CPCU 500- Becoming a Leader in Risk
Management and Insurance
Risk - Answer-uncertainty of outcomes
The insurance industry is evolving as a result of two key, overarching factors that are influencing virtually
every aspect of the insurance value chain: - Answer-the growing demand for risk management
consulting
new technology that's helping organizations predict and prevent losses
Examples of Technology Used to Predict and Prevent Losses - Answer-Telematics- has greatly influenced
vehicle and driver safety
Wearables
IoT Sensors
Smartphones
Cloud Storage
Predictive Models
,Artificial Intelligence
Law of Large Numbers - Answer-A mathematical principle stating that as the number of similar but
independent exposure units increases, the relative accuracy of predictions about future outcomes
(losses) also increases.
Oscar's custom-built vehicle looks like a sausage sandwich on wheels. He plans to drive it to special
events at schools around the country where it will serve as a mobile billboard to promote his product.
Oscar is surprised to learn that insurers are reluctant to insure his vehicle because it fails to meet one of
the ideal characteristics of an insurable risk. Which characteristic is Oscar's vehicle least likely to meet?
Smart Product - Answer-An innovative item that uses sensors; wireless sensor networks; and data
collection, transmission, and analysis to further enable the item to be faster, more useful, or otherwise
improved.
Sensor - Answer-A device that detects and measures stimuli in its environment.
Wireless sensor network (WSN) - Answer-A wireless network consisting of individual sensors placed at
various locations to exchange data.
Big data - Answer-Sets of data that are too large to be gathered and analyzed by traditional methods.
Internet of Things (IoT) - Answer-A network of objects that transmit data to computers.
Predictive analytics - Answer-Statistical and analytical techniques used to develop models that predict
future events or behaviors.
,Data science - Answer-An interdisciplinary field involving the design and use of techniques to process
very large amounts of data from a variety of sources and to provide knowledge based on the data.
These decisions can have far-reaching effects across the insurance value chain: - Answer-Determining
the appropriate coverage limits for an individual policy
Choosing whether to have a prospective customer elaborate on information provided in an insurance
application
Deciding what data to include in a predictive model and where it should come from
Determining whether a claim shows signs of fraud and should be reported to the special investigation
unit (SIU)
Deciding the best way to respond empathetically to a customer's claim
Determining how to describe your ideal job candidate for an open position to a recruiter or hiring
manager
What's the difference between occurrence and claims-made coverage - Answer-Under an occurrence
policy, coverage is triggered for losses that happen within the policy period, even if the policy has
expired. Under a claims-made policy, coverage is triggered for claims that occur after the policy's
coverage began (the retroactive date) and are reported within the policy's reporting period.
social inflation - Answer-The increasing of insurance losses caused by higher jury awards, increase in
liberal treatment of claims by workers compensation boards, legislated rises in compensation benefit
levels (in some cases retroactively), and new concepts of tort and negligence, among others.
These are some of the most common risk classifications - Answer-Pure and speculative risk
, Subjective and objective risk
Diversifiable and nondiversifiable risk
Quadrants of risk (hazard, operational, financial, and strategic)
Several factors can affect speculative risk - Answer-Price risk—Uncertainty about cash flows resulting
from possible changes in the cost of raw materials and other inputs (such as lumber, gas, or electricity),
as well as cost-related changes in the market for completed products and other outputs.
EXAMPLE- Four Grains Cereal Company signed a contract to deliver 250,000 boxes of cereal to a national
supermarket chain at a specified price per box of cereal six months from today. Between now and when
the grain to make the cereal is purchased, the cost of the grain may increase. If the cost of this
important ingredient increases, the profitability of the transaction will be altered. This financial risk that
Four Grains faces is
Input Price- Uncertainty of the price of the resources used to produce an organization's product
Output Price- Uncertainty regarding the price an organization can charge for its product
Credit risk- risk that customers or other creditors will fail to make promised payments as they come due.
—Although a credit risk is particularly significant for banks and other financial institutions, it can also be
relevant to any organization with accounts receivable.
Subjective and objective risks can differ in other ways as well: - Answer-Familiarity and control
Consequences over likelihood
Management and Insurance
Risk - Answer-uncertainty of outcomes
The insurance industry is evolving as a result of two key, overarching factors that are influencing virtually
every aspect of the insurance value chain: - Answer-the growing demand for risk management
consulting
new technology that's helping organizations predict and prevent losses
Examples of Technology Used to Predict and Prevent Losses - Answer-Telematics- has greatly influenced
vehicle and driver safety
Wearables
IoT Sensors
Smartphones
Cloud Storage
Predictive Models
,Artificial Intelligence
Law of Large Numbers - Answer-A mathematical principle stating that as the number of similar but
independent exposure units increases, the relative accuracy of predictions about future outcomes
(losses) also increases.
Oscar's custom-built vehicle looks like a sausage sandwich on wheels. He plans to drive it to special
events at schools around the country where it will serve as a mobile billboard to promote his product.
Oscar is surprised to learn that insurers are reluctant to insure his vehicle because it fails to meet one of
the ideal characteristics of an insurable risk. Which characteristic is Oscar's vehicle least likely to meet?
Smart Product - Answer-An innovative item that uses sensors; wireless sensor networks; and data
collection, transmission, and analysis to further enable the item to be faster, more useful, or otherwise
improved.
Sensor - Answer-A device that detects and measures stimuli in its environment.
Wireless sensor network (WSN) - Answer-A wireless network consisting of individual sensors placed at
various locations to exchange data.
Big data - Answer-Sets of data that are too large to be gathered and analyzed by traditional methods.
Internet of Things (IoT) - Answer-A network of objects that transmit data to computers.
Predictive analytics - Answer-Statistical and analytical techniques used to develop models that predict
future events or behaviors.
,Data science - Answer-An interdisciplinary field involving the design and use of techniques to process
very large amounts of data from a variety of sources and to provide knowledge based on the data.
These decisions can have far-reaching effects across the insurance value chain: - Answer-Determining
the appropriate coverage limits for an individual policy
Choosing whether to have a prospective customer elaborate on information provided in an insurance
application
Deciding what data to include in a predictive model and where it should come from
Determining whether a claim shows signs of fraud and should be reported to the special investigation
unit (SIU)
Deciding the best way to respond empathetically to a customer's claim
Determining how to describe your ideal job candidate for an open position to a recruiter or hiring
manager
What's the difference between occurrence and claims-made coverage - Answer-Under an occurrence
policy, coverage is triggered for losses that happen within the policy period, even if the policy has
expired. Under a claims-made policy, coverage is triggered for claims that occur after the policy's
coverage began (the retroactive date) and are reported within the policy's reporting period.
social inflation - Answer-The increasing of insurance losses caused by higher jury awards, increase in
liberal treatment of claims by workers compensation boards, legislated rises in compensation benefit
levels (in some cases retroactively), and new concepts of tort and negligence, among others.
These are some of the most common risk classifications - Answer-Pure and speculative risk
, Subjective and objective risk
Diversifiable and nondiversifiable risk
Quadrants of risk (hazard, operational, financial, and strategic)
Several factors can affect speculative risk - Answer-Price risk—Uncertainty about cash flows resulting
from possible changes in the cost of raw materials and other inputs (such as lumber, gas, or electricity),
as well as cost-related changes in the market for completed products and other outputs.
EXAMPLE- Four Grains Cereal Company signed a contract to deliver 250,000 boxes of cereal to a national
supermarket chain at a specified price per box of cereal six months from today. Between now and when
the grain to make the cereal is purchased, the cost of the grain may increase. If the cost of this
important ingredient increases, the profitability of the transaction will be altered. This financial risk that
Four Grains faces is
Input Price- Uncertainty of the price of the resources used to produce an organization's product
Output Price- Uncertainty regarding the price an organization can charge for its product
Credit risk- risk that customers or other creditors will fail to make promised payments as they come due.
—Although a credit risk is particularly significant for banks and other financial institutions, it can also be
relevant to any organization with accounts receivable.
Subjective and objective risks can differ in other ways as well: - Answer-Familiarity and control
Consequences over likelihood
