CPCU 500 Questions and Correct Answers

Economy of Operations - increase departmental and organizational efficiency, pre-loss risk mgmt goal Toerable uncertainty - provide an awareness of potential losses and an assurance of their effective management keeping the worry of accidental loss at a tolerable level (pre-loss risk mgmt goal) Survival - resume operations eventually (post loss risk mgmt goal) Continuity of operations - resume operations quickly (post loss risk mgmt goal) Profitability - maintain at least a minimum profit level NO MATTER WHAT accident occurs. Post loss risk mgmt goals Earnings stability - maintain a specified earnings level from year to year post loss rm goal Minimize the effects of loss on society for moral and good public reasons - social responsibility maintain the pre-loss growth pattern - growth post loss rm goal 6 STEPS OF THE RM PROCESS - 1) IDENTIFY EXPOSURES 2) ANALYZE (MEASURE) LOSS EXPOSURES 3) EVALUATE ALTERNATIVE RM EXPOSURE TREATMENT TECHNIQUES 4) SELECT THE BEST COMBINATION OF RM TECHNIQUES 5) IMPLEMENT DECISION 6) MONITOR THE PROGRAM 4 methods of loss exposure identification - 1) Document analysis 2) Compliance review 3) Personal inspections 4) Experts Hazard analysis - under the experts method of loss exposures identification, reveals potential losses by IDing conditions that increase expected loss frequency and/or severity Probability - measures the expected frequency of an event over time in a stable environment Impossible events have a probability of - 0 Certain events have a probability of - 1 Theoretical probability - theoretical and constant, calculated without actual trials (coin toss) Empirical probability - practical and changeable, the law of large numbers applies Empirical probability - computed from historical data from study samples (mortality rates) Factors that improve the reliability of empirical probabilities: - use of a large number of data, an organization with stable operations and loss patterns The smaller the standard deviation, - the smaller the degree of dispersion and the greater the accuracy of predictions. Risk managers use standard deviation to measure - the confidence in projecting losses