CPCU Exam Questions with Correct Answers

CPCU Exam Questions with Correct Answers Classify each of the following risks as pure or speculative, subjective, or objective, and diversifiable or nondiversifiable. A. Damage to an office building resulting from a hurricane B. Reduction in value of retirement savings C. Products liability claim against a manufacturer - Answer-A. Pure sunjective and objective non diversifiable B. Speculative subjective and objective diversifiable C. Pure subjective and objective diversifiable Identify three components that constitute the financial consequences of risk faced by individuals or organizations - Answer-Expected cost of losses or gains Expenditures on risk management Cost of residual uncertainty List hidden costs that can affect an organizations calculation of expected costs of loss - Answer--time lost by the injured employee -time lost by other employees who stop work -time lost by foreman, supervisors, or other executives - time spent on the case by first-aid attendants and hospital department staff (when not paid for by the insurer) -damage to the machine, tools, or other property or the spoilage of material -interference with production, failure to fill orders on time, loss of bonuses, payment of forfeits, and other similar causes of loss -continuation of the injured employees wages in full after the employees return to work-even though the employees services may be temporarily worth less than normal value -loss of profit on the injured employees productivity and on the idle machines -lost productivity because of employee excitement or weakened morale resulting from the accident -overhead per injured employee, that is, the expense of light, heat, rent, and other items that continue while the injured employee is not productive Describe the costs of residual uncertainty - Answer-Residual uncertainty is the level of risk that remains after individuals or organization's implement,net their risk management programs. The cost of this uncertainty is hard to measure but still may significantly affect the individual or organization. For individuals, the cost of residual uncertainty may include lost salary or forgone investment opportunities. For organizations, the cost of residual uncertainty includes the effect that uncertainty has on consumers, investors, and suppliers. For example, suppliers may be less willing to sell supplies on credit to organization's with large amounts of residual uncertainty. Mary has purchased a vacation home located in coastal region of south Florida. Give examples of each of the three financial consequences of risk that Mary is now exposed to with this purchase. - Answer-Expected cost of losses or gains - the value of the home may increase overtime. It may also get hit by a hurricane and destroyed. Because of the homes exposure to loss from fire, flood, and hurricane damage Mary can expect to suffer losses to both the real property and the personal property Expenditures on risk management - she will need to buy insurance and maintain the home. Mary may choose to install hurricane shutters, hurricane roof straps, and other risk control items to reduce the amount of loss that may occur during a hurricane. Cost of residual uncertainty - she might not be able to find insurance because of the high risk of a hurricane. Mary now has uncertainty regarding the causes, frequency, and severity of loss to her new property. Although her risk control efforts can mitigate any losses and she has purchased homeowners insurance Mary will still have some uninsured costs associated with any loss