CPCU 500 Exam Questions- Managing Evolving Risks with correct Answers

Drones may be equipped with cameras that relay data in real-time Which one of the following uses infrared light to detect nearby objects? - Answer- Lidar AMRM Insurance Company sells insurance in Virginia, North Carolina, South Carolina, and Georgia. The company has compiled a policyowner data base that can be used to send text messages when hurricanes approach. The company provides early warnings, storm updates from the National Weather Service, and hurricane safety measures. The company credits the system with reduced hurricane claims. The use of the texting system is an example of - Answer- Preventive analytics Clear-Rite Company specializes in the clean-up of hazardous chemical spills. Workers performing clean-up operations must use safety suits to prevent exposure to the chemicals. The suits include pulse and respiration monitors, body temperature sensors, and chemical sensors. The monitors and sensors report data to a mobile operations center which is deployed to each clean-up site. The pulse and respiration monitors and the sensors that are part of the protective gear are called - Answer- Wearable technologies The traditional definition of risk management reflects the traditional concept of risk as - Answer- Negative WOTF is true regarding the evolution of risk and risk management? - Answer- The definition of risk has evolved to included +/- attributes Many auto manufacturers have automated a portion of their assembly lines by introducing a smart product. The smart product performs repetitive tasks, such as making the same weld on each vehicle frame as it passes the smart product. These smart products, which can be fixed or mobile, reduce repetitive motion injuries that humans might suffer. They can also be used to perform dangerous tasks and in heavy-lifting jobs. These smart products are called - Answer- Robots Which one of the following is described as a distributed database that serves as a collectively shared ledger? - Answer- Blockchain Autonomous Vehicle Applications (AVA) is a start-up company that develops safety technologies that can be sold to companies that are producing autonomous vehicles. One technology AVA is developing allows an autonomous vehicle to detect, extract, and analyze images; and then to respond to the images. For example, the technology would detect a presence in a crosswalk, extract the image, and a computer would analyze the image. When the image was determined to be a human being, the vehicle would slow down or stop until the crosswalk was clear. This technology, which is designed to capture and analyze images, and to act on the recognition of the image; is called - Answer- Computer vision Catastrophes such as recent earthquakes and the 2011 tsunami in Japan pointed out a need for many organizations to evaluate and manage their - Answer- Supply-chain risk Which one of the following best explains how most smart products potentially improve risk management? - Answer- They generate big data to which advanced analytics can be applied Take Your Order (TYO) is a company that specializes in taking product orders for vendors. The manufacturer of a product can run a television or internet ad for a product with a toll-free number. Customer calls for the products are routed to TYO, where one hundred operators are available to receive the calls. Each operator is assigned a cubicle with a computer terminal, video display monitor, and a telephone. TYO experienced high workers compensation claims from its operators, claiming neck strain, eye strain, and wrist pain. In an effort to reduce such injuries, TYO evaluated each operator's work area. The height of chairs and video monitors were adjusted, curved computer keyboards and wrist-rests were provided, and the telephones were replaced with audio headsets. Workers compensation costs dropped significantly. The science of designing work spaces based on interaction between people and the equipment in the work space is called - Answer- Ergonomics Don is the Risk Manager for Rafferty Corporation. One of his peers, Sally, asks him one day, "How do you define risk?" When Don replies, which one of the following statements is accurate? - Answer- Risk has different meanings within the risk management and insurance communities. In an effort to reduce expenses, increase profitability, and reduce human errors; ABC Insurance Company decided to automate most of its personal lines underwriting function. The company now uses standardized application forms that are submitted electronically to one of the company's regional offices. At each regional office, a computer with a scanner reads the applications. The computer has been programmed with acceptable answers to the questions. If the answers on the application are all acceptable, the policy is automatically issued. Rejected applications are automatically forwarded to a human underwriter who reviews them. The use of this technology has reduced the company's expense ratio by two and a half percent, and reduced the time it takes to issue a policy. ABC Insurance Company's use of computers to evaluate applications electronically is an application of - Answer- Artificial intelligence A municipal water plant installed water flow sensors and water pressure sensors on the water pipes leaving the plant. The sensors make sure water is flowing properly and that there are no leaks or clogs which could produce a loss. These types of sensors are - Answer- Mechanical sensors Which one of the following is a tool that can be used by fraud investigators to compare documents and analyze notes? - Answer- Text mining Last year, three Metro City firemen died responding to a fire at a chemical plant, when they were overcome by toxic fumes. In response, Metro City is purchasing advanced first responder gear. It includes special flame retardant suits with chemical and explosive fume sensors, air quality sensors, and heat sensors. Responders will also wear special watches that will track a responder's pulse, respiration, and blood pressure; and helmets that include video cameras. All of these sensors will feed data to a computer in real-time. The computer will analyze the data and issue threat levels and evacuation orders, if necessary. The protective gear Metro City will purchase and the data transmission and analysis capability illustrate the use of - Answer- Smart products Precision Electronic Components manufactures circuit boards, microchips, and other electronic products. Given the precision necessary for their products, the manufacturing environment must be controlled. Temperature, humidity, static electricity and other factors must be monitored. After losing several batches of products due to human monitoring failures and imprecise adjustments, the company moved to a system of sensors. The sensors monitor and regulate temperature, humidity, static electricity, and other factors. The sensors transmit data to and from each other, and the manufacturing environment is continuously adjusted to assure production is successful. The network of sensors transmitting data and the autonomous corrective actions without human interaction is called - Answer- The Internet of Things Mutual Fund Company (MFC) offers a wide array of mutual fund options to investors. Each mutual fund has a different fund objective and set of investment guidelines that apply to the fund. While MFC gives considerable freedom to its fund portfolio managers, they are required to abide by the fund's investment guidelines. To monitor compliance, MFC developed a computer algorithm. The computer algorithm continuously monitors each fund's compliance with investment guidelines. If a fund manager violates the investment guidelines, the computer immediately notifies MFC's internal control director, and corrective action is taken. MFC's use of the computer algorithm to monitor investment compliance and to provide notification when corrective action is necessary illustrates use of - Answer- Artificial intelligence Data Entry Company (DEC) offers customers data entry services. A customer can hire DEC to enter survey data to be analyzed. Many DEC employees spend long hours entering data on a computer. DEC has experienced neck strain and wrist pain complaints from their employees, increasing the company's workers compensation costs. DEC investigated the complaints of its data-entry employees. DEC adopted curved keyboards for data entry, wrist-rests for those entering data, and uniform chair heights and display monitor heights to reduce neck strain claims. The science of designing work spaces based on the health concerns of those who will operate in the work space is called - Answer- Ergonomics WOTF is an ex of wearable? - Answer- Helmets that monitor fatigue The National Ocianic (NOA) Monitors tsunami risk. Using the tsunami detection buyous (smart prod) illustrates - Answer- CAT management WOTF data capture tools has led to an explosion of risk management innovation by allowing smart products to transmit data? - Answer- Internet of Things The diff between risk tech & insuretech is - Answer- Risk tech goes beyond insuretech by expanding its focus to making risk financing more efficient & preventing & mitigating losses in a variety of indv. Risk managers today differ from traditional risk managers in WOTF ways? - Answer- They attempt to min threats & optimize opportunities In addition to metal detectors, many airports have installed a 2nd type of scanning tech 4 checked baggage & cargo to detect explosives based on air samples. Which sensor used for risk assemt and control? - Answer- Biochemical sensors (home diagnosis tests, wearable fitness monitors, diabetes tests) William is a risk manager for Green Mountain Trucking. He has always analyzed auto loss frequency and severity rates for the fleet. William would like to collect data on vehicle speeds, braking patterns, and distance traveled and compare that with the loss history. Which one of the following would help William capture and analyze this data? - Answer- Vehicle Telematics Southwest Interstate Railroad (SIR) is concerned about the number derailments in recent years. It's not cost effective to use human assets to inspect tracks, bridges, and trestles. Instead, SIR has started to use drones. A drone can fly low over tracks and above/below bridges and trestles. The drones record video that is transmitted to corporate headquarters where it is simultaneously scanned for derailment hazards. In the past six months, the drones detected a track blockage caused by a rock slide and damage to tracks in a remote area cause by an earthquake. SIR dispatched work crews to make the tracks once again passable, and no derailments occurred. SIR's use of drones, video, real-term video scanning, and computer analysis illustrates which one of the following? - Answer- Preventive Analytics WOTF is true about preventive analytics - Answer- Uses smart products and data analytics to identify root loss causes and their implicaitions. The emerging techs applied to risk assessment and control link the physical domain and virtual domain. Together, these domains linked by the merging techs create a - Answer- Connected ecosystem In remodeling the primary office location, Phil, who is a partner in his family's construction business, found asbestos in the attic of the building. He is concerned not only about the current tear-out exposure but is also aware that asbestos may have resulted in unidentified harm. In the "quadrants of risk," Phil's concern about the asbestos most likely falls into which one of the following quadrants of risk? - Answer- Hazard risk Which of the following risk management program goals is an essential goal for all public entities? - Answer- Continuity of operations An organization must meet the standard of care that it owes to others in order to ensure that - Answer- Legal obligations are satisfied. Jean is the Risk Manager for a Fortune 1000 company. Her CFO has tasked her to analyze vulnerabilities in the firm's supply chain. The adequacy of suppliers to meet an organization's needs would be an example of which one of the following types of risk? - Answer- Operational risk Fluctuations in the value of stocks or bonds due to interest rate changes is an example of - Answer- Financial risk One of the levels of risk a business faces is the risk of accidental loss, including the possibility of loss or no loss. This category of risk is - Answer- Hazard risk Which one of the following provides a measure of the maximum potential damage associated with an occurrence? - Answer- Exposure Which one of the following risk management objectives is critical for a manufacturer seeking new capital from investors, stockholders, and creditors? - Answer- Reduce the deterrent effects of hazard risks Company G is a manufacturer of high profile golf equipment. The risk management professional for Company G is concerned about loss of business related to product design. Failing to respond to changing customer demand and preferences in the design of golf clubs could cost Company G significant market share. Categorized according to the quadrants of risk, this exposure to loss is classified as - Answer- A strategic risk Classifying risk appropriately can help in managing risk. Which one of the following statements is correct with respect to the classifications of risk? - Answer- A pure risk is a chance of loss or no loss, but no chance of gain. Risk can be classified as pure or speculative. Which one of the following is the best example of a speculative risk? - Answer- Investing in shares of stock In an effort to grow its personal lines book, an insurer decides to offer discounts on homeowners and personal auto insurance to the employees of its largest business lines account. Which one of the following risk measures is most likely to increase as a result of this marketing decision? - Answer- Correlation Hardware Store has been able to control its prices and inventory since it has no competitors. A new highway currently being constructed is going to allow increased competition for Hardware Store. According to the quadrants of risk, this risk of increased competition falls into the category of - Answer- Strategic risk. aligning risks with the organization's risk appetite defines - Answer- Tolerable uncertainty The fundamental purpose of a risk management framework is to - Answer- Integrate risk management throughout the organization Mid-State Packing Company, a meat processing company, is the largest private sector employer in Metro City. First National Bank of Metro City loans money to Mid-State Packing Company and to many of the employees of Mid-State. The problem with First National Bank of Metro City loaning money to both the business and many employees of the business is that - Answer- Loan defaults are likely to be highly correlated. Which one of the following risk management program goals enhances an organization's reputation? - Answer- Social responsibility According to the law of large numbers, as the number of exposure units insured increases - Answer- The relative accuracy of predictions about future losses increases Which one of the following is one of the five steps of the risk management process? - Answer- Scan environment Which one of the following statements is true regarding the basic measures that apply to risk management? - Answer- . Consequences measure the degree to which an occurrence could positively or negatively affect an organization. Risk can be classified as diversifiable or nondiversifiable. Which one of the following statements is true with respect to this type of risk classification? - Answer- diversifiable risks tend not to be correlated so they can be managed through diversif or spread of risk Risks from accidental loss, including the possibility of loss or no loss defines - Answer- Hazard Risk The relationship between two basic measures is critical for risk mangt in assessing risk and deciding whether and how to manage it - Answer- likelihood and consequences one enterprise risk management (ERM) approach to categorizing risks involves dividing risks into 4 quads. The hazard risks are - Answer- Traditionally managed by RM pros Insurance Deals primarily with - Answer- Puer risks A new computer chip that could position a company for explosive growth is an example of - Answer- Strategic risk Brendan is a new risk manager at a Shelton Manufacturing in North Carolina. Because the company has never experienced any consequences from a hurricane, the previous risk manager never really analyzed the risks associated with such an event. Brendan feels that a hurricane could trigger multiple far-reaching consequences and that the risk requires a thorough analysis. Due to Shelton Manufacturing's lack of historical data Brendan has decided to use a structured process that incorporates expert opinions into the probability estimations. Which one of the following types of risk assessment is Brendan using? - Answer- Predictive technique SoCal Movie Company produces movies at a studio in Southern California. The risk manager decided to identify the range of potential consequences associated with various risks that the company faces. For example, if a severe earthquake occurred while the company was filming a movie, there could be deaths and injuries, destruction of movie sets, delays in production, costs associated with filming at an alternative location, and loss of reputation and good will. The type of analysis performed by the risk manager is called - Answer- Scenario analysis. The second step in the root cause analysis (RCA) process is charting the agents that directly result in one event triggering another event. In RCA, these agents are called - Answer- Causal factors Which one of the following types of risk analysis uses historical data to assign specific values to consequences and their probabilities to reach a numeric indication of the level of risk? - Answer- Quantitative analysis To accurately determine its level of risk, an organization must examine the effectiveness of its efforts to prevent losses from occurring and to reduce the severity of losses that do occur. An organization's efforts in this area are called - Answer- Risk control An organization has had a high percentage of repetitive stress injuries to workers in a particular phase of their production process. The risk manager has been asked to analyze these injuries from a system safety analysis perspective. Which one of the following techniques should the risk manager use to investigate these accidents? - Answer- Job safety analysis A risk manager for an organization has proposed a meeting to ask a series of "What if?" questions to project the consequences for implementing alternative processes under consideration. Which one of the following system safety analysis techniques is the risk manager proposing? - Answer- Change analysis The use of risk quadrants to identify and categorize risk can provide a framework for risk identification. One quadrant includes such risks as loss of production due to a key supplier not delivering raw materials or a mechanical breakdown of equipment. This risk quadrant is - Answer- Operational risk. Harris Company is analyzing its workers compensation loss exposure. Harris Company retains most of the exposure and purchases excess insurance to cap its liability on any individual claim. Because Harris Company has a large work force, it can predict its workers compensation cost with some level of accuracy. For next year, the risk manager estimates that there is a 70% chance that workers compensation costs will be $6 million or less, a 25% chance workers compensation costs will be between $6 million and $8 million, and a 5% chance workers compensation costs will exceed $8 million. The type of analysis the risk manager performed is called - Answer- Quantitative analysis Home Appliance Company has decided to change its production method. Previously, small teams of workers assembled washers, dryers, and dishwashers. Under the new production method, an assembly-line will be used, with some functions performed by robotics. Before making the change, Home Appliance Company has created a team of experts from company personnel to identify all of the risks inherent in the new production method and to recommend measures to address these risks. The team will assemble in a facilitated workshop and follow these steps: Divide the production method into components Review each component to identify risk Identify causes and potential outcomes for each risk Develop a solution for each risk. This team approach is risk identification is called a - Answer- Hazard and operability (HAZOP) study SE Industries has identified windstorm as a risk. The risk manager has assembled a team to project the potential consequences of windstorm. The team includes individuals from various functions within the organization. Which one of the following team approaches to risk identification is SE Industries using - Answer- Scenario analysis After a month in which three employees were seriously injured at company paper mills, Ashley, the risk manager of Bright White Paper Company, wanted some answers about the causes of employee injuries. Ashley independently contacted the plant manager and foreman at each of the company's plants. She asked each person to complete a confidential questionnaire regarding safety procedures. After receiving the responses to the questionnaire, Ashley summarized the results and asked the same questions again instructing each person to consider revising their responses based on the initial questionnaire results. The analysis revealed that new workers were not being properly trained and that a lax attitude toward safety was present at the majority of the plants. The team approach to risk identification Ashley employed is called - Answer- The Delphi technique Risk manager Christine is analyzing the risks faced by her company, Clear Sky Technology. She assigns a rating based on the significance of the consequences of the various risks. Her four ratings are: Low, M