INSR 310 UPDATED EXAM SCRIPT QUESTIONS AND
SOLUTIONS GRADED A+
✔✔relatively stable economy - ✔✔- supports planning (insurance is FUTURE oriented)
- greater disincentives for loss
✔✔elements of insurable risk from the insurer's perspective - ✔✔- large number of
homogeneous exposure units to increase predictability
- fortuitous/ unintentional losses only to reduce moral hazard and adverse selection
- definite/measurable losses; quantification vital for indemity
- non-catastrophic occurence
✔✔elements of insurable risk from the insured's perspective - ✔✔- large-loss principle
- cost of insurance transfer must be reasonable
✔✔types of commercially insurable risk - ✔✔1- personal
2- property
3- liability
4- failure to others
✔✔personal commercially insurable risk - ✔✔income streams/ cash flows
✔✔property commercially insurable risk - ✔✔direct / indirect losses of assets
✔✔liability commercially insurable risk - ✔✔others' losses caused by "you" (third
parties)
✔✔failure to others - ✔✔your losses due to other's failure or neglegence
✔✔insurance vs. gambling/speculation - ✔✔both are aleatory
✔✔insurance - ✔✔risk reducing activity for/by all parties to contract
✔✔gambling/speculation - ✔✔risk increasing activity fro all parties; typically does not
meet elements of "insurability"
✔✔some social benefits of insurance - ✔✔1- risk of loss transferred to parties better
able to bear it
2- risk transfer: reduces individual reserve commitment necessary
3- reduced mental anguish
4- capital market effects
5- transfer facilitates entrepreneurship; more focused investment/reinvestment of scarce
resources
6- pooling/investment; more capital available for all, and at lower costs
, 7- corporate activities of insurers/ loss control firms general employment and taxes
8- enhanced economic stability
9- protection from financial ruin
10- future-oriented planning processes
✔✔some social costs of not have insurance - ✔✔1- some argue: non-optimal use/
consumption of resources
2- intentional losses can/ do occur
3- fraud/ attempts to profit and/or exaggerate losses can/do occur
✔✔myriad sources of risk - ✔✔1- commercial and legal relationships with third parties
2- general economic/ business circumstances
3- human behavior
4- natural and man-made losses
5- government
6- technology
7- management
many many many more
✔✔commercial and legal relationships with third parties - ✔✔contracts (oral and
written), customers, suppliers, lenders, lessors, insurers, etc.
✔✔human behavior - ✔✔good and bad activities
✔✔natural and man made losses - ✔✔disasters, storms, terrorism, arson, etc
✔✔government - ✔✔laws, regulations, court/judicial interpretations, politics, etc
✔✔risk management - ✔✔an organized process of planning/control; goal is to minimize
the adverse effects of risk
✔✔the risk manager - ✔✔internal specialist within an organization, responsible for risk;
lower potential conflict of interest (manager's interest better tied to organization)
✔✔why is better RM needed? - ✔✔- organizational (personal) efforts not up to
date/current, or nonexistent
- effective/ efficient coordination of effort vital to organization success...or survival
✔✔the 3 rules of risk management - ✔✔1- don't risk more than you can afford to lose
2- don't risk a lot for a little
3- consider the odds (frequency and severity)
✔✔two added rules of risk management - ✔✔1- insurance is NOT substitute for loss
control
2- having more money is NOT a sub. for good RM
SOLUTIONS GRADED A+
✔✔relatively stable economy - ✔✔- supports planning (insurance is FUTURE oriented)
- greater disincentives for loss
✔✔elements of insurable risk from the insurer's perspective - ✔✔- large number of
homogeneous exposure units to increase predictability
- fortuitous/ unintentional losses only to reduce moral hazard and adverse selection
- definite/measurable losses; quantification vital for indemity
- non-catastrophic occurence
✔✔elements of insurable risk from the insured's perspective - ✔✔- large-loss principle
- cost of insurance transfer must be reasonable
✔✔types of commercially insurable risk - ✔✔1- personal
2- property
3- liability
4- failure to others
✔✔personal commercially insurable risk - ✔✔income streams/ cash flows
✔✔property commercially insurable risk - ✔✔direct / indirect losses of assets
✔✔liability commercially insurable risk - ✔✔others' losses caused by "you" (third
parties)
✔✔failure to others - ✔✔your losses due to other's failure or neglegence
✔✔insurance vs. gambling/speculation - ✔✔both are aleatory
✔✔insurance - ✔✔risk reducing activity for/by all parties to contract
✔✔gambling/speculation - ✔✔risk increasing activity fro all parties; typically does not
meet elements of "insurability"
✔✔some social benefits of insurance - ✔✔1- risk of loss transferred to parties better
able to bear it
2- risk transfer: reduces individual reserve commitment necessary
3- reduced mental anguish
4- capital market effects
5- transfer facilitates entrepreneurship; more focused investment/reinvestment of scarce
resources
6- pooling/investment; more capital available for all, and at lower costs
, 7- corporate activities of insurers/ loss control firms general employment and taxes
8- enhanced economic stability
9- protection from financial ruin
10- future-oriented planning processes
✔✔some social costs of not have insurance - ✔✔1- some argue: non-optimal use/
consumption of resources
2- intentional losses can/ do occur
3- fraud/ attempts to profit and/or exaggerate losses can/do occur
✔✔myriad sources of risk - ✔✔1- commercial and legal relationships with third parties
2- general economic/ business circumstances
3- human behavior
4- natural and man-made losses
5- government
6- technology
7- management
many many many more
✔✔commercial and legal relationships with third parties - ✔✔contracts (oral and
written), customers, suppliers, lenders, lessors, insurers, etc.
✔✔human behavior - ✔✔good and bad activities
✔✔natural and man made losses - ✔✔disasters, storms, terrorism, arson, etc
✔✔government - ✔✔laws, regulations, court/judicial interpretations, politics, etc
✔✔risk management - ✔✔an organized process of planning/control; goal is to minimize
the adverse effects of risk
✔✔the risk manager - ✔✔internal specialist within an organization, responsible for risk;
lower potential conflict of interest (manager's interest better tied to organization)
✔✔why is better RM needed? - ✔✔- organizational (personal) efforts not up to
date/current, or nonexistent
- effective/ efficient coordination of effort vital to organization success...or survival
✔✔the 3 rules of risk management - ✔✔1- don't risk more than you can afford to lose
2- don't risk a lot for a little
3- consider the odds (frequency and severity)
✔✔two added rules of risk management - ✔✔1- insurance is NOT substitute for loss
control
2- having more money is NOT a sub. for good RM
