Question 1

According to the risk management matrix, risk exposures with high frequency of losses and high severity of losses are:

Accepted Answer

Risks with high frequency and high severity are typically avoided because they pose a significant threat to the organization, and other strategies like retention or transfer might not be effective or feasible.

Question 2

Risk managers avoid risks that have:

Accepted Answer

Risk managers prioritize avoiding risks that have both high frequency and high severity of losses, as these pose the greatest threat to an organization's resources and sustainability.

Question 3

When a corporation insures a risk, it is:

Accepted Answer

When a corporation insures a risk, it is transferring its risk to the insurance company.

Question 4

Write a short note on risk management information system.

Accepted Answer

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Question 5

Explain the difference between loss prevention and loss reduction strategies with an example.

Accepted Answer

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Question 6

In linear regression, if 'X' is the year (Year 1, 2, 3… and so on), how would you calculate future claims?

Accepted Answer

In linear regression, the formula to predict future values (future claims, in this case) is given by Y = Intercept + Slope * X, where Y is the dependent variable (future claims), X is the independent variable (year), the intercept is the value of Y when X is 0, and the slope is the change in Y for a one-unit change in X.

Question 7

Which of the following statements is true about the different forms of business?

Accepted Answer

Corporations are recognized as separate legal entities from their owners, which means they can own property, sue or be sued, and enter into contracts independently of their shareholders. This separation provides a layer of protection for the personal assets of the shareholders, distinguishing corporations from other forms of business where owners might have unlimited liability.

Question 8

How can risks be transferred through the formation of a corporation?

Accepted Answer

The answer of How can risks be transferred through the...

Question 9

If you want to ski in spite of the hazards involved, you can engage in a physical fitness program to toughen your body to withstand spills without serious injury.This is an example of:

Accepted Answer

Engaging in a physical fitness program to toughen the body for skiing does not prevent accidents from happening (which would reduce the frequency or probability of loss) but rather prepares the body to better withstand the impacts of spills, thereby reducing the severity of potential injuries (loss reduction).

Question 10

When insurers or risk managers use frequency and severity to project the future, they use trending techniques that apply to the loss distributions known to them.Identify the most commonly used tool to predict future losses and claims based on the past.

Accepted Answer

Regression analysis is the most commonly used tool for predicting future losses and claims based on past data. It helps in understanding the relationship between the dependent variable (future losses or claims) and one or more independent variables (factors affecting those losses or claims).

Question 11

Explain risk profiling and its importance in the risk management process.

Accepted Answer

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Question 12

Typically, the traditional risk management position has reported to the _____.

Accepted Answer

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Question 13

If you want to ski in spite of the hazards involved, you can take instruction to improve your skills and reduce the likelihood of you falling down a hill or crashing into a tree.This is an example of:

Accepted Answer

The answer of If you want to ski in spite...

Question 14

The formation of a corporation with limited liability for its stockholders and contractual arrangements like insurance are strategies to:

Accepted Answer

The formation of a corporation with limited liability and the use of insurance are strategies to transfer risk from individuals to the corporation or insurer.

Question 15

What of the following statements is true about risk assumption?

Accepted Answer

When a business creates a subsidiary specifically to handle its risk exposures, this subsidiary is known as a captive insurance company. Captives are established as an alternative to traditional insurance, allowing businesses to have more control over their risk management and potentially save on insurance costs.

Question 16

Summarize the functions of a CRO in a firm.

Accepted Answer

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Question 17

_____ are separate insurance entities under the corporate structure-mostly for the exclusive use of the firm itself.

Accepted Answer

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Question 18

In linear regression, the intercept is 7.2 and the slope is 0.64.Calculate the number of claims in projected year 7.

Accepted Answer

The number of claims in projected year 7 is calculated using the linear regression equation: y = mx + b, where m is the slope (0.64), x is the year (7), and b is the intercept (7.2). So, y = 0.64 * 7 + 7.2 = 11.68.

Question 19

When an organization uses a highly formalized method of retention of a risk, it is said the organization has:

Accepted Answer

Self-insurance is a form of risk management where an organization sets aside a sum of money to use in case of a loss instead of purchasing insurance from a third party. This is considered a formalized method of retaining risk, as the organization is financially preparing to cover losses itself.

Question 20

In our technological and information age, every person involved in finding solutions to lower the adverse impact of risks uses _____, which are data bases that provide information with which to compute the frequency and severity, explore difficult-to-identify risks, and provide forecasts and cost-benefits analyses.

Accepted Answer

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Quiz 4: Evolving Risk Management: Fundamental Tools