CPCU 500 Insurance Designation Questions And Answers

CPCU 500 Insurance Designation
Questions And Answers

1. Risk - ANSWER ✔ - the uncertainty about outcomes, with the possibility that some of the outcomes
can be negative. Quantified by knowing the probability of the possible outcomes



2. Probability - ANSWER ✔ - the likelihood that an outcome or event will occur. Probabilities are stated
as a decimal figure, a percentage, or a fraction.



3. What are the 2 elements associated with risk? - ANSWER ✔ - uncertainty of outcome + possibility of
negative outcome



4. Pure Risk - ANSWER ✔ - a chance of loss or no loss, but no chance of gain.



5. Speculative Risk - ANSWER ✔ - a chance of gain or loss (investment).



6. Price Risk - ANSWER ✔ - the uncertainty over the size of cash flows resulting from possible changes in
the cost of raw materials and other inputs (lumber, gas, or electricity)



7. Credit Risk - ANSWER ✔ - the risk that customers and other debtors will fail to make promised
payments.



8. Distinguish Diversifiable vs. Nondiversifiable Risk - ANSWER ✔ - Diversifiable risks can be managed by
spreading (such as purchasing multiple businesses). Nondiversifiable risks are correlated so that their
gains or losses tend to occur simultaneously rather than randomly.



9. What are the 4 quadrants of risk? - ANSWER ✔ - Hazard, Operational, Financial, and Strategic risk



10. Hazard - ANSWER ✔ - a condition that increases the frequency or severity of a loss.



11. What are the classifications of risk? - ANSWER ✔ - pure vs. speculative. Subjective vs. objective.
Diversifiable vs. nondiversifiable.
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CPCU 500
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