CPCU 500 Exam Questions and Answers 100% Verified

CPCU 500 Exam Questions and Answers 100% Verified Classify each of the following risks as pure or speculative, subjective, or objective, and diversifiable or nondiversifiable. A. Damage to an office building resulting from a hurricane B. Reduction in value of retirement savings C. Products liability claim against a manufacturer - answerA. Pure sunjective and objective non diversifiable B. Speculative subjective and objective diversifiable C. Pure subjective and objective diversifiable Identify three components that constitute the financial consequences of risk faced by individuals or organizations - answerExpected cost of losses or gains Expenditures on risk management Cost of residual uncertainty List hidden costs that can affect an organizations calculation of expected costs of loss - answer-time lost by the injured employee -time lost by other employees who stop work -time lost by foreman, supervisors, or other executives - time spent on the case by first-aid attendants and hospital department staff (when not paid for by the insurer) -damage to the machine, tools, or other property or the spoilage of material -interference with production, failure to fill orders on time, loss of bonuses, payment of forfeits, and other similar causes of loss -continuation of the injured employees wages in full after the employees return to work-even though the employees services may be temporarily worth less than normal value -loss of profit on the injured employees productivity and on the idle machines -lost productivity because of employee excitement or weakened morale resulting from the accident -overhead per injured employee, that is, the expense of light, heat, rent, and other items that continue while the injured employee is not productive Describe the costs of residual uncertainty - answerResidual uncertainty is the level of risk that remains after individuals or organization's implement,net their risk management programs. The cost of this uncertainty is hard to measure but still may significantly affect the individual or organization. For individuals, the cost of residual uncertainty may include lost salary or forgone investment opportunities. For organizations, the cost of residual uncertainty includes the effect that uncertainty has on consumers, investors, and suppliers. For example, suppliers may be less willing to sell supplies on credit to organization's with large amounts of residual uncertainty. Mary has purchased a vacation home located in coastal region of south Florida. Give examples of each of the three financial consequences of risk that Mary is now exposed to with this purchase. - answerExpected cost of losses or gains - the value of the home may increase overtime. It may also get hit by a hurricane and destroyed. Because of the homes exposure to loss from fire, flood, and hurricane damage Mary can expect to suffer losses to both the real property and the personal property Expenditures on risk management - she will need to buy insurance and maintain the home. Mary may choose to install hurricane shutters, hurricane roof straps, and other risk control items to reduce the amount of loss that may occur during a hurricane. Cost of residual uncertainty - she might not be able to find insurance because of the high risk of a hurricane. Mary now has uncertainty regarding the causes, frequency, and severity of loss to her new property. Although her risk control efforts can mitigate any losses and she has purchased homeowners insurance Mary will still have some uninsured costs associated with any loss Explain how risk management practices differ between individuals and organizations - answerFor individuals, risk management is usually an informal series of efforts not a formalized process. In smaller organization's, risk management is not usually a dedicated function, but one of many tasks carried out by the owner or senior manager. In many larger organizations, risk management function is conducted as part of a formalized risk management program. Describe the difference in scope between traditional risk management and enterprise wide risk management. - answerTraditionally the risk management professionals role has been associated with loss exposures related mainly to pure, as opposed to speculative, risks. Enterprise wide risk management is the broader view of risk management that encompasses all types of risk. ERM is an approach to managing all of an organization's key risks and opportunities with the intent of maximizing the organization's value. Explain how the focus of risk management efforts differs for traditional risk management and enterprise wide risk management - answerTraditional focuses on managing safety, purchasing insurance, and controlling financial recovery from losses generated by hazard risk. ERM is an approach to managing all of an organization's key risks and opportunities with the intent of maximizing the organization's value. Hazard - answerA condition that increases the frequency or severity of a loss Moral hazard - answerA condition that increases the likelihood that a person will intentionally cause or exaggerate a loss. Morale hazard (attitudinal hazard) - answerA condition of carelessness or indifference that increases the frequency or severity of loss Physical hazard - answerA tangible characteristic of property, persons, or operations that tends to increase the frequency or severity of of loss. Legal hazard - answerA condition of the legal environment that increases loss frequency or severity Property loss exposure - answerA condition that presents the possibility that a person or an organization will sustain a loss resulting from damage (including destruction, taking, or loss of use) to property in which that person or organization had a financial interest Tangible property - answerProperty that has a physical form. Real property (realty) - answerTangible property consisting of land, all structures permanently attached to the lad, and whatever is growing on the land Personal property - answerAll tangible or intangible property that is not real property Intangible property - answerProperty that has no physical form Liability loss exposures - answerAny condition or situation that presents the possibility of a claim alleging legal responsibility of a person or business for injury or damage suffered by another party. Personnel loss exposure - answerA condition that presents the possibility of loss caused by a persons death, disability, retirement, or resignation that deprives an organization of the persons special skill or knowledge that the organization cannot readily replace Personal loss exposure - answerAny condition or situation that presents the possibility of a financial loss to an individual or a family by such causes as death, sickness, injury, or unemployment. Net income loss exposure - answerA condition that presents the possibility of loss caused by a reduction in net income. List 3 elements necessary to describe a loss exposure - answer1. An asset exposed to loss 2. Cause of loss (also called a peril)