FIN 446 Final

1. The strategy formulation phase of the strategic management process involves A. Analyzing the external and internal environments. B. Designing an effective organizational structure. C. Establishing standards for measuring results. D. Implementing management control processes.

A. Analyzing the external and internal environments.

The source from which data was collected or derived, its timeliness or historical value, and its independence from other data are all traits to determine whether data is A. Appropriate. B. Adequate. C. Comprehensive. D. Reasonable.

A. Appropriate.

There are many types of controls used by organizations to gauge their progress toward meeting their goals. In the insurance industry, expense ratios and loss ratios are examples of which one of the following types of controls? A. Financial B. Process C. Behavioral D. Operational

A. Financial

Goshen Insurance has decided to develop a package policy to meet the needs of the rapidly growing home health care industry. In addition to property and general liability, the package will also include professional liability coverage and auto liability coverage for care givers when they are transporting patients. Which one of the following types of business-level strategies has Goshen Insurance decided to follow? A. Focused differentiation strategy B. Cost leadership strategy C. Vertical integration strategy D. Unrelated diversification strategy

A. Focused differentiation strategy

Insurers can use information technology (IT) to gain competitive advantage. Which one of the following statements is correct with respect to gaining competitive advantage? A. IT intelligence gives insurers better insight for underwriting, product development, and pricing. B. Predictive modeling could support the development of insurance products based on future technologies. C. An insurer's business intelligence is usually independent of its IT capabilities. D. In the modern insurance environment, insurer differentiation hinges primarily on return on investment.

A. IT intelligence gives insurers better insight for underwriting, product development, and pricing.

Information technology (IT) is an essential element of an insurer's operations. Which one of the following statements is correct with respect to IT? A. Insurers' technology is controlled by IT staff, who often lack business and insurance knowledge and who may not understand the needs of insurers' stakeholders. B. Governance reporting features embedded in IT-enabled end-to-end processes increases the insurer's administrative burden, but allows the use of strategic risk to sustain competative advantage. C. To avoid compliance risk, an insurer should segregate and compartmentalize knowledge of technology capabilities and limitations shared between its business staff and IT staff. D. While IT support and decision-making tools enable insurers to proactively analyze various scenarios, they are not generally effective in testing for corporate exposures to risk.

A. Insurers' technology is controlled by IT staff, who often lack business and insurance knowledge and who may not understand the needs of insurers' stakeholders.

Which one of the following statements is correct with respect to technology and an insurer's accounting or finances? A. Many banking and investment functions can be performed electronically. B. Insurers exclusively handle billing and collections electronically. C. Accounting staff generally do not need access to electronic claims information. D. Finance extracts all required tax reporting information from the operational database.

A. Many banking and investment functions can be performed electronically.

ABC Insurance Company is organized by geographic regions and has departmental operations within each region. Which one of the following best describes ABC's organizational structure? A. Multidivisional structure B. Flat organizational structure C. Operational structure D. Functional structure

A. Multidivisional structure

In organizations that align information technology (IT) with business strategies, which one of the following statements best describes how to measure the success of an IT project? A. One important way is to evaluate the efficiency and effectiveness of the business process it is intended to improve and to show tangible results. B. Most of these organizations compare their IT capabilities with industry benchmarks to compare their capabilities with their competitors'. C. The preferred method of evaluating an IT project's success is to determine the relative sucess of the implementation phase.

A. One important way is to evaluate the efficiency and effectiveness of the business process it is intended to improve and to show tangible results.

Argot Insurance Company, which specializes in professional liability insurance, has discovered that competitors in some areas have not updated their products or services for nearly 10 years. Under which one of the following areas of Argot's SWOT (strengths, weaknesses, opportunities, and threats) analysis would this fact be identified? A. Opportunities B. Strengths C. Threats D. Weaknesses

A. Opportunities

Companies of all sizes are vulnerable to security breaches from inside and outside their organizations. Which one of the following statements is correct with respect to security and control measures? A. Once it has been developed, a technology usage statement need not be revisited, revised, reinforced, or resigned. B. A company's security team should understand management's goals and integrate security to help meet those goals. C. Employee training is generally not needed to prevent security breaches when technology-based controls are in place. D. Examples of internal security and control measures include a well-maintained network with firewalls and access control lists (ACLs).

B. A company's security team should understand management's goals and integrate security to help meet those goals.

A document management system (DMS) stores, organizes, and retrieves image files. Which one of the following statements is correct with respect to a DMS? A. A document management system can eliminate the need for offsite storage of duplicate files for risk management purposes. B. At some insurers, producers, field claims representatives, and others can access electronic files directly. C. One advantage of a document management system is that only one person can access a file at a time. D. The principal disadvantage of a document management system is the increased risk of losing confidential customer information.

B. At some insurers, producers, field claims representatives, and others can access electronic files directly.

Which one of the following statements is correct with respect to successfully aligning an insurer's business and information technology (IT) strategy? A. Once information technology (IT) capabilities and goals have been established, the insurer's strategic planning can begin. B. Competent business analysts who speak the languages of business and technology can help bridge any communication gap. C. The benefit of any IT project proposal should be evaluated based on how quickly it moves the organization into the latest technology. D. The vision and strategy created through the planning process should be shared only at the business and IT management level.

B. Competent business analysts who speak the languages of business and technology can help bridge any communication gap.

Alignment of information technology (IT) goals with business goals creates both potential benefits and challenges for an organization. Which one of the following is a common benefit? A. Simplified IT systems and infrastructure B. Compliance with insurance department regulations C. Standardized IT and business metrics D. Enhanced IT expense control

B. Compliance with insurance department regulations

Business information systems (BIS) use analytical tools that help managers or other staff members examine and manipulate vast, detailed data from numerous perspectives to support strategic decisions. Which one of the following statements is correct with respect to decision support systems (DSS)? A. The principal disadvantage of a DSS is that it cannot be used to predict return on investment. B. DSS can perform "what if", sensitivity, goal-seeking, and optimization analysis. C. Decision support systems usually rely on external rather than internal sources of information. D. The typical system currently in use is only effective in solving relatively simple problems.

B. DSS can perform "what if", sensitivity, goal-seeking, and optimization analysis.

Technological advancements have led to massive databases that recognize, organize, store, and provide access through user-interface tools to various types of data. Which one of the following statements is correct with respect to these databases? A. An advantage of large databases is that managing the various versions and location of various files requires little time or effort. B. Data warehouse features enable data mining, the analysis of large quantities of data to find patterns, trends, and correlations. C. Large database systems tend to be complicated and slow, and can decrease the velocity at which insurers can access their data. D. A disadvantage of large databases is that they contain confidential information and they are difficult to protect from hackers and thieves.

B. Data warehouse features enable data mining, the analysis of large quantities of data to find patterns, trends, and correlations.

Electronic commerce (e-commerce) and mobile commerce (m-commerce) enable insurers to conduct business using the Internet and other networks. Which one of the following statements is correct with respect to e-commerce and m-commerce? A. E-commerce and m-commerce features that collect or mine customer browsing information discourage tech-savey customers from purchasing additional products and services. B. E-commerce and m-commerce enable customer-facing benefits, such as click-through advertising or applications that educate consumers. C. For security reasons, most insurers re-key all e-commerce or m-commerce transactions into their internal systems. D. At present, only limited aspects of insurance sales and customer service can be conducted electronically.

B. E-commerce and m-commerce enable customer-facing benefits, such as click-through advertising or applications that educate consumers.

Which one of the following statements is correct with respect to the use of SWOT analysis to analyze the competitive environment? A. Customers are generally not considered in a SWOT analysis because the focus is on the assets an organization owns. B. Identifying internal strengths and weaknesses involves considering financial, physical, human, and organizational assets. C. Managers use SWOT analysis to predict the future state of their companies. D. Managers consider factors in the general environment rather than the task environment when conducting a SWOT analysis.

B. Identifying internal strengths and weaknesses involves considering financial, physical, human, and organizational assets.

Which one of the following statements is correct with regard to assessing the external environment under the Five Forces Model? A. Government policy cannot act as a barrier to entry into the insurance industry. B. Insurance consumers have greater bargaining power in a soft market. C. When buyers have significant power, it tends to decrease competition within the insurance industry. D. The threat of substitute products or services does not exist in the insurance industry.

B. Insurance consumers have greater bargaining power in a soft market.

Insurers' operational-level information needs derive from their basic activities. Which one of the following statements is correct with respect to operational-level needs? A. Underwriters information needs are usually limited to specific detailed data on the coverage requested and claims history. B. Insurers cannot successfully drive product development, sales, and customer service without detailed information about customers. C. Operational functions such as human resources, facilities and inventory, and purchasing rarely have significant data needs. D. The accuracy of an insurer's pricing is generally independent from the quality of the data the insurer collects.

B. Insurers cannot successfully drive product development, sales, and customer service without detailed information about customers.

Information technology (IT) can help insurers increase operational efficiency. Which one of the following would enable field claim representatives at a storm site to access policy information, transmit claims information, and settle losses or make partial payments immediately so that displaced families could return to their homes as soon as possible? A. Cloud computing and storage B. Low cost mobile technology C. Software-as-a-service D. Pay-per-use services for external data

B. Low cost mobile technology

The executive team of a primary insurer decides to become a third-party administrator of claims. This is an example of which one of the following types of corporate-level strategy? A. Single business B. Related diversification C. Harvest D. Vertical integration

B. Related diversification

Which one of the following approaches to global expansion has the benefit of providing a low-risk approach to quickly entering a new market? A. Wholly owned subsidiary B. Strategic alliance C. Merger D. Joint venture

B. Strategic alliance

A database management system (DBMS) is a group of programs that organizes data. Which one of the following statements is correct with respect to a DBMS? A. For security reasons, an insurer's DBMS is usually not connected to its functional transaction processing system (TPS). B. Unless effectively managed, a DBMS can result in duplicate entries and conflicting information entered in multiple systems. C. A DBMS collects data for reuse in other systems, such as premium billing, finance, and claims. D. Because of their sheer size "big data" in Insurers' DBMS are not very sensitive to security issues.

C. A DBMS collects data for reuse in other systems, such as premium billing, finance, and claims.

Jancy Insurance Company is a direct writer of workers compensation insurance, operating in two states. Jancy enjoys strong financial ratings and customer loyalty. Jancy consistently meets retention goals and employs an experienced, knowledgeable staff. In recent months, the loss ratio has been deteriorating and new business written is lagging the goal. The management team at Jancy is concerned and has decided to do a SWOT analysis. Which one of the following represents an opportunity for Jancy to increase new business writings, likely to be identified through the SWOT analysis? A. Strong financial ratings B. Experienced employees C. Ability to expand into additional states D. Competitors offer more pricing options

C. Ability to expand into additional states

Information technology (IT) decision-support capabilities can help people make better business decisions. Which one of the following statements is correct with respect to IT decision-support? A. Managers using decision-support IT should be aware that the software can reflect the manager's experiences, education, values, and biases B. While decision-support technology is effective in helping managers resolve business problems, it is not effective in helping develop business strategy. C. Decision-support applications produce results quickly and they incorporate business rules with knowledge that has developed over time D. Decision-support systems do not generally support disbursed groups of decision makers using real-time collaboration in making decisions.

C. Decision-support applications produce results quickly and they incorporate business rules with knowledge that has developed over time

Management decision-making requires analyzing complex information from multiple sources. Which one of the following statements is correct with respect to decision-making? A. Experience and intuition make human decision-makers more effective at making complex business decisions than computer models. B. A manager with considerable education and experience can be relied on not to allow personal biases and values to negatively influence decisions. C. Decision-support systems analyze databases of business intelligence (BI) to supply suggested fact-based outcomes for business problems. D. When using information technology (IT) decision-support capabilities, a manager is relieved of the need to exercise good judgment in selecting the best option.

C. Decision-support systems analyze databases of business intelligence (BI) to supply suggested fact-based outcomes for business problems.

Phil's Diner is a national chain of restaurants serving traditional diner-style food. Although the chain is profitable overall, its Northeast Region has been increasingly unprofitable over the past five years. Market research indicates that consumers in that region feel that diner food is unhealthy and have switched to eating at the many newer restaurants that have opened. The senior management team decides to try and find a buyer for its Northeast Region restaurants. Which one of the following corporate strategies is the company pursuing? A. Turnaround strategy B. Liquidation strategy C. Divestiture strategy D. Harvest strategy

C. Divestiture strategy

Every insurer has its own set of unique challenges, which can hinder the complete alignment of information technology (IT) and business strategies. Which one of the following statements best describes how an organization can overcome one of those challenges? A. Focus primarily on retention and retrofitting of legacy systems and existing infrastructure rather than updating to new ones. B. Tie IT staff's job security to the success with which they explain and rationalize the development and launch of new IT projects. C. Have IT staff guide internal and external customers through the learning curve and encourage acceptance of IT initiatives. D. Ensure that IT personnel see themselves as a separate unit apart from the insurance part of the organization.

C. Have IT staff guide internal and external customers through the learning curve and encourage acceptance of IT initiatives.

Which one of the following statements is correct regarding the approaches to global expansion? A. Joint ventures with governments or state-owned industries are extremely rare. B. Wholly owned subsidiaries are the least risky method of entering foreign markets because the company retains control of operations. C. In a joint venture, companies share ownership, responsibilities, and management of a foreign venture. D. International strategic alliances are typically limited to marketing activities.

C. In a joint venture, companies share ownership, responsibilities, and management of a foreign venture.

Some organizations face the threat of espionage. Which one of the following statements is correct with respect to that threat? A. Companies operating on an international level are not exposed to espionage because of differences in language and technologies. B. Universal Serial Bus (USB) flash drives and keystroke loggers are not effective tools for espionage. C. Managers can acquire a competitor's financial, production, or employee records, by gaining access to computerized data. D. Wireless connections are particularly susceptible to espionage and there is little organizations can do to protect data transmitted wirelessly.

C. Managers can acquire a competitor's financial, production, or employee records, by gaining access to computerized data.

The explosion of social networking sites is a concern to employers. This is primarily because A. It is usually difficult to educate employees about the potential threats these sites pose. B. Employees may spend time visiting these sites during business hours. C. Outsiders can obtain an organization's internal secrets by analyzing employees' postings on these sites. D. They expose the organization's computer system to invasion by hackers.

C. Outsiders can obtain an organization's internal secrets by analyzing employees' postings on these sites.

Which one of the following statements is correct with regard to analyzing the global environment? A. Emerging global markets present tremendous opportunities with very little risk. B. The factors to consider when evaluating the global environment are consistent among countries. C. Political considerations are critical when considering investment in foreign operations. D. Stable foreign governments and economies can generally be relied upon to remain stable.

C. Political considerations are critical when considering investment in foreign operations.

For insurers, security risks arise from a variety of sources. Which one of the following statements is correct with respect to one of those sources? A. Software malfunction is the risk that most often affects accounting records by misstating assets and expenses in financial statements. B. Security training and certifications for information technology (IT) employees do little to mitigate the risks presented by human error. C. Risks to organizations that provide mobile devices to their employees include the loss of data, security breach, and added financial risk. D. Because of its distributed nature, cloud computing is generally much less exposed to risk than traditional systems are.

C. Risks to organizations that provide mobile devices to their employees include the loss of data, security breach, and added financial risk.

Which one of the following approaches to global expansion is considered the simplest and carries the lowest degree of risk? A. Joint venture B. Acquisition of a wholly owned subsidiary C. Strategic alliance D. Merger

C. Strategic alliance

After an organization's internal and external environments and its business strategies have been examined, the next step to take is A. To evaluate strengths and weaknesses of the organization. B. To determine any best practices for the industry. C. To determine whether a change in course is required to achieve its goals. D. To implement changes across the organization.

C. To determine whether a change in course is required to achieve its goals.

Weaknesses in data security allow risks from three sources: internal, external, and collusive. Which one of the following statements is correct with respect to a source of risk? A. Customers and vendors that process transactions, that have only indirect access to an organization's assets and records, generally do not present a source of risk to the organization. B. In organizations with sound control policies, practices, and procedures, the risks presented by collusive sources are virtually eliminated. C. When an organization implements appropriate segregation of duties, it restricts operations-level employees' ability to steal an asset and conceal the theft by altering computer records D. Managers and supervisors can pose a significant risk because they have greater access to records, can more easily falsify records, and they have the greatest opportunity to steal assets.

C. When an organization implements appropriate segregation of duties, it restricts operations-level employees' ability to steal an asset and conceal the theft by altering computer records

Insurer A writes standard personal lines insurance products. The insurer is adopting a new strategy for distributing products that emphasizes direct and Internet sales over the traditional agency network. It is also successfully experimenting with adjusting straightforward claims over the Internet. Underwriting and policy issuance are being automated through the use of expert systems, and all areas of operation are expected to be more efficient as a result. Which one of the following strategies is Insurer A most likely pursuing? A. A decline mode strategy B. A backward integration strategy C. A differentiation strategy D. A cost leadership strategy

D. A cost leadership strategy

Insurer A writes standard personal lines insurance products. The insurer is adopting a new strategy for distributing products that emphasizes direct and Internet sales over the traditional agency network. It is also successfully experimenting with adjusting straightforward claims over the Internet. Underwriting and policy issuance are being automated through the use of expert systems, and all areas of operation are expected to be more efficient as a result. Which one of the following strategies is Insurer A most likely pursuing? A. A divestiture strategy B. A harvest strategy C. A differentiation strategy D. A cost leadership strategy

D. A cost leadership strategy

When considering global expansion, which one of the following offers a low-risk approach to quickly entering a new market? A. Merger B. A joint venture C. Acquisition of a subsidiary D. A strategic alliance

D. A strategic alliance

To be successful, the differentiation business-level strategy must A. Seek efficiency in all areas of operation to build a competitive advantage. B. Produce short-term profits while phasing out a product line or existing market. C. Focus on one group of customers and offer a low-price product or service. D. Accurately determine customers' preferences to develop products perceived as distinctive.

D. Accurately determine customers' preferences to develop products perceived as distinctive.

Computer processing or output that simulates human reasoning or knowledge is referred to as A. A decision support system. B. An expert system. C. Data mining. D. Artificial intelligence.

D. Artificial intelligence.

In the insurance industry, reinsurers are in a position to control the price and amount of capacity they provide, limiting insurers' ability to provide certain types of insurance. According to the Five Forces Model for analyzing the competitive environment, which one of the following forces that drive competition does this demonstrate? A. Threat of substitute products or services B. Rivalry among existing firms C. Bargaining power of buyers D. Bargaining power of suppliers

D. Bargaining power of suppliers

Jancy Insurance Company is a direct writer of workers compensation insurance, operating in two states. Jancy enjoys strong financial ratings and customer loyalty. Jancy consistently meets retention goals and employs an experienced, knowledgeable staff. In recent months, the loss ratio has been deteriorating and new business written is lagging the goal. The management team at Jancy is concerned and has decided to do a SWOT analysis. Which one of the following facts discovered during the SWOT analysis represents a threat to Jancy? A. Jancy relies on products with few unique features. B. Technology has not kept pace with customer demands for Web site quotes. C. Jancy's brand is not recognized. D. Competitors are offering more pricing options and Web site quotes.

D. Competitors are offering more pricing options and Web site quotes.

Computerized data files often contain personal information about individuals. Which one of the following statements is correct with respect to this information? A. General network security procedures usually cannot prevent outsiders from obtaining private data that should remain confidential. B. Because of the amount of information they must obtain, insurers are generally exempt from legal and regulatory requirements regarding the exchange of personal information. C. The most common source of threats to the privacy of an organization's computerized data files is organized crime. D. Disclosure of personal information is an invasion of privacy, with implications of possible criminal or civil liability.

D. Disclosure of personal information is an invasion of privacy, with implications of possible criminal or civil liability.

Which one of the following statements is correct with respect to SWOT analysis? A. Managers use SWOT analysis to predict the future state of their companies. B. Customers are generally not considered in a SWOT analysis because the focus is on the assets an organization owns. C. SWOT analysis considers a company's internal environment rather than the external environment. D. Identifying internal strengths and weaknesses involves considering financial, physical, human, and organizational assets.

D. Identifying internal strengths and weaknesses involves considering financial, physical, human, and organizational assets.

Which one of the following statements is correct with respect to forces that drive competition according to the Five Forces Model? A. Buyers in the insurance industry generally have very limited bargaining power, particularly in personal lines. B. The threat of substitute products or services refers mainly to substitutes offered by an insurer's direct competitors. C. The insurance industry is not exposed to the threat of suppliers exerting bargaining power. D. Insurers can raise barriers to entry by offering unique or customized products or services.

D. Insurers can raise barriers to entry by offering unique or customized products or services.

When considering whether to develop or purchase new information technology (IT), personnel should weigh the costs of efficiency enhancements against the savings and benefits that the new IT would produce. Which one of the following statements is correct with respect to new IT? A. When evaluating the benefits of new technology, intangible benefits, such as customer satisfaction with the improved technology are not quantifiable, so should not be considered. B. The estimated cost of new technology should not usually include the value of staff's time for training until they become proficient in using the new technology. C. While enhanced IT capabilities increase operational efficiency in underwriting, they have little impact on other departments such as human resources or operations. D. Insurers that align all of their objectives with their organization's vision, mission, and goals can use the transformational approach for evaluating IT upgrades, rather than cost/benefit analysis.

D. Insurers that align all of their objectives with their organization's vision, mission, and goals can use the transformational approach for evaluating IT upgrades, rather than cost/benefit analysis.

The approach to global expansion in which companies share ownership, responsibilities, and management of a foreign venture is a A. Merger. B. Licensing agreement. C. Subsidiary. D. Joint venture.

D. Joint venture.