UGA RMIN 4000 EXAM 1 ALL QUESTIONS AND
ANSWERS SET A+
✔✔what are some risk financing tactics? - ✔✔retention (retaining part or all of losses
from a risk), noninsurance risk transfer (risk is given to party other than insurance
company), and insurance (transfer risk to insurer in exchange for a premium cost)
✔✔insurance - ✔✔pooling of accidental losses by transfer of risks to insurers, who
agree to compensate insureds for such losses, to provide monetary benefits on their
occurrence, or to render services connected to the risks
✔✔basic characteristics of insurance - ✔✔pooling of losses, payment of fortuitous
losses, risk transfer, and indemnification
✔✔pooling of losses - ✔✔spreading the losses of a few over an entire group (reduces
variation which reduces uncertainty)
✔✔payment of fortuitous losses - ✔✔insurance pays for losses that are unforeseen,
unexpected, and occur from chance
✔✔risk transfer - ✔✔A pure risk is transferred from the insured to the insurer, who
typically is in a stronger financial position
✔✔indemnification - ✔✔The insured is restored to his or her approximate financial
position prior to the occurrence of the loss
✔✔What are characteristics of an ideally insurable risk? - ✔✔Large # of exposure units,
must be accidental and unintentional, determinable and measurable, should not be
catastrophic, have a calculable chance, and have a economically feasible premium
✔✔Large # of exposure units - ✔✔enables insurer to predict average loss based on law
of large numbers
, ✔✔Loss must be accidental & unintentional - ✔✔Loss should be outside of insured's
control
✔✔the loss must be determinable and measurable. - ✔✔definite cause, time, place, and
amount of loss.
✔✔adverse selection - ✔✔the tendency of persons with a higher-than-average chance
of loss to seek insurance at standard rates (can lead to higher loss levels than
expected)
(typically results from asymmetric info where one party only has relevant transaction
info)
✔✔underwriting risks - ✔✔process of selecting and classifying applicants for insurance
(standards met, coverage items, and rates)
✔✔types of insurance - ✔✔private and government
✔✔private insurance includes: - ✔✔life & health and property & liability and casualty
✔✔casualty insurance - ✔✔covers whatever is not covered by fire, marine, and life
insurance (usually includes auto and workers' compensation)
✔✔government social programs - ✔✔financed all or mostly by contributions from
employees and/or employers. benefits are weighted in favor of low income groups
✔✔risk management - ✔✔a process that identifies loss exposures faced by an
organization and selects the most appropriate techniques for treatment
✔✔Pre-Loss objectives of risk management - ✔✔efficient cost of risk, permits better
decision making, and meet legal obligations
✔✔Post-Loss objectives of risk management - ✔✔survival of the firm, business
continuity, earnings, & growth, and societal responsibility
✔✔What are the steps in the risk management process? - ✔✔1) Identify loss
exposures, 2) measure and analyze the loss exposure, 3) consider and select
appropriate treatment techniques, and 4) implement and monitor the chosen techniques
✔✔What are some important loss exposures - ✔✔property, liability, income loss, human
resource loss, crime loss, employee benefit, foreign, and intangible and regulatory
✔✔What are some ways of identifying loss exposures? - ✔✔analyzing statements, past
losses, staff meetings with RM, inspections, surveys, and flowcharts
ANSWERS SET A+
✔✔what are some risk financing tactics? - ✔✔retention (retaining part or all of losses
from a risk), noninsurance risk transfer (risk is given to party other than insurance
company), and insurance (transfer risk to insurer in exchange for a premium cost)
✔✔insurance - ✔✔pooling of accidental losses by transfer of risks to insurers, who
agree to compensate insureds for such losses, to provide monetary benefits on their
occurrence, or to render services connected to the risks
✔✔basic characteristics of insurance - ✔✔pooling of losses, payment of fortuitous
losses, risk transfer, and indemnification
✔✔pooling of losses - ✔✔spreading the losses of a few over an entire group (reduces
variation which reduces uncertainty)
✔✔payment of fortuitous losses - ✔✔insurance pays for losses that are unforeseen,
unexpected, and occur from chance
✔✔risk transfer - ✔✔A pure risk is transferred from the insured to the insurer, who
typically is in a stronger financial position
✔✔indemnification - ✔✔The insured is restored to his or her approximate financial
position prior to the occurrence of the loss
✔✔What are characteristics of an ideally insurable risk? - ✔✔Large # of exposure units,
must be accidental and unintentional, determinable and measurable, should not be
catastrophic, have a calculable chance, and have a economically feasible premium
✔✔Large # of exposure units - ✔✔enables insurer to predict average loss based on law
of large numbers
, ✔✔Loss must be accidental & unintentional - ✔✔Loss should be outside of insured's
control
✔✔the loss must be determinable and measurable. - ✔✔definite cause, time, place, and
amount of loss.
✔✔adverse selection - ✔✔the tendency of persons with a higher-than-average chance
of loss to seek insurance at standard rates (can lead to higher loss levels than
expected)
(typically results from asymmetric info where one party only has relevant transaction
info)
✔✔underwriting risks - ✔✔process of selecting and classifying applicants for insurance
(standards met, coverage items, and rates)
✔✔types of insurance - ✔✔private and government
✔✔private insurance includes: - ✔✔life & health and property & liability and casualty
✔✔casualty insurance - ✔✔covers whatever is not covered by fire, marine, and life
insurance (usually includes auto and workers' compensation)
✔✔government social programs - ✔✔financed all or mostly by contributions from
employees and/or employers. benefits are weighted in favor of low income groups
✔✔risk management - ✔✔a process that identifies loss exposures faced by an
organization and selects the most appropriate techniques for treatment
✔✔Pre-Loss objectives of risk management - ✔✔efficient cost of risk, permits better
decision making, and meet legal obligations
✔✔Post-Loss objectives of risk management - ✔✔survival of the firm, business
continuity, earnings, & growth, and societal responsibility
✔✔What are the steps in the risk management process? - ✔✔1) Identify loss
exposures, 2) measure and analyze the loss exposure, 3) consider and select
appropriate treatment techniques, and 4) implement and monitor the chosen techniques
✔✔What are some important loss exposures - ✔✔property, liability, income loss, human
resource loss, crime loss, employee benefit, foreign, and intangible and regulatory
✔✔What are some ways of identifying loss exposures? - ✔✔analyzing statements, past
losses, staff meetings with RM, inspections, surveys, and flowcharts
