UGA RMIN 4000 REVIEW UPDATED QUESTIONS AND
ANSWERS SET A+
✔✔insurance - ✔✔the pooling of fortuitous losses by transfer of such risks to insurers,
who agree to indemnify insureds for such losses, to provide other pecuniary benefits on
their occurrence, or to render services connected with the risk
✔✔pooling - ✔✔the spreading of losses incurred by the few over the entire group, so
that in the process, average loss is substituted for actual loss
✔✔fortuitous loss - ✔✔one that is unforeseen and unexpected by the insured and
occurs as a result of chance
loss must be accidental
✔✔risk transfer - ✔✔a pure risk is transferred from the insured to the insurer, who
typically is in a stronger financial position to pay the loss than the insured
example: poor health, disability, destruction and theft of property
✔✔indemnification - ✔✔the insured is restored to his or her approximate financial
position prior to the occurrence of the loss
example: if house burns down, homeowners policy will give you back what you started
with
✔✔6 characteristics of an insurable risk - ✔✔1) there must be a large number of
exposure units
2) the loss must be accidental and unintentional
3) the loss must be determinable and measurable
4) the loss should not be catastrophic
5) the chance of loss must be calculable
6) the premium must be economically feasible
, ✔✔reinsurance - ✔✔arrangement by which the primary insurer that initially writes the
insurance transfers to another insurer part or all of the potential losses associated with
such insurance
✔✔adverse selection - ✔✔the tendency of persons with a higher than average chance
of loss to seek insurance at standard rates, which, if not controlled by underwriting
results in higher than expected loss levels
example: high risk drivers who purchase insurance at standard rates
✔✔underwriting - ✔✔the process of selecting and classifying applicants for insurance
✔✔benefits of insurance to society - ✔✔-indemnification for loss
-reduction of worry and fear
-source of investment funds
-loss prevention
-enhancement of credit
✔✔risk management - ✔✔process that identifies loss exposures faced by an
organization and selects the most appropriate techniques for treating such exposures
✔✔pre-loss objectives - ✔✔1) the firm should prepare for potential losses in the most
economical way
2) the reduction of anxiety
3) meet any legal obligations
✔✔post- loss objectives - ✔✔1) survival of the firm is the most important
2) continue operating
3) continued growth of the firm
4) minimize the effects that a loss will have on other persons and society
✔✔four steps in the risk management process - ✔✔1) identify loss exposures
2) measure and analyze the loss exposures
3) select the appropriate combination of techniques for treating the loss exposures
4) implement and monitor the risk management program
✔✔loss exposures - ✔✔1) property loss exposures
2) liability
3) business income loss
4) human resource
5) crime
6) employee benefit
7) foreign
8) intangible property loss exposures
9) failure to comply with government rules and regulations
ANSWERS SET A+
✔✔insurance - ✔✔the pooling of fortuitous losses by transfer of such risks to insurers,
who agree to indemnify insureds for such losses, to provide other pecuniary benefits on
their occurrence, or to render services connected with the risk
✔✔pooling - ✔✔the spreading of losses incurred by the few over the entire group, so
that in the process, average loss is substituted for actual loss
✔✔fortuitous loss - ✔✔one that is unforeseen and unexpected by the insured and
occurs as a result of chance
loss must be accidental
✔✔risk transfer - ✔✔a pure risk is transferred from the insured to the insurer, who
typically is in a stronger financial position to pay the loss than the insured
example: poor health, disability, destruction and theft of property
✔✔indemnification - ✔✔the insured is restored to his or her approximate financial
position prior to the occurrence of the loss
example: if house burns down, homeowners policy will give you back what you started
with
✔✔6 characteristics of an insurable risk - ✔✔1) there must be a large number of
exposure units
2) the loss must be accidental and unintentional
3) the loss must be determinable and measurable
4) the loss should not be catastrophic
5) the chance of loss must be calculable
6) the premium must be economically feasible
, ✔✔reinsurance - ✔✔arrangement by which the primary insurer that initially writes the
insurance transfers to another insurer part or all of the potential losses associated with
such insurance
✔✔adverse selection - ✔✔the tendency of persons with a higher than average chance
of loss to seek insurance at standard rates, which, if not controlled by underwriting
results in higher than expected loss levels
example: high risk drivers who purchase insurance at standard rates
✔✔underwriting - ✔✔the process of selecting and classifying applicants for insurance
✔✔benefits of insurance to society - ✔✔-indemnification for loss
-reduction of worry and fear
-source of investment funds
-loss prevention
-enhancement of credit
✔✔risk management - ✔✔process that identifies loss exposures faced by an
organization and selects the most appropriate techniques for treating such exposures
✔✔pre-loss objectives - ✔✔1) the firm should prepare for potential losses in the most
economical way
2) the reduction of anxiety
3) meet any legal obligations
✔✔post- loss objectives - ✔✔1) survival of the firm is the most important
2) continue operating
3) continued growth of the firm
4) minimize the effects that a loss will have on other persons and society
✔✔four steps in the risk management process - ✔✔1) identify loss exposures
2) measure and analyze the loss exposures
3) select the appropriate combination of techniques for treating the loss exposures
4) implement and monitor the risk management program
✔✔loss exposures - ✔✔1) property loss exposures
2) liability
3) business income loss
4) human resource
5) crime
6) employee benefit
7) foreign
8) intangible property loss exposures
9) failure to comply with government rules and regulations
