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ARM 400 > Section I: Risk Concepts > Flashcards

Section I: Risk Concepts Flashcards

1
Q

What is a Risk from an insurance perspective?

A

Risk is the possibility of a loss or injury, and the uncertainty of outcomes.

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2
Q

What are the two commonly applied technologies in the Risk Management & Insurance Industries?

A

Risktech & Insurtech

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3
Q

Define Risk Management.

A

The process of avoiding and reducing the negative possibility of a risk.

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4
Q

What are the two types of Risk Management?

A
  • Enterprise-Wide Risk Management (ERM)
  • Traditional Risk Management
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5
Q

Explain Enterprise-Wide Risk Management.

A
  • All levels within an organization are responsible for risk management.
  • Often referred to as the “holistic” approach.
  • This is typically used to manage regulations in the US and EUR, especially after the 2008 financial crisis.
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6
Q

Explain Traditional Risk Management.

A
  • Focuses on managing pure risk loss exposures.
  • Primary focus is Hazard Risk.
  • Uses Root Cause Analysis (RCA) to determine underlying cause of a loss.
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7
Q

What are the 6 Benefits of ERM?

A
  • Growth & Profit
  • Legal Obligations
  • Reduced Cost of Risk
  • Reduced Effects of Risk
  • Risk Tolerance
  • Social Responsibility
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8
Q

What are the three ways ERM aligns with the company goal of Growth & Profit?

A
  • Cross Enterprise Risk (identify risks that impact more than one area)
  • Capital (face lower costs of risk)
  • Strategic Risk (smarter decisions)
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9
Q

What are the three primary legal obligations?

A
  • Contracts
  • Federal, State and Local Laws
  • Standard of Care
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10
Q

What expenses make up the total cost to manage risk?

A
  • Risk control & the cost to implement these techniques
  • Risk financing costs such as insurance premiums
  • The cost of an incurred loss not covered by insurance
  • The cost of various risk management activities
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11
Q

What are the benefits of reducing risk?

A
  • Increased Profit
  • Less Fear
  • Safer Investment
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12
Q

What is Tolerable Uncertainty?

A

The amount of risk the organization is willing to accept, AKA “risk appetite”

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13
Q

What are the 5 components of Tolerable Uncertainty?

A
  • Continued Operations
  • Downside Risk Management
  • Emerging Risk Management
  • Measure Risk
  • Stable Earnings
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14
Q

Explain Continued Operations.

A

Continuing to operate after a loss without interrupting the organization and without derailing business activities for an extended amount of time.

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15
Q

What is Downside Risk Management?

A

The risk of loss, failure, or decline in a business.

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16
Q

What is a commonly used method to measure risk?

A

Value at Risk (VaR) which measures the potential losses from unlikely events that could affect an investment portfolio.

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17
Q

What is the goal of Social Responsibility?

A

Organizations should strive to benefit society to improve their reputation within the community.

18
Q

Describe Big Data.

A

Extremely large datasets that are too large to be analyzed by traditional and manual methods.

19
Q

What are the three primary areas that Big Data improves?

A
  • Analyzing Data
  • Capturing Data
  • Storing Data
20
Q

What are the four primary ways a business can advance using Big Data?

A
  • Innovative Products
  • New Data Sources
  • New Discoveries
  • Organization
21
Q

Explain Parametric Insurance.

A

A new type of insurance that pays a set amount of coverage to the insured if a condition is met.

22
Q

How can Big Data help with organization?

A

By automatically organizing large volumes of data to improve the business efficiency and help make data-driven decisions easier.

23
Q

What are the four advances in technology used to capture and retrieve data?

A
  • Internet of Things (machine to machine/machine learning)
  • Smart products (collect, process and transmit data)
  • Telematics (wireless GPS tracking)
  • Text Mining (text recognition/analyze handwritten notes)
24
Q

What are the two methods of storing and protecting Big Data?

A
  • Blockchain
  • Cloud Storage
25
Q

What is Blockchain?

A
  • Digital Record/Ledger
  • Facilitates transactions without bank or third party
  • Cannot be edited after encryption
  • Mining is the process of validation each block
26
Q

What is Cloud Storage?

A

The process of storing data remotely, using the internet, without a single direct server connection.

27
Q

What are the 5 steps of the Risk Management Process?

A
  1. Scan
  2. Identify
  3. Analyze
  4. Treat
  5. Monitor
28
Q

What step of the Risk Management Process involves inspections, compliance reviews and documentation analysis?

A

Step 2 - Identify the Risks

29
Q

What are the 5 actions that can be taken to mitigate risk?

A
  • Avoid (never take action)
  • Exploit (take advantage of risk)
  • Modify (reduce frequency or severity of impact)
  • Retention (saving/setting aside funds)
  • Transfer (purchase of insurance)
30
Q

What are the 6 Measures of Risk?

A
  • Consequence (end result of event)
  • Correlation (mutual relationship or connection)
  • Exposure (anything that may result in loss or gain)
  • Likelihood (approximation/predictability)
  • Time Horizon (length risk will be present)
  • Volatility (unknown/unpredictability of situation)
31
Q

What are the four Risk Classifications?

A
  • Diversifiable and Non-Diversifiable
  • Pure and Speculative Risks
  • Quadrants of Risk
  • Subjective and Objective Risks
32
Q

What is the difference between Diversifiable and Non-Diversifiable risk?

A

Diversifiable risk only affects some individuals or organizations (losing business to competitors), whereas Non-Diversifiable risk affects the entire market (like unemployment rates impacting entire industries).

33
Q

What is Pure Risk?

A

Either the possibility of a loss or no loss with no possibility of gain.

34
Q

What is Speculative Risk?

A

The possibility of a loss, no loss, or a gain (stock price, 401k, etc).

35
Q

What are the two types of Speculative Risk?

A
  • Credit Risk (customers may/may not pay)
  • Price Risk (cost of goods fluctuate)
36
Q

What are the four Quadrants of Risk?

A
  • Financial
  • Hazard
  • Operational
  • Strategic
37
Q

What are the four types of Financial Risk?

A
  • Credit
  • Liquidity
  • Market
  • Price
38
Q

What is the difference between Subjective and Objective Risk?

A
  • Awareness
  • Control
  • Perception

Subjective is a person’s perception of risk, whereas Objective is based on facts and data.

39
Q

What are the 5 steps for Effective Communication?

A
  • Body Language
  • Communicate Objective & Goal
  • Feedback
  • Time & Place
  • Understand the Audience
40
Q

What are the three ways to avoid escalating tension in a difficult conversation?

A
  • Avoid blaming the person
  • Don’t generalize or exaggerate
  • Keep a neutral tone of voice
41
Q

What are the three steps to being an Active Listener?

A
  • Attention
  • Response
  • Suspension of Judgement

ARM 400 (9 decks)

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