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CAS Online Course 1 > 1-7 > Flashcards

1-7 Flashcards

1
Q

Residual uncertainty is a factor in the case of

A

speculative and pure risk

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2
Q

residual uncertainty is costly to minimize because

A

more has to be spent on attempts to control or finance the risks involve

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3
Q

captive insurers are used to insure

A

property loss exposures that are difficult to insure in the primary market

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4
Q

ERM adds a decision step prior to risk treatment that asks the risk manager to determine whether

A

residual impact is within risk tolerancce/appetite

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5
Q

if an insurer cannot provide the insurance product at a reasonable premium,

A

there will be no demand

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6
Q

complying with legal requirements presents a conflict between

A

profit goal and customer needs goal

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7
Q

this can be transformed through the IoT to facilitate instantaneous communication

A

claims handling

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8
Q

small businesses typically select what distribution system

A

independent agent

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9
Q

an important question to ask when examining a customers’ needs and characteristics to select a distribution channel is

A

how quickly can inquiries and transactions be processed?

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10
Q

three reasons that subjective risk and objective risk can differ substantially

A

familiarity and control
consequences over likelihood
risk awareness

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11
Q

4 risk quadrants

A

hazard
operational
financial
strategic

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12
Q

hazard and operational are classified as

A

pure risks

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13
Q

financial and strategic risks are classified as

A

speculative risks

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14
Q

3 components of financial consequences of risk faced by individuals or organizations

A

expected cost of losses or gains
expenditures on risk management
cost of residual uncertainty

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15
Q

the cost of residual uncertainty for an organization includes the affect that it has on

A

consumers, investors, and suppliers

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16
Q

how are consumers affected by residual uncertainty

A

they may not be willing to pay as much for products from organizations with a poor safety reputation

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17
Q

how are investors affected by residual uncertainty

A

they will require a larger rate of return on their investment from riskier organizations

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18
Q

how are suppliers affected by residual uncertainty

A

suppliers will be less willing to sell their supplies on credit to financially unstable organizations

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19
Q

6 post loss goals

A

survival
continuity of operations
profitability
earnings stability
social responsibility
growth

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20
Q

6 steps in a risk management process

A
  1. identifying loss exposures
  2. analyzing loss exposures
  3. examining the feasibility of risk management techniques
  4. selecting the appropriate risk management techniques
  5. implementing selected risk management techniques
  6. monitoring results and revising the risk management program
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21
Q

four dimensions by which loss exposures are analyzed

A

frequency
severity
total dollar losses
timing

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22
Q

four steps to monitor and revise risk managment programs

A
  1. establishing standards of acceptable performance
  2. comparing actual results with these standards
  3. correcting substandard performance or revising standards that prove to be unrealistic
  4. evaluating standards that have been substantially exceeded
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23
Q

6 categories of risk control

A

avoidance
loss prevention
loss reduction
separation
duplication
diversification

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24
Q

the intent of separation

A

reduce the severity of an individual loss at a single location

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25
Q

how does duplication differ from separation

A

duplicates are not a part of an organizations daily working resources

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26
Q

4 risk control goals

A

implement effective and efficient risk control measures
comply with legal requirements
promote life safety
ensure business continuity

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27
Q

6 steps in the business continuity process

A
  1. identify the organization’s critical functions
  2. identify the risks to the organization’s critical functions
  3. evaluate the effect of the risks on those critical functions
  4. develop a business continuity strategy
  5. develop a business continuity plan
  6. monitor and revise the business continuity process
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28
Q

5 risk financing goals

A

pay for losses
manage the cost of risk
manage cash flow variability
maintain an appropriate level of liquidity
comply with legal requirements

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29
Q

3 expense components of cost of risk

A

administrative expenses
risk control expenses
risk financing expenses

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30
Q

four measures available to an organization to fund retention

A

current expensing of losses
unfunded loss reserve
funded reserve
borrowing funds

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31
Q

4 advantages of retention

A

cost savings
control of claim process
timing of cash flows
incentives for risk control

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32
Q

4 advantages of risk transfer

A

reducing exposure to large losses
reducing cash flow variability
providing ancillary services
avoiding adverse employee and public relations

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33
Q

using frequency and severity, which losses should be retained?

A

low frequency low severity
high frequency low severity

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34
Q

using frequency and severity, which losses should be transferred

A

high severity low frequency

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35
Q

6 characteristics that can affect the selection of appropriate risk financing measures

A

risk tolerance
financial condition
core operations
ability to diversify
ability to control losses
ability to administer the retention plan

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36
Q

an organization is often better able to retain the loss exposures directly related to its core operations because

A

it has an information advantage regarding those operations

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37
Q

goal not met by self insurance program

A

managing cash flow variability

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38
Q

what type of plan is often used for especially hazardous loss exposures for which insurance capacity is limited or unavailable

A

finite risk plan

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39
Q

goal not met by finite risk plan

A

maintaining appropriate level of liquidity because premium payments are usually paid upfront

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40
Q

4 things included in capital market solutions

A

securitization
insurance securitization
hedging
contingent capital arrangements

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41
Q

the most common insurance securitizations

A

catastrophe bonds

42
Q

the asset held in hedging to offset the risk if often

A

a contract, such as an option or futures contract

43
Q

goal that capital market solutions fails

A

managing the cost of risk because they are expense relative to other risk financing measures

44
Q

5 steps in integrating ERM and strategic planning

A
  1. develop ERM goals/ establish internal and external contexts
  2. identify risks
  3. analyze, evaluate, and prioritize critical risks
  4. treat critical risks, considering priority
  5. monitor critical risks
45
Q

ERM most effectively improves management consensus if

A

it has been integrated throughout the organization

46
Q

who leads ERM

A

upper management and motivate all employees to embrace it

47
Q

ISO 31 includes

A

guidelines and principles for implementing risk managment

48
Q

ISO 31 is supported by

A

a glossary and documents that describe implementation methods

49
Q

ISO 31 provides an

A

international standard for risk management as well as a generic approach to risk management

50
Q

3 parts of ISO 31

A

principles, a framework, and processes for managing risks

51
Q

BS 31 establishes

A

principles and terminology for risk management

52
Q

BS 31 provides

A

recommendations for the model framework, process, and implementation of risk management

53
Q

BS 31 is intended to be

A

a scalable standard that can be used by individuals responsible for risk management activity in organizations of all sectors and sizes

54
Q

4 primary goals of BS 31

A

ensuring that an organization achieves its goals
ensuring that risks are managed in specific areas or activities
overseeing risk management in an organization
providing “reasonable assurance” on an organization’s risk management

55
Q

COSO defines ERM as

A

a process driven from an organization’s board of directors that establishes an organization-wide strategy to manage risk within its risk appetite

55
Q

COSO provides

A

an effective mechanism for initiating a dialogue with the org’s board about establishing ERM goals as a part of the strategic management process

56
Q

COSO’s intended audience

A

an org large enough to require examination of risk appetite and board direction of ERM strategies

57
Q

AZ/NZS is designed for

A

directors, elected officials, CEOs, senior executives, line managers, and staff across a wide range of orgs

58
Q

AS/NZS is intended to provide

A

only a broad overview of risk management

59
Q

FERMA stands for

A

federation of european risk management associations

60
Q

FERMA consists of

A

the national risk management associations, individual risk managers from central european countries, and representatives from health organizations, educational sectors, and public sectors

61
Q

FERMA’s standard has these four elements

A

establishment of consistent terminology
process by which risk management can be executed
organized risk management structure
risk management goals

62
Q

FERMA is intended for

A

public and private organizations

63
Q

ferma recognizes that

A

risk has both an upside and a downside

64
Q

Basel ii established an

A

international standard that banking regulators can use when creating regulations regarding the amount of capital banks need to keep in reserve

65
Q

Basel II is intended to

A

protect the international financial system from problems that might arise if a major bank or a series of banks were to collapse

66
Q

Solvency II consists of

A

regulatory requirements for insurance firms that operate in the EU

67
Q

pooling changes

A

the probability distribution of losses facing each person in the pool because the sources of loss exposures and resources to pay for losses have been combined

68
Q

while pooling is a risk sharing mechanism, insurance is a

A

risk transfer mechanism

69
Q

2 sources of additional financial resources for an insurer

A

initial capital from investors
retained earnings

70
Q

who benefits from insurance providing a source of investment funds

A

both insureds and insurers

71
Q

6 characteristics of insurable loss exposures

A

pure risk
fortuitous
definite and measurable
large number of similar exposure units
independent and not catastrophic
economically feasible premium

72
Q

indemnification

A

the process of restoring an individual or organization to a pre-loss financial condition

73
Q

these exposures meet all 6 requirements

A

personal auto and premises liability

74
Q

in addition to market failures, 4 reasons that governments get involved in the insurance market

A
  1. to fill insurance needs unmet by private insurers
  2. to help people to buy a mandatory type of insurance
  3. to obtain greater efficiency and/or provide convenience to insurance buyers
  4. to achieve collateral social purposes
75
Q

3 levels at which the government can participate in insurance

A

exclusive insurer
partner with private insurers
competitor to private insurers

76
Q

when should the federal government run the insurance program instead of state

A

if the rationale for government involvement extends beyond state boundaries or would affect interstate commerce

77
Q

3 examples of property-liability federal insurance progreams

A

national flood insurance program
terrorism risk insurance program
federal crop insurance program

78
Q

3 examples of property-liability insurance offered by state governments

A

workers compensation insurance
beach and windstorm plans
residual auto plans

79
Q

5 major goals of an insurer

A
  1. earn a profit
  2. meet customer needs
  3. comply with legal requirements
  4. diversify risk
  5. fulfill duty to society
80
Q

at a minimum, the obligation for an insurer to fulfill its duty to society demands

A

that the insurer avoid causing public harm

81
Q

4 internal constraints for insurers to meet their goals

A

efficiency
expertise
size
financial resources

82
Q

5 external constraints for insurers to meet their goals

A

regulation
rating agencies
public opinion
competition
economic conditions

83
Q

4 ways that property-casualty insurers can be classified

A

legal form of ownership
place of incorporation
licensing status
insurance distribution systems and channels

84
Q

3 types of proprietary insuresr

A

stock insurers
lloyd’s of london and american lloyd’s
insurance exchanges

85
Q

6 types of cooperative insurers

A

mutual insurers
reciprocal insurance exchanges
fraternal organizations
captives
RRGs
purchasing groups

86
Q

a reciprocal consists of

A

a series of private contracts in which subscribers agree to insure each other

87
Q

fraternal orgs primarily write

A

life and health insurance

88
Q

the only unincorporated insurers permitted in most states

A

reciprocals

89
Q

6 ways to measure meeting customer needs

A

complaints and praise
customer satisfaction data
insurer’s retention ratio and lapse ratio
insurer-producer relationships
state insurance department statisitcs
consumer reports

90
Q

3 core functions of an insurer

A

marketing and distribution
underwriting
claims

91
Q

5 supporting functions of an insurer

A

risk control
premium auditing
actuarial
reinsurance
information technology

92
Q

blockchain is a

A

virtual distributed ledger that maintains a dynamically updated list of data records/blocks

93
Q

2 techniques that can identify and prevent fraud

A

network analysis and clustering

94
Q

a hard market is characterized by

A

periods of decreased competition, with rising prices and increased insurer’s profitability

95
Q

a soft market occurs as

A

competition increases and insurers lower premiums to compete, which eventually leads to diminished profitability and the need to increase pricing

96
Q

each marketing segment should be

A

accessible, substantial, and responsive

97
Q

6 steps in product development

A
  1. opportunity assessment
  2. development of contract, underwriting, and pricing
  3. business forecast
  4. regulatory requirements
  5. distribution requirements
  6. introduction
98
Q

MGAs serve as

A

intermediaries between insurers and the agents and brokers who sell insurance directly to the customer

99
Q

an insurer operating through an MGA gets these advantages

A

low fixed cost, specialty expertise, and the assumption of insurer activities

CAS Online Course 1 (2 decks)

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