Enterprise Risk Management and Ratemaking: A Comprehensive Guide, Exams of Public Health

Download Enterprise Risk Management and Ratemaking: A Comprehensive Guide and more Exams Public Health in PDF only on Docsity! AIDA 182 EXAM 2024-2025 UPDATE ACTUAL EXAM ALL QUESTIONS AND CORRECT DETAILED ANSWERS (VERIFIED ANSWERS) 100% PASS SOLUTION /AL READY GRADED A+ Risk quadrants are different from risk classifications. Risk quadrants focus on what? - ANSWER>>The source of the risk itself and what part of the organization has managed it in the past. An enterprise risk management approach is categorizing risks into quadrants. What are hazard risks? - ANSWER>>Normally managed by risk management professionals. What are the four risks in the enterprise risk management model? - ANSWER>>Hazard, operational, financial, and hazard. What risk quadrant is the change of stocks or bonds values because interest rate changes in? - ANSWER>>Financial risks. What is true of pure and speculative risks? - ANSWER>>All businesses involve speculative risks. What is true of diversifiable and nondiversifiable risks? - ANSWER>>Systemic risks are nondiversifiable generally. What is an example of a strategic risk? - ANSWER>>A new computer chip that could give a company growth. What is an example of an operational risk? - ANSWER>>The ability of suppliers to perform. What is true of subjective and objective risks? - ANSWER>>Subjective risk can be present where objective risk is not. What is an example of a speculative risk? - ANSWER>>Investing in stock. What is true of diversifiable versus nondiversifiable risk? - ANSWER>>Diversifiable risks are not correlated and can be managed through diversification or spread of risk. A company's fleet of cars is worrying the managers liquidity of the company and fuel prices having an adverse effect is which type of risk quadrant? - ANSWER>>Financial risk. An employee embezzling funds from a company for not feeling adequately paid is what risk? - ANSWER>>Both a hazard and an operational risk. Failing to respond to changing customer demands is an example of what risk? - ANSWER>>Strategic risk. The fear of your home being hit by a storm and damaged or destroyed is what risk for you? - ANSWER>>A subjective risk. What quadrant of risk is a harmful chemical found in a building with unknown harm to residents and to the clean up crew part of? - ANSWER>>A hazard risk. Driving instead of flying because of feeling of safety is an example of what? - ANSWER>>A subjective risk. Investing money in a rental property brings what? - ANSWER>>Both speculative and pure risks. The property values can increase or decrease and the building could burn down. Increased competition is an example of what? - ANSWER>>A strategic risk. Renovating a warehouse, purchasing a new order processing software, added two new delivery trucks, and purchasing a production machine which also allows for potential for a new product line, are all projects. Which project is the most speculative? - ANSWER>>The new production machine. What is a true statement on the basic measures applying to risk management? - ANSWER>>Consequences measure the degree to which an occurrence could positively or negatively affect an organization. What key risk indicator might a contractor monitor? - ANSWER>>Budget variances. What key risk indicator might a manufacturer monitor? - ANSWER>>Cost of raw materials. What are key risk indicators? - ANSWER>>They are based on quantifiable information and support management decisions. Key risk indicators are used to plan for and respond to risk which can do what? - ANSWER>>A key risk indicator can reveal an upward trend in the level of a risk that, if it continues, will exceed the designated risk threshold for that risk. Key risk indicators enhance what? - ANSWER>>Efficiency. Key risk indicators help organizations identify issues that can lead to losses and key risk indicators are based on what? - ANSWER>>Strategic objectives. The CEO is interested in the key risk indicators measuring a company's profitability. What area of measurement will the risk manager want to look at? - ANSWER>>Aged accounts receivable. What term measures the significance of a risk? - ANSWER>>Risk criteria. What departments usually have the most detailed key risk indicators? - ANSWER>>Department levels. What do business process managements do? - ANSWER>>Focus on coordinating activities toward the preferences and needs of customers and aligning operational with strategic goals. What business process management step is often skipped? - ANSWER>>Identify processes. Describe the first step of the business process management. - ANSWER>>Critical processes that support achievement of the organization's goals are selected for analysis. Business process management focuses on what? - ANSWER>>Customer satisfaction. Define risk indicator in business process management. - ANSWER>>A tool used to measure the level of uncertainty in an activity, project, or process. What is true regarding the business process management life cycle? - ANSWER>>The model is driven by the collaboration of human and technological input. What risk control spreads loss exposures over different markets, regions, projects, etc.? - ANSWER>>Diversification. Keeping products in different locations is what risk control? - ANSWER>>Separation. What risk control technique reduces frequency of losses and can reduce severity? - ANSWER>>Loss prevention. What risk control technique is used for business risk more so than hazard risks? - ANSWER>>Diversification. Discontinuing a product is what practice? - ANSWER>>Avoidance. What risk control reduces loss severity and makes losses more predictable? - ANSWER>>Duplication. Avoidance is what? - ANSWER>>The most effective way of managing any loss exposure. A training seminar in an effort to educate employees on safe practices is an example of what loss control? - ANSWER>>Loss prevention. Sprinklers are an example of what control? - ANSWER>>Loss reduction. Widening and lessening the steepness of a ski slope is an example of what? - ANSWER>>Loss prevention. Making arrangements with a second supplier in the event that the initial supplier fails to provide is what control? - ANSWER>>Duplication. "means to limit the potential impact from a loss at a single location" is what control? - ANSWER>>Separation. A systemic procedure that uses the results of other analysis techniques to identify the predominant determinants of an accident is called? - ANSWER>>Root cause analysis. The second step of root cause analysis determines what agents caused one event to trigger another. What are these agents? - ANSWER>>Causal factors. What is true of root cause analysis? - ANSWER>>It must produce effective recommendations for prevention of future accidents. What root cause analysis procedure came from quality control procedures in industrial manufacturing? - ANSWER>>Production-based root cause analysis. A worker is killed because another worker removes a safety device from the machine and another removes a warning sticker. What is the root cause of this? - ANSWER>>Inadequate training. An analysis that begins with causes and then gets to consequences is what? - ANSWER>>Failure mode and effects analysis. Rate regulation is generally based on having rates that are adequate, not unfairly discriminatory, and what? - ANSWER>>Not excessive. What happens when sudden, large rate changes occur? - ANSWER>>Regulatory or legislative action may occur. Primary goal of ratemaking for an insurer? - ANSWER>>Develop a rate structure that enables the insurer to compete effectively while earning a reasonable profit. What is true of the five ideal characteristics of rates? - ANSWER>>Some often conflict with one another and compromises are necessary. What is the rate multiplied by the number of exposure units? - ANSWER>>Premium. What is the component in ratemaking to pay future claims and loss adjustment expenses? - ANSWER>>Prospective loss costs. What component in ratemaking is for premium taxes and fees paid to regulatory organizations? - ANSWER>>Expense provision. The pure premium is the amount included in the rate per exposure unit required to pay losses. This component is also called what? - ANSWER>>Loss cost. With regards to investment operations, what is true? - ANSWER>>Loss reserves for liability insurance are much greater than for property insurance. What is pure premium? - ANSWER>>The amount included in the rate per exposure unit required to pay losses. What are expenses associated with adjust claims? - ANSWER>>Loss adjustment expenses. A property-casualty insurer has what two operations? - ANSWER>>Insurance operations and investment operations. True or false, prospective loss costs are supplied by advisory organizations or developed by insurers with large enough pools of loss data. - ANSWER>>True. What describes components of an insurance rate? - ANSWER>>Amounts to pay future claims, loss adjustment expenses, other expenses, and an amount for profit and contingencies. An earned exposure unit is what? - ANSWER>>An exposure unit that has provided a full year of coverage, by the insurer. The amount in rates to protect against claims or expenses being high is what? - ANSWER>>The loading for profits and contingencies. What is true of rate calculations? - ANSWER>>Some states require investment income to be considered explicitly in rate calculations. Future acquisition costs, overhead, and premium taxes is what? - ANSWER>>The expense provision of a rate. The amount to pay future claims and loss adjustment expenses is what? - ANSWER>>Prospective loss costs. Investment return depends on loss reserves, the associated unearned premium reserves, and what? - ANSWER>>The types of insurance written. In house adjusters salaries are part of what? - ANSWER>>Loss adjustment expenses The value being insured in a $100,000 homeowners policy is what? - ANSWER>>The exposure base. The delay in reflecting loss experience in rates stems from what? - ANSWER>>Time period during which rates are in effect, usually a full year. What is a starting point to estimate future losses? - ANSWER>>Past loss experience. Loss estimates need to be where? - ANSWER>>Shown legally through loss reserves on their (the insurer's) balance sheet. Insurers wait longer in ratemaking process is to do what? - ANSWER>>Permit loss data to mature. What is true with respect to estimating losses for use in the ratemaking process? - ANSWER>>Rates are based on incomplete loss experience because we are estimating. The key to developing rates that are adequate to pay future claims is what? - ANSWER>>Estimating the amount of losses for those claims. Loss reserves. - ANSWER>>Any inadequacy in the loss reserves would make future rates inadequate and loss reserves do not exist for year 1 because all losses have been paid. What is true of the loss ratio method? - ANSWER>>The loss ratio method cannot be used to determine rates for a new type of insurance. The loss ratio method = - ANSWER>>Actual loss ratio - expected loss ratio / expected loss ratio Pure premium method = - ANSWER>>Actual losses + loss adjusted expenses / number of exposure units What involves an apples-to-apples exact matching of losses, premiums, and exposure units to a specific policy? - ANSWER>>Policy-year data collection. PIC had loss reserves at year end last year of $28 million. During the first quarter of this year, PIC's reserves were reevaluated to be $32 million. What is the financial impact of loss reserve increases? - ANSWER>>Policyholders' surplus will be reduced. What is true of case reserves? - ANSWER>>Reinsurers may supplement the primary insurer's case reserves for their own financial reporting purposes. What is a negative of the average method of case reserves? - ANSWER>>It may produce reserves that are too low for insurance with wide variation in claims. The average method of case reserving is best for what insurance? - ANSWER>>Insurance with claims that are reported and paid promptly. The tabular method of determining case loss reserves would be best for what? - ANSWER>>A structured settlement amount for a liability insurance claim. What case reserving method establishes average amount for all claims with similar characteristics such as age, health, and marital status? - ANSWER>>Tabular method. What reserving method should be used for a large book of first party automobile policies? - ANSWER>>Average method. What method uses historical relationships between incurred but not reported reserves and reported losses in incurred but not reported forecasts? - ANSWER>>Percentage method. What do INBR reserves represent the different between? - ANSWER>>Ultimate losses and reported incurred losses. The difference between incurred losses and ultimate losses is? - ANSWER>>INBR reserves Who sets the level of bulk reserves for an insurer? - ANSWER>>Actuary. What is true of the loss ratio method in establishing bulk reserves for INBR losses? - ANSWER>>The loss ratio method should only be used for the first year or two after losses are incurred. Which one of the following statements regarding the calculation of the reserve for unallocated loss adjustment expenses is accurate? - ANSWER>>It is usually estimated as a percentage of the sum of incurred losses and allocated loss adjustment expenses. Hazard analysis is what? - ANSWER>>A method that identifies conditions that increase the frequency or severity of loss. What is the least effective method of identifying all personal property loss exposures? - ANSWER>>Loss histories. What document helps identify bottlenecks? - ANSWER>>Flowcharts. To estimate adverse financial affects from business interruption due to accidental loss, what should you use? - ANSWER>>Balance sheet. What is true of checklists and questionnaires? - ANSWER>>The questions include in the questionnaires and checklists developed by insurers relate mainly to loss exposures for which commercial insurance is generally available. A diagram that graphically and sequentially depicts the activities of a particular organization or process is what? - ANSWER>>A flowchart. What is a benefit of a compliance review? - ANSWER>>The can help minimize or avoid liability loss exposures. What can be used to identify net income loss exposures? - ANSWER>>Income statement. Weakness of risk assessment questionnaire? - ANSWER>>The structure of the questionnaire may not stimulate the user to do anything more than fill in the blanks to answer the questions posed. The best method to identify all owned property exposures is? The worst is? - ANSWER>>Personal inspections. Loss histories. To avoid under or overestimating loss projections, past loss data must be presented in what? - ANSWER>>Constant dollars. To accurately analyze loss exposure data, the data needs to be what? - ANSWER>>Relevant, complete, consistent, and organized. When developing loss severity distributions, data should be organized how? - ANSWER>>By size of loss. If fire damage to a building was $200,000 in 2002, the $200,000 represents the value of the loss in what? - ANSWER>>Nominal dollars. What must loss data be? - ANSWER>>Collected on a consistent basis for all recorded losses, and the data must be expressed in constant dollars. What is true with regards to completeness of past loss data when estimating future loss exposures? - ANSWER>>What constitutes complete loss data depends largely on the nature of the loss exposure being considered. Past loss data must be reserved in what? - ANSWER>>Constant dollars. What refers to dollar values today and involves inflating historical values to reflect the effect of inflation? - ANSWER>>Current dollars. Investment income and interest earnings should be considered when analyzing which one of the following dimensions of loss exposure? - ANSWER>>Timing.