CPCU 500 Exam Study Guide

Which one of the following is an element of a loss exposure? Select one: A. A cause of loss B. The verification of risk C. The probability of a loss D. The occurrence of a loss

A. A cause of loss

COPE is an acronym for the basis used to examine commercial property loss exposures. The letter P in COPE represents Select one: A. Protection B. Proximity. C. Probability. D. Physical hazards.

A. Protection

A building contractor uses lower grade materials than called for in the specifications for an office building. A year after the building was completed, a balcony collapses, injuring several employees and customers and causing damage to the building and contents. For the building construction company, this is an example of Select one: A. A completed operations liability exposure. B. A products liability exposure. C. A premises liability exposure. D. An operations liability exposure.

A. A completed operations liability exposure.

Which one of the following types of insurance policies violates the principle of indemnity? Select one: A. A valued policy. B. A personal articles floater policy. C. A commercial crime policy. D. A mono-line policy.

A. A valued policy.

A secured lender (secured creditor) Select one: A. Acquires conditional rights to property, such as the right to repossess it if loan payments are not made. B. Holds property of others to perform work on it. C. Has a direct ownership interest in the property. D. Purchases insurance to cover the borrower's loss of use of the property should the borrower default on the loan.

A. Acquires conditional rights to property, such as the right to repossess it if loan payments are not made.

With insurance-to-value provisions under homeowners (HO) and business owners (BOP) policies, the amount payable by the insurer will never be less than the Select one: A. Actual cash value (ACV) of the damaged property, subject to policy limits. B. Repair cost of damaged property, subject to policy limits. C. Policy limits less the deductible. D. Replacement cost of the damaged property, subject to policy limits.

A. Actual cash value (ACV) of the damaged property, subject to policy limits.

A risk management plan that considers all of the risks that an organization faces, including operational, financial, and strategic risks, is called A. An enterprise risk management plan. B. An open-perils risk management plan. C. A protected cell risk management plan. D. A hazard risk management plan.

A. An enterprise risk management plan.

Which one of the following is correct regarding an insurer's big data? Select one: A. An insurer's big data consists of both its own internal data and external data. B. Most insurers do not currently possess any big data. C. An insurer's big data consists only of new types of external data. D. An insurer's big data consists only of its own internal data.

A. An insurer's big data consists of both its own internal data and external data.

Which one of the following is an example of a fortuitous loss? Select one: A. An unknown vandal spray-paints graffiti on the insured's garage. B. An insured demolishes a deck that has been allowed to rot. C. The value of an insured's home decreases due to a lack of maintenance. D. Insureds intentionally set a fire and burn their house down.

A. An unknown vandal spray-paints graffiti on the insured's garage.

Ideally insurable loss exposures are subject to losses that Select one: A. Are definite in time, cause, and location. B. Result from unidentifiable causes. C. Occur gradually over long periods of time. D. Are immeasurable in terms of frequency or severity.

A. Are definite in time, cause, and location.

Which one of the following describes the distribution shape in which the mean, median, and mode all have the same value? Select one: A. Bell-shaped B. Skewed left C. Skewed right D. Asymmetrical

A. Bell-shaped

Which one of the following statements is true regarding the risk financing goal of maintaining an appropriate level of liquidity? Select one: A. Both the amount of cash to pay for retained losses and the timing of the payments are important in deciding on an appropriate level of liquidity. B. The higher the organization's loss variability, the lower the need for liquidity. C. The lower the organization's retention, the greater the need for liquidity. D. Machinery and equipment are appropriate assets to meet the goal of maintaining an appropriate level of liquidity.

A. Both the amount of cash to pay for retained losses and the timing of the payments are important in deciding on an appropriate level of liquidity.

A commercial building may contain furniture, machinery and equipment, raw materials, and finished products. Which one of the following is the term generally used in property insurance policies to refer to all these types of property? Select one: A. Business personal property B. Commercial property C. Stock D. Inventory

A. Business personal property

Galliano Insurance Agency knows that it is most likely to retain the customers that it insures for multiple lines of coverage. The agency is always trying to identify new insurance products. To help identify new products, it needs a data mining technique that will explore data to find groups with common and previously unknown characteristics. Which one of the following data mining techniques should Galliano Insurance Agency use? Select one: A. Cluster analysis B. Regression analysis C. Classification D. Association rule learning

A. Cluster analysis

The development and implementation of a business continuity plan entails seven steps. Which one of the following steps involves assessing what events may occur, when they will occur, and how they could affect achievement of key objectives? Select one: A. Conducting a business impact analysis B. Developing a continuity plan C. Performing a risk assessment D. Understanding the business

A. Conducting a business impact analysis

The development and implementation of a business continuity plan entails seven steps. Which one of the following steps involves assessing what events may occur, when they will occur, and how they could affect achievement of key objectives? Select one: A. Conducting a business impact analysis B. Performing a risk assessment C. Developing a continuity plan D. Understanding the business

A. Conducting a business impact analysis

When a business suffers loss of income following a liability suit that causes customers to lose confidence in the business' products, what type of loss has the business suffered? Select one: A. Damage to reputation B. Special damage C. Punitive damage D. Confidence loss

A. Damage to reputation

Which one of the following categories of insurance policy provisions outlines what is covered and where and when coverage applies? Select one: A. Declarations B. Miscellaneous provisions C. Insuring agreements D. Conditions

A. Declarations

The first step of the DICE method is to examine the policy's Select one: A. Declarations. B. Conditions. C. Exclusions. D. Insuring agreement.

A. Declarations.

Understanding the cumulative probability distribution will enable an analyst to evaluate the effect of various Select one: A. Deductibles and policy limits on insured loss exposures. B. Types of available insurance and coverages for specific loss exposures. C. Types of losses and their impact on policyholder surplus. D. Modification factors in terms of accuracy for trending purposes.

A. Deductibles and policy limits on insured loss exposures.

A neighbor has sued Andy for property damage that is potentially covered under Andy's homeowners liability coverage. Even if this lawsuit is found to be groundless, Andy's insurer will still probably be obligated to pay Select one: A. Defense costs. B. Compensatory damages. C. General damages. D. Special damages.

A. Defense costs.

Understanding the business is the first step in the development of a business continuity plan. Understanding the business involves Select one: A. Determining key objectives. B. Distinguishing between critical and noncritical processes. C. Identifying potential exposures. D. Developing an organizational strategy.

A. Determining key objectives.

With guaranteed cost insurance, the premium Select one: A. Does not depend on losses incurred during the coverage period. B. Is referred to as the primary layer. C. Does depend on losses incurred during the coverage period. D. Is referred to as the excess layer.

A. Does not depend on losses incurred during the coverage period.

A pool can meet the risk financing goal of minimizing the cost of risk through Select one: A. Economies of scale in administration. B. Compliance with legal requirements. C. Captive insurers. D. State regulations.

A. Economies of scale in administration.

Which one of the following is the term used for the weighted average of all the possible outcomes in a theoretical probability distribution? Select one: A. Expected value B. Hypothetical norm C. Relative average D. Mean

A. Expected value

Jack and Susan own and manage a hotel. They are concerned about their responsibility for the property of their guests and whether they have an insurable interest in that property and thus could buy insurance to cover their responsibility. Most courts would hold that they do have an insurable interest in their guests' property based on which one of the following legal bases? Select one: A. Exposure to legal liability B. Factual expectancy C. Contractual obligations D. Representation of another party

A. Exposure to legal liability

Which one of the following statements is correct with respect to evaluating the efficiency of alternative risk control measures? Select one: A. Given a loss exposure and the effective alternative risk control measures, the risk manager can determine which is most efficient by using cash flow analysis. B. The efficiency of various risk control measures is usually determined based on both quantitative and qualitative standards. C. An advantage of using cash flow analysis to evaluate the efficiency of alternative risk control measures is that it considers nonfinancial goals and selection criteria. D. A disadvantage of using cash flow analysis to evaluate the efficiency of alternative risk control measures is that the basis of comparison varies for each value-maximizing decision.

A. Given a loss exposure and the effective alternative risk control measures, the risk manager can determine which is most efficient by using cash flow analysis.

Under a large deductible plan, the insured usually must provide the insurer with a letter of credit to Select one: A. Guarantee payment of losses up to the deductible. B. Comply with legal requirements. C. Offset the premium reduction. D. Guarantee payment of losses above the deductible.

A. Guarantee payment of losses up to the deductible.

An empirical probability distribution is based on Select one: A. Historical data. B. Logic. C. Theory. D. Scientific principle.

A. Historical data.

Which one of the following statements is correct regarding characteristics of ideally insurable loss exposures? Select one: A. Ideally, loss exposures should be spread across a large number of similar exposure units within the same period. B. Intertemporal risk transfer, the spreading of risk through time, requires a large number of similar exposure units. C. One requirement of the law of large numbers is that past events occur under different circumstances in the future. D. Loss exposures such as homes and automobiles generally will not meet the ideally insurable requirement that the exposure be of a large number of similar exposure units.

A. Ideally, loss exposures should be spread across a large number of similar exposure units within the same period.

Net income losses can be caused by which one of the following? Select one: A. Increases in expenses B. Decreases in hazard risks C. Increases in revenue D. Decreases in expenses

A. Increases in expenses

For insurers to utilize pooling most effectively and present catastrophic losses, the insured exposure units need to be Select one: A. Independent. B. Adjacent. C. Different. D. Correlated.

A. Independent.

Which one of the following statements is true with regard to the selection of appropriate risk financing measures? Select one: A. It is typically more economical for an organization to retain rather than transfer loss exposures directly related to its core operations. B. Diversifying loss exposures tends to reduce the accuracy of loss estimates, and increases the uncertainty regarding future losses. C. An organization that undertakes extensive risk control measures is less likely to have the ability to fund retention of its loss exposures. D. The higher an organization's willingness to accept risk, the higher the likelihood that transfer will be used to cover its loss exposures.

A. It is typically more economical for an organization to retain rather than transfer loss exposures directly related to its core operations.

Which one of the following uses infrared light to detect nearby objects? Select one: A. Lidar B. Drones C. Robots D. Wearables

A. Lidar

Significant deductibles are most common with which one of the following types of liability policies? Select one: A. Professional liability B. Personal liability C. Auto liability D. General liability

A. Professional liability

A nonstandard form drafted or adapted by one insurer is sometimes called a Select one: A. Proprietary form. B. Company standard form. C. State specific form. D. Filed form

A. Proprietary form.

The second step in the risk management process is analyzing loss exposures. Which one of the following is true regarding this step? Select one: A. Loss exposures are analyzed based on loss frequency, loss severity, total dollar losses, and timing in this step. B. Loss exposures that could interfere with the achievement of the organization's goals are identified in this step. C. A weakness of loss exposure analysis is that it is useful only for those types of losses that an organization has suffered in the past. D. A major strength of loss exposure analysis is that the process is generally inexpensive.

A. Loss exposures are analyzed based on loss frequency, loss severity, total dollar losses, and timing in this step.

Which one of the following strategies for addressing a disruption of operations entails the implementation of risk controls and plans to reduce, minimize, or divert any loss? Select one: A. Loss mitigation B. An insurance policy C. Transfer processing D. Contingency model

A. Loss mitigation

Separation, duplication, and diversification are considered to be Select one: A. Loss reduction techniques. B. Avoidance techniques. C. Risk financing techniques. D. Loss prevention techniques.

A. Loss reduction techniques.

Company X sells earth-moving equipment and has a large inventory. The company's risk management professional wants to make sure that the insurance is carefully designed and has coordinated provisions in the various forms to minimize the possibility of gaps and overlaps in coverage. The most appropriate policy for Company X is a Select one: A. Modular policy. B. Monoline policy. C. Self-contained policy. D. Manuscript policy.

A. Modular policy.

The basic structure of an insurance policy can be either a self-contained policy or a Select one: A. Modular policy. B. Standalone policy. C. Preprinted policy. D. Manuscript policy.

A. Modular policy.

Angelina borrows money from the bank to purchase a house. The house serves as security for the loan. In this transaction, Angelina is the Select one: A. Mortgagor. B. Secured creditor. C. Mortgagee. D. Bailor.

A. Mortgagor.

Property insurance policies not only protect the property owner but also generally protect a secured lender's interest in the financed property by Select one: A. Naming the lender on the owner's policy. B. Issuing a mortgagee interest-only policy. C. Sending the lender a letter of intent. D. Issuing a separate policy.

A. Naming the lender on the owner's policy.

Insurance and risk management professionals use which one of the following methods to evaluate the variability around the mean and apply it to business decisions? Select one: A. Normal probability distributions B. Asymmetrical distributions C. Theoretical continuous distributions D. Measures of dispersion

A. Normal probability distributions

Risk management programs should Select one: A. Operate economically and efficiently. B. Incur substantial costs for slight benefits. C. Be an autonomous part of the organization. D. Not use benchmarking to compare costs.

A. Operate economically and efficiently.

While on her way to a business appointment, Sara is involved in an automobile accident. She suffers minor injuries as a result and is not sure which insurance policy should cover her expenses. She may be able to recover from her personal auto insurer or from her employer's workers compensation insurer. This is an example of which one of the following other sources of recovery? Select one: A. Other insurance in dissimilar policies B. Other insurance in a similar policy C. Noninsurance agreements D. Other insurance in the same policy

A. Other insurance in dissimilar policies

Which one of the following limits multiple sources of recovery within property and liability insurance policies? Select one: A. Other insurance provisions B. Deductibles C. Coinsurance D. Collateral source rule

A. Other insurance provisions

Brenda wrote a poem that she sent to her sister who sold the poem to a recording company. Learning of the sale, Brenda became upset. If Brenda has an insurable interest in the poem she wrote as a type of "property," the legal basis of her insurable interest arises out of Select one: A. Ownership interest in property. B. Representation of another party. C. Contractual obligations. D. Factual expectancy.

A. Ownership interest in property.

A company turnover rate well above company and industry averages could be a sign of Select one: A. Personnel problems that need to be addressed. B. Claims-consciousness. C. Financial problems that need to be addressed. D. Employee slacking.

A. Personnel problems that need to be addressed.

What kind of liability exposure does a manufacturer face if it emits contaminants that cause environmental impairment? Select one: A. Pollution B. Business operations C. Completed operations D. Premises

A. Pollution

Which one of the following statements regarding pools is correct? Select one: A. Pool members benefit from risk sharing with other pool members. B. Pools are expensive for members because pools generally purchase reinsurance. C. Each pool member will pay higher premiums compared with guaranteed cost insurance. D. Public entities cannot be members of pools.

A. Pool members benefit from risk sharing with other pool members.

In the context of risk, the chance of being injured while driving to and from work, loading a truck at work, moving furniture at home, or falling in an icy parking lot at the mall are all examples of A. Possibilities. B. Uncertainties. C. Probabilities. D. Losses.

A. Possibilities.

Which one of the following statements is true? Select one: A. Probabilities deduced solely from historical data may change as new data are discovered or the environment changes. B. Theoretical probabilities are only estimates whose accuracy depends on the size and representative nature of the samples considered. C. Empirical probability distributions are constant as long as the physical conditions that generate them remain unchanged. D. The type of probability most commonly used by risk management professionals is theoretical probability.

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

Which one of the following is measurable and quantifies risk? A. Probability B. Possibility C. Uncertainty D. Feasibility

A. Probability

The statement, "There is a five percent chance that John will be injured in an automobile accident while driving to work tomorrow," is an example of A. Quantifying risk. B. Verifying risk. C. Quantifying loss exposures. D. Identifying hazards.

A. Quantifying risk.

A self-insured organization needs a(n) Select one: A. Recordkeeping system to track its self-insured claims. B. Workers compensation or auto liability loss exposure. C. Third-party administrator (TPA). D. Informal retention plan.

A. Recordkeeping system to track its self-insured claims.

The two benefits of risk management affecting individuals, organizations, and society are: it preserves financial resources by reducing expected losses and it Select one: A. Reduces the residual uncertainty associated with risk. B. Increases productivity within the economy and improves overall standard of living. C. Increases the attractiveness to investors. D. Improves the allocation of productive resources.

A. Reduces the residual uncertainty associated with risk.

Recruiting, interviewing, and training a new employee who replaces a worker who has just resigned are examples of which one of the following types of financial consequences flowing from personnel losses? Select one: A. Replacement costs B. Depreciation costs C. Loss of value D. Compensation costs

A. Replacement costs

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 would be classified as a(n) A. Strategic risk. B. Financial risk. C. Operational risk. D. Hazard risk.

A. 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 A. Strategic risk. B. Hazard risk. C. Operational risk. D. Financial risk.

A. Strategic risk.

Martin, Sara, Adam, and Laura concurrently own and operate a riding stable. Each of them has rights of survivorship and an insurable interest worth the full value of the business. This type of ownership is referred to as Select one: A. Tenancy in partnership. B. Tenancy by the entirety. C. Tenancy in common. D. Joint tenancy.

A. Tenancy in partnership.

Which one of the following describes the two ways in which loss data must be consistent to accurately estimate future loss exposures? Select one: A. The data must be collected on a consistent basis for all recorded losses, and the data must be expressed in constant dollars. B. The past losses under analysis must all have occurred during the same time period and at the same location. C. The loss values used must be actual amounts paid rather than estimates or reserves and should be expressed in current dollars. D. The data must come from an organization's own records rather than other sources, and it should be categorized by severity of loss.

A. The data must be collected on a consistent basis for all recorded losses, and the data must be expressed in constant dollars.

Which one of the following statements is true regarding the relationship between the size of the property policy deductible and the premium reduction? Select one: A. The premium credit increases much more slowly than the size of the deductible. B. The premium credits tend to encourage the use of small deductibles and the practice of dollar trading. C. The premium reduction is directly proportional to the size of the deductible. D. The premium credit increases much more rapidly than the size of the deductible.

A. The premium credit increases much more slowly than the size of the deductible.

Which one of the following statements is correct with respect to transfer's ability to meet risk financing goals? Select one: A. The primary benefit of transfer is certainty regarding the ability to pay losses. B. Transfer is less effective than retention in managing cash flow variability. C. Transfer increases the level of liquidity that an organization requires. D. The primary benefit of transfer is that it allows an organization to manage its cost of risk.

A. The primary benefit of transfer is certainty regarding the ability to pay losses.

Which one of the following is usually the single largest impediment to successful implementation of enterprise risk management (ERM)? Select one: A. The traditional organizational culture B. The financial expense C. The legal and regulatory requirements D. The risk management information system

A. The traditional organizational culture

For a loss exposure to be ideally insurable it must be definite in Select one: A. Time, cause, and location. B. Value, extent, and consequences. C. Scope, origin, and coverage. D. Duration, damage, and cost.

A. Time, cause, and location.

Which one of the following is the goal of a loss prevention measure? Select one: A. To reduce the frequency of particular loss without avoiding it B. To reduce the severity of a particular loss C. To isolate loss exposures from one another D. To eliminate any possibility of loss

A. To reduce the frequency of particular loss without avoiding it

All for-profit organizations are exposed to net income losses. Net income is defined as Select one: A. Total revenue minus total expenses. B. Total profit minus total expenses. C. Total assets minus total liabilities. D. Total income minus indirect losses.

A. Total revenue minus total expenses.

The single largest impediment to successful implementation of an enterprise risk management (ERM) program is Select one: A. Traditional organizational culture with entrenched risk silos. B. Lack of required skills to effectively implement an ERM program. C. Lack of vision by the management team that leads to under-performance of the ERM plan and early termination. D. Opposition from stakeholders—employees, stockholders, customers, and suppliers.

A. Traditional organizational culture with entrenched risk silos.

Capital market solutions manage uncertainty and pay for the negative consequences of an event by Select one: A. Transferring the financial consequences of loss to investors. B. Maintaining a high level of liquidity. C. Transferring the financial consequences of loss to an insurance company. D. Properly managing and retaining losses.

A. Transferring the financial consequences of loss to investors.

Risk is a term that is regularly used and that is generally understood in context. As used in this discussion, which one of the following is one of the two elements within the definition of risk? Select one: A. Uncertainty of outcome B. Likelihood of injury or damage to property C. Probability of financial loss D. Opportunity for profit

A. Uncertainty of outcome

Data science is especially useful for Select one: A. Unstructured data. B. Structured data. C. Internal data. D. Databases.

A. Unstructured data.

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? Select one: A. Unstructured external B. Structured external C. Structured internal D. Unstructured internal

A. Unstructured external

Which one of the following is a major factor in determining the level of indemnity the insured receives from an insurance policy? Select one: A. Valuation method B. Subrogation clause C. Non financial expenses D. Utmost good faith

A. Valuation method

Which one of the following is a major factor in determining the level of indemnity the insured receives from an insurance policy? Select one: A. Valuation method B. Utmost good faith C. Subrogation clause D. Non financial expenses

A. Valuation method

Which one of the following statements is correct with respect to the completeness of past loss data when estimating future loss exposures? Select one: A. What constitutes complete loss data depends largely on the nature of the loss exposure being considered. B. While having complete loss data is helpful, it is not one of the four criteria considered necessary to accurately analyze loss exposures. C. Having complete information on losses helps isolate the causes of loss, but is of little use for estimating the value of future losses. D. Loss data is considered to be complete if it relates to past claims that are substantially the same as the potential future claims being assessed.

A. What constitutes complete loss data depends largely on the nature of the loss exposure being considered.

Extra expenses are a common financial consequence of property losses. Which one of the following is an example of an extra expense? Select one: A. When a family's house is damaged, the family must pay rent to live in a hotel temporarily. B. A fence worth $7,000 was damaged by a car, and the fence owner has to pay $2,000 to have the damage repaired. C. When a grocery store in a mall burns, other nearby stores have to close and lose revenue until the grocery store is repaired. D. Even though fire has made a building untenantable, the landlord must continue making mortgage and tax payments.

A. When a family's house is damaged, the family must pay rent to live in a hotel temporarily.

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

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

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 Select one: A. When to replace equipment. B. Which equipment is likely to cause bodily injury to operators or customers. C. What type of equipment is needed for future projects. D. When to schedule routine maintenance.

A. When to replace equipment.

A risk professional may use dispersion to compare the characteristics of probability distributions. Which one of the following statements is true in this regard? Select one: A. When two or more distributions are plotted on a graph, the one with the most sharply peaked curve has the smallest standard deviation. B. The greater the dispersion around a distribution's expected value, the greater the likelihood that actual results will fall within a given range of that expected value. C. When a distribution is plotted on a graph, the more dispersed the distribution is, the more sharply peaked the curve is. D. In general, the less dispersion around the central tendency, the more risk is involved in the exposure.

A. When two or more distributions are plotted on a graph, the one with the most sharply peaked curve has the smallest standard deviation.

Probability analysis would be most reliable for projecting losses in an organization Select one: A. With a substantial volume of data on past losses. B. That has recently expanded its operations. C. With a low number of historical losses. D. Planning to restructure its operations.

A. With a substantial volume of data on past losses.

SEB Holdings has grown into a multi-billion dollar financial services firm. For 38 years, Big Hal has been its CEO and has ruled the company with an iron first. Big Hal is 78 years old, and financial analysts are concerned about his health and longevity and how closely these factors relate to the company's success. Which one of the following might help assuage the analysts' concerns? Select one: A. A letter attesting to Big Hal's good health B. A corporate succession plan C. Key man retirement plan D. Key man life coverage on Big Hal

B. A corporate succession plan

Lucas is a building owner. He has contractually agreed to indemnify one of his tenants in the event that the tenant is found legally liable for a bodily injury claim that occurs on the leased premises. Which one of the following is the term for this contractual agreement? Select one: A. An insurable interest agreement B. A hold-harmless agreement C. A risk assessment agreement D. An owner/tenant agreement

B. A hold-harmless agreement

Which one of the following statements is correct regarding the ability of a hold-harmless agreement to meet risk financing goals? Select one: A. A hold-harmless agreement require more liquidity than retention and most other alternative transfer measures. B. A hold-harmless agreement can pay for the negative consequences of an event provided the other party has the financial ability to pay the losses covered by the agreement. C. A hold-harmless agreement does not present any legal or regulatory concerns. D. A hold-harmless agreement is most effective in meeting the risk financing goals for an organization's workers compensation exposures.

B. A hold-harmless agreement can pay for the negative consequences of an event provided the other party has the financial ability to pay the losses covered by the agreement.

The possibility that a retailer might be sued because it used a customer's photo in a sales brochure without the customer's permission is what kind of liability exposure for the retailer? Select one: A. Business operations B. Advertising C. Products D. Professional activities

B. Advertising

An organization that maintains a production site and an active backup site that functions as the primary site as needed is using which one of the following continuity plan strategies? Select one: A. Contingency model B. Alternative site mode C. Active backup model D. Split operations model

B. Alternative site mode

Which one of the following best describes a retrospective rating plan's ability to help an organization comply with legal and regulatory requirements? Select one: A. Cash flow uncertainty is managed. B. An insurer issues a policy guaranteeing that all covered claims will be paid. C. The loss limit and maximum premium are chosen carefully. D. The plan includes a significant amount of risk and retention

B. An insurer issues a policy guaranteeing that all covered claims will be paid.

A completed operations liability loss exposure differs from a products liability loss exposure in that the completed operations liability loss exposure Select one: A. Is based solely on strict liability rather than negligence or strict liability. B. Arises out of the entity's completed work, including defective parts or materials furnished with the work. C. Arises out of the entity's defective product, whether or not it has been installed as part of the finished work. D. Is based solely on negligence and breach of warranty rather than strict liability.

B. Arises out of the entity's completed work, including defective parts or materials furnished with the work.

Which one of the following is correct with respect to the potential financial consequences of a property loss? Select one: A. When property is used to secure a loan, only the lender suffers financial consequences if that property is destroyed. B. Bailees need to consider not only their owned property loss exposures, but also the exposures of property held for others. C. Consumers or resellers of property do not suffer a financial loss unless they actually own property when it is damaged. D. When a mortgaged property is destroyed, the mortgagor's loss is limited to the outstanding balance of the loan.

B. Bailees need to consider not only their owned property loss exposures, but also the exposures of property held for others.

The normal distribution is a probability distribution that, when graphed, generates a particular type of curve. Which one of the following best describes that curve? Select one: A. Narrow and peaked B. Bell-shaped C. Wide and flat D. Skewed either right or left

B. Bell-shaped

The possibility that a plumbing contractor might start a fire at a customer's house while soldering a pipe is what type of liability loss exposure for the plumber? Select one: A. Completed operations B. Business operations C. Professional activities D. Products

B. Business operations

Which one of the following correctly describes classification? Select one: A. Classification develops algorithms to develop rules to apply to new data. B. Classification assigns members of a dataset into categories based on known characteristics. C. Classification predicts a numerical value given characteristics of each member of a dataset. D. Classification explores data to find groups with common and previously unknown characteristics.

B. Classification assigns members of a dataset into categories based on known characteristics.

Which one of the following correctly describes cluster analysis? Select one: A. Cluster analysis assigns members of a dataset into categories based on known characteristics. B. Cluster analysis explores data to find groups with common and previously unknown characteristics. C. Cluster analysis predicts a numerical value given characteristics of each member of a dataset. D. Cluster analysis develops algorithms to develop rules to apply to new data.

B. Cluster analysis explores data to find groups with common and previously unknown characteristics.

Which one of the following documents would best help to identify bottlenecks in an organization's operations that might present critical loss exposures? Select one: A. Risk assessment questionnaires B. Flowcharts C. Financial statements D. Procedure manuals

B. Flowcharts

A risk management program must be monitored and periodically revised, and that revision involves four steps. Which one of the following is one of those four steps? Select one: A. Establish results-based rather than activity-based standards of acceptable performance. B. Compare actual results with the established performance standards. C. Reduce any performance standards that have not been achieved by the actual results. D. Return to the first step in the risk management process to identify new loss exposures.

B. Compare actual results with the established performance standards.

County Janitorial Service has contracted with local bars and taverns to clean their restrooms on a daily basis. County's greatest liability exposure is probably Select one: A. Professional liability. B. Completed operations. C. Liquor liability. D. Advertising liability.

B. Completed operations.

Which one of the following has lead to an increase in the appeal of onshore captive domiciles? Select one: A. Reduced regulatory oversight B. Concerns about the transparency of financial transactions C. A lack of overseas domiciles D. High tax rates for overseas domiciles

B. Concerns about the transparency of financial transactions

An organization can best analyze its loss control expenditures by Select one: A. Deducting administrative expenses from retained losses. B. Conducting a cost-benefit analysis. C. Determining the value of immediate loss payments compared to deferred loss payments. D. Considering the present value of the projected cost of transferring risk.

B. Conducting a cost-benefit analysis.

Which of the following risk management program goals is an essential goal for all public entities? Select one: A. Growth B. Continuity of operations C. Earning stability D. Survival

B. Continuity of operations

Preprinted forms typically are interpreted as Select one: A. A description of a unique loss exposure. B. Contracts of adhesion. C. Custom forms developed for a specific insured. D. Custom forms for a small group of insureds

B. Contracts of adhesion

Under a finite risk insurance agreement, a large part of the insured's premium Select one: A. Is only a very small percentage of the policy limits. B. Creates a fund for the insured's own losses. C. Is kept solely for the insurer's profit. D. Is used toward a guaranteed cost insurance plan.

B. Creates a fund for the insured's own losses.

Which one of the following categories of insurance policy provisions outlines what is covered and where and when coverage applies? Select one: A. Miscellaneous provisions B. Declarations C. Conditions D. Insuring agreements

B. Declarations

Which one of the following would help an adjuster determine if the policy was in effect at the time of loss? Select one: A. Insuring agreement B. Declarations C. Miscellaneous provisions D. Premium notice

B. Declarations

Which one of the following should an organization do before using a hold-harmless agreement as a risk financing measure? Select one: A. Consider retention as an alternative type of risk transfer B. Determine whether any statutory restrictions apply C. Purchase an umbrella liability policy D. Secure a line of credit

B. Determine whether any statutory restrictions apply

The relationship between the expected value and the standard deviation of a normal distribution can have useful practical application. Which one of the following best describes such a practical application? Select one: A. Identifying whether a particular loss exposure is high-frequency and low-severity, or high-severity and low frequency B. Determining a maintenance schedule for equipment that could become dangerous if it were to fail C. Selecting which risk management technique would be most appropriate for a particular loss exposure D. Predicting when losses, such as physical damages losses to an automobile fleet, are likely to occur

B. Determining a maintenance schedule for equipment that could become dangerous if it were to fail

Understanding the business is the first step in the development of a business continuity plan. Understanding the business involves Select one: A. Developing an organizational strategy. B. Determining key objectives. C. Distinguishing between critical and noncritical processes. D. Identifying potential exposures.

B. Determining key objectives.

Which one of the following risk control techniques is more commonly applied to managing business risks, rather than hazard risks? Select one: A. Duplication B. Diversification C. Construction D. Separation

B. Diversification

Which one of the following statements is correct regarding duplication? Select one: A. Duplication tends to make losses less predictable, but more manageable. B. Duplication reduces loss severity without increasing loss frequency. C. Duplication tends to increase an organization's dependence on a single asset or activity. D. Duplication is an easy and inexpensive way to reduce loss frequency.

B. Duplication reduces loss severity without increasing loss frequency.

Which one of the following best describes the function of the service layer of a smart operation? Select one: A. Transmitting data without human interaction B. Employing applications that use data processing, cloud computing, and storage and analysis of large amounts of data C. Using sensors, cameras, and data-collection capabilities to provide information to others D. Transmitting data using wireless protocols that ensure necessary capabilities

B. Employing applications that use data processing, cloud computing, and storage and analysis of large amounts of data

Which one of the following is the term used for the weighted average of all the possible outcomes in a theoretical probability distribution? Select one: A. Hypothetical norm B. Expected value C. Relative average D. Mean

B. Expected value

A net income loss exposure is a condition that presents the possibility of loss caused by a reduction in net income. In a given time period, net income equals revenue minus Select one: A. Continuing expenses and outstanding liabilities. B. Expenses and income taxes. C. Accounts payable and income taxes. D. Costs of goods sold.

B. Expenses and income taxes.

A net income loss exposure is a condition that presents the possibility of loss caused by a reduction in net income. In a given time period, net income equals revenue minus Select one: A. Costs of goods sold. B. Expenses and income taxes. C. Continuing expenses and outstanding liabilities. D. Accounts payable and income taxes.

B. Expenses and income taxes.

Insurance deals primarily with loss exposures that are fortuitous. Which one of the following statements best characterizes fortuitous losses? Select one: A. Fortuitous loss exposures are expected. B. Fortuitous losses are beyond the insured's control. C. Fortuitous loss exposures are generally predictable. D. Fortuitous losses are intentional.

B. Fortuitous losses are beyond the insured's control.

Probabilities are stated as a decimal figure, a percentage, or a Select one: A. Stated constant. B. Fraction. C. Dollar amount. D. Credibility factor.

B. Fraction.

Insurance is a Select one: A. Layered coverage. B. Funded risk transfer measure. C. Large loss exposure. D. Liability.

B. Funded risk transfer measure.

Generally, it is difficult to establish market value on property when the property Select one: A. Has many buyers in the market. B. Has had few recent transactions involving comparable property. C. Has many sellers in the market. D. Has a diverse range of prices for like kind and quality.

B. Has had few recent transactions involving comparable property.

Which one of the following risk financing measures is well suited for a manufacturing organization that is concerned about the volatility in commodity prices? Select one: A. Insurance securitization B. Hedging C. Catastrophe bonds D. Contingent capital arrangement

B. Hedging

Which one of the following is an example of a wearable? Select one: A. Unmanned aircraft B. Helmets that monitor fatigue C. Heart monitors D. Robots

B. Helmets that monitor fatigue

Which one of the following statements is true regarding the agreed value method of property valuation used in some property insurance policies? Select one: A. At the time the policy is written, only the insurer must agree to the value specified in the policy. B. If a total loss occurs, the insurer will pay the agreed value specified in the policy. C. The agree value method in property insurance policies illustrates the principle of indemnity. D. The agreed value method stipulates what the agreed value has to be relative to the true value of the property.

B. If a total loss occurs, the insurer will pay the agreed value specified in the policy.

The owner of Harry's Hardware Store is interested in creating a risk management process to help mitigate risk. Harry has already developed much of the process and is currently working to purchase loss reduction devices and contract for loss prevention services. This is an example of which one of the following steps in the risk management process? Select one: A. Analyze loss exposures B. Implement the selected risk management techniques C. Select the appropriate risk management techniques D. Identify loss exposures

B. Implement the selected risk management techniques

When Joshua purchased his home, he did not tell his insurer that he kept flammable chemicals in his basement for use in a hobby. Joshua is aware that storing the chemicals increases the potential for loss to his home. The fact that the insurer is not aware of this exposure is an example of which one of the following? Select one: A. Consideration B. Information asymmetry C. A contract of adhesion D. An exchange of unequal amounts

B. Information asymmetry

Which one of the following is a significant expense that an organization is saved by using a retrospective rating plan? Select one: A. Claims adjustment B. Insurer risk charges C. Taxes and fees D. Auditing

B. Insurer risk charges

Which one of the following is the network through which sensors and other smart products capture and transmit data? Select one: A. Artificial intelligence B. Internet of Things C. Blockchain D. Cloud

B. Internet of Things

Risk can be classified as pure or speculative. Which one of the following is the best example of a speculative risk? A. Acquiring a new television B. Investing in shares of stock C. Buying a new personal vehicle D. Purchasing an insurance policy

B. Investing in shares of stock

To understand risk, one needs to know the probability of an outcome or event occurring. Which one of the following statements is correct with respect to probability? Select one: A. It is typically expressed verbally rather than numerically. B. It can be used to decide which activities to undertake. C. It verifies that risk is present, but does not quantify it. D. It identifies what can be lost when a negative outcome occurs.

B. It can be used to decide which activities to undertake.

Which one of the following statements is correct with respect to self-insurance as a risk financing measure? Select one: A. It is an informal retention plan in which an organization pays losses using cash flows or current liquid assets with no method of recording losses. B. It is often used to cover workers compensation and other loss exposures that have claim payouts that extend over time. C. Cost of risk with self-insurance is typically higher than with other risk financing measures. D. It is usually used for low-frequency loss exposures.

B. It is often used to cover workers compensation and other loss exposures that have claim payouts that extend over time.

Which one of the following best describes a probability distribution? Select one: A. It is a table, chart or graph that shows how many of each type of identified loss will occur during the next 12-month period. B. It represents probability estimates for a particular set of circumstances and the probability of each possible outcome. C. It shows the likelihood of particular future events and an estimate of the financial consequences of each predicted event. D. It predicts future events based on the frequency and severity of past events.

B. It represents probability estimates for a particular set of circumstances and the probability of each possible outcome.

.Kendall Incorporated is a manufacturer located in Maryland. Which one of the following would indicate that Kendall Incorporated is using the risk control technique of diversification to reduce loss severity? Select one: A. Kendall Incorporated maintains a set of spare parts for a few pieces of key machinery in its factory. B. Kendall Incorporated produces a wide variety of products to serve a range of markets. C. Kendall Incorporated produces its products at two factories that are located 15 miles apart. D. Kendall Incorporated has arrangements with more than one supplier of a key raw material.

B. Kendall Incorporated produces a wide variety of products to serve a range of markets.

Which one of the following terms is used for a rating plan whereby the insured receives a premium reduction for agreeing to reimburse the insurer for losses up to a substantial per accident or per occurrence limit? Select one: A. Guaranteed cost insurance B. Large deductible plan C. Excess coverage insurance D. Self-insurance

B. Large deductible plan

Oscar's custom-built vehicle looks like a sausage sandwich on wheels. He plans to drive it to special events at schools around the country where it will serve as a mobile billboard to promote his product. Oscar is surprised to learn that insurers are reluctant to insure his vehicle because it fails to meet one of the ideal characteristics of an insurable risk. Which characteristic is Oscar's vehicle least likely to meet? Select one: A. Pure risk B. Large number of similar exposure units C. Definite and measurable D. Independent and not catastrophic

B. Large number of similar exposure units

An organization must meet the standard of care that it owes to others in order to ensure that Select one: A. Post-loss goals are in place. B. Legal obligations are satisfied. C. Operations are efficient. D. Contracts are not breached.

B. Legal obligations are satisfied.

As part of its risk management program, a vending company installed a new top of the line security system with an expectation of fewer thefts and Select one: A. Higher expected losses. B. Less residual uncertainty. C. Increased anxiety. D. Increased residual uncertainty.

B. Less residual uncertainty.

Which one of the following strategies for addressing a disruption of operations entails the implementation of risk controls and plans to reduce, minimize, or divert any loss? Select one: A. Transfer processing B. Loss mitigation C. Contingency model D. An insurance policy

B. Loss mitigation

Which one of the following characteristics regarding kidnap and ransom are important for an international organization to consider in assessing personnel loss exposures? Select one: A. High frequency but low severity B. Low frequency but high severity C. Low frequency and low severity D. High frequency and high severity

B. Low frequency but high severity

Which one of the following can be applied over time to refine a model to better predict results? Select one: A. Association rule learning B. Machine learning C. Regression D. Statistics

B. Machine learning

Which one of the following is the primary advantage of using retention as a risk financing measure to help an organization meet its risk financing goals? Select one: A. Complying with legal requirements B. Managing the cost of risk C. Paying for losses D. Managing cash flow variability

B. Managing the cost of risk

The consensus process by which the veracity of data is confirmed and verified is known as Select one: A. The Internet of Things. B. Mining. C. Telematics. D. Machine learning.

B. Mining.

The most common violations of the concept of utmost good faith in insurance policies involve buildup in insurance claims filed by insureds and/or Select one: A. Exchange of unequal amounts. B. Misrepresentation of key facts. C. Adverse selection. D. Overindemnification.

B. Misrepresentation of key facts.

In insurance terminology, equipment such as tractors, bulldozers, road graders, front-end loaders, and forklifts designed primarily for off-road use are considered to be Select one: A. Autos. B. Mobile equipment. C. Heavy vehicles. D. Recreational vehicles.

B. Mobile equipment.

Company X sells earth-moving equipment and has a large inventory. The company's risk management professional wants to make sure that the insurance is carefully designed and has coordinated provisions in the various forms to minimize the possibility of gaps and overlaps in coverage. The most appropriate policy for Company X is a Select one: A. Manuscript policy. B. Modular policy. C. Monoline policy. D. Self-contained policy.

B. Modular policy.

Which one of the following is correct with respect to compliance reviews? Select one: A. Compliance reviews determine an organization's compliance with best practices of its industry. B. Monitoring and maintaining compliance through compliance reviews can prevent significant losses that the organization would otherwise incur. C. Compliance reviews may be completed at regular intervals, with little or no ongoing monitoring. D. Compliance reviews are an inexpensive and easy way to identify loss exposures.

B. Monitoring and maintaining compliance through compliance reviews can prevent significant losses that the organization would otherwise incur.

The difference between an organization's total revenues and its total expenses is Select one: A. Gross profit. B. Net income. C. Net sales. D. Operating profit.

B. Net income.

One of the primary purposes of exclusions is to eliminate coverage for loss exposures that are considered uninsurable by private insurers. In addition to the peril of war, which one of the following is a loss exposure that most private insurers consider to be uninsurable? Select one: A. Environmental pollution B. Normal wear and tear of property C. Professional malpractice D. Loss of admissions (i.e. to a concert or other attended event)

B. Normal wear and tear of property

Assume that a jewelry store has theft coverage for customers' jewelry left on their premises for repair. Further assume that homeowners leaving jewelry for repair also have coverage under their homeowners policies for this type of loss. This duplication of coverage is an example of which one of the following other sources of recovery involved in post-loss coverage analysis? Select one: A. Negligent parties B. Other insurance in a dissimilar policy C. Other insurance in a similar policy D. Subrogation

B. Other insurance in a dissimilar policy

Business continuity is designed to meet both the primary risk management program post-loss goal of continuity of operation and the Select one: A. Post-loss goal of growth. B. Post-loss goal of survival. C. Pre-loss goal of economy of operations. D. Pre-loss goal of social responsibility.

B. Post-loss goal of survival.

A predictive approach to data analytics involves Select one: A. Providing a computer program to gather information from the Internet. B. Providing a method to be used repeatedly to provide information. C. Providing information to solve a particular problem. D. Providing sensors that predict accidents.

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

Which one of the following statements is correct with respect to retention's ability to meet risk financing goals? Select one: A. Retention exposes an organization to less variability in cash flows than transfer. B. Retention enables an organization to manage its cost of risk. C. Retention is the most effective way to meet the risk financing goal of paying losses. D. Retention generally reduces the level of liquidity needed.

B. Retention enables an organization to manage its cost of risk.

To determine the extent of coverage a policy provides, pre-loss policy analysis almost exclusively relies on Select one: A. Post-loss policy analysis. B. Scenario analysis. C. The DICE method. D. Coverage triggers.

B. Scenario analysis.

Which one of the following statements is correct regarding the risk control technique of separation? Select one: A. Separation is most commonly applied to managing business risks, rather than hazard risks. B. Separation is rarely undertaken for its own sake, but usually a by product of another management decision. C. Separation generally used to reduce loss frequency, as well as the severity of an individual loss. D. Separation is appropriate for an organization that cannot operate with only a portion of separate units in tact after a loss.

B. Separation is rarely undertaken for its own sake, but usually a by product of another management decision.

Personnel loss exposures can be comprised of all of the following categories of key personnel, EXCEPT: Select one: A. Owners, officers, and managers B. Shareholders C. Groups of employees D. Individual employees

B. Shareholders

Billy owns a beach front cottage which has become his primary residence. Billy's primary concern is that his home will be hit by a hurricane and badly damaged or even destroyed. For Billy, this hurricane risk is a Select one: A. Strategic risk. B. Subjective risk. C. Market risk. D. Speculative risk.

B. Subjective risk.

Under The Prouty Approach of analyzing loss exposures, the four broad categories of loss frequency and the three loss severity categories are Select one: A. Diversified. B. Subjective. C. Quantitative. D. Narrowly defined.

B. Subjective.

Spouses Ed and LeeAnn own a home. If Ed dies, LeeAnn will become the sole owner of the house. Both Ed and LeeAnn have an insurable interest in the property equal to the full value of the property. This is a Select one: A. Life estate. B. Tenancy by the entirety. C. Tenancy in common. D. Joint tenancy.

B. Tenancy by the entirety.

In the context of identifying loss exposures, hazard analysis is a method Select one: A. Used to identify loss exposures arising exclusively from hazard risks. B. That identifies conditions that increase the frequency or severity of loss. C. Used specifically for identifying previously unidentified loss exposures. D. Used to quantify or value potential loss exposures.

B. That identifies conditions that increase the frequency or severity of loss.

Which one of the following statements is true regarding enterprise risk management (ERM)? A. ERM is concerned with an organization's pure risk, primarily hazard risk. B. The ERM framework encompasses all stakeholders in the organization. C. In ERM, the risk management function is the responsibility of the safety manager. D. ERM requires less communication than traditional risk management.

B. The ERM framework encompasses all stakeholders in the organization.

Many laws and regulations require organizations to implement specific risk control measures. Which one of the following statements is true in this regard? Select one: A. These measures are a means of implementing the risk control techniques of separation, duplication, and diversification. B. The cost of adhering to these legal requirements becomes part of the cost of risk. C. These laws and regulations are amended infrequently and do not require ongoing monitoring. D. Failure to comply with legal requirements can expose an organization to sanction, but not to liability.

B. The cost of adhering to these legal requirements becomes part of the cost of risk.

Renata owns a valuable antique sculpture by a famous artist. One day she accidentally dropped the sculpture and a piece of it broke off. Renata took the sculpture to an art restorer, who reattached the broken piece and repaired the surface. From a distance, the statue looks the same as it did before Renata dropped it, but a close inspection reveals the repair. Which one of the following best describes the financial consequences of the accident? Select one: A. There are no financial consequences because the piece looks the same as it did before the accident. B. The financial consequences include the cost of the repair and the reduction in value resulting from the repaired damage. C. The only financial consequence of the accident is the money Renata paid the art restorer for the repair. D. Renata has incurred a total loss because original artwork is impossible to replace.

B. The financial consequences include the cost of the repair and the reduction in value resulting from the repaired damage.

All of the following are reasons insurers restrict the use of deductibles in liability insurance policies, EXCEPT: Select one: A. The insurer must pay third-party claimants in full and then recover the amount of the deductible from the insured. B. The insurer loses its right to provide a defense under liability insurance policies that include a deductible. C. Liability deductibles do not noticeably reduce premiums for most liability insurance policies. D. Insureds may not report seemingly minor incidents to the insurer until the situation has escalated.

B. The insurer loses its right to provide a defense under liability insurance policies that include a deductible.

While involuntary employee separations may expose an organization to additional liability loss exposures, such as wrongful termination accusations, they generally are not considered a personnel loss exposure because Select one: A. The organization may not have a risk management person measuring personnel exposures. B. The organization has determined that it is better off without that employee. C. Employees leave organizations for non-business related reasons and therefore, are not considered a personnel loss. D. The reasons for involuntary employee separations are too numerous and too varied to be measure with high accuracy.

B. The organization has determined that it is better off without that employee.

Each insured member of a pool contributes premium based on its loss exposures. In exchange, Select one: A. The pool implements various risk financing techniques. B. The pool pays for each insured's covered losses. C. The pool forms a captive insurer. D. The pool contributes capital.

B. The pool pays for each insured's covered losses.

Which one of the following statements is correct with respect to finite risk insurance plans? Select one: A. A finite risk insurance plan typically offers the most risk transfer of all the risk financing measures. B. The premium for a finite risk insurance plan is a very high percentage of the policy limits. C. A finite risk insurance plan typically provides lower limits than guaranteed cost insurance. D. A disadvantage is that a finite risk plan does not address the goal of complying with legal requirements.

B. The premium for a finite risk insurance plan is a very high percentage of the policy limits.

Which one of the following statements is true regarding the use of checklists and questionnaires to identify loss exposures? Select one: A. The completion of standardized checklists helps organizations describe in detail their specific loss exposures and shows how those loss exposures support or affect specific organizational goals. B. The questionnaires developed by insurers, called insurance surveys, relate mainly to loss exposures for which commercial insurance is generally available. C. Standardized risk assessment questionnaires can be used as the sole method to uncover an organization's loss exposures and reveal key information about those exposures. D. An advantage of risk assessment questionnaires is that they can be completed with relatively little expense, time, and effort.

B. The questionnaires developed by insurers, called insurance surveys, relate mainly to loss exposures for which commercial insurance is generally available

Which one of the following statements is true regarding the use of checklists and questionnaires to identify loss exposures? Select one: A. The completion of standardized checklists helps organizations describe in detail their specific loss exposures and shows how those loss exposures support or affect specific organizational goals. B. The questionnaires developed by insurers, called insurance surveys, relate mainly to loss exposures for which commercial insurance is generally available. C. Standardized risk assessment questionnaires can be used as the sole method to uncover an organization's loss exposures and reveal key information about those exposures. D. An advantage of risk assessment questionnaires is that they can be completed with relatively little expense, time, and effort.

B. The questionnaires developed by insurers, called insurance surveys, relate mainly to loss exposures for which commercial insurance is generally available.

The focus of risk quadrants is different from the focus of risk classifications. While the classifications of risk focus on some aspect of the risk itself, the four quadrants of risk focus on Select one: A. Subjective and objective risks. B. The source of risk and who has traditionally managed it. C. Pure and speculative risks. D. The determination of whether the risk is diversifiable.

B. The source of risk and who has traditionally managed it.

An important goal of insurers that sell property insurance is to motivate each insured to buy a limit of insurance that approximates the full value of the covered property. The benefit to the insured of buying insurance to value is that it ensures Select one: A. Insureds are able to obtain prompt, efficient, and effective claim coverage from their insurers. B. There are sufficient funds available in the event of a total loss. C. That premiums are high enough to guarantee insurer profits and low enough that insurance is affordable. D. Insurers are compliant with state regulations.

B. There are sufficient funds available in the event of a total loss.

Which one of the following best explains how most smart products potentially improve risk management? Select one: A. They scan and inspect structures for unsafe conditions. B. They generate big data to which advanced analytics can be applied. C. They measure worker fatigue. D. They assess risks in dangerous areas.

B. They generate big data to which advanced analytics can be applied.

Which one of the following is true regarding risk control techniques? Select one: A. They are usually used in isolation. B. They minimize the frequency or severity of losses or make losses more predictable. C. They generate funds to finance losses that cannot be prevented. D. They ensure that the estimated frequency and severity of loss remain constant.

B. They minimize the frequency or severity of losses or make losses more predictable.

Aligning risks with the organization's risk appetite defines Select one: A. Compliance. B. Tolerable uncertainty. C. Social responsibility. D. Value at risk.

B. Tolerable uncertainty.

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

B. Velocity

The term "insuring agreement" is usually applied to statements that introduce a policy's Select one: A. Endorsement section. B. Arbitration procedures. C. Coverage section. D. Premium payment plan.

C. Coverage section.

Assume a covered settlement amount of $1,300,000 under a liabity insurance policy including a limit of $1,000,000, and a self-insured retention (SIR) of $100,000. Under normal circumstances, the insurer will pay which one of the following amounts for this settlement? Select one: A. $300,000 B. $900,000 C. $1,000,000 D. $1,100,000

C. $1,000,000

Delmond Manufacturing is opening a new manufacturing facility in a building that it purchased from a competitor. Using the information below, which one of the following represents the cost of risk of opening the new facility? New building cost $60.0 million Safety system upgrades $6.0 million Insurance premiums $1.5 million Retained losses $3.0 million Risk management department budget at the site $1.0 million Select one: A. $7.0 million B. $10.0 million C. $11.5 million D. $71.5 million

C. $11.5 million (The cost of risk of opening the new facility is $11.5 million, calculated by adding $6 million of safety system upgrades + $1.5 million of insurance premiums + $3 million of retained losses + $1 million of risk management budget at the site)

Eric's tire business is operated out of a single warehouse. He has tires, equipment, furniture, and supplies at this location. Eric employs 15 individuals at a total cost of $50,000 monthly. The building is valued at $100,000, and the tires and equipment are worth $50,000. The supplies and furniture in the warehouse are worth approximately $5,000. If Eric's property is destroyed and not restored for an entire month, what is the maximum possible loss of that property? Select one: A. $100,000 B. $150,000 C. $155,000 D. $205,000

C. $155,000

An organization's premises and operations liability losses have a severity distribution with a mean of $10,000 and a standard deviation of $15,000. What is the coefficient of variation for this distribution? Select one: A. .60 B. .67 C. 1.5 D. 1.67

C. 1.5 (The coefficient of variation is 1.5, calculated by dividing the standard deviation of $15,000 by the mean of $10,000.)

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 80 percent certainty that she has enough representatives, which one of the following represents how many representatives she will need to hire? Select one: A. 2 B. 3 C. 5 D. 6

C. 5 (Carla's 80 percent certainty will fit within one standard deviation above the mean since 84.13% of all outcomes fall below one standard deviation above 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).)

Jim's Computer Repair will often take customers' computers into the shop for repairs and service. While Jim has a customer's computer in his possession, he is in the role of Select one: A. A bailor. B. An agent. C. A bailee. D. A secured lender.

C. A bailee.

Which one of the following statements is correct regarding how a large deductible plan compares with guaranteed cost in meeting the various risk financing goals? Select one: A. The level of liquidity that needs to be maintained is lower for a large deductible plan than guaranteed cost insurance. B. Cash flow uncertainty is better managed by a large deductible plan than by guaranteed cost insurance. C. A large deductible plan minimizes the cost of risk better than a guaranteed cost insurance. D. Complying with legal and regulatory requirements is more difficult with a large deductible plan than with guaranteed cost insurance.

C. A large deductible plan minimizes the cost of risk better than a guaranteed cost insurance.

In a court of law, during policy analysis, which one of the following types of policies or forms is most difficult to interpret? Select one: A. A package policy B. A monoline policy C. A manuscript policy D. A standard form

C. A manuscript policy

Perils are an important aspect of property insurance. Which one of the following statements is correct with respect to perils? Select one: A. In order to be covered by an insurance policy, a peril must be defined and described in that policy. B. A peril is anything that increases the frequency or the severity of a loss. C. A peril is the actual means by which property is damaged or destroyed such as fire, lightning, windstorm, hail, or theft. D. Property insurance policies can cover specific perils and cannot exclude other perils.

C. A peril is the actual means by which property is damaged or destroyed such as fire, lightning, windstorm, hail, or theft.

Probability analysis is particularly effective for projecting losses in organizations that have Select one: A. Identified a relatively limited number of potential loss exposures. B. A limited amount of historical loss data from which to project changes in loss costs. C. A substantial volume of data on past losses and fairly stable operations. D. Elected to estimate probabilities based on external data rather than their own.

C. A substantial volume of data on past losses and fairly stable operations.

Probability analysis is best suited for organizations that have Select one: A. Changing and complex business environments. B. Unstable operations. C. A substantial volume of data on past losses. D. A relatively small number of past losses.

C. A substantial volume of data on past losses.

Because manuscript forms do not have the same history of court interpretations with regard to policy analysis, substantial delays in claim adjusting or strained relations between the insured and the insurer can occur. To reduce the likelihood of such problems, most manuscript forms are Select one: A. Created by the insured according to strict insurer requirements. B. Created by the insurer with no input from the insured. C. Adapted from wording previously developed and used in standard forms. D. Individually composed with unique language according to the needs of the insured.

C. Adapted from wording previously developed and used in standard forms.

One purpose of exclusions is to eliminate coverages that are not needed by the typical purchaser of a given line of insurance. Elimination of such coverages avoids the situation of Select one: A. Insuring uninsurable exposures. B. Increasing the likelihood of overlapping coverages or duplications of coverages. C. All insureds having to share the costs of covering loss exposures that relatively few insureds have. D. Litigated coverage for most insureds.

C. All insureds having to share the costs of covering loss exposures that relatively few insureds have.

An organization that maintains a production site and an active backup site that functions as the primary site as needed is using which one of the following continuity plan strategies? Select one: A. Contingency model B. Active backup model C. Alternative site mode D. Split operations model

C. Alternative site mode

Self-insurance is usually combined with transfer, such as Select one: A. Regulatory requirements. B. Litigation management. C. An excess insurance policy. D. Recordkeeping.

C. An excess insurance policy.

An auto dealer's showroom is destroyed by fire, and the dealer has to temporarily rent an adjacent building to use as a showroom. This is an example of Select one: A. A reduction in value. B. An altered condition. C. An extra expense. D. Lost income.

C. An extra expense.

Which one of the following would indicate that an organization is using the risk control technique of duplication to reduce loss severity? Select one: A. An organizations produces goods from factories at two different locations B. An organization produces a variety of products for several different industries. C. An organization makes arrangements with more than one supplier of a key raw material D. An organization allocates its assets among a mix of stocks and bonds from companies in different sectors.

C. An organization makes arrangements with more than one supplier of a key raw material,

Insurers and risk managers can use the large volumes of data collected and organized through telematics to help improve results for which one of the following types of insurance? Select one: A. Health B. Workers compensation C. Automobile D. Property

C. Automobile

Data credibility refers to the level of confidence that Select one: A. Past loss data was properly recorded. B. Losses that have not occurred in the past will not occur in the future. C. Available data can accurately indicate future losses. D. The statistical analysis of the four loss exposure dimensions was completed correctly.

C. Available data can accurately indicate future losses.

Which one of the following risk management techniques should be considered when the expected value of the losses from an activity outweighs the expected benefits of that activity? Select one: A. Loss reduction B. Risk financing C. Avoidance D. Separation

C. Avoidance

Which one of the following risk management techniques should be considered when the expected value of the losses from an activity outweighs the expected benefits of that activity? Select one: A. Separation B. Loss reduction C. Avoidance D. Risk financing

C. Avoidance

Generally, in a liability claim, the burden of proof regarding what bodily injury or property damage losses were proximately caused by the insured belongs to the Select one: A. Insured. B. Jury. C. Claimant. D. Insurer.

C. Claimant.

Which one of the following is a data mining technique? Select one: A. Database B. Statistics C. Classification D. Machine learning

C. Classification

Which one of the following products has led to significant improvements in supply chain management by allowing for the immediate identification of discrepancies and interruptions as well as timely actions that can prevent or reduce losses? Select one: A. Wearable exoskeleton B. Accelerometer C. Closed-loop system D. Blockchain

C. Closed-loop system

Which one of the following statements is correct with respect to property loss exposures? Select one: A. Avoidance, loss prevention, loss reduction, separation, and diversification are risk control techniques that can be applied to property loss exposures. B. The risk control techniques commonly selected for property loss exposures are the same regardless of the type of property. C. Commercial property underwriters commonly assess fire loss exposures based on each building's construction, occupancy, protection, and external exposure. D. Risk control techniques commonly selected to reduce one property cause of loss, such as fire, are equally effective with other causes of loss.

C. Commercial property underwriters commonly assess fire loss exposures based on each building's construction, occupancy, protection, and external exposure.

Which one of the following steps required to monitor and revise the risk management program refers to a proper standard that includes specifications for how results or performance will be measured, such as target activity levels or results? Select one: A. Correct substandard performance or revise standards that prove to be unrealistic B. Establish standards of acceptable performance C. Compare actual results with standards D. Evaluate standards that have been substantially exceeded

C. Compare actual results with standards

Telephone Company installs fiber-optic cable using a trenching machine that digs a trench, buries the cable, fills in the trench, and reseeds, all in one pass. The trenching machine can install cable in a fifty-home neighborhood in one day. Soon after the trenching machine passes by, a member of the community steps on the trenched area, sinks in, and breaks his leg. This is an example of a liability loss exposure arising out of Select one: A. Premises. B. Products. C. Completed operations. D. Mobile equipment.

C. Completed operations.

In order to avoid underestimating or overestimating loss projections, historical loss data must be expressed in Select one: A. Total dollars. B. Actual dollars. C. Constant dollars. D. Functional dollars.

C. Constant dollars.

Organizations find it difficult to establish a benchmark against which the performance of their risk management program can be assessed because it is difficult to assign a specific value to the Select one: A. Cost of implementing and administering risk management. B. Cost of measures to prevent or reduce the size of potential losses. C. Cost of residual uncertainty. D. Cost of losses not reimbursed by insurance.

C. Cost of residual uncertainty.

In a policy's insuring agreement, the insurer promises to pay to the insured, to pay on behalf of the insured, and to Select one: A. Educate the insured regarding policy language. B. Pay for all losses. C. Defend the insured. D. Provide full coverage for any exposure.

C. Defend the insured.

The important first step in a decision-making model is to Select one: A. Prepare the data. B. Assign a data scientist. C. Define the problem. D. Purchase the technology.

C. Define the problem.

The cause of loss that occurs more frequently than death, causing personnel losses, is Select one: A. Retirement. B. Kidnap. C. Disability. D. War/terrorism.

C. Disability.

The expensive and inefficient process of insuring low severity small claims is referred to as Select one: A. Claim costs offset. B. Stair-stepping. C. Dollar trading. D. Dollar cost averaging.

C. Dollar trading.

When a newspaper's printing press is damaged, the company may spend extra money to have the newspaper printed on another company's press. The additional cost of printing the newspaper is an example of which one of the following? Select one: A. Altered condition B. Lost income C. Extra expense D. Reduction in value

C. Extra expense

When a newspaper's printing press is damaged, the company may spend extra money to have the newspaper printed on another company's press. The additional cost of printing the newspaper is an example of which one of the following? Select one: A. Reduction in value B. Altered condition C. Extra expense D. Lost income

C. Extra expense

Inspections often identify loss exposures that a review of the written descriptions of the organization's operations would not reveal. Which one of the following groups of individuals within the organization are best able to identify non obvious loss exposures to a person conducting an inspection? Select one: A. Regional management B. Compliance review personnel C. Front-line personnel D. Risk professionals

C. Front-line personnel

Aaron finds 10 new laptop computers in the basement of his office building. The attached invoice indicates that each laptop was worth $1,500 four years ago. Hoping to sell them, Aaron was disappointed to learn he could obtain only $500 per unit. This discrepancy in valuation of the laptop computers is most likely due to Select one: A. Market value. B. Accounting depreciation. C. Functional depreciation. D. Replacement cost value.

C. Functional depreciation.

Which one of the following best describes guaranteed cost insurance's ability to minimize the cost of risk? Select one: A. Guaranteed cost insurance can minimize the cost of risk because the organization requires less liquidity compared with retention or other risk financing measures. B. Guaranteed cost insurance can minimize the cost of risk because much of the uncertainty about future losses is transferred to the insurer. C. Guaranteed cost insurance can minimize the cost of risk, but it is not ideal because insurance premiums are designed to cover not only expected losses, but also insurer administrative costs, adverse selection and moral hazard costs, premium taxes, and any social loadings. D. Guaranteed cost insurance can minimize the cost of risk, especially regarding loss exposures that are required (by law or contractual obligation) to be transferred.

C. Guaranteed cost insurance can minimize the cost of risk, but it is not ideal because insurance premiums are designed to cover not only expected losses, but also insurer administrative costs, adverse selection and moral hazard costs, premium taxes, and any social loadings.

Many insurers have developed their own company-specific preprinted forms, especially for coverages in which the insurer specializes, or for Select one: A. Catastrophic loss exposures. B. Infrequently used coverage needs. C. High-volume lines of insurance. D. Niche market exposures.

C. High-volume lines of insurance.

An empirical probability distribution is based on Select one: A. Scientific principle. B. Logic. C. Historical data. D. Theory.

C. Historical data.

Which one of the following is the first step in the risk management process? Select one: A. Examine the feasibility of risk management techniques B. Monitor results and revise the risk management program C. Identify loss exposures D. Analyze loss exposures

C. Identify loss exposures

After identifying and analyzing loss exposures and evaluating and selecting the appropriate risk management techniques, the next step in the risk management process is to Select one: A. Monitor the results. B. Revise the risk management program. C. Implement the selected techniques. D. Decide on risk financing techniques.

C. Implement the selected techniques.

Net income losses can be caused by which one of the following? Select one: A. Decreases in expenses B. Decreases in hazard risks C. Increases in expenses D. Increases in revenue

C. Increases in expenses

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 Select one: A. Fortuitous. B. A large number of similar exposure units. C. Independent and not catastrophic. D. Definite and measurable.

C. Independent and not catastrophic.

From an investor's perspective, which one of the following is an advantage of insurance-linked securities? Select one: A. Insurance-linked securities provide protection against business risks created by price changes. B. Insurance-linked securities guarantee both principal repayment and interest income. C. Insurance-linked securities help diversify the investor's portfolio. D. Insurance-linked securities typically provide a solid long term investment.

C. Insurance-linked securities help diversify the investor's portfolio.

Which one of the following is correct regarding insurers' and risk managers' internal data? Select one: A. Insurers and risk managers are not required to report their internal data. B. Insurers and risk managers have traditionally used all their internal data. C. Insurers and risk managers have vast quantities of internal data they have not used. D. Insurers and risk managers report all their internal data to regulatory agencies.

C. Insurers and risk managers have vast quantities of internal data they have not used.

Three main theoretical concepts explain why ERM works. Which one of the following correctly lists those three concepts? Select one: A. Objective setting, risk response, and monitoring B. Internal environment, event identification, and control activities C. Interdependency, correlation, and portfolio theory D. Risk quantification, silo theory, and statistical correlation

C. Interdependency, correlation, and portfolio theory

For property insurance purposes, wall-to-wall carpeting is typically considered to be part of the building because it Select one: A. Is easy to value. B. Is readily visible. C. Is permanently attached to the building. D. Tends to depreciate in value along with the building.

C. Is permanently attached to the building.

Which one of the following is an advantage of using radio frequency identification (RFID) for supply chain management? Select one: A. It can assess impending fire conditions so that first responders can be notified before a fire begins. B. It can capture images that aid in loss prevention and reduction. C. It identifies assets and compiles their characteristics without human intervention. D. It can monitor illumination and provide lighting when needed.

C. It identifies assets and compiles their characteristics without human intervention.

Which one of the following describes the law of large numbers? Select one: A. It states that events that have occurred in the past under identical conditions and resulting from unchanging causal forces will increase at a predictable rate into the future. B. It states that, in order to be able to predict the relative probability of future events, those events must be both frequent, and independent of one another. C. It states that as the number of similar but independent exposure units increases, the relative accuracy of predictions about future outcomes also increases. D. It states that the more times a particular event has occurred in the past, the greater the likelihood of that same event occurring in the future.

C. It states that as the number of similar but independent exposure units increases, the relative accuracy of predictions about future outcomes also increases.

Conrad Sales Company's vehicles are equipped with a device that allows them to locate each vehicle for tracking purposes. If a vehicle is stolen, the tracking devices can be used to recover the vehicle more quickly. Conrad Sales Company is using the risk management technique of Select one: A. Transfer. B. Duplication. C. Loss reduction. D. Loss prevention.

C. Loss reduction.

The purpose of data analytics for insurers is to Select one: A. Automate most organizational processes. B. Eliminate the need for human analysis. C. Make data-driven decisions and strategy. D. Acquire and use all the new types of technology.

C. Make data-driven decisions and strategy.

To achieve the financial goal of maximizing market value, most publicly traded organizations should pursue risk financing goals. Common risk financing goals include which one of the following? Select one: A. Reduce the severity of losses B. Reduce the frequency of losses C. Manage uncertainty of loss outcomes D. Disperse organizational assets

C. Manage uncertainty of loss outcomes

Capital market solutions can typically meet all of the following risk financing goals, EXCEPT: Select one: A. Manage uncertainty B. Comply with legal and regulatory requirements C. Minimize the cost of risk D. Maintain liquidity

C. Minimize the cost of risk

Retrospective rating plans require which one of the following amounts of administration by the insured? Select one: A.None B. Small C. Moderate D. High

C. Moderate

Which one of the following statements is correct with respect to the timing dimension in the analysis of loss exposures? Select one: A. The timing dimension refers to when losses actually occur rather than when they are ultimately paid. B. Liability losses tend to be paid more quickly after an occurrence than property losses. C. Money held in reserve to pay for a loss can earn interest until the actual payment is made. D. A delay between occurrence of a loss and its payment decreases uncertainty about the value of a loss.

C. Money held in reserve to pay for a loss can earn interest until the actual payment is made.

In a probability distribution, John noticed the dispersion affected the shape of the distribution. In the distribution he was reviewing, he noted that the shape was altered as the dispersion decreased. Typically, a less dispersed distribution will form a Select one: A. Bell-curved distribution. B. Flat distribution. C. More peaked distribution. D. Less peaked distribution.

C. More peaked distribution.

A hold harmless agreement is a Select one: A. Risk retention measure. B. Form of liability insurance. C. Noninsurance risk transfer measure. D. Type of risk pooling mechanism.

C. Noninsurance risk transfer measure.

In commercial property insurance, the special-form coverage provides protection against causes of loss that are Select one: A. Generally uninsurable. B. Specifically excluded by other provisions within the same policy. C. Not specifically excluded. D. Unique and complex in nature.

C. Not specifically excluded.

Liability entries on an organization's balance sheet are particularly useful to the risk professional for identifying which one of the following loss exposures? Select one: A. Net income B. Personnel C. Obligations such as mortgage payments D. Loss exposures that reduce revenue

C. Obligations such as mortgage payments

Which one of the following statements is correct with respect to insurance policy exclusions? Select one: A. Its use has little or no impact on the policy premium an insurer must charge. B. Its purpose is to eliminate coverage, not to clarify the coverage granted. C. One of its purposes is to eliminate coverages requiring special treatment. D. Its use does not help insurers manage moral and morale hazards.

C. One of its purposes is to eliminate coverages requiring special treatment.

Which one of the following types of data organization is the foundation for developing loss severity distributions or loss trends over time? Select one: A. Organizing losses by type of asset exposed B. Organizing losses by cause of loss C. Organizing losses by size D. Organizing losses historically by date

C. Organizing losses by size

In a normal distribution, fewer than 5% of outcomes are Select one: A. Between one and two standard deviations above or below the mean. B. Within one standard deviation above or below the mean. C. Outside two standard deviations above or below the mean. D. Between the mean and two standard deviations above or below the mean.

C. Outside two standard deviations above or below the mean.

The death of a shareholder in a close corporation is often a significant event for the corporation for which one of the following reasons? Select one: A. Shareholders in a close corporation also serve on the board of directors resulting in a disparity of shareholder votes. B. The death or disability of one of the shareholders generally results in payment of dividends to the remaining shareholders. C. Ownership in a close corporation is typically concentrated in just the few major shareholders, most of whom are also managers. D. Key shareholders are paid high salaries and are difficult to replace.

C. Ownership in a close corporation is typically concentrated in just the few major shareholders, most of whom are also managers.

For most insureds, the primary source of information for generating scenarios for pre-loss policy analysis is Select one: A. The DICE method. B. An analysis of common policy exclusions. C. Past loss experience. D. An analysis of common policy insuring agreements.

C. Past loss experience.

For most insureds, the primary source of information for generating scenarios for pre-loss policy analysis is Select one: A. The DICE method. B. An analysis of common policy exclusions. C. Past loss experience. D. An analysis of common policy insuring agreements.

C. Past loss experience.

Another term for cause of loss is Select one: A. Hazard. B. Exposure. C. Peril. D. Negative outcome.

C. Peril.

Business continuity is designed to meet both the primary risk management program post-loss goal of continuity of operation and the Select one: A. Pre-loss goal of economy of operations. B. Pre-loss goal of social responsibility. C. Post-loss goal of survival. D. Post-loss goal of growth.

C. Post-loss goal of survival.

Having a theoretically infinite number of possible loss scenarios is one of the limitations of Select one: A. Post-loss policy analysis. B. The DICE method. C. Pre-loss policy analysis. D. Determining the amount payable for a claim.

C. Pre-loss policy analysis.

Which one of the following statements regarding probability is correct? Select one: A. Risk management professionals use theoretical probabilities because they are generally available for and applicable to claim analysis. B. The accuracy of theoretical probabilities depends on the size and representative nature of the samples being studied. C. Probabilities associated with events such as coin tosses can be developed from theoretical considerations and are unchanging. D. The probability of an event that is absolutely certain is 0.

C. Probabilities associated with events such as coin tosses can be developed from theoretical considerations and are unchanging.

Because attorneys, physicians, architects, and engineers are considered to be experts in their fields and are expected to perform accordingly, what liability exposure do they face if a client is injured when such an expert fails to exercise the appropriate standard of care? Select one: A. Completed operations B. Business operations C. Professional liability D. Products

C. Professional liability

The term "net income losses" is usually associated with Select one: A. Liability losses. B. Missed opportunities. C. Property losses. D. Loss of goodwill.

C. Property losses.

The use of data gleaned from sensors to react immediately to hazardous situations is known as Select one: A. Forward-thinking risk management. B. Root cause risk management. C. Real-time risk management. D. Looking-backward risk management.

C. Real-time risk management.

The principal advantage of risk transfer measures is that they Select one: A. Provide the organization with incentive for risk control. B. Allow the organization to maintain control of the claims process. C. Reduce exposure to large losses. D. Provide ancillary services.

C. Reduce exposure to large losses.

Which one of the following is an advantage of risk transfer that appears to be valued by investors? Select one: A. Avoiding adverse employee relations B. Maintaining control of the claims process C. Reducing cash flow variability D. The ancillary services provided

C. Reducing cash flow variability

All of the following are considered risk control techniques, EXCEPT: Select one: A. Loss prevention B. Avoidance C. Reinsurance D. Loss reduction

C. Reinsurance

The mean is calculated by weighting each observed outcome by the Select one: A. Adjusted modification factor. B. Dollar value of the outcome. C. Relative frequency with which it occurs. D. Credibility factor.

C. Relative frequency with which it occurs.

Which one of the following rating plans adjusts the premium for the current policy period to recognize the insured's actual losses during the current policy period? Select one: A. Experience rating plan B. Guaranteed cost plan C. Retrospective rating plan D. Schedule rating plan

C. Retrospective rating plan

Which one of the following statements is true regarding risk management efforts on the part of individuals, organizations, and society in general? Select one: A. Organizations tend to exhibit a greater degree of risk aversion than do individuals. B. The benefits that risk management efforts provide to individuals and organizations are not felt by society in general. C. Risk management makes those who own or run an organization more willing to undertake risky activities. D. Risk management tends to increase the deterrence effect of risk in organizations.

C. Risk management makes those who own or run an organization more willing to undertake risky activities.

Examples of risk control loss reduction techniques that primarily apply to occupancy are Select one: A. Construction design and internal fire protection. B. Relocation away from hazards and removing combustible materials from the space that separates buildings. C. Safety training and emergency evacuation procedures. D. Fire detection and suppression.

C. Safety training and emergency evacuation procedures.

Restricting the number of key employees who can travel on the same aircraft is an example of which one of the following risk control techniques? Select one: A. Loss reduction B. Duplication C. Separation D. Diversification

C. Separation

Which one of the following types of captive typically operates as a formalized retention plan rather than a transfer measure? Select one: A. Risk retention group B. Rent-a-captive C. Single-parent captive D. Protected cell company

C. Single-parent captive

When developing loss severity distributions, risk professionals should organize loss data by Select one: A. Location of loss. B. Time of loss. C. Size of loss. D. Date of loss.

C. Size of loss.

Which one of the following is the name of the insurance policy provision that addresses the situation where recovery from a negligent third-party overlaps with first-party insurance coverage? Select one: A. Other insurance B. Coinsurance C. Subrogation D. Valuation

C. Subrogation

After using the DICE method to determine whether a claim is covered by a policy, the next step is for the insurer to determine Select one: A. The scenario under which the loss occurred. B. Whether the post-lost duties of the insured affect coverage. C. The amount payable. D. Whether the loss occurred within the coverage territory.

C. The amount payable.

Josephine Redmond who is the sole proprietor of Dream Quilts, Inc., operates out of three branch offices with 17 employees. What happens to Josephine's business if she dies or retires? Select one: A. The disposition of the business must be resolved in a court of law. B. The business is divided among the remaining partners. C. The business ceases to exist. D. The business is divided among the employees.

C. The business ceases to exist.

Which one of the following costs is part of the overall financial consequences of risk? Select one: A. The cost of benchmarking surveys B. The cost of purchasing an asset C. The cost of the value lost due to events that caused a loss D. The cost of losses reimbursed by insurance

C. The cost of the value lost due to events that caused a loss

f a liability claim goes to trial, although the policy limits restrict the insurer's liability, the jury and judge are not bound to confine an award to the amount of such policy limits. If the court awards a judgment that exceeds policy limits, which one of the following parties is responsible for paying the excess award? Select one: A. The surety on a court bond B. The state guaranty fund C. The insured/defendant D. The insurer

C. The insured/defendant

When considering an empirical distribution, the measure of central tendency is called the mean. Which one of the following is correct with respect to the mean? Select one: A. The mean is the best estimate of expected outcomes because it is unaffected by changes in underlying conditions over time. B. The mean is the value at the midpoint of a sequential data set with an odd number of values. C. The mean is the sum of the values in a data set divided by the number of values. D. A risk professional will rarely use the mean to forecast future events.

C. The mean is the sum of the values in a data set divided by the number of values.

Which one of the following statements is true regarding central tendency when comparing the characteristics of probability distributions? Select one: A. Most probability distributions cluster around the exact center of the distribution's range of values. B. The most widely accepted ways of measuring central tendency are referred to as the average, the weighted average, and the mean. C. The measures of central tendency represent the best guess as to what the outcome will be. D. The central tendency is the one single outcome that occurs most frequently.

C. The measures of central tendency represent the best guess as to what the outcome will be.

When property is used to secure a loan, which of the following is exposed to loss? Select one: A. Neither the property owner nor the secured lender B. The property owner only C. The property owner and the secured lender D. The secured lender only

C. The property owner and the secured lender

George has received an inheritance and is deciding what to do with the money. He has limited his options to four choices: donate all the money to his favorite charity, use the entire inheritance to buy a yacht, invest the inheritance in a small rental property, or use the entire amount to purchase T-bills. Which one of the following statements is true regarding the risk involved in George's options? A. Donating his inheritance to charity is a pure risk; there is no uncertainty that the money will be gone and George will have no chance of profit. B. Buying a boat is a nondiversifiable risk because George can only afford to purchase a single yacht. C. The rental property presents both pure and speculative risk; property values may increase, and the building could burn down. D. Purchasing T-bills is a pure risk because the interest rate payable is known, and the chance of loss is minimal.

C. The rental property presents both pure and speculative risk; property values may increase, and the building could burn down.

Which one of the following best describes effective and efficient risk control measures? Select one: A. They are those measures that increase employee satisfaction while reducing the level of risk. B. They reduce risk to a level that is acceptable to the organization's management. C. They are the least expensive measures of all possible effective that achieve an organization's risk management goals. D. They eliminate risk without requiring the organization to make outlays of cash.

C. They are the least expensive measures of all possible effective that achieve an organization's risk management goals.

Which one of the following best explains how most smart products potentially improve risk management? Select one: A. They assess risks in dangerous areas. B. They measure worker fatigue. C. They generate big data to which advanced analytics can be applied. D. They scan and inspect structures for unsafe conditions.

C. They generate big data to which advanced analytics can be applied.

Which one of the following statements is correct with respect to empirical probability distributions? Select one: A. Any given event can fall into one or more categories of event (bins). B. The sum of all empirical probabilities in a distribution can be any number. C. They provide a mutually exclusive, collectively exhaustive list of outcomes. D. Event categories (bins) are designed so that only the most probable events are included.

C. They provide a mutually exclusive, collectively exhaustive list of outcomes.

Which one of the following statements is correct with respect to empirical probability distributions? Select one: A. Event categories (bins) are designed so that only the most probable events are included. B. The sum of all empirical probabilities in a distribution can be any number. C. They provide a mutually exclusive, collectively exhaustive list of outcomes. D. Any given event can fall into one or more categories of event (bins).

C. They provide a mutually exclusive, collectively exhaustive list of outcomes.

Which one of the following is considered an advantage of the use of retention as a risk financing technique? Select one: A. Less cash flow variability B. Less exposure to large loss C. Timing of cash flows D. Avoiding adverse public relations

C. Timing of cash flows

In addition to implementing effective and efficient measures, complying with legal requirements, and promoting safety, which one of the following is a goal of risk control efforts? Select one: A. To ensure that preventable losses do not adversely affect ongoing operations B. To avoid or prevent all hazard risks to which the organization may be exposed C. To minimize or eliminate significant business interruptions, whatever their cause D. To transfer as much of the organization's hazard and business risks as possible to third parties

C. To minimize or eliminate significant business interruptions, whatever their cause

Sean recently started a small consulting practice. Sean is the only employee of the business and the sole generator of revenue. Sean is very concerned that in the event that he becomes disabled due to an accident or disease there will be no revenue coming into the business. Which one of the following goals best identify Sean's concerns? Select one: A. Social responsibility and earnings stability B. Legality and profitability C. Tolerable uncertainty and earnings stability D. Economy of risk management operations

C. Tolerable uncertainty and earnings stability

Which one of the following statements is correct with respect to risk control techniques for net income loss exposures? Select one: A. All techniques that control property, liability, or personnel loss exposures are ineffective in controlling net income loss exposures. B. Risk control efforts focused on reducing the immediate effect of losses on net income are not needed to control long-term effects. C. Two risk control techniques that are directly aimed at reducing the severity of net income losses are separation and duplication. D. Diversification is not a viable risk control measure for controlling net income losses.

C. Two risk control techniques that are directly aimed at reducing the severity of net income losses are separation and duplication.

Which one of the following is a liability policy that provides excess coverage above underlying policies and may also provide coverage not available in the underlying policies, subject to a self-insured retention? Select one: A. Primary policy B. Excess policy C. Umbrella policy D. Buffer policy

C. Umbrella policy

One of the elements of risk is uncertainty. Which one of the following best describes the uncertainty that risk involves? A. Uncertainty as to how to manage potential losses B. Uncertainty as to whether a negative outcome is possible C. Uncertainty as to the type and timing of an outcome D. Uncertainty as to whether insurance is available

C. Uncertainty as to the type and timing of an outcome

Which one of the following statements is true regarding large deductible plans? Select one: A. A large deductible plan has high start-up and administrative costs for the insured. B. A large deductible plan manages cash flow uncertainty better than a guaranteed cost plan. C. Under a large deductible plan, the insurer adjusts and pays all claims. D. Under a large deductible plan, the insured is responsible for adjusting and paying losses up to the deductible.

C. Under a large deductible plan, the insurer adjusts and pays all claims.

Oliver has a commercial property policy covering his retail store. The policy has an 80 percent coinsurance clause, and the insurable value of the store is its replacement cost. When the policy was written, the value of the store was $160,000. Assuming the current replacement cost of the store is $150,000, and that it is insured for $120,000, how much will Oliver recover under his insurance policy if the store suffers a $30,000 covered loss? Select one: A. $0 B. $22,500 C. $24,000 D. $30,000

D. $30,000

Company Z carries a pollution liability policy with a $5,000,000 limit. The policy provides for the payment of defense costs in addition to the policy limit. If Company Z is found liable for a $4,500,000 judgment, and the insurer incurs $2,000,000 in defense costs, how much in total will the insurer pay for this claim? Select one: A. $2,000,000 B. $4,500,000 C. $5,000.000 D. $6,500,000

D. $6,500,000 (Because defense costs are paid in addition to policy limits, the insurer will pay $6,500,000 for this claim ($4,500,000 judgment + $2,000,000 defense costs).

The theoretical probability of a head on a coin toss is 50 percent. Based on the law of large numbers, which one of the following is the number of coin tosses most likely to result in an empirical frequency of 50 percent? Select one: A. 2 B. 10 C. 50 D. 100

D. 100

As an incentive for insuring to value, many policies include insurance to value provisions that reduce the amount payable for both partial and total losses if the insured has not purchased adequate limits of coverage. Coinsurance clauses, one such type of provision, are found in many commercial property insurance policies. The most common coinsurance percentages for buildings and business personal property are 90 percent, 100 percent, and Select one: A. 50 percent. B. 60 percent. C. 75 percent. D. 80 percent.

D. 80 percent.

Which one of the following is correct regarding various types of captive programs? Select one: A. Risk retention groups were originally formed in direct response to the lack of workers compensation coverage available in insurance markets. B. In a protected cell company, each organization keeps its own premium and loss account, but a member may access the assets of another member in the event the member becomes insolvent. C. Under a rent-a-captive arrangement, no risk transfer occurs among the members, and the capital rented by one insured cannot be diminished by the losses of another insured in the structure. D. A captive collects premium, issues policies, purchases reinsurance, invests assets and pays losses, just like any other insurer.

D. A captive collects premium, issues policies, purchases reinsurance, invests assets and pays losses, just like any other insurer.

Which one of the following risk financing measures can reduce an organization's cost of risk over time but has significant start-up costs relative to the other measures? Select one: A. A retrospective rating plan B. A self insurance plan C. A large deductible plan D. A captive plan

D. A captive plan

SEB Holdings has grown into a multi-billion dollar financial services firm. For 38 years, Big Hal has been its CEO and has ruled the company with an iron first. Big Hal is 78 years old, and financial analysts are concerned about his health and longevity and how closely these factors relate to the company's success. Which one of the following might help assuage the analysts' concerns? Select one: A. Disability insurance on Big Hal B. A letter attesting to Big Hal's good health C. Key man retirement plan D. A corporate succession plan

D. A corporate succession plan

Dr. Donna Jenkins is a research chemist for PharmaCon, a large pharmaceutical company. Last year, she was responsible for 12 of the 14 patents awarded to PharmaCon. Clearly, the future prospects of the company would be damaged if Dr. Jenkins died or became severely disabled. In risk management parlance, Dr. Jenkins is considered Select one: A. An officer. B. A protected employee. C. A director. D. A key employee.

D. A key employee.

Kendall Incorporated is considering using a pool to meet its risk financing goals, one of which is maintaining liquidity. Which one of the following best describes how a pool can help an organization meet that goal? Select one: A. A pool can meet this goal through economies of scale in administration. B. A pool can meet this goal if managed within state regulations. C. A pool cannot meet this goal because each organization must pay for its own losses. D. A pool that is adequately funded and managed can meet this goal.

D. A pool that is adequately funded and managed can meet this goal.

One way of jointly considering frequency and severity is to combine both frequency and severity distributions into Select one: A. A continuous and theoretical probability distribution. B. A cumulative occurrence distribution. C. An asymmetrical probability distribution. D. A total claims distribution.

D. A total claims distribution.

Because manuscript forms do not have the same history of court interpretations with regard to policy analysis, substantial delays in claim adjusting or strained relations between the insured and the insurer can occur. To reduce the likelihood of such problems, most manuscript forms are Select one: A. Created by the insurer with no input from the insured. B. Created by the insured according to strict insurer requirements. C. Individually composed with unique language according to the needs of the insured. D. Adapted from wording previously developed and used in standard forms.

D. Adapted from wording previously developed and used in standard forms.

Which one of the following statements is true regarding endorsements and other related documents? Select one: A. Endorsement provisions do not differ from basic policy provisions because of the need for standardized language. B. The insurer does not usually keep completed insurance applications because the declarations page contains the information provided in the application. C. Because of statutory and regulatory constraints, an insurance policy cannot incorporate other documents into the policy. D. An insurance policy may refer to an insurer's rating manual, making the rules and rates contained in the manual part of the policy.

D. An insurance policy may refer to an insurer's rating manual, making the rules and rates contained in the manual part of the policy.

Two steps of the risk management process, when combined, constitute the process of assessing loss exposures. For this reason, they are probably the two most important steps in the process. These two steps are identifying loss exposures and Select one: A. Selecting the appropriate risk management techniques. B. Implementing selected risk management techniques. C. Examining feasibility of risk management techniques. D. Analyzing loss exposures.

D. Analyzing loss exposures.

Which one of the following statements is correct with respect to applying risk control techniques to the various types of loss exposures? Select one: A. Separation, duplication, and diversification are the most effective risk control techniques for treating liability loss exposures. B. Risk control techniques to reduce a liability loss once it occurs are generally not available. C. The most cost-effective risk control techniques for personnel loss exposures are those aimed at causes of loss that occur outside the workplace. D. Any measure that controls property, liability, or personnel loss exposures also indirectly controls associated net income loss exposures.

D. Any measure that controls property, liability, or personnel loss exposures also indirectly controls associated net income loss exposures.

The most important reason for risk management and insurance professionals to learn about data analytics is Select one: A. To design analytical models in their areas of expertise. B. To be able to conduct analyses of social media. C. To propose new ideas for technology to provide data. D. Because big data and technology are central to the insurance industry.

D. Because big data and technology are central to the insurance industry.

Cara, a risk management professional, advises an organization that by using a finite risk plan, it will not meet its goal of maintaining liquidity. Which one of the following best explains the reason for this? Select one: A. Because the insurer will not issue a policy guaranteeing that all covered claims will be paid B. Because cash flows are smoothed over multiple periods C. Because the insured ultimately pays for all its own losses D. Because premium payments are usually paid upfront

D. Because premium payments are usually paid upfront

Which one of the following is a virtual ledger of data that has been verified, timestamped, encrypted, and protected against tampering? Select one: A. Artificial intelligence B. The Internet of Things C. Closed-loop system D. Blockchain

D. Blockchain

Which one of the following is a risk control technique that could be considered both a loss reduction and a loss prevention measure? Select one: A. Disaster recovery plan B. Automatic sprinkler system C. Fire wall D. Burglar alarm

D. Burglar alarm

A licensed electrician completes the job of rewiring a house and returns to his shop. With regard to this job, the electrician has a Select one: A. Professional liability loss exposure. B. Premises liability loss exposure. C. Business operations loss exposure. D. Completed operations loss exposure.

D. Completed operations loss exposure.

Shelton Manufacturing is a publicly traded chemical manufacturer. It has an agreement with an investment bank that requires the bank to purchase a specified number of Shelton Manufacturing shares at a predetermined price if Shelton should suffer a significant property loss at its manufacturing plant for which it was unable to acquire property insurance. This is an example of which one of the following types of capital market solutions? Select one: A. Insurance securitization B. Hedging arrangement C. Derivative contract D. Contingent capital arrangement

D. Contingent capital arrangement

The term "insuring agreement" is usually applied to statements that introduce a policy's Select one: A. Arbitration procedures. B. Premium payment plan. C. Endorsement section. D. Coverage section.

D. Coverage section.

Which one of the following planned retention measures is appropriate for funding losses with a low expected value, but becomes less advisable as the expected value of losses gets larger? Select one: A. Using an unfunded reserve B. Using a funded reserve C. Borrowing funds D. Current expensing of losses

D. Current expensing of losses

Which one of the following potential financial consequences of liability loss exposures is often difficult to quantify? Select one: A. Defense costs B. Special damages C. Costs of investigation D. Damage to reputation

D. Damage to reputation

Which one of the following is correct about data science? Select one: A. Data science automates all data processing and eliminates the need for human involvement. B. Data science is a field within mathematics that uses new mathematical concepts to analyze data. C. Data science is traditional computer programming that is applied to larger amounts of data. D. Data science is a new field that arose from the need to link big data and technology to provide useful information.

D. Data science is a new field that arose from the need to link big data and technology to provide useful information.

Products liability loss exposures arise out of injuries or damage that result from an organization's Select one: A. Operations away from premises. B. Manufacturing operations. C. Types of bailments. D. Defective product.

D. Defective product.

In theory, liability losses are limited only by the Select one: A. Court's subjectivity. B. State's tort liability laws. C. Amount of insurance carried. D. Defendant's total wealth.

D. Defendant's total wealth.

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 Select one: A. Fortuitous. B. Pure risks. C. Independent. D. Definite.

D. Definite.

If the organization wishes to pre-fund for retained future losses, it must determine the present value of the expected future losses. Calculating the present value of a future amount is known as Select one: A. Indexing. B. Depreciating. C. Compounding. D. Discounting.

D. Discounting.

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. Determining prior year losses at a particular location B. Providing human analysis of data C. Using industry data in addition to the organization's own data D. Discovering new relationships in data

D. Discovering new relationships in data

The extent to which a distribution is spread out rather than concentrated around the expected value is its Select one: A. Tendency. B. Concentration. C. Density. D. Dispersion.

D. Dispersion.

Risk can be classified as diversifiable or nondiversifiable. Which one of the following statements is true with respect to this type of risk classification? Select one: A. Private insurance tends to concentrate on nondiversifiable risks; government insurance is often suitable for diversifiable risks. B. The distinction between diversifiable and nondiversifiable risks is clear; risks cannot fall under both classifications simultaneously. C. Inflation, unemployment, and natural disasters, such as hurricanes, are examples of diversifiable risk. D. Diversifiable risks tend not to be correlated so they can be managed through diversification or spread of risk.

D. Diversifiable risks tend not to be correlated so they can be managed through diversification or spread of risk.

Which one of the following risk control techniques is more commonly applied to managing business risks, rather than hazard risks? Select one: A. Duplication B. Construction C. Separation D. Diversification

D. Diversification

Which one of the following best describes the function of the service layer of a smart operation? Select one: A. Transmitting data without human interaction B. Transmitting data using wireless protocols that ensure necessary capabilities C. Using sensors, cameras, and data-collection capabilities to provide information to others D. Employing applications that use data processing, cloud computing, and storage and analysis of large amounts of data

D. Employing applications that use data processing, cloud computing, and storage and analysis of large amounts of data

Which one of the following types of risk assessment involves a global assessment of risks that could affect the organization's overall business goals? Select one: A. Process assessment B. Program assessment C. Site assessment D. Enterprise assessment

D. Enterprise assessment

Which one of the following types of risk assessment involves a global assessment of risks that could affect the organization's overall business goals? Select one: A. Process assessment B. Site assessment C. Program assessment D. Enterprise assessment

D. Enterprise assessment

In a transaction to purchase insurance, the insured's premium should be commensurate with the risk it presents to the insurer. This is often called the Select one: A. Proportional sharing of risk. B. Mutual agreement between contracting parties. C. Value of consideration. D. Equitable distribution of risk costs.

D. Equitable distribution of risk costs.

Which one of the following loss reduction measures taken by a property owner would be considered a post-loss measure? Select one: A. Enforcing a no-smoking policy throughout the building B. Installing an automatic sprinkler system C. Erecting fire walls in a building D. Establishing a plan to temporarily relocate to another location

D. Establishing a plan to temporarily relocate to another location

In using the coefficient of variation when comparing two distributions, if both distributions have the same mean, then the distribution with the larger standard deviation will have Select one: A. More skew. B. Less variability. C. Less skew. D. Greater variability.

D. Greater variability.

DH Manufacturing (DHM) is a manufacturer of canned foods. Its canned goods are distributed to various retail operations by HB Distributing (HBD). The contracts include a hold-harmless agreement whereby DHM agrees to assume the liability for losses that HBD suffers as a result of distributing DHM's products. Which one of the following is the indemnitee in this agreement? Select one: A. DHM B. Retail stores C. Consumer D. HBD

D. HBD

In deciding among a variety of deductible levels under property insurance policies, an insured must balance the benefits of premium reduction with the need to Select one: A. Insure low value losses. B. Have insurance protection for loss frequency. C. Trade dollars. D. Have insurance protection for large losses.

D. Have insurance protection for large losses.

Which one of the following statements is correct with respect to characteristics of insurable loss exposures? Select one: A. If a loss is fortuitous, the chance of loss could increase as soon as a policy is issued. B. If the insured has control over whether or when a loss will occur, the risk is attractive to insure. C. Private insurance is suitable for risks where the probability and timing of loss is known. D. If losses are not fortuitous, premiums could increase for all policyholders.

D. If losses are not fortuitous, premiums could increase for all policyholders.

When Joshua purchased his home, he did not tell his insurer that he kept flammable chemicals in his basement for use in a hobby. Joshua is aware that storing the chemicals increases the potential for loss to his home. The fact that the insurer is not aware of this exposure is an example of which one of the following? Select one: A. An exchange of unequal amounts B. Consideration C. A contract of adhesion D. Information asymmetry

D. Information asymmetry

Which one of the following is the network through which sensors and other smart products capture and transmit data? Select one: A. Blockchain B. Cloud C. Artificial intelligence D. Internet of Things

D. Internet of Things

In addition to document analysis, risk professionals may also conduct compliance reviews to identify loss exposures. Which one of the following is a benefit of conducting compliance reviews if the organization has adequate in-house legal and accounting resources? Select one: A. It requires infrequent monitoring. B. It is a practical means for identifying loss exposures. C. It is inexpensive to conduct. D. It can conduct most of the compliance review itself.

D. It can conduct most of the compliance review itself.

Which one of the following focuses on the minimum building design, construction, operation, and maintenance requirements necessary to assure occupants of a safe exit from the burning portion of a building? Select one: A. Building code B. Environmental security C. Workers compensation D. Life safety

D. Life safety

Separation, duplication, and diversification are considered to be Select one: A. Risk financing techniques. B. Loss prevention techniques. C. Avoidance techniques. D. Loss reduction techniques

D. Loss reduction techniques

Which one of the following is a financial consequence of personnel losses to an organization? Select one: A. Expenses of paying replacement employees more than departing employees B. Costs of hiring new management personnel to manage a younger workforce C. Cost allocations relating to departing employees' benefit plans D. Losses to an organization's value caused by negative publicity

D. Losses to an organization's value caused by negative publicity

The consensus process by which the veracity of data is confirmed and verified is known as Select one: A. Telematics. B. Machine learning. C. The Internet of Things. D. Mining.

D. Mining.

When property is lost or damaged, the value of the property is decreased. In addition to direct damage to the property, there could be indirect losses to the business. This latter type of loss is known as Select one: A. Deferred income. B. Historical income. C. Residual income losses. D. Net income losses.

D. Net income losses.

Which one of the following correctly describes the stage of Big Data 2.0 in insurance and risk management? Select one: A. Organizations have just started conducting business on the Internet. B. Insurers are exploring the possibility of underwriting personal lines over the Internet. C. Insurers are using the Internet to market their products to customers. D. Organizations can obtain vast amounts of information rapidly to develop useful knowledge.

D. Organizations can obtain vast amounts of information rapidly to develop useful knowledge.

Which one of the following limits multiple sources of recovery within property and liability insurance policies? Select one: A. Deductibles B. Coinsurance C. Collateral source rule D. Other insurance provisions

D. Other insurance provisions

All of the following are usually analyzed as part of the DICE method of policy analysis, EXCEPT: Select one: A. Declarations B. Insuring agreement C. Exclusions D. Past loss experience

D. Past loss experience

Other than for money, for what primary reasons or types of reasons would an internationally based American organization's employees be kidnapped or held for ransom? Select one: A. Psychological reasons B. Cultural reasons C. Microeconomic reasons D. Political reasons

D. Political reasons

Anyone who owns or occupies property has a Select one: A. Pollution liability loss exposure. B. Products liability loss exposure. C. Professional liability loss exposure. D. Premises liability loss exposure.

D. Premises liability loss exposure.

Which one of the following is a legal and regulatory concern in obtaining mass information from social media? Select one: A. Fraud B. Veracity C. Volume D. Privacy

D. Privacy

Which one of the following statements regarding probability is correct? Select one: A. The probability of an event that is absolutely certain is 0. B. The accuracy of theoretical probabilities depends on the size and representative nature of the samples being studied. C. Risk management professionals use theoretical probabilities because they are generally available for and applicable to claim analysis. D. Probabilities associated with events such as coin tosses can be developed from theoretical considerations and are unchanging.

D. Probabilities associated with events such as coin tosses can be developed from theoretical considerations and are unchanging.

Kid Smart manufacturing makes a line of childrens toys. The possibility that a child may be injured because of a defect in a Kid Smart toy is what type of liability loss exposure for this toy manufacturer? Select one: A. Completed operations B. Business operations C. Professional activities D. Products

D. Products

In property insurance, the term "property in transit" refers to which one of the following? Select one: A. Property while being moved from one building to another at the insured location only B. Owned property while located anywhere other than the insured location C. Mobile equipment while moving under its own power from one work location to another D. Property while being transported by trucks, cars, buses, trains, airplanes, and ships

D. Property while being transported by trucks, cars, buses, trains, airplanes, and ships

COPE is an acronym for the basis used to examine commercial property loss exposures. The letter P in COPE represents Select one: A. Probability. B. Physical hazards. C. Proximity. D. Protection.

D. Protection.

Hank has determined the expected number of workers compensations claims in a given year. Hank next calculates the standard deviation of potential outcomes. Calculating the standard deviation Select one: A. Enables the organization to make better use of its resources. B. Allows Hank to accurately predict the mean of the distribution. C. Allows Hank to estimate accurate claim reserves for future workers compensation claims. D. Provides a measure of how sure Hank can be in his estimate of claims.

D. Provides a measure of how sure Hank can be in his estimate of claims.

Many states require a self-insurer to Select one: A. File small claims with an insurer. B. Provide a cash flow benefit. C. Supervise defense attorneys. D. Purchase excess insurance.

D. Purchase excess insurance.

East Side Manufacturing has over 50 sales managers located around the country who drive company cars. Harry, the risk manager, has noted that this exposure is generating a frequency of losses for workers compensation, auto liability, and physical damage to the autos. Harry is considering various risk control techniques. Which one of the following is a loss prevention technique that should help East Side Manufacturing reduce the frequency of losses from auto accidents? Select one: A. Replacing all company cars with new cars equipped with airbags and telematics B. Establishing a seat belt policy that requires all managers driving company cars to wear seat belts while driving C. Taking the company cars away from the sales managers and requesting that they work from the office D. Requiring all of the managers driving company cars to attend a driver safety seminar

D. Requiring all of the managers driving company cars to attend a driver safety seminar

Finite risk insurance combines many of the advantages of Select one: A. Legal and regulatory requirements. B. High policy limits and low premiums. C. Uncertainty and liquidity. D. Risk retention and risk transfer.

D. Risk retention and risk transfer.

Catastrophe bonds are used to Select one: A. Hedge the price of commodities. B. Retain the risk of catastrophe losses. C. Raise cash at prearranged terms after a loss occurs. D. Securitize insurance risk through a marketable security.

D. Securitize insurance risk through a marketable security.

The relationships among the mean, median, and mode for any data set are illustrated by the distribution's Select one: A. Density. B. Size. C. Variables. D. Shape.

D. Shape.

When developing loss severity distributions, risk professionals should organize loss data by Select one: A. Location of loss. B. Time of loss. C. Date of loss. D. Size of loss.

D. Size of loss.

Which one of the following best identifies types of organizations that should be concerned with personnel loss exposures from a manager leaving for another organization? Select one: A. Sole proprietorships and close corporations, but not corporations with separation of ownership and control B. Sole proprietorships, but not corporations with separation of ownership and control C. Close corporations, but not sole proprietorships D. Sole proprietorships, close corporations, and corporations with separation of ownership and control

D. Sole proprietorships, close corporations, and corporations with separation of ownership and control

Which one of the following is essential to an effective risk management program? Select one: A. Increased cost of risk B. Reduced waste of resources C. Support from the community as a whole D. Support of the organization's senior management

D. Support of the organization's senior management

Which one of the following is particularly useful in vacant or temporarily unoccupied buildings? Select one: A. Light sensors B. Power consumption sensors C. Motion sensors D. Temperature sensors

D. Temperature sensors

Risk involves the possibility of a negative outcome. Possibility means Select one: A. The likelihood of an event occurring. B. That an outcome is unavoidable. C. An identified and predictable outcome. D. That an outcome may or may not occur.

D. That an outcome may or may not occur.

A source of a rapidly growing quantity of external data is Select one: A. Industry loss data. B. Risk management and insurance professionals. C. Computers. D. The Internet of Things.

D. The Internet of Things.

To accurately analyze loss exposures using data on past losses, the data should meet certain criteria. Which one of the following lists those criteria? Select one: A. The data should be detailed, ample, and accurate. B. The data should be structured, numerical, indexed, and comprehensive. C. The data should be exhaustive, precise, and adjusted for inflation. D. The data should be relevant, complete, consistent, and organized

D. The data should be relevant, complete, consistent, and organized

To accurately analyze loss exposures using data on past losses, the data should meet certain criteria. Which one of the following lists those criteria? Select one: A. The data should be detailed, ample, and accurate. B. The data should be structured, numerical, indexed, and comprehensive. C. The data should be exhaustive, precise, and adjusted for inflation. D. The data should be relevant, complete, consistent, and organized.

D. The data should be relevant, complete, consistent, and organized.

To reduce the moral hazard associated with property insurance policies written on a replacement cost basis, most replacement cost policies pay only after Select one: A. The insured has waited 30 days. B. It has been determined that the loss is a relatively high value. C. The insured has met the deductible. D. The insured has actually replaced the damaged or destroyed property.

D. The insured has actually replaced the damaged or destroyed property.

For insurance purposes, money and securities are separate from other types of contents because Select one: A. The insurance industry considers them uninsurable. B. They are not susceptible to the same perils as other property. C. The burden of proof for a loss is on the insurer. D. They are highly susceptible to loss by theft.

D. They are highly susceptible to loss by theft.

Which one of the following statements is true regarding the use of inspections to identify loss exposures? Select one: A. A benefit of inspections is that they require no particular expertise and can be conducted by anyone within the organization. B. Inspections typically serve to confirm loss exposure identified in written descriptions of an organization's operations. C. All of an organization's loss exposures can be identified through inspection of critical sites within the organization. D. To be effective, inspections should be accompanied by discussions with front-line personnel who can identify nonobvious loss exposures.

D. To be effective, inspections should be accompanied by discussions with front-line personnel who can identify non obvious loss exposures.

One approach to categorizing risks involves dividing risks into risk quadrants. The risks categorized as hazard risks are Select one: A. Traditionally handled by the chief financial officer. B. Speculative risks that fall outside the operational risk category. C. Fundamental to an organization's existence and business plans. D. Traditionally managed by risk management professionals.

D. Traditionally managed by risk management professionals.

The United States common-law system requires the amount of damages awarded to a claimant in a liability claim to compensate the claimant for loss incurred as of the Select one: A. Date of loss. B. Date the claim is reported. C. Settlement date. D. Trial date.

D. Trial date.

Other than some type of merger, layoff, or organizational change, which one of the following is an example of a situation where an entire group of employees might leave an organization? Select one: A. When an organization offers excessive compensation B. When statutes make it more attractive to pursue other career opportunities C. When the economy is in a long term period of inflation D. When employees follow a manager to a new organization

D. When employees follow a manager to a new organization