Advanced Risk Management 402 (ARM
402) Exam Questions and Answers
Study Guide
Risk treatment - ANSWER>>The selection and implementation of actions to help
manage or mitigate a risk.
Residual risk - ANSWER>>The level of risk remaining after actions are taken to
alter the level of risk.
Avoidance - ANSWER>>A risk control technique that involves ceasing or never
undertaking an activity so that the possibility of a future loss occurring from that
activity is eliminated.
Loss prevention - ANSWER>>A risk control technique that reduces the frequency
of a particular loss.
Loss reduction - ANSWER>>A risk control technique that reduces the severity of a
particular loss
Risk transfer - ANSWER>>The shifting of risk from one individual or organization
to another.
Retention - ANSWER>>A risk financing technique that involves assumption of risk
in which gains and losses are retained within the organization.
Risk financing - ANSWER>>A risk management technique that includes steps to
pay for or transfer the cost of losses.
,Internet of Things (IoT) - ANSWER>>A network of objects that transmit data to
computers.
Telematics - ANSWER>>The use of technological devices in vehicles with wireless
communication and GPS tracking that transmit data to businesses or government
agencies; some return information for the driver.
Machine learning - ANSWER>>Artificial intelligence in which computers
continually teach themselves to make better decisions based on previous results
and new data.
Hedging - ANSWER>>A financial transaction in which one asset is held to offset
the risk associated with another asset.
Derivative - ANSWER>>A financial instrument whose value is derived from the
value of an underlying asset, which can be an index, an asset, yield on an asset,
weather conditions, inflation, loans, bonds, an insurance risk, or other items.
Diversification - ANSWER>>A risk control technique that spreads loss exposures
over numerous projects, products, markets, or regions
Pure risk - ANSWER>>A chance of loss or no loss, but no chance of gain.
Speculative risk - ANSWER>>A chance of loss, no loss, or gain.
Covariance - ANSWER>>The relative association between variables to move in
tandem or independently of each other.
Correlation - ANSWER>>A relationship between variables.
, Insurance - ANSWER>>A risk management technique that transfers the potential
financial consequences of certain specified loss exposures from the insured to the
insurer.
Excess liability policy - ANSWER>>A policy that covers liability claims in excess of
the limits of an underlying policy or a stated retention amount.
Layering - ANSWER>>Successive levels (or layers) of coverage using an excess of
loss strategy in which each layer is in excess of the lower limits provided by
another insurer, resulting in a structured program of high limits of coverage.
Working layers - ANSWER>>The layers of coverage in an organization's insurance
program that are most often called on to pay claims.
Following form excess liability policy - ANSWER>>An excess liability policy that
covers a claim in excess of the underlying limits only if the loss is covered by the
underlying insurance.
Self-contained excess liability policy - ANSWER>>An excess liability policy that is
subject to its own provisions only and does not depend on the provisions of the
underlying policies for determining the scope of its coverage.
Umbrella liability policy - ANSWER>>A liability policy that provides excess
coverage above underlying policies and may also provide coverage not available
in the underlying policies, subject to a selfinsured retention.
Self-insured retention (SIR) - ANSWER>>An amount that is deducted from claims
that are payable under an umbrella liability policy and that are not covered at all
by any primary policy.
Drop-down coverage - ANSWER>>Coverage provided by many umbrella liability
policies for (1) claims not covered at all by the underlying policies and (2) claims
402) Exam Questions and Answers
Study Guide
Risk treatment - ANSWER>>The selection and implementation of actions to help
manage or mitigate a risk.
Residual risk - ANSWER>>The level of risk remaining after actions are taken to
alter the level of risk.
Avoidance - ANSWER>>A risk control technique that involves ceasing or never
undertaking an activity so that the possibility of a future loss occurring from that
activity is eliminated.
Loss prevention - ANSWER>>A risk control technique that reduces the frequency
of a particular loss.
Loss reduction - ANSWER>>A risk control technique that reduces the severity of a
particular loss
Risk transfer - ANSWER>>The shifting of risk from one individual or organization
to another.
Retention - ANSWER>>A risk financing technique that involves assumption of risk
in which gains and losses are retained within the organization.
Risk financing - ANSWER>>A risk management technique that includes steps to
pay for or transfer the cost of losses.
,Internet of Things (IoT) - ANSWER>>A network of objects that transmit data to
computers.
Telematics - ANSWER>>The use of technological devices in vehicles with wireless
communication and GPS tracking that transmit data to businesses or government
agencies; some return information for the driver.
Machine learning - ANSWER>>Artificial intelligence in which computers
continually teach themselves to make better decisions based on previous results
and new data.
Hedging - ANSWER>>A financial transaction in which one asset is held to offset
the risk associated with another asset.
Derivative - ANSWER>>A financial instrument whose value is derived from the
value of an underlying asset, which can be an index, an asset, yield on an asset,
weather conditions, inflation, loans, bonds, an insurance risk, or other items.
Diversification - ANSWER>>A risk control technique that spreads loss exposures
over numerous projects, products, markets, or regions
Pure risk - ANSWER>>A chance of loss or no loss, but no chance of gain.
Speculative risk - ANSWER>>A chance of loss, no loss, or gain.
Covariance - ANSWER>>The relative association between variables to move in
tandem or independently of each other.
Correlation - ANSWER>>A relationship between variables.
, Insurance - ANSWER>>A risk management technique that transfers the potential
financial consequences of certain specified loss exposures from the insured to the
insurer.
Excess liability policy - ANSWER>>A policy that covers liability claims in excess of
the limits of an underlying policy or a stated retention amount.
Layering - ANSWER>>Successive levels (or layers) of coverage using an excess of
loss strategy in which each layer is in excess of the lower limits provided by
another insurer, resulting in a structured program of high limits of coverage.
Working layers - ANSWER>>The layers of coverage in an organization's insurance
program that are most often called on to pay claims.
Following form excess liability policy - ANSWER>>An excess liability policy that
covers a claim in excess of the underlying limits only if the loss is covered by the
underlying insurance.
Self-contained excess liability policy - ANSWER>>An excess liability policy that is
subject to its own provisions only and does not depend on the provisions of the
underlying policies for determining the scope of its coverage.
Umbrella liability policy - ANSWER>>A liability policy that provides excess
coverage above underlying policies and may also provide coverage not available
in the underlying policies, subject to a selfinsured retention.
Self-insured retention (SIR) - ANSWER>>An amount that is deducted from claims
that are payable under an umbrella liability policy and that are not covered at all
by any primary policy.
Drop-down coverage - ANSWER>>Coverage provided by many umbrella liability
policies for (1) claims not covered at all by the underlying policies and (2) claims
