits in another. Ivanhoe is using which one of the following risk management techniques?

Diversification

When organizations invest their assets among a mix of stocks and bonds from companies in different industry sectors they are using the risk management technique of

Diversification

Data Entry Company (DEC) offers customers data entry services. A customer can hire DEC to enter survey data to be analyzed. Many DEC employees spend long hours entering data on a computer. DEC has experienced neck strain and wrist pain complaints from their employees, increasing the company's workers compensation costs. DEC investigated the complaints of its data-entry employees. DEC adopted curved keyboards for data entry, wrist-rests for those entering data, and uniform chair heights and display monitor heights to reduce neck strain claims. The science of designing work spaces based on the health concerns of those who will operate in the work space is called

Ergonomics

Take Your Order (TYO) is a company that specializes in taking product orders for vendors. The manufacturer of a product can run a television or internet ad for a product with a toll-free number. Customer calls for the products are routed to TYO, where one hundred operators are available to receive the calls. Each operator is assigned a cubicle with a computer terminal, video display monitor, and a telephone. TYO experienced high workers compensation claims from its operators, claiming neck strain, eye strain, and wrist pain. In an effort to reduce such injuries, TYO evaluated each operator's work area. The height of chairs and video monitors were adjusted, curved computer keyboards and wrist-rests were provided, and the telephones were replaced with audio headsets. Workers compensation costs dropped significantly. The science of designing work spaces based on interaction between people and the equipment in the work space is called

Ergonomics

Hugh was recently hired as a risk manager for Malvern Manufacturing. He is preparing for his first presentation to the employees working on the manufacturing floor. Hugh realizes that he needs to establish credibility with the audience in order to be persuasive. He decides that he will tell a couple of stories about how he has dealt with similar situations in the past. Which one of the following modes of persuasion is Hugh using? Select one: A. Pathos B. Ethos C. Logos D. Axios

Ethos

Which one of the following statements about event tree analysis is true? A. Event trees show the results of a progression of decisions. B. Event trees analyze the consequences of accidental events.

Event trees analyze the consequences of accidental events

A construction company based in the U.S. has building contracts in five different foreign nations. The construction company agreed to accept payment for its work in each country's currency. The risk of loss of value when these foreign payments are converted to U.S. dollars is called

Exch rate risk

According to the technique of operations review approach, , one category of fault of an org's mang is

Failure to take responsib

Home Housewares Inc. is a retail store applying for commercial coverage with ABC Insurance. The underwriter requested a copy of Home Houseware's most recent financial statements. The underwriter will use the balance sheet to determine A. Home Houseware's sources of cash as of the balance sheet date. B. Home Houseware's gross profit margin as of the balance sheet date. C. Home Houseware's financial position as of the balance sheet date. D. Dividend payments to shareholders as of the balance sheet date.

Home Houseware's financial position as of the balance sheet date.

Private insurers are reluctant to provide windstorm insurance on coastal properties. This is because the loss exposures fail to meet the criterion that ideally insurable exposures must be

Independent and not catastrophic

Workplace disabilities can be categorized as injuries/ illness. A work-related illness can result from WOTF?

Inhalation

The fundamental purpose of a risk management framework is to

Integrate risk management throughout the organization

Party A and Party B have entered into a contract specifying that Party A will hold Party B harmless from claims arising from their joint fault. This is an example of which one of the following forms of a hold-harmless agreement?

Intermediate form

WOTF data capture tools has led to an explosion of risk management innovation by allowing smart products to transmit data?

Internet of Things

Which one of the following is a benefit of the conditional value at risk (CVaR) method?

It takes into account the extremely large losses that may occur

Which one of the following statements is true regarding operational risk? 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. Operational risk is integrated in every activity of an organization. D. Most current methods of managing operational risk are informal.

Operational risk is integrated in every activity of an organization

Which one of the following statements about the balance sheet is correct? A. The balance sheet contains important financial information about net worth and assets, both which indicate the source of an organization's funding. B. Net worth is positive whenever the value of assets exceeds the value of liabilities and negative if the value of liabilities exceeds the value of assets. C. The balance sheet must always balance, but an exception is that the balance sheet will not balance if net worth is a negative number. D. Change in asset and liability valuation from historical cost to fair value has no effect on the value of shareholders' equity.

Net worth is positive whenever the value of assets exceeds the value of liabilities and negative if the value of liabilities exceeds the value of assets.

Which one of the following analysis methods concentrates on an organization's competitive environment? A. SWOT analysis B. Scenario analysis C. PESTLE analysis D. Porter's Five Forces analysis

Porter's Five Forces analysis

Brendan is a new risk manager at a Shelton Manufacturing in North Carolina. Because the company has never experienced any consequences from a hurricane, the previous risk manager never really analyzed the risks associated with such an event. Brendan feels that a hurricane could trigger multiple far-reaching consequences and that the risk requires a thorough analysis. Due to Shelton Manufacturing's lack of historical data Brendan has decided to use a structured process that incorporates expert opinions into the probability estimations. Which one of the following types of risk assessment is Brendan using?

Predictive technique

Southwest Interstate Railroad (SIR) is concerned about the number derailments in recent years. It's not cost effective to use human assets to inspect tracks, bridges, and trestles. Instead, SIR has started to use drones. A drone can fly low over tracks and above/below bridges and trestles. The drones record video that is transmitted to corporate headquarters where it is simultaneously scanned for derailment hazards. In the past six months, the drones detected a track blockage caused by a rock slide and damage to tracks in a remote area cause by an earthquake. SIR dispatched work crews to make the tracks once again passable, and no derailments occurred. SIR's use of drones, video, real-term video scanning, and computer analysis illustrates which one of the following?

Preventive Analytics

AMRM Insurance Company sells insurance in Virginia, North Carolina, South Carolina, and Georgia. The company has compiled a policyowner data base that can be used to send text messages when hurricanes approach. The company provides early warnings, storm updates from the National Weather Service, and hurricane safety measures. The company credits the system with reduced hurricane claims. The use of the texting system is an example of

Preventive analytics

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

Process risk

Root cause analysis (RCA) encompasses a variety of tools, philosophies, and processes. There are several broadly defined RCA approaches, according to their basic approach or field of origin. Which one of the following approaches to RCA evolved from quality control procedures for industrial manufacturing?

Production-based RCA

Each of the risk control techniques of duplication, separation, and diversification

Reduce the severity of loss associated with the organization's loss exposures

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 A. Central tendency analysis. B. SWOT analysis. C. Analysis of variance. D. Regression analysis.

Regression analysis - can be used to measure the relationship between a dependent variable (complaints) and an independent variable (adjuster experience).

Risk appetite is an important component of strategic risk management (SRM). Which one of the following statements is correct with respect to an organization's risk appetite? A. Economic forces, market forces, and competition generally have little effect on an organizations' risk appetite. B. Regulatory conditions, political risks, and anti-trust or other legal concerns can reduce an organization's risk appetite. C. An organization's risk appetite is typically independent of its capital and other assets, including its human resources. D. Because risk appetite is based on the attitudes of executives and shareholders, it is usually static and does not vary over time

Regulatory conditions, political risks, and anti-trust or other legal concerns can reduce an organization's risk appetite.

The RM pro for a local municipality is concerned that the community's ability to fight fires would be diminished if the firehouse and its fire engines were destroyed. On what basis might the RM pro value the fire engines if presumption of service was primary goal?

Replacement cost val

Concerning fundamental guidelines of contractual risk transfer management, it is wise to

Require a certificate of insurance for contractual liability before contract operations begin

A large deductible is similar to a self-insured retention (SIR) in that both

Require the insured organization to retain a relatively large amount of loss

To accurately determine its level of risk, an organization must examine the effectiveness of its efforts to prevent losses from occurring and to reduce the severity of losses that do occur. An organization's efforts in this area are called

Risk control

A noninsurance transfer in which the transferor transfers a loss exposure to the transferee, thereby eliminating the possibility that the transferor will suffer a loss from the transferred exposures is a noninsurance

Risk control transfer.

Don is the Risk Manager for Rafferty Corporation. One of his peers, Sally, asks him one day, "How do you define risk?" When Don replies, which one of the following statements is accurate?

Risk has different meanings within the risk management and insurance communities.

A major benefit of involving a special purpose vehicle (SPV) in a securitization transaction is that investors can decide whether to invest in the securities based on the A. Number of borrowers involved and their individual risk. B. Overall credit risk of the organization. C. Risk presented by the income-producing assets held as collateral by the SPV. D. Organization's balance sheets.

Risk presented by the income-producing assets held as collateral by the SPV.

The diff between risk tech & insuretech is

Risk tech goes beyond insuretech by expanding its focus to making risk financing more efficient & preventing & mitigating losses in a variety of indv.

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

Robotic process automation

Many auto manufacturers have automated a portion of their assembly lines by introducing a smart product. The smart product performs repetitive tasks, such as making the same weld on each vehicle frame as it passes the smart product. These smart products, which can be fixed or mobile, reduce repetitive motion injuries that humans might suffer. They can also be used to perform dangerous tasks and in heavy-lifting jobs. These smart products are called

Robots

SE Industries has identified windstorm as a risk. The risk manager has assembled a team to project the potential consequences of windstorm. The team includes individuals from various functions within the organization. Which one of the following team approaches to risk identification is SE Industries using

Scenario analysis

SoCal Movie Company produces movies at a studio in Southern California. The risk manager decided to identify the range of potential consequences associated with various risks that the company faces. For example, if a severe earthquake occurred while the company was filming a movie, there could be deaths and injuries, destruction of movie sets, delays in production, costs associated with filming at an alternative location, and loss of reputation and good will. The type of analysis performed by the risk manager is called

Scenario analysis.

The process of creating a marketable investment security based on the expected cash flows from a financial transaction is .A Trading. B. Securitization. C. Derivation. D. Investment.

Securitization

Which one of the following commonly used categories of operational risk includes risks associated with technology and equipment? a. Process B. People C. External events D. Systems

Systems

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

Systems risk

Which one of the following is a tool that can be used by fraud investigators to compare documents and analyze notes?

Text mining

A data analysis technique that an insurer would likely use to analyze claims adjusters' notes is A. Social network analysis. B. Regression. C. Text mining.

Text mining.

From a system safety perspective, change analysis is an analysis

That projects the effects a given system change is likely to have on an existing system

After a month in which three employees were seriously injured at company paper mills, Ashley, the risk manager of Bright White Paper Company, wanted some answers about the causes of employee injuries. Ashley independently contacted the plant manager and foreman at each of the company's plants. She asked each person to complete a confidential questionnaire regarding safety procedures. After receiving the responses to the questionnaire, Ashley summarized the results and asked the same questions again instructing each person to consider revising their responses based on the initial questionnaire results. The analysis revealed that new workers were not being properly trained and that a lax attitude toward safety was present at the majority of the plants. The team approach to risk identification Ashley employed is called

The Delphi technique

Precision Electronic Components manufactures circuit boards, microchips, and other electronic products. Given the precision necessary for their products, the manufacturing environment must be controlled. Temperature, humidity, static electricity and other factors must be monitored. After losing several batches of products due to human monitoring failures and imprecise adjustments, the company moved to a system of sensors. The sensors monitor and regulate temperature, humidity, static electricity, and other factors. The sensors transmit data to and from each other, and the manufacturing environment is continuously adjusted to assure production is successful. The network of sensors transmitting data and the autonomous corrective actions without human interaction is called

The Internet of Things

Which one of the following is true about the liability involved in contracting services?

The responsibility that certain duties be performed safely cannot be delegated to another party, such as the duty of common carriers to carry passengers safely.

Disaster recovery plans for windstorms should reflect not only weather condition, but also the difference in

warning times

Tania works in the fraud unit for Greatview Insurance. There is a claimant who appears to be involved in multiple cases of insurance fraud. Tania decides to use social media to obtain information that may be used to develop a profile of the claimant. Tania's use of social media is an example of which one of the following types of data? A. Structured external B. Unstructured external C. Structured internal D. Unstructured internal

Unstructured external

Management of LMN Insurance Company is considering investing in the Stability-Growth Mutual Fund; however they are concerned about the volatility of the investment. The fund's manager said that on any given day, there is a 5% probability of losing more than 3% of the investment's worth. The statistic quoted by the fund manager is

Value-at-risk.

Murray trucking is in evaluating which risk factor most likely lead to the most costly accidents. They are evaluating risk factors such as speed, weather conditions, driver experience, distance traveled, and gross vehicl weight. WOTF statistical measurement would be useful for the risk manager when calculating the probabi of the diff risk factors causing severe accidents?

Variace

William is a risk manager for Green Mountain Trucking. He has always analyzed auto loss frequency and severity rates for the fleet. William would like to collect data on vehicle speeds, braking patterns, and distance traveled and compare that with the loss history. Which one of the following would help William capture and analyze this data?

Vehicle Telematics

Which one of the following is a characteristic that differentiates big data from traditional data? A. Structure B. Fraud C. Privacy D. Velocity

Velocity

The risk management professional for a large multi-location super market chain in the New England area observed that all of the buildings have a flat roof. His concern is primarily due to the possible loss resulting from

Weight of snow, sleet, and ice

In Fred's large landscaping business, he knows that there is a point where equipment becomes unsafe and difficult to maintain. Fred realizes that after 2,000 miles of use, his costs for maintenance on his large mowers and sod busters dramatically rise. Using probability analysis Fred can better know A. Which equipment is likely to cause bodily injury to operators or customers. B. When to replace equipment. C. When to schedule routine maintenance

When to replace equipment

Risk can be classified as diversifiable or nondiversifiable. Which one of the following statements is true with respect to this type of risk classification?

diversifiable risks tend not to be correlated so they can be managed through diversif or spread of risk

Like most insurance companies, the majority of Insurance Company's portfolio is invested in bonds. If interest rates increase, the value of the bonds in the portfolio will decrease. This risk to Insurance Company is called A. Interest rate risk. B. Credit risk. C. Liquidity risk. D. Price risk.

interest rate risk

Location is a key pre-loss activity to control earthquake damage b/c

structures situated on stable earth can absorb most earthquake shock waves

When communicating a decision up the organization's chain of command, consulting with outside experts can help a risk management professional do which one of the following? A. Enhance stakeholders' confidence in the process B. Stay focused on the organization's objectives C. Seek feedback from stakeholders D. Define the organization's risk appetite

A. Enhance stakeholders' confidence in the process

Which one of the following statements is true regarding event tree analysis? A. Event tree analysis typically provides only two options, success or failure. B. Event tree analysis can be used to select the most effective strategy to achieve a goal. C. Event tree analysis provides only qualitative information. D. Event tree analysis provides only quantitative information.

A. Event tree analysis typically provides only two options, success or failure.

Which one of the following is a common problem with meetings that leaders should try to avoid? A. Having the wrong people attend B. Trying to stick to an agenda and avoid interruptions C. Stating the objective in writing before the meeting D. Committing to an end time, as well as a start time

A. Having the wrong people attend

Telematics devices allow organizations to accurately identify patterns of risk and predict risk for which one of the following types of loss exposures?

Automobile

Blithe Drug Manufacturing has developed a drug that cures obesity. However, the side effects are significant and potentially fatal. Blithe decides not to manufacture and sell the drug. This is an example of

Avoidance

Strategy development is an important element of the strategic management process. Which one of the following statements is correct with respect to strategy development? A. Whether a strategy will yield a return on investment in the form of profit or stock price is generally not a consideration. B. Managers typically do not consider the likelihood that personnel will support a strategy before implementing it. C. Strategies should reflect an understanding of the business, including its identity, customers, and purpose. D. Normally, strategies are the same in all departments and at all levels within an organization.

C. Strategies should reflect an understanding of the business, including its identity, customers, and purpose

Gaining a holistic perspective requires A. Becoming an expert on the work that every stakeholder performs. B. Encouraging individuals to resolve issues within their own work units. C. Designating one individual to be responsible for initiating meetings and dominating conversations. D. Developing a thorough understanding of each unit's role and how it supports or depends on other units and stakeholders.

D. Developing a thorough understanding of each unit's role and how it supports or depends on other units and stakeholders.

Which one of the following is a way that insurers and risk managers can use data science to improve their results through data-driven decision making? Select one: A. Providing human analysis of data B. Using industry data in addition to the organization's own data C. Determining prior year losses at a particular location D. Discovering new relationships in data

D. Discovering new relationships in data

Which one of the following statements is true regarding contracting for services as a noninsurance risk control transfer?

Liability loss exposures associated with an activity are not transferred easily, especially regarding harm to third partie

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 is

Life safety

Which one of the following is the initiating event in an event tree analysis?

Lightning strikes a warehouse building while it is closed for the weekend

The use of risk quadrants to identify and categorize risk can provide a framework for risk identification. One quadrant includes such risks as loss of production due to a key supplier not delivering raw materials or a mechanical breakdown of equipment. This risk quadrant is

Operational risk.

Internet of Things (IoT) devices, sensors, wearables, and telematics devices have had the greatest impact on which one of the following risk treatment techniques?

Risk modification