ARM 402 FINAL REVIEW QUESTIONS
VERIFIED COMPLETE ANSWERS 100
PERCENT CORRECT
◉ Pools
Answer: -commonly used for financing WC losses, and the pool will
process and pay WC claims on behalf of its members
-made up of member orgs who each contribute premium based on
its loss exposures, and in exchange, the pool pays for each insured's
covered losses
-structure is less formal than a group captive
-operates like a insurer by collecting premiums, paying losses,
purchasing excess insurance or reinsurance, and providing other
services such as risk control consulting
-well-suited for orgs that are too small to form a captive
-achieve savings through economies of scale in administration,
claims handling, and the purchase of excess insurance or
reinsurance
-a suitably designed pool can reduce an org's cost of risk and keep
cost uncertainty associated with retained losses at a tolerable level
◉ Ability of a Pool to meet risk financing goals
,Answer: 1. pay for losses: yes bc of risk sharing however the pool
must pay for its own losses
2. maintain liquidity: yes if adequately funded and managed,
reducing an org's necessary level of liquidity
3. manage uncertainty: yes by risk sharing
4. comply with legal and regulatory requirements: yes if organized
and managed within state regulations
5. minimize the cost of risk: yes through economies of scale in
administration
◉ IP Risk
Answer: -IP derives its value from the right of its owner to exclude
others from using it
-an org's risk manager is responsible for the protection of its IP; also
must manage the liability loss exposure from inadvertent
infringement
-orgs must recognize the IP rights of others to avoid infringement
lawsuits
-in the US, IP is protected by a body of law that helps to define
ownership of a piece of IP and ownership rights
◉ infringement
Answer: the unauthorized use of an individual's IP
,◉ How IP protection methods overlap
Answer: 1. Trade secret and copyright:
-an original work of expression can be protected as a trade secret
and also as a copyright up until the time it is published
-once a work is published, it's no longer a secret but copyright
protection continues
2. Trade Secret and Patent:
-an owner can pursue a patent application and at the same time
assert that the invention is a trade secret
-when patent is published, it can no longer be a trade secret; BUT
patent has a limited life span
3. Copyright and Patent:
-copyright law protects the expression of an idea but not the idea
itself. a patent is intended to protect the idea itself but not how the
idea is expressed
-bc patent protection is not restricted to how the program is
expressed, it provides broader protection than a copyright, but it is
also harder to obtain and has a shorter lifespan
◉ Reasons for Valuing IP
Answer: essential to determine the value of IP bc of its importance
to an org's identity, market share, competitive strategies, and overall
worth; reasons why it must be property appraised:
, -even though IP is protected, it is still vulnerable to infringement
which is made very easy through technology; org needs to quantify
the resulting damage in order to recover
-an org can generate revenue with its IP by selling it or licensing it so
it's necessary to make sure the profit potential is maximized
-acquiring IP is frequently the primary goal in M&A so an entity's
worth may be largely determined by the true value of its IP
-if an org pursues financing, securitization, or other means of
acquiring capital, the value of its IP could be a source of collateral
-IP's accounting and taxation treatment differs from other types of
assets because it is an intangible asset
-the value of a piece of IP may be used to determine the amount of
risk management resources that should be devoted to it
◉ IP Valuation Methodologies
Answer: 1. fair market value approach: based on the value it would
have on the open market (market value)
-used by most formal intellectual property valuation reports, as it is
the standard recognized by most courts and tax authorities
2. Income approach: assigns a current value to a piece of IP based on
the discounted cash flows the property would generate over its
useful life
-most prevalent valuation method
-most effective approach for risk management purposes because its
formula can incorporate a number of risk factors
VERIFIED COMPLETE ANSWERS 100
PERCENT CORRECT
◉ Pools
Answer: -commonly used for financing WC losses, and the pool will
process and pay WC claims on behalf of its members
-made up of member orgs who each contribute premium based on
its loss exposures, and in exchange, the pool pays for each insured's
covered losses
-structure is less formal than a group captive
-operates like a insurer by collecting premiums, paying losses,
purchasing excess insurance or reinsurance, and providing other
services such as risk control consulting
-well-suited for orgs that are too small to form a captive
-achieve savings through economies of scale in administration,
claims handling, and the purchase of excess insurance or
reinsurance
-a suitably designed pool can reduce an org's cost of risk and keep
cost uncertainty associated with retained losses at a tolerable level
◉ Ability of a Pool to meet risk financing goals
,Answer: 1. pay for losses: yes bc of risk sharing however the pool
must pay for its own losses
2. maintain liquidity: yes if adequately funded and managed,
reducing an org's necessary level of liquidity
3. manage uncertainty: yes by risk sharing
4. comply with legal and regulatory requirements: yes if organized
and managed within state regulations
5. minimize the cost of risk: yes through economies of scale in
administration
◉ IP Risk
Answer: -IP derives its value from the right of its owner to exclude
others from using it
-an org's risk manager is responsible for the protection of its IP; also
must manage the liability loss exposure from inadvertent
infringement
-orgs must recognize the IP rights of others to avoid infringement
lawsuits
-in the US, IP is protected by a body of law that helps to define
ownership of a piece of IP and ownership rights
◉ infringement
Answer: the unauthorized use of an individual's IP
,◉ How IP protection methods overlap
Answer: 1. Trade secret and copyright:
-an original work of expression can be protected as a trade secret
and also as a copyright up until the time it is published
-once a work is published, it's no longer a secret but copyright
protection continues
2. Trade Secret and Patent:
-an owner can pursue a patent application and at the same time
assert that the invention is a trade secret
-when patent is published, it can no longer be a trade secret; BUT
patent has a limited life span
3. Copyright and Patent:
-copyright law protects the expression of an idea but not the idea
itself. a patent is intended to protect the idea itself but not how the
idea is expressed
-bc patent protection is not restricted to how the program is
expressed, it provides broader protection than a copyright, but it is
also harder to obtain and has a shorter lifespan
◉ Reasons for Valuing IP
Answer: essential to determine the value of IP bc of its importance
to an org's identity, market share, competitive strategies, and overall
worth; reasons why it must be property appraised:
, -even though IP is protected, it is still vulnerable to infringement
which is made very easy through technology; org needs to quantify
the resulting damage in order to recover
-an org can generate revenue with its IP by selling it or licensing it so
it's necessary to make sure the profit potential is maximized
-acquiring IP is frequently the primary goal in M&A so an entity's
worth may be largely determined by the true value of its IP
-if an org pursues financing, securitization, or other means of
acquiring capital, the value of its IP could be a source of collateral
-IP's accounting and taxation treatment differs from other types of
assets because it is an intangible asset
-the value of a piece of IP may be used to determine the amount of
risk management resources that should be devoted to it
◉ IP Valuation Methodologies
Answer: 1. fair market value approach: based on the value it would
have on the open market (market value)
-used by most formal intellectual property valuation reports, as it is
the standard recognized by most courts and tax authorities
2. Income approach: assigns a current value to a piece of IP based on
the discounted cash flows the property would generate over its
useful life
-most prevalent valuation method
-most effective approach for risk management purposes because its
formula can incorporate a number of risk factors
