CISR- Elements of Risk Management
UPDATED ACTUAL Exam Questions and
CORRECT Answers
Section 1: Introduction to Risk Management- Learning Objective 1: Define Risk and be able to
distinguish between pure risk and speculative risk. Define Risk? - CORRECT ANSWER -
Risk is defined as a condition of either positive or negative uncertainty arising from a given set
of circumstances. Risk does not solely describe possible negative outcomes, the chance of loss,
or no loss. Risk outcomes can also be positive.
Section 1: Introduction to Risk Management-Learning Objective 1: Define Risk and be able to
distinguish between pure risk and speculative risk. What is Pure Risk? - CORRECT
ANSWER - Pure Risk involves a situation or incident in which the only outcome can
either be loss or no loss. There is no opportunity for gain. Examples include threats to property
and people, as well as liability.
Section 1: Introduction to Risk Management- Learning Objective 1: Define Risk and be able to
distinguish between pure risk and speculative risk. What is Speculative Risk? - CORRECT
ANSWER - Speculative Risk presents the possibility of loss or no loss. However, it differs
from pure risk in that it also presents the chance of a gain, even when there is no loss. Examples
include association with business or financial risk. Positive and negative changes in the value of
a company's stock and positive and negative changes in a market that affect the demand for a
company's goods.
Section 1: Introduction to Risk Management- Learning Objective 1: Define Risk and be able to
distinguish between pure risk and speculative risk. Example: Imagine that one of your clients
owns a company that manufactures and sells a variety of granola breakfast and snack products.
Identify three examples of pure and speculative risk associated with your client's business. -
CORRECT ANSWER - Pure:
- A food product could contain contaminants.
- A line worker could suffer a back injury
- A fire could occur.
Speculative:
,- The client introduces a reduced carbohydrate line, which could have a lasting impact or be of
limited interest to consumers.
- The client pays an athlete for an endorsement, tying the brand to the image of the athlete.
(Could tarnish with bad reputation)
- Client decides to expand into a new territory. Expansion could result in financial gain or loss.
Section 1: Introduction to Risk Management- Learning Objective 2: Identify the five steps of the
risk management process and explain how those steps integrate to create a risk management
program. What is Risk Management? - CORRECT ANSWER - Risk Management is the
implementation of a process intended to minimize the uncertainty of exposures that can
adversely affect an individual's or organization's assets and financial well-being. It can also be
used to identify internal and external strengths that can lead to a financial gain.
Section 1: Introduction to Risk Management- Learning Objective 2: Identify the five steps of the
risk management process and explain how those steps integrate to create a risk management
program. Step 1: Risk Identification ? - CORRECT ANSWER - Step 1: Risk Identification
is when a risk manager identifies and examines all of an organizations exposures. A failure to
identify exposures may subject an organization to negative financial consequences.
Section 1: Introduction to Risk Management- Learning Objective 2: Identify the five steps of the
risk management process and explain how those steps integrate to create a risk management
program. Step 2: Risk Analysis? - CORRECT ANSWER - Step 2: Risk Analysis relies on
the exposures identified in step 1 to assess the potential impact of those exposures upon an
organization.
Qualitative Risk Analysis: Information from Interviews, Case Studies, historical analysis,
cultural customs. Answers should we do this?
Quantitative Risk Analysis: Uses numerical values to predict the likelihood and severity of risk.
Answers Can we do this?
Section 1: Introduction to Risk Management- Learning Objective 2: Identify the five steps of the
risk management process and explain how those steps integrate to create a risk management
program. Step 3: Risk Control? - CORRECT ANSWER - Step 3: Risk Control applies a
set of methods or actions intended to minimize or avoid the impact of loss. Approaches to risk
, are theoretical. Examples include Human approach (Change behavior of employee), Engineering
Approach (Improve safety of equipment?), and systems approach (What changes to internal
procedures to reduce accidents).
Section 1: Introduction to Risk Management- Learning Objective 2: Identify the five steps of the
risk management process and explain how those steps integrate to create a risk management
program. Step 4: Risk Financing? - CORRECT ANSWER - Step 4: Risk Financing is the
acquisition of internal and external funds at the most favorable cost to pay losses. Internal funds
can be used to pay losses. This financing solution is called retention. Retention can be active
(planned), or passive (unplanned).
Active Retention: Example is deductible as a company decides it is willing to accept a specific
financial amount of risk, knowing that if a loss occurs, payment will be made from company's
cash on hand.
Passive Retention: Unplanned. Company X purchases a new auto and forgets to notify agent to
add to policy. Not identified can not be analyzed or helped.
Section 1: Introduction to Risk Management- Learning Objective 2: Identify the five steps of the
risk management process and explain how those steps integrate to create a risk management
program. Step 5: Risk Administration? - CORRECT ANSWER - Step 5: Risk
Administration is the ongoing implementation and monitoring of Risk Management programs,
policies, and procedures. Examples include the identification of exposures and risks, the
reduction of a loss, and the integration of risk control and safety.
Section 1: Introduction to Risk Management- Summary - CORRECT ANSWER -
Clients—whether they are individuals or organizations—imagine and set goals for their futures.
While risk may be inevitable, it is manageable with assistance from insurance professionals who
possess a thorough understanding of terminology, forms of risk, and steps or actions their clients
can take to avoid or minimize financial loss.
A thorough understanding of risk management depends in part on an understanding of common
terms. The term, "risk," for example, is a condition of either positive or negative uncertainty
arising from a given set of circumstances. Pure risks involve situations or incidents whose only
outcomes can either be loss or no loss. There is no possibility of gain, in other words.
UPDATED ACTUAL Exam Questions and
CORRECT Answers
Section 1: Introduction to Risk Management- Learning Objective 1: Define Risk and be able to
distinguish between pure risk and speculative risk. Define Risk? - CORRECT ANSWER -
Risk is defined as a condition of either positive or negative uncertainty arising from a given set
of circumstances. Risk does not solely describe possible negative outcomes, the chance of loss,
or no loss. Risk outcomes can also be positive.
Section 1: Introduction to Risk Management-Learning Objective 1: Define Risk and be able to
distinguish between pure risk and speculative risk. What is Pure Risk? - CORRECT
ANSWER - Pure Risk involves a situation or incident in which the only outcome can
either be loss or no loss. There is no opportunity for gain. Examples include threats to property
and people, as well as liability.
Section 1: Introduction to Risk Management- Learning Objective 1: Define Risk and be able to
distinguish between pure risk and speculative risk. What is Speculative Risk? - CORRECT
ANSWER - Speculative Risk presents the possibility of loss or no loss. However, it differs
from pure risk in that it also presents the chance of a gain, even when there is no loss. Examples
include association with business or financial risk. Positive and negative changes in the value of
a company's stock and positive and negative changes in a market that affect the demand for a
company's goods.
Section 1: Introduction to Risk Management- Learning Objective 1: Define Risk and be able to
distinguish between pure risk and speculative risk. Example: Imagine that one of your clients
owns a company that manufactures and sells a variety of granola breakfast and snack products.
Identify three examples of pure and speculative risk associated with your client's business. -
CORRECT ANSWER - Pure:
- A food product could contain contaminants.
- A line worker could suffer a back injury
- A fire could occur.
Speculative:
,- The client introduces a reduced carbohydrate line, which could have a lasting impact or be of
limited interest to consumers.
- The client pays an athlete for an endorsement, tying the brand to the image of the athlete.
(Could tarnish with bad reputation)
- Client decides to expand into a new territory. Expansion could result in financial gain or loss.
Section 1: Introduction to Risk Management- Learning Objective 2: Identify the five steps of the
risk management process and explain how those steps integrate to create a risk management
program. What is Risk Management? - CORRECT ANSWER - Risk Management is the
implementation of a process intended to minimize the uncertainty of exposures that can
adversely affect an individual's or organization's assets and financial well-being. It can also be
used to identify internal and external strengths that can lead to a financial gain.
Section 1: Introduction to Risk Management- Learning Objective 2: Identify the five steps of the
risk management process and explain how those steps integrate to create a risk management
program. Step 1: Risk Identification ? - CORRECT ANSWER - Step 1: Risk Identification
is when a risk manager identifies and examines all of an organizations exposures. A failure to
identify exposures may subject an organization to negative financial consequences.
Section 1: Introduction to Risk Management- Learning Objective 2: Identify the five steps of the
risk management process and explain how those steps integrate to create a risk management
program. Step 2: Risk Analysis? - CORRECT ANSWER - Step 2: Risk Analysis relies on
the exposures identified in step 1 to assess the potential impact of those exposures upon an
organization.
Qualitative Risk Analysis: Information from Interviews, Case Studies, historical analysis,
cultural customs. Answers should we do this?
Quantitative Risk Analysis: Uses numerical values to predict the likelihood and severity of risk.
Answers Can we do this?
Section 1: Introduction to Risk Management- Learning Objective 2: Identify the five steps of the
risk management process and explain how those steps integrate to create a risk management
program. Step 3: Risk Control? - CORRECT ANSWER - Step 3: Risk Control applies a
set of methods or actions intended to minimize or avoid the impact of loss. Approaches to risk
, are theoretical. Examples include Human approach (Change behavior of employee), Engineering
Approach (Improve safety of equipment?), and systems approach (What changes to internal
procedures to reduce accidents).
Section 1: Introduction to Risk Management- Learning Objective 2: Identify the five steps of the
risk management process and explain how those steps integrate to create a risk management
program. Step 4: Risk Financing? - CORRECT ANSWER - Step 4: Risk Financing is the
acquisition of internal and external funds at the most favorable cost to pay losses. Internal funds
can be used to pay losses. This financing solution is called retention. Retention can be active
(planned), or passive (unplanned).
Active Retention: Example is deductible as a company decides it is willing to accept a specific
financial amount of risk, knowing that if a loss occurs, payment will be made from company's
cash on hand.
Passive Retention: Unplanned. Company X purchases a new auto and forgets to notify agent to
add to policy. Not identified can not be analyzed or helped.
Section 1: Introduction to Risk Management- Learning Objective 2: Identify the five steps of the
risk management process and explain how those steps integrate to create a risk management
program. Step 5: Risk Administration? - CORRECT ANSWER - Step 5: Risk
Administration is the ongoing implementation and monitoring of Risk Management programs,
policies, and procedures. Examples include the identification of exposures and risks, the
reduction of a loss, and the integration of risk control and safety.
Section 1: Introduction to Risk Management- Summary - CORRECT ANSWER -
Clients—whether they are individuals or organizations—imagine and set goals for their futures.
While risk may be inevitable, it is manageable with assistance from insurance professionals who
possess a thorough understanding of terminology, forms of risk, and steps or actions their clients
can take to avoid or minimize financial loss.
A thorough understanding of risk management depends in part on an understanding of common
terms. The term, "risk," for example, is a condition of either positive or negative uncertainty
arising from a given set of circumstances. Pure risks involve situations or incidents whose only
outcomes can either be loss or no loss. There is no possibility of gain, in other words.
