CPCU 500 Module 1 (with Complete Solutions)

Adjusts an insured's premiums for a policy period based on the insured's own losses during that period correct answers A Retrospective rating plan Uncertainty correct answers Not knowing what will happen Risk correct answers Possibility of Gain or Loss Loss correct answers Undesirable end result Loss Exposure correct answers Loss that might occur Peril correct answers Cause of a loss, such as a theft or crime Hazard correct answers Condition that increases the likelihood of the occurrence of a loss Two Elements of Risk correct answers 1) Uncertainty regarding the type or timing of the outcomes 2) Possibility of negative outcome (loss) Pure Risk correct answers The possibility of loss Speculative Risk correct answers possibility of Gain or Loss Market Risk correct answers fluctuations in securities prices Inflation Risk correct answers Loss of Purchasing Power Interest Rate Risk correct answers Changes in interest rates Theoretical Pillars of ERM correct answers Interdependency, correlation, and portfolio theory Morale Hazard correct answers (attitudinal hazard) a condition of carelessness that increases the likelihood of loss Pre-Loss Goals correct answers Goals to be achieved before a loss has occurred - should ensure organization's legal obligations are met - include: Economy of operations, tolerable uncertainty, legality, social responsibility (pre-loss & post-loss) The most important risk management goal for public entities such as governing bodies and utilities correct answers Continuity of Operations Two steps of the RM process that together constitute the process of assessing loss exposures correct answers Identifying and analyzing loss exposures