Chapter 3

Question 1

explain how proactive and reactive avoidance differ in reducing loss frequency of a loss exposure

Answer 1

proactive avoidance seeks to avoid a loss exposure before it exists, such as by choosing not to engage in an activity

reactive avoidance seeks to eliminate a loss exposure that already exists, such as by discontinuing an existing activity.

both avoidance methods avoid loss exposures from future activities.

reactive avoidance does not eliminate loss exposures from past activities

Question 2

describe the purpose of the following loss reduction measures in controlling losses

preloss measures

post loss measures

Answer 2

pre loss- applied before a loss occurs. they reduce the amount or extent of property damage and the number of people injured or the extent of injury incurred from a single event

post loss- applied after a loss occurs. they focus on emergency procedures, salvage, operations, rehabilitation activities, public relations, or legal defenses to halt incurred from a single event

Question 3

describe the purpose of a disaster recovery plan

Answer 3

ensure that critical resources are available to facilitate an organization’s continuity of operations in an emergency. the plan typically includes backup procedures, emergency response, and post disaster recovery

Question 4

identify circumstances in which each of the following techniques would be an effective choice for loss reduction

separation

duplication

diversification

Answer 4

separation- appropriate if the organization can operate with only a portion of the separated assets or locations left intact

duplication- appropriate if an entire asset or activity is so important that the consequence of its loss justifies the expense and time of maintaining a duplicate

diversification- more commonly used to business risks than hazard risks. organizations engage in diversification by providing a variety of products and services that are used by a range of customers

Question 5

describe the advantages of using cash flows analysis for the selection of risk control measures

Answer 5

helps achieve the organization’s value maximizing goal by providing a basis of comparison for all value maximizing decisions

increases efficiency by reducing unnecessary expenditures on risk control

Question 6

describe the disadvantage of using cash flow analysis for the selection of risk control measures w

Answer 6

weakness of assumptions that often must be made to conduct the analysis

difficulty of accurately estimating future cash flows

lack of consideration of non financial goals or selection criteria

Question 7

list the types of state or federal federal statues an organization may need to consider when selection risk control measures in order to comply with legal requirements

Answer 7

consider state and federal statues regarding fire safety codes, environmental regulation, workers comp laws, and disability laws

Question 8

dentify possible consequences an organization can face for failure to comply with legal requirements

Answer 8

face fines, sanctions, or liability for failure to comply with legal requirements

Question 9

dentify the issues regarding fire, health, and safety, a risk management professional should consider when assessing an organization’s life safety loss exposures

Answer 9

consider the characteristics of the people who occupy the building and the types of building occupancies

Question 10

identify causes of loss an organization should consider when promoting life safety

Answer 10

consider the causes loss such as fire safety, product safety, building collapse, industrial accidents, environmental pollution, and exposure to hazardous activities that may create the possibility of injury or death

Question 11

identify the factors insurance producers and UW commonly consider when examining loss exposures in commercial properties

Answer 11

COPE

Question 12

which risk control techniques are commonly used to control liability loss exposures

Answer 12

avoidance of the activity (not always practical or possible)

loss prevention

loss reduction (consulting with attorney for guidance responding to liability claims and to the claimant in a manner that avoids feelings of ill wil that may increase the claimant’s demands or participating in alternative dispute resolution to resolve liability claims more quickly.

Question 13

describe loss prevention and loss reduction measures an organization might use to control work related injury and illness

Answer 13

loss prevention by using education
training
safety measures

Question 14

explain the purpose of business continuity management

Answer 14

identify potential threats to an organization and to provide the methodology for ensuring the organization’s continued business operations.

business continuity management is designed to met the organizational post loss goals of survival and continuity of operations

Question 15

identify potential situations that business continuity management might address to help achieve an organization’s goal of survival and continuity of operations after a loss

Answer 15

interruptions from property losses
IT problems
human failures ( fraud)
loss of utility services or infrastructure 
reputation losses
human asset (personnel) losses

Question 16

list the 6 steps in the business continuity process

Answer 16

These six steps are designed to assess and control risks that are significant enough to affect an organization’s survival. The process provides a framework to develop a systematic response to risks that could potentially threaten an organization’s survival.

1. identify the organization’s critical funcitons
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

Question 17

identify guidelines for design of an effective business continuity plan

Answer 17

design clear plan that can be quickly read and understood
provide copies of the plan to all relevant parties
provide appropriate training, including periodic rehearsals of crisis procedures

Question 18

list the content commonly contained in business continuity plans

Answer 18

1. strategy the organization will follow to manage the crisis
2. information about the roles and duties of various individuals in the organization
3. steps that can be take to prevent any further loss or damage
4. emergency response plan to deal with life and safety issues
5. crisis management plan to deal with communication and reputation issues
6. business recovery and restoring plan to deal with losses to property, processes, or products
7. access to stress management and counseling for affecting parties

Question 19

Risk control

Answer 19

A conscious act or decision not to act that reduces the frequency and/or severity of losses or makes losses more predictable.

Question 20

Avoidance

Answer 20

A risk control technique that involves ceasing or never undertaking an activity so that the possibility of a future loss occurring from that activity is eliminated.
Ex. A pharmaceutical company decides not to produce a drug that has potentially uncacceptable side effects.

Question 21

Loss Prevention

Answer 21

A risk control technique that reduces the frequency of a particular loss.It is implemented before a loss to break sequence of events that leads to loss. It may reduce the frequency of one loss but increase the frequency of another. Ex. A company places safety starter switches on manufacturing equipment that requires two hands to operate in order to prevent injury to fingers or hands.

Question 22

Loss Reduction

Answer 22

A risk control technique that reduces the severity of a particular loss.May also prevent losses. Ex. A company installs fire extinguishers throughout its assembly plant.

Question 23

Disaster Recovery Plan

Answer 23

A plan for backup procedures, emergency response, and post-disaster recovery to ensure that critical resources are available to facilitate the continuity of operations in an emergency situation.

Question 24

Separation

Answer 24

A risk control technique that isolates loss exposures from one another to minimize the adverse effect of a single loss. Appropriate if an organization can operate with only a portion of resources intact. I usually the byproduct of another management decision. It reduces severity but can increase loss frequency.

Question 25

Duplication

Answer 25

A risk control technique that uses backups, spares, or copies of critical property, information, or capabilities and keeps them in reserve. This is important if an asset or activity is so important that consequences of loss justify the expense and time of duplication. Reduces severity and not as likely to increase frequency as separation as the backup is not in use.

Question 26

Diversification

Answer 26

A risk control technique that spreads loss exposures over numerous projects, products, markets, or regions. Used to manage business risks rather than hazard risks.

Question 27

Life Safety

Answer 27

The portion of fire safety that focuses on the minimum building design, construction, operation, and maintenance requirements necessary to assure occupants of a safe exit from the burning portion of the building.

Question 28

Risk Control Techniques

Answer 28

Used to reduce the frequency and severity of losses as much as possible with the resources available.

Question 29

Business Continuity Management

Answer 29

A process that identifies potential threats to an organization and provides a methodology for ensuring an organization's continued business operations.

Question 30

Proactive Avoidance

Answer 30

A risk control technique that seeks to avoid a loss exposure before it exists, such as by choosing not to engage in an activity.

Question 31

Reactive Avoidance

Answer 31

A risk control technique that seeks to eliminate a loss exposure that already exists, such as by discontinuing an existing activities.

Question 32

Effective Risk Control Measure

Answer 32

A risk control measure that enables an organization to achieve desired risk management goals.

Question 33

Efficient Risk Control Measure

Answer 33

A risk control measure that is the least expensive of all possible effective measures.

Question 34

Business Continuity Plan

Answer 34

A plan that details the activities an organization will undertake in response to an incident that interrupts its operations.

Question 35

Describe the COPE method.

Answer 35

Method used by insurance professionals to examine commercial property loss exposures based on construction, occupancy, protection, and environment.

Question 36

Which loss prevention techniques are commonly used with personal loss exposures?

Answer 36

Prevention, Reduction, and Separation. Ex. controlling key employees' activities. Ex. quarterback cannot skydive.

Question 37

Which loss prevention techniques are commonly used with net income loss exposures?

Answer 37

Can be associated with property, liability, or personnel loss exposures. Therefore, any of the risk control measures that control these three categories of loss exposures also indirectly net income loss exposures. Two risk control measures that are directly aimed at reducing the severity of net income losses are separation and duplication

Question 38

How can an organization control personnel loss exposures?

Answer 38

These are unavoidable since all organizations have key employees. 1) Loss prevention measures to control work-related injury and illnesses typically involve education training and safety measures. 2) Loss reduction methods include emergency response training and rehabilitation management. Additional safety training and safety precautions are often cost-effective.

Question 39

How can an organization control net income loss exposures?

Answer 39

Net income loss exposures can be associated with property liability or personnel loss exposures; therefor controlling risk relating to such loss exposures indirectly controls net income loss exposures. Net income loss risk control efforts must also focus on long-term effects such as loss of market share: 1) Separation and duplication risk control measures enable an organization to reduce net income losses by maintaining operations or quickly resuming operations following a loss. 2) Diversification is also a viable risk control technique for many because it helps to ensure that an organization's entire income is not dependent on one product or customer.

Question 40

What is Heinrich's Domino theory?

Answer 40

In 1931 HW Heinrich published the first thorough analysis of work injuries caused by accidents. He determined that work injuries were actually a result of a series of unsafe acts and/or mechanical or physical hazards (dominoes) that occurred in a specific order. Furthermore he concluded that if any one of these dominoes could be removed from the chain the work injury could be prevented. Heinrich's theory included the following 5 dominoes: 1) social environment and ancestry 2) the fault of persons 3) personal or mechanical hazards 4) The accident and 5) the injury. For example if risk control measures could minimize mechanical hazards the domino chain would be broken and fewer injuries would occur. Many of the principles that Heinrick outlined in his publication became the basis of modern risk control measures.