Risk Management Final Exam
Course Introduction
Risk Management explores the fundamental concepts, processes, and tools necessary to identify, assess, and mitigate risks in organizational contexts. This course covers the principles and frameworks of risk management, including both qualitative and quantitative techniques for analyzing threats and opportunities. Students will learn how to develop risk management plans, implement strategies for risk control, and monitor risk environments within a variety of industries. Emphasis is placed on real-world case studies, legal and ethical considerations, and the integration of risk management into strategic decision-making processes.
Recommended Textbook
Introduction to Risk Management and Insurance 10th Edition by Mark S. Dorfman
Available Study Resources on Quizplus
23 Chapters
1358 Verified Questions
1358 Flashcards
Source URL: https://quizplus.com/study-set/1354
Page 2
Chapter 1: Introduction to Enterprise Risk Management and Insurance
Available Study Resources on Quizplus for this Chatper
71 Verified Questions
71 Flashcards
Source URL: https://quizplus.com/quiz/27041
Sample Questions
Q1) Why is Enterprise Risk Management so important for firms?
Answer: There has been a clear breakdown in corporate governance and ERM provides a solution by examining all risks in the firm collectively and by elevating the analyses to the highest level in the corporation. This way the people in the corporate boardroom can no longer escape responsibility.
Q2) Describe the Risk Management Process.
Answer: The Risk Management Process is a systematic approach by which an organization can identify and manage its exposure to risk in ways that best fit its strategic goals. Most follow a set of five steps, namely: 1) Establish the Goals of the Risk Management Function, 2) Identify Potential Loss Exposures, 3) Measure Potential Loss Exposures, 4) Choose Risk Handling Techniques, and 5) Implement Techniques and Monitor Effectiveness.
Q3) "Loss" and "chance of loss" are terms with the same meaning.
A)True B)False
Answer: False
To view all questions and flashcards with answers, click on the resource link above.
3
Chapter 2: Risk Identification
Available Study Resources on Quizplus for this Chatper
61 Verified Questions
61 Flashcards
Source URL: https://quizplus.com/quiz/27042
Sample Questions
Q1) Which of the following statements about financial risks is not true?
A) Many financial risks are attributable to fluctuations in value.
B) Financial risks arise from events that prevent a firm from conducting its normal scope of operations.
C) An example of a financial risk is one associated with unfavorable credit rating.
D) Price risks associated with input costs are a form of financial risk.
Answer: B
Q2) Which of the following is true about the relationship between direct and indirect losses?
A) The impact of indirect losses can be much bigger than the original direct loss.
B) They are unrelated events.
C) Direct losses are the result of an indirect loss due to business interruption.
D) Indirect losses are irrelevant compared to direct losses.
Answer: A
To view all questions and flashcards with answers, click on the resource link above.
4
Chapter 3: Risk Assessment and Pooling
Available Study Resources on Quizplus for this Chatper
66 Verified Questions
66 Flashcards
Source URL: https://quizplus.com/quiz/27043
Sample Questions
Q1) The Risk Charge represents the error arising from estimating a known variable.
A)True
B)False
Answer: False
Q2) Risk Assessment:
A) is the first step in the Risk Management Process
B) is the process of identifying the broad range of risk exposures
C) is the process of estimating the financial impact of each risk
D) deals with risk identification
Answer: C
Q3) If the Average Loss Severity is $925 and the Average Loss Frequency is 0.17, what is the Average Loss?
A) $183.78
B) $157.25
C) $5,441.18
D) There is not enough information to calculate the Average Loss.
Answer: B
To view all questions and flashcards with answers, click on the resource link above.
Page 5
Chapter 4: Risk-Handling Techniques: Loss Control, Risk Transfer,
and Loss Financing
Available Study Resources on Quizplus for this Chatper
61 Verified Questions
61 Flashcards
Source URL: https://quizplus.com/quiz/27044
Sample Questions
Q1) How do deductibles affect moral hazard?
Q2) Taking a defensive driving course is an example of which one of the following:
A) moral hazard
B) risk transfer
C) loss avoidance
D) loss prevention
Q3) All of the following are ways of transferring risk mentioned in the text, <u>except</u>:
A) competitive bidding
B) exculpatory clauses
C) hold-harmless agreements
D) creating an LLP or LLC
Q4) Many captive insurance companies are located in states where insurance regulation is very strict.
A)True
B)False
Q5) Discuss the concept of funded risk assumption.
Q6) Explain the concept of self-insurance. Why is all self-insurance assumption, but not all assumption self-insurance?
6
Q7) Explain the difference between loss prevention versus loss reduction.
To view all questions and flashcards with answers, click on the resource link above.
Chapter 5: Risk-Handling Techniques: Diversification and Hedging
Available Study Resources on Quizplus for this Chatper
56 Verified Questions
56 Flashcards
Source URL: https://quizplus.com/quiz/27045
Sample Questions
Q1) Output price risk is:
A) when a change in the commodity market unfavorably affects the price at which a firm can buy their raw materials
B) when a change in the commodity market unfavorably affects the price at which a firm can sell their products
C) taking two positions whose gains and losses will offset each other
D) when a company sells its products abroad and there is an unfavorable exchange rate movement
Q2) Explain the importance of the correlation coefficient for diversification.
Q3) Hedging is:
A) selling two investments that are both expected to lose
B) buying two investments that are both expected to make a profit
C) taking two positions whose gains and losses will offset each other
D) buying insurance against a fortuitous loss
Q4) Which of the following statements about bearing risk collectively is correct?
A) Bearing risk collectively is not very cost-efficient.
B) Bearing risk collectively only works for small groups.
C) Bearing risk collectively is bearing risk as part of a large group.
D) All of the above are correct.
Q5) Explain when and why a call option has value.
To view all questions and flashcards with answers, click on the resource link above. Page 7
Chapter 6: Fundamentals of Insurance
Available Study Resources on Quizplus for this Chatper
58 Verified Questions
58 Flashcards
Source URL: https://quizplus.com/quiz/27046
Sample Questions
Q1) Rusty is the president of The Huge Insurance Company. His Vice-President in charge of Finance comes to him one day and says "Rusty, our combined ratio for the year is 95%." Rusty replies, "Wooo hooo, profit sharing bonuses for everyone!" Why isn't Rusty upset about this combined ratio?
A) The company probably made enough money on its investments to make up for the underwriting losses.
B) The company has actually made a profit on its insurance business.
C) Rusty is not very bright and doesn't understand what the combined ratio really means.
D) The combined ratio is not an important indicator of underwriting results.
Q2) Which of the following statements is correct about the loading expenses for insurance companies?
A) The loading expenses are measured using the expense ratio.
B) The loading expenses are governed by law.
C) The loading expenses reduce the insurance premiums charged by insurance companies.
D) The loading expenses compensate the insurance companies for the risk that they take.
Q3) Discuss the building blocks of an insurance premium.
To view all questions and flashcards with answers, click on the resource link above.
Page 8
Chapter 7: Insurable Perils and Insuring Organizations
Available Study Resources on Quizplus for this Chatper
63 Verified Questions
63 Flashcards
Source URL: https://quizplus.com/quiz/27047
Sample Questions
Q1) A reciprocal exchange is:
A) a nonprofit corporation
B) unincorporated
C) a mutual insurance company
D) a federal insurance company
Q2) Mutual insurance companies legally are nonprofit organizations.
A)True
B)False
Q3) In an insurer death spiral only people who do not really need insurance purchase it.
A)True
B)False
Q4) A stock insurer is managed by:
A) an attorney-in-fact
B) an agency supervisor
C) a fraternal representative
D) representatives chosen by shareholders
Q5) What are the basic differences between a stock and a mutual insurance company?
Q6) How do a reciprocal exchange and a mutual insurance company differ?
Q7) What is demutualization? What are some reasons companies want to demutualize?
To view all questions and flashcards with answers, click on the resource link above. Page 9
Chapter 8: Insurance Functions
Available Study Resources on Quizplus for this Chatper
73 Verified Questions
73 Flashcards
Source URL: https://quizplus.com/quiz/27048
Sample Questions
Q1) What is the relationship between the underwriter and the actuary? How do they interact?
Q2) Explain what a direct writer company is. Explain what the independent agency system is.
Q3) Pro-rata reinsurance means:
A) losses, premiums, and expenses are divided proportionately between the primary insurer and reinsurer
B) reinsurance is automatic
C) coverage is available at market rates
D) reinsurance is layered horizontally after the primary's retention
Q4) Reinsurance transactions do not occur in life insurance.
A)True
B)False
Q5) Which of the following is not a type of reinsurance arrangement?
A) Facultative reinsurance
B) Treaty reinsurance
C) Pro-rata reinsurance
D) Cooperative reinsurance
Q6) What is the difference between pro-rata reinsurance and excess of loss reinsurance?
To view all questions and flashcards with answers, click on the resource link above. Page 10
Chapter 9: Insurance Markets: Economics and Issues
Available Study Resources on Quizplus for this Chatper
61 Verified Questions
61 Flashcards
Source URL: https://quizplus.com/quiz/27049
Sample Questions
Q1) Why do regulators care whether high-risk drivers have insurance?
A) Regulators are silly and have nothing better to do.
B) Otherwise insurance companies would lose too much money.
C) Excluding high-risk drivers is a violation of the Constitution.
D) The societal costs associated with the accidents caused by high-risk drivers is at least somewhat reduced by having them pay an insurance premium, even if it is too low for the associate risk.
Q2) Consumers that have done some research to gather insurance information:
A) make the insurance market less efficient
B) probably will get better subsequent information from insurance companies
C) probably will just get "razzle-dazzle" from insurance companies
D) probably wasted their time
Q3) Which of the following is not a source of consumer protection in the insurance industry?
A) Insurance commissioners
B) Laws
C) Politicians
D) Courts
Q4) What is the purpose of an automobile insurance plan? How does an auto plan generally work?
To view all questions and flashcards with answers, click on the resource link above. Page 11
Chapter 10: Insurance Regulation
Available Study Resources on Quizplus for this Chatper
62 Verified Questions
62 Flashcards
Source URL: https://quizplus.com/quiz/27050
Sample Questions
Q1) Which one of the following is an argument for federal regulation of the insurance transaction?
A) If there were federal regulation, state regulation would still be required for intrastate transactions.
B) State regulation allows experimentation and isolation of bad laws.
C) Many states do not have enough trained people to regulate insurance efficiently.
D) All of the above
Q2) Explain briefly the purpose of the McCarran Act.
Q3) What is the overall regulatory objective for a state's rate regulations?
Q4) Which one of the following is not a reason for the regulation of insurance?
A) To prevent insurer insolvencies
B) To promote social goals
C) The unequal knowledge and bargaining power of the parties to the contract
D) To stabilize the economy
Q5) Unrestrained price competition does not work in the insurance market because prices have to be determined long before final costs are known.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above. Page 12
Chapter 11: Insurance Contracts
Available Study Resources on Quizplus for this Chatper
85 Verified Questions
85 Flashcards
Source URL: https://quizplus.com/quiz/27051
Sample Questions
Q1) If there were a $200,000 loss and a $500 straight deductible, the insured would pay:
A) $500
B) $199,500
C) $200,000
D) $200,500
Q2) Deductibles serve three major purposes, and two of those are:
A) reduce moral hazards; save on claims handling expenses
B) reveal moral hazards; eliminate morale hazards
C) reduce morale hazards; save on claims handling expenses
D) reveal morale hazards, eliminate moral hazards
Q3) Which of the following is <u>not</u> a reason for using deductibles in property insurance?
A) They reduce the morale hazard
B) They eliminate payment for frequent small losses
C) They allow consumers to customize contracts based on financial considerations
D) To split large losses in excess of the policy limits equitably between the insured and the insurer
Q4) Explain the purpose of the declaration page found in insurance contracts.
Q5) What are some of the reasons exclusions are found in insurance contracts?
To view all questions and flashcards with answers, click on the resource link above. Page 13
Chapter 12: The Personal Auto Policy
Available Study Resources on Quizplus for this Chatper
65 Verified Questions
65 Flashcards
Source URL: https://quizplus.com/quiz/27052
Sample Questions
Q1) Mindy is a member of the Zeta Omega Sorority. While driving to a local food bank to deliver donations from the sorority members, she causes an accident. She collides with a large carrot truck. The truck driver subsequently sues Mindy and her sorority for her negligent driving. Which of the following is a true statement?
A) Mindy's PAP Liability coverage will cover her, but not the sorority.
B) Mindy's PAP Liability coverage will cover the driver of the carrot truck, but not her.
C) Mindy's PAP Liability coverage will cover both Mindy and the sorority.
D) None of the above
Q2) To have your bodily injuries covered under your Uninsured Motorist Coverage, you must have been at fault in the auto accident that caused your bodily injuries.
A)True
B)False
Q3) Claims paid under the PAP's "Collision Coverage" are usually considered to be the insured's fault.
A)True
B)False
Q4) Explain the purpose of Uninsured Motorist coverage.
To view all questions and flashcards with answers, click on the resource link above.
Page 14
Chapter 13: Homeowners Insurance
Available Study Resources on Quizplus for this Chatper
55 Verified Questions
55 Flashcards
Source URL: https://quizplus.com/quiz/27053
Sample Questions
Q1) Which of the following are <u>not</u> a part of the conditions at the end of the HO-3 policy typically cover?
A) Additional coverages
B) Activities that the insured must perform to assist the insurer
C) Set limits on the insurer's total liability
D) Issues surrounding cancellation and nonrenewal of the policy
Q2) Grave markers are usually covered by HO policies.
A)True
B)False
Q3) The replacement cost of a home covered under the HO-3 policy is $100,000. Assume the home is insured for $50,000 and a $10,000 loss occurs (replacement cost). Also assume depreciation is set at 10 percent. Assume that there is no deductible. How much will the insured recover if repaired?
A) $9,000
B) $10,000
C) $8,000
D) $6,250
Q4) Explain the concept of concurrent causation as it applies to collapse.
Q5) What is meant by "Medical Payments to others"? Why does the coverage exist?
To view all questions and flashcards with answers, click on the resource link above. Page 15
Chapter 14: Professional Financial Planning
Available Study Resources on Quizplus for this Chatper
55 Verified Questions
55 Flashcards
Source URL: https://quizplus.com/quiz/27054
Sample Questions
Q1) Explain what a will is. What happens when a person dies without a valid will?
Q2) Which of the following is <u>not</u> a feature of a 529 Plan?
A) Withdrawals for nonqualified expenses are prohibited.
B) The contributor owns the account.
C) The account owner can change the beneficiary.
D) The account owner determines the investment strategy.
Q3) When a person dies, the gross estate is:
A) taxed at the rate of 50%
B) adjusted for certain gifts made during the decedent's lifetime
C) subject to the federal estate and gift tax
D) not taxed if death bed gifts are made to eligible children
Q4) With respect to a trust fund, what is the role of the trustee?
A) Provide the initial funding for the trust
B) Receive the benefits of the trust
C) Provide management of the trust's property
D) Determine the beneficiary of the trust
Q5) The trustee of a trust fund is responsible for determining the beneficiary of the fund's assets.
A)True
B)False
Page 16
To view all questions and flashcards with answers, click on the resource link above.
Chapter 15: Life Insurance Policies
Available Study Resources on Quizplus for this Chatper
56 Verified Questions
56 Flashcards
Source URL: https://quizplus.com/quiz/27055
Sample Questions
Q1) Explain why there is a savings element to a whole life insurance contract.
Q2) What are the advantages of saving with cash value whole life insurance?
Q3) There is more Individual Life Insurance Coverage in the United States compared to Group Life Insurance Coverage.
A)True
B)False
Q4) Which of the following is true?
A) Term life insurance is most suitable when the need for protection is permanent.
B) Decreasing term insurance is useful when the insured's debt is increasing at a steady, predictable rate.
C) Whole life insurance is best when the insured desires temporary coverage because its cash values will refund nearly all premiums paid.
D) Whole life insurance can provide funds whether the insured dies or survives the policy period.
Q5) Premiums for industrial insurance are collected at the insured's home, often on a weekly basis.
A)True B)False
To view all questions and flashcards with answers, click on the resource link above. Page 17
Chapter 16: Standard Life Insurance Contract Provisions and Options
Available Study Resources on Quizplus for this Chatper
58 Verified Questions
58 Flashcards
Source URL: https://quizplus.com/quiz/27056
Sample Questions
Q1) Explain what happens with regard to the insured misstating his/her age. Does the incontestable clause modify this result? Explain.
Q2) Choose the false statement.
A) The insured need never repay a policy loan, nor is he required to pay interest on the loan.
B) The insured usually has the right to borrow 80% of the face value of an ordinary life insurance policy.
C) Unpaid policy loans are deducted from the beneficiary's proceeds if the insured dies. D) Life insurance companies cannot refuse to make policyholder loans on policies that have loan values.
Q3) A tontine is:
A) a form of endowment insurance
B) used frequently to provide retirement income
C) a life insurance contract paying a death claim on the second person to die
D) one reason for the divisible surplus provision
Q4) The typical grace period found in a life insurance policy is 60 days.
A)True
B)False
Page 18
To view all questions and flashcards with answers, click on the resource link above.
Chapter 17: Annuities
Available Study Resources on Quizplus for this Chatper
41 Verified Questions
41 Flashcards
Source URL: https://quizplus.com/quiz/27057
Sample Questions
Q1) Assume you are analyzing two separate annuity pools. Pool A has significantly higher mortality (deaths/thousand) than Pool B. Holding other factors constant, which pool will make higher payments per month to each annuitant?
A) A
B) B
C) The monthly liquidation payments will be equal.
D) We cannot say because mortality is not an important factor in calculating annuity payments.
Q2) Which of the following is <u>false</u> regarding the annuity contract?
A) At the beginning of the accumulation phase, the annuitant irrevocably selects the distribution method for the liquidation phase.
B) There is considerable flexibility in choosing the length of the accumulation phase.
C) The liquidation period is a function of several factors including when the annuitant dies.
D) Generally, a longer accumulation period results in higher liquidation payments (all other things being equal).
Q3) Explain the purpose of the annuity contract in a financial plan.
To view all questions and flashcards with answers, click on the resource link above. Page 19
Chapter 18: Health Insurance and Disability Income
Available Study Resources on Quizplus for this Chatper
54 Verified Questions
54 Flashcards
Source URL: https://quizplus.com/quiz/27058
Sample Questions
Q1) Which one of the following is not a reason for the increase in U.S. health care costs?
A) More expensive medical equipment and buildings
B) Increased medical malpractice insurance costs
C) Hospital labor operating costs
D) Increased cost of funeral expenses
Q2) Distinguish between cost shifting and cost containment in health care.
Q3) The purpose of long term care insurance is to:
A) pay supplemental Medicare benefits when 60 days of coverage has been exceeded
B) pay for housekeeping services for elderly disabled retirees on Medicare or Medicaid
C) pay for short stays in a hospital for the purpose of rehabilitation
D) pay for services in a long term care facility such as custodial care, skilled nursing care, intermediate care, or hospice care
Q4) Which of the following is not typically included in a major medical insurance policy?
A) Large deductible
B) Participating provision
C) Large number of exclusions
D) High face amount
To view all questions and flashcards with answers, click on the resource link above.
Page 20
Chapter 19: Employee Benefits
Available Study Resources on Quizplus for this Chatper
59 Verified Questions
59 Flashcards
Source URL: https://quizplus.com/quiz/27059
Sample Questions
Q1) Short term disability programs continue the employee's salary for six or fewer months.
A)True
B)False
Q2) When you are "100% vested" in a pension plan, what does that mean?
A) You own 100% of your contributions, but you do not own the employer's contributions to the plan.
B) You own 100% of the employer's contributions, but you do not own your contributions to the plan.
C) You own 100% of your contributions to the plan.
D) You own 100% of the employer's contributions to the plan.
Q3) Major medical insurance provides first dollar coverage for any in-hospital expenses.
A)True
B)False
Q4) The term "tax deferral" refers to the ability to pay taxes at a later date on otherwise currently taxable income.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above. Page 21
Chapter 20: Social Security
Available Study Resources on Quizplus for this Chatper
50 Verified Questions
50 Flashcards
Source URL: https://quizplus.com/quiz/27060
Sample Questions
Q1) Social Security's definition of "disability" is:
A) losing at least an arm, a leg, sight in one eye, or any combination of these
B) inability to engage in any gainful employment due to a work-related accident, and that inability must be expected to last for a continuous period of not less than twelve months
C) the inability to engage in one's own occupation for a continuous period of not less than twelve months
D) the inability to engage in any substantial gainful activity by reasons of any medically determinable physical or mental impairment which can be expected to last for a continuous period of not less than twelve months
Q2) Self-employed people:
A) are exempt from Social Security
B) must pay in 15.3% of their earnings in Social Security taxes
C) are not eligible for Social Security
D) must pay in 7.65% of their earnings in Social Security taxes
Q3) There will soon be a drastic decline in the number of persons receiving Social Security disability benefits.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above.
Page 22
Chapter 21: Unemployment and Workers Compensation Insurance
Available Study Resources on Quizplus for this Chatper
38 Verified Questions
38 Flashcards
Source URL: https://quizplus.com/quiz/27061
Sample Questions
Q1) When state unemployment funds are inadequate to continue paying benefits to unemployed workers, the state can:
A) declare bankruptcy
B) levy additional taxes on an ad hoc basis, but no more than 10% in one year
C) do nothing other than file a claim under any private unemployment insurance it may have purchased
D) borrow from the federal government without paying interest
Q2) Explain how a worker can be disqualified for unemployment benefits.
Q3) Which of the following is paid for under most workers' compensation systems?
A) Injuries resulting from intoxication
B) Self-inflicted intentional injuries
C) Injuries resulting from willful failure to follow safety rules
D) Injuries occurring from "horse-play" on the job
Q4) Unemployment benefits are usually available in which of the following situations?
A) Worker voluntarily quits to find a better job
B) Worker fired for theft
C) Worker is laid-off when employer becomes bankrupt
D) Worker is participating in a strike
To view all questions and flashcards with answers, click on the resource link above. Page 23
Q5) What are the general types of benefits provided under workers' compensation?
Chapter 22: Commercial Property Insurance
Available Study Resources on Quizplus for this Chatper
56 Verified Questions
56 Flashcards
Source URL: https://quizplus.com/quiz/27062
Sample Questions
Q1) Which of the following statements about schedule rating is false?
A) Analyzes each property individually
B) Is used primarily in rating commercial buildings
C) Starts with a rate for a standard building in the same city as the building being rated
D) Uses the same rate for all buildings that have a particular construction type
Q2) Amanda Miranda owns a soft drink manufacturing company that makes Fizzy Dizzy soda. She asks you to determine if she has any intangible property. Which of the following items would you tell her are intangibles?
A) Secret formula for Fizzy Dizzy
B) Patented design of the Fizzy Dizzy bottle
C) Patented name of the product (Fizzy Dizzy)
D) All of the above
Q3) The dependent property business income form pays for loss of income when the insured's owned property is damaged by an insured peril.
A)True
B)False
Q4) What is the difference between class rating and schedule rating?
Q5) List and explain the major types of ocean marine loss exposures.
To view all questions and flashcards with answers, click on the resource link above. Page 24
Chapter 23: Commercial Liability Insurance
Available Study Resources on Quizplus for this Chatper
54 Verified Questions
54 Flashcards
Source URL: https://quizplus.com/quiz/27063
Sample Questions
Q1) "Social inflation" means a person can collect additional damages after the original judgment because costs increase (as reflected by the Consumer Price Index).
A)True
B)False
Q2) One of the suggested solutions to the professional liability problem is a redefinition of the term "negligence."
A)True
B)False
Q3) Vicarious liability will be covered under a:
A) professional liability policy
B) directional liability policy
C) illegal activities liability policy
D) direct liability policy
Q4) The ADA holds a business responsible for providing:
A) guaranteed jobs for disabled workers
B) opportunities for disabled workers
C) opportunities for drunk workers
D) retirement benefits for disabled workers
Q5) Explain the idea behind business liability umbrella policies.
To view all questions and flashcards with answers, click on the resource link above. Page 25