ARM 402 EXAM PREP SOLVED QUESTIONS
ACCURATE ANSWERS PREMIUM REVIEW
◉ risk treatment techniques
Answer: 1. avoid the risk: stopping or canceling the activity
2. modify the risk: increasing or decreasing an event's likelihood
and/or consequences that will result in positive or negative
outcomes; loss prevention or loss reduction
3. transfer the risk: sharing the risk with, or moving it entirely to,
another party; insurance or outsourcing
4. retain the risk: accepting and absorbing some or all of the
consequences of the risk; used when potential negative
consequences are low
5. exploit the risk: taking actions to maximize the expected gains of
opportunities; actions to exploit risks can create more risks
◉ the Prouty Approach
Answer: -a way to select a risk treatment
-analyzes a risk's loss likelihood and impact to determine a proper
treatment
-when a risk's likelihood and impact could be accurately estimated,
risk managers could use a matrix to determine which treatment
method would be best
,-four categories of loss likelihood: almost nil, slight, moderate,
definite
-three categories of loss impact: slight, significant, severe
-matrix communicates and justifies priority of a risk
-similar concept to a heat map
-activities with losses that have a slight change of occurring and are
of low impact tend to be retained and accounted for in the budget
-activity with high likelihood and intolerable impact is typically
avoided
-in the middle: typically call for modification
◉ risk treatment plan
Answer: -once or selects a risk treatment technique, it needs to
develop a risk treatment plan to outline how the org will implement
and monitor the technique
-to be effective, plan needs each of these elements:
*explanation of treatment technique
*proposed actions: document proposed actions and how they will be
prioritized
*resource requirements: identify resources required
*roles and responsibilities: determine involvement and
accountability
*timeline
,*monitoring requirements: indicate how performance will be
measured, monitored, and reported to upper management
◉ risk financing
Answer: -a risk management technique that includes steps to pay for
or transfer the cost of losses
-must be a part of every org's holistic risk management strategy
-the more risk an org retains to pursue opportunities, the more
funds it must allocate to finance those risks
-these funds are then used to apply risk treatments
◉ technology's impact on risk modification
Answer: -IoT devices, sensors, wearables, and telematics allow orgs
to accurately identify patterns of risk, model risk, and predict risk
-in some cases, risk can be predicted so accurately that it can be
modified to the point of being nearly preventable; can create
significant cost savings for orgs and insurers
-insurers could charge a lower premium if you have sensors or
something like that in place; but they do come with their own risk
-advancements in forecasting could result in minimal financing
being required to retain, transfer, or modify negative risks
-must factor in that there is a cost associated with forecasting
technology
, ◉ Technology's impact on Risk Transfer
Answer: -growing access to big data, machine learning and AI have
made it easier for insurers to predict, plan for risk, and to develop
products that specifically address certain risks
-insurers can price policies more precisely
-insurers have the ability to create alternative products: parametric
insurance was too costly for such small events, but now it can all be
processed electronically making it worth it
◉ Technology's impact on Financial Transactions
Answer: -smart contracts and blockchain
-technology is constantly speeding up the recovery process of orgs of
recouping financial losses and regaining the position it was in before
the loss occurred
-smart insurance contracts can dramatically increase the speed of
loss payments, as well as reduce administrative costs for insurers
-ex: if the blockchain receives a signal that a flood has occurred in
your area (could come from sensors), the blockchain could instantly
determine whether your business is covered for a flood loss. having
detected that your business has coverage, a loss payment could be
deposited directly into your org's bank account. the claim,
verification of coverage, and payment could be completed within
seconds rather than days or weeks
◉ risk treatment applications
ACCURATE ANSWERS PREMIUM REVIEW
◉ risk treatment techniques
Answer: 1. avoid the risk: stopping or canceling the activity
2. modify the risk: increasing or decreasing an event's likelihood
and/or consequences that will result in positive or negative
outcomes; loss prevention or loss reduction
3. transfer the risk: sharing the risk with, or moving it entirely to,
another party; insurance or outsourcing
4. retain the risk: accepting and absorbing some or all of the
consequences of the risk; used when potential negative
consequences are low
5. exploit the risk: taking actions to maximize the expected gains of
opportunities; actions to exploit risks can create more risks
◉ the Prouty Approach
Answer: -a way to select a risk treatment
-analyzes a risk's loss likelihood and impact to determine a proper
treatment
-when a risk's likelihood and impact could be accurately estimated,
risk managers could use a matrix to determine which treatment
method would be best
,-four categories of loss likelihood: almost nil, slight, moderate,
definite
-three categories of loss impact: slight, significant, severe
-matrix communicates and justifies priority of a risk
-similar concept to a heat map
-activities with losses that have a slight change of occurring and are
of low impact tend to be retained and accounted for in the budget
-activity with high likelihood and intolerable impact is typically
avoided
-in the middle: typically call for modification
◉ risk treatment plan
Answer: -once or selects a risk treatment technique, it needs to
develop a risk treatment plan to outline how the org will implement
and monitor the technique
-to be effective, plan needs each of these elements:
*explanation of treatment technique
*proposed actions: document proposed actions and how they will be
prioritized
*resource requirements: identify resources required
*roles and responsibilities: determine involvement and
accountability
*timeline
,*monitoring requirements: indicate how performance will be
measured, monitored, and reported to upper management
◉ risk financing
Answer: -a risk management technique that includes steps to pay for
or transfer the cost of losses
-must be a part of every org's holistic risk management strategy
-the more risk an org retains to pursue opportunities, the more
funds it must allocate to finance those risks
-these funds are then used to apply risk treatments
◉ technology's impact on risk modification
Answer: -IoT devices, sensors, wearables, and telematics allow orgs
to accurately identify patterns of risk, model risk, and predict risk
-in some cases, risk can be predicted so accurately that it can be
modified to the point of being nearly preventable; can create
significant cost savings for orgs and insurers
-insurers could charge a lower premium if you have sensors or
something like that in place; but they do come with their own risk
-advancements in forecasting could result in minimal financing
being required to retain, transfer, or modify negative risks
-must factor in that there is a cost associated with forecasting
technology
, ◉ Technology's impact on Risk Transfer
Answer: -growing access to big data, machine learning and AI have
made it easier for insurers to predict, plan for risk, and to develop
products that specifically address certain risks
-insurers can price policies more precisely
-insurers have the ability to create alternative products: parametric
insurance was too costly for such small events, but now it can all be
processed electronically making it worth it
◉ Technology's impact on Financial Transactions
Answer: -smart contracts and blockchain
-technology is constantly speeding up the recovery process of orgs of
recouping financial losses and regaining the position it was in before
the loss occurred
-smart insurance contracts can dramatically increase the speed of
loss payments, as well as reduce administrative costs for insurers
-ex: if the blockchain receives a signal that a flood has occurred in
your area (could come from sensors), the blockchain could instantly
determine whether your business is covered for a flood loss. having
detected that your business has coverage, a loss payment could be
deposited directly into your org's bank account. the claim,
verification of coverage, and payment could be completed within
seconds rather than days or weeks
◉ risk treatment applications
