CAIB 3 - Chapter 6. Risk Management
All organizations have goals. Thus, the ability to survive an accidental loss is a
fundamental goal of all organizations. True or False? - answer True
Risk Management - answer Involves the application of a rational process to risks. It is
the process of making and carrying out decisions that will minimize the adverse effects
of accidental losses upon an organization.
What 2 dimensions does the risk management process consist of? - answer1. A
decision process.
2. A management or administrative process.
Decision Process - answer Risk management involves a 5 step decision making
process in dealing with loss exposures. This process attempts to arrive at the most cost
effective means available to the organization in dealing with those exposures.
Because the risk management process involves carrying out decisions, the program will
be effective only if it receives the full support of both owners and management. True or
False - answer True
Brokers using a risk management approach usually achieve what results? - answer1. A
more informed clientele.
2. Increased retention.
3. Increased customer referrals.
4. Increased claims satisfaction.
5. Reduction in errors and omissions potential.
What are the 5 steps in the decision-making process? - answer1. Identify and Analyze
Loss Exposures.
2. Examine Alternative Risk Management Techniques.
3. Select Risk Management Techniques.
4. Implement Techniques.
5. Monitor Results.
What is the most important step in the decision-making process and why? - answerStep
1. Identification involves recognizing losses which might possibly occur. The process of
analysis involves estimating the likely significance of those possible losses.
Define Loss Exposure - answerThe chance of financial loss to the organization as the
result of a particular peril striking a thing of value.
How can loss exposures be classified? - answer1. Type of Value Exposed to Loss
, 2. The Peril Causing Loss
3. The Financial Consequences of the Loss
What is the most commonly used means to classify loss exposures? - answerThe type
of value exposed to loss
What are the four broad categories that all possible values subject to loss fall into? -
answer1. Property Values
2. Net Income Values
3. Liability Loss
4. Personnel Loss
Define Tangible Property - answerThis property is real, can be touched, and has form
and substance.
Define Real Property - answerThis property consists of "land, and generally whatever is
erected or growing upon or affixed to land."
Define Personal Property - answerThis property includes all tangible property other than
real estate. Items subject to loss include money, stock, furniture, equipment and
supplies, machinery, electronic data processing equipment, valuable papers, books and
documents, and mobile property such as automobiles, aircraft, and watercraft.
Define Intangible Property - answerThis property has no physical substance and
consists of legal rights rather than things.
List some intangible property having value to an organization. - answer1. Securities
such as stocks and bonds
2. Trademarks and trade names
3. Right to collect accounts
4. Copyrights and patents
5. Licences
6. Leasehold interests
How is net income determined? - answerSubtract expenses from revenues.
Decreases in Revenues after a loss can normally be expected. What loss exposure
categories can they be? - answer1. Business Interruption
2. Contingent Business Interruption
3. Loss of profits on finished goods
4. Reduced rental income
5. Decreased collections of accounts receivable
Describe contingent business interruption. - answerA loss that occurs AWAY from the
premises of the organization. The potential for loss originating on the premises of a
MAJOR SUPPLIER constitutes a CONTRIBUTING exposure, while a loss at the
All organizations have goals. Thus, the ability to survive an accidental loss is a
fundamental goal of all organizations. True or False? - answer True
Risk Management - answer Involves the application of a rational process to risks. It is
the process of making and carrying out decisions that will minimize the adverse effects
of accidental losses upon an organization.
What 2 dimensions does the risk management process consist of? - answer1. A
decision process.
2. A management or administrative process.
Decision Process - answer Risk management involves a 5 step decision making
process in dealing with loss exposures. This process attempts to arrive at the most cost
effective means available to the organization in dealing with those exposures.
Because the risk management process involves carrying out decisions, the program will
be effective only if it receives the full support of both owners and management. True or
False - answer True
Brokers using a risk management approach usually achieve what results? - answer1. A
more informed clientele.
2. Increased retention.
3. Increased customer referrals.
4. Increased claims satisfaction.
5. Reduction in errors and omissions potential.
What are the 5 steps in the decision-making process? - answer1. Identify and Analyze
Loss Exposures.
2. Examine Alternative Risk Management Techniques.
3. Select Risk Management Techniques.
4. Implement Techniques.
5. Monitor Results.
What is the most important step in the decision-making process and why? - answerStep
1. Identification involves recognizing losses which might possibly occur. The process of
analysis involves estimating the likely significance of those possible losses.
Define Loss Exposure - answerThe chance of financial loss to the organization as the
result of a particular peril striking a thing of value.
How can loss exposures be classified? - answer1. Type of Value Exposed to Loss
, 2. The Peril Causing Loss
3. The Financial Consequences of the Loss
What is the most commonly used means to classify loss exposures? - answerThe type
of value exposed to loss
What are the four broad categories that all possible values subject to loss fall into? -
answer1. Property Values
2. Net Income Values
3. Liability Loss
4. Personnel Loss
Define Tangible Property - answerThis property is real, can be touched, and has form
and substance.
Define Real Property - answerThis property consists of "land, and generally whatever is
erected or growing upon or affixed to land."
Define Personal Property - answerThis property includes all tangible property other than
real estate. Items subject to loss include money, stock, furniture, equipment and
supplies, machinery, electronic data processing equipment, valuable papers, books and
documents, and mobile property such as automobiles, aircraft, and watercraft.
Define Intangible Property - answerThis property has no physical substance and
consists of legal rights rather than things.
List some intangible property having value to an organization. - answer1. Securities
such as stocks and bonds
2. Trademarks and trade names
3. Right to collect accounts
4. Copyrights and patents
5. Licences
6. Leasehold interests
How is net income determined? - answerSubtract expenses from revenues.
Decreases in Revenues after a loss can normally be expected. What loss exposure
categories can they be? - answer1. Business Interruption
2. Contingent Business Interruption
3. Loss of profits on finished goods
4. Reduced rental income
5. Decreased collections of accounts receivable
Describe contingent business interruption. - answerA loss that occurs AWAY from the
premises of the organization. The potential for loss originating on the premises of a
MAJOR SUPPLIER constitutes a CONTRIBUTING exposure, while a loss at the
