ARM 402 VERIFIED STUDY GUIDE
Facultative reinsurance - Answers - Reinsurance of individual loss exposures in which
the primary insurer chooses which loss exposures to submit to the reinsurer, and the
reinsurer can accept or reject any loss exposures submitted.
- nonobligatory reinsurance.
Risk treatment - Answers - The determination of the best way to address an identified
risk.
- done AFTER the Risk Assesment
Residual risk - Answers - The level of risk remaining after actions are taken to alter the
level of risk.
Avoidance - Answers - A risk control technique that involves ceasing or never
undertaking an activity so that the possibility of a future loss occurring from that activity
is eliminated.
Loss prevention - Answers - A risk control technique that reduces the frequency of a
particular loss.
Loss reduction - Answers - A risk control technique that reduces the severity of a
particular loss.
Risk transfer - Answers - The shifting of risk from one individual or organization to
another.
Retention - Answers - A risk financing technique that involves assumption of risk in
which gains and losses are retained within the organization.
Risk Transfer Techniques - Answers - 1. Avoid
2. Modify
3. Transfer
4. Retain
5. Exploit
Avoid the risk - Answers - Stopping or canceling the activity that would cause the risk.
An organization may exercise risk avoidance if a risk is deemed too high to take on in
any form or amount.
Modify the risk - Answers - Increasing or decreasing an event's likelihood and/or
consequences that will result in positive or negative outcomes.
,ex. for hazard risks, loss prevention actions (such as installing theft-prevention systems)
are taken to reduce overall loss frequency. And loss reduction actions (such as
installing sprinkler systems to reduce the severity of fires) are taken to reduce the
impact of risks.
Transfer the risk - Answers - Sharing the risk with, or moving it entirely to, another party.
Purchasing insurance is a prime example of risk transfer. Risk can also be transferred
by outsourcing a process to a contractor, who then takes on the risks associated with
that process.
Retain the risk - Answers - Accepting and absorbing some or all of the consequences of
the risk.
Risk retention is often used only after other treatment techniques have been
considered, and it's often used in conjunction with other techniques such as risk
modification and risk transfer. Typically, retention is used when the potential negative
consequences associated with it are low. In addition, any risk that is retained should be
carefully analyzed so that the organization fully understands the extent of that risk.
Organizations can also choose to retain more risk in order to exploit an opportunity.
Exploit the risk - Answers - Taking actions to maximize the expected gains of
opportunities.
ex. an organization could modify the likelihood of an event to increase the opportunity
for financial gains. It could also share the opportunity with another party that may be
able to contribute additional resources, which could increase the likelihood of generating
more business. However, actions to exploit risks can create more risks, which must then
be identified, analyzed, and possibly treated.
The Prouty Approach - Answers - analyzes a risk's loss likelihood and impact to
determine a proper treatment.
believed that when a risk's likelihood and impact could be accurately estimated, risk
managers could use a matrix to determine which risk treatment method would be best
for the risk.
four categories of loss likelihood - Answers - Almost nil: extremely unlikely to happen
Slight: could happen, but not likely
Moderate: happens occasionally
Definite: happens regularly
three categories of loss impact - Answers - Slight
Significant
Severe
, Risk financing - Answers - A risk management technique that includes steps to pay for
or transfer the cost of losses.
Internet of Things (IoT) - Answers - A network of objects that transmit data to
computers.
- greatest impact on risk modification
Telematics - Answers - The use of technological devices in vehicles with wireless
communication and GPS tracking that transmit data to businesses or government
agencies; some return information for the driver.
Machine learning - Answers - Artificial intelligence in which computers continually teach
themselves to make better decisions based on previous results and new data.
Hedging - Answers - A financial transaction in which one asset is held to offset the risk
associated with another asset.
Derivative - Answers - A financial instrument whose value is derived from the value of
an underlying asset, which can be an index, an asset, yield on an asset, weather
conditions, inflation, loans, bonds, an insurance risk, or other items.
Diversification - Answers - A risk control technique that spreads loss exposures over
numerous projects, products, markets, or regions.
Pure risk - Answers - A chance of loss or no loss, but no chance of gain.
Speculative risk - Answers - A chance of loss, no loss, or gain.
Covariance - Answers - The relative association between variables to move in tandem
or independently of each other.
Correlation - Answers - A relationship between variables.
- indicates the strength of the relationship.
three modes of persuasion - Answers - ethos, logos, and pathos
Ethos - Answers - or "character," refers to the need to establish credibility. For your
message to be understood, you must first convince your audience that you're worth
listening to. Address why others should take you seriously. Have you been in their
position before? Have you successfully dealt with similar issues in the past? Look for
ways to use your past as a means of persuasion. Use stories and examples rather than
a resume.
Logos - Answers - or "reason," refers to the need to support your message, claim, or
argument with evidence. Point to historical data, statistics, or other authority figures to
Facultative reinsurance - Answers - Reinsurance of individual loss exposures in which
the primary insurer chooses which loss exposures to submit to the reinsurer, and the
reinsurer can accept or reject any loss exposures submitted.
- nonobligatory reinsurance.
Risk treatment - Answers - The determination of the best way to address an identified
risk.
- done AFTER the Risk Assesment
Residual risk - Answers - The level of risk remaining after actions are taken to alter the
level of risk.
Avoidance - Answers - A risk control technique that involves ceasing or never
undertaking an activity so that the possibility of a future loss occurring from that activity
is eliminated.
Loss prevention - Answers - A risk control technique that reduces the frequency of a
particular loss.
Loss reduction - Answers - A risk control technique that reduces the severity of a
particular loss.
Risk transfer - Answers - The shifting of risk from one individual or organization to
another.
Retention - Answers - A risk financing technique that involves assumption of risk in
which gains and losses are retained within the organization.
Risk Transfer Techniques - Answers - 1. Avoid
2. Modify
3. Transfer
4. Retain
5. Exploit
Avoid the risk - Answers - Stopping or canceling the activity that would cause the risk.
An organization may exercise risk avoidance if a risk is deemed too high to take on in
any form or amount.
Modify the risk - Answers - Increasing or decreasing an event's likelihood and/or
consequences that will result in positive or negative outcomes.
,ex. for hazard risks, loss prevention actions (such as installing theft-prevention systems)
are taken to reduce overall loss frequency. And loss reduction actions (such as
installing sprinkler systems to reduce the severity of fires) are taken to reduce the
impact of risks.
Transfer the risk - Answers - Sharing the risk with, or moving it entirely to, another party.
Purchasing insurance is a prime example of risk transfer. Risk can also be transferred
by outsourcing a process to a contractor, who then takes on the risks associated with
that process.
Retain the risk - Answers - Accepting and absorbing some or all of the consequences of
the risk.
Risk retention is often used only after other treatment techniques have been
considered, and it's often used in conjunction with other techniques such as risk
modification and risk transfer. Typically, retention is used when the potential negative
consequences associated with it are low. In addition, any risk that is retained should be
carefully analyzed so that the organization fully understands the extent of that risk.
Organizations can also choose to retain more risk in order to exploit an opportunity.
Exploit the risk - Answers - Taking actions to maximize the expected gains of
opportunities.
ex. an organization could modify the likelihood of an event to increase the opportunity
for financial gains. It could also share the opportunity with another party that may be
able to contribute additional resources, which could increase the likelihood of generating
more business. However, actions to exploit risks can create more risks, which must then
be identified, analyzed, and possibly treated.
The Prouty Approach - Answers - analyzes a risk's loss likelihood and impact to
determine a proper treatment.
believed that when a risk's likelihood and impact could be accurately estimated, risk
managers could use a matrix to determine which risk treatment method would be best
for the risk.
four categories of loss likelihood - Answers - Almost nil: extremely unlikely to happen
Slight: could happen, but not likely
Moderate: happens occasionally
Definite: happens regularly
three categories of loss impact - Answers - Slight
Significant
Severe
, Risk financing - Answers - A risk management technique that includes steps to pay for
or transfer the cost of losses.
Internet of Things (IoT) - Answers - A network of objects that transmit data to
computers.
- greatest impact on risk modification
Telematics - Answers - The use of technological devices in vehicles with wireless
communication and GPS tracking that transmit data to businesses or government
agencies; some return information for the driver.
Machine learning - Answers - Artificial intelligence in which computers continually teach
themselves to make better decisions based on previous results and new data.
Hedging - Answers - A financial transaction in which one asset is held to offset the risk
associated with another asset.
Derivative - Answers - A financial instrument whose value is derived from the value of
an underlying asset, which can be an index, an asset, yield on an asset, weather
conditions, inflation, loans, bonds, an insurance risk, or other items.
Diversification - Answers - A risk control technique that spreads loss exposures over
numerous projects, products, markets, or regions.
Pure risk - Answers - A chance of loss or no loss, but no chance of gain.
Speculative risk - Answers - A chance of loss, no loss, or gain.
Covariance - Answers - The relative association between variables to move in tandem
or independently of each other.
Correlation - Answers - A relationship between variables.
- indicates the strength of the relationship.
three modes of persuasion - Answers - ethos, logos, and pathos
Ethos - Answers - or "character," refers to the need to establish credibility. For your
message to be understood, you must first convince your audience that you're worth
listening to. Address why others should take you seriously. Have you been in their
position before? Have you successfully dealt with similar issues in the past? Look for
ways to use your past as a means of persuasion. Use stories and examples rather than
a resume.
Logos - Answers - or "reason," refers to the need to support your message, claim, or
argument with evidence. Point to historical data, statistics, or other authority figures to
