APP Risk Assessment & Underwriting 2

Question 1

In underwriting, what does 'adverse selection' refer to?

Accepted Answer

Higher-risk applicants disproportionately seeking coverage

Answer

Adverse selection occurs when individuals with higher-than-average risk are more likely to purchase insurance, skewing the insured pool.

Question 2

Which underwriting approach evaluates each risk individually based on its unique characteristics rather than group statistics?

Accepted Answer

Judgment underwriting

Answer

Judgment underwriting relies on the underwriter's expertise to assess each risk on its own merits when standard rating tables are insufficient.

Question 3

A purchasing manager is assessing supply chain risk. Which tool provides a visual representation of potential failure points and their causes?

Accepted Answer

Fishbone (Ishikawa) diagram

Answer

A fishbone diagram maps cause-and-effect relationships, helping identify root causes of potential supply chain failures.

Question 4

What is the primary purpose of a risk register in procurement?

Accepted Answer

To track identified risks, their likelihood, and mitigation plans

Answer

A risk register is a living document that captures identified risks, their probability and impact, owners, and planned responses.

Question 5

When calculating Value at Risk (VaR) for a procurement portfolio, a 95% confidence level over 30 days means:

Accepted Answer

There is a 5% chance losses will exceed the VaR amount in that period

Answer

VaR at 95% confidence means there is a 5% probability that actual losses will exceed the stated amount during the specified period.

(APP) Accredited Purchasing Practitioner Certification Practice Test