CGFO Risk Management 3 — Questions and Answers
Question 1: Under the GASB framework, which of the following requires governments to record an insurance liability on their financial statements?
- Any potential claim, regardless of likelihood
- Claims that are probable and the amount can be reasonably estimated (Correct answer)
- Only claims that have been formally filed in court
- Claims exceeding the entity's deductible threshold
Correct answer: Claims that are probable and the amount can be reasonably estimated
GASB standards require recognition of a claims liability when it is probable that a liability has been incurred and the amount can be reasonably estimated.
Question 2: What is the primary purpose of a 'risk register' in governmental risk management?
- To track insurance premium payment schedules
- To document, assess, and monitor identified risks across the organization (Correct answer)
- To list all employees authorized to file claims
- To record all insurance policies and their expiration dates
Correct answer: To document, assess, and monitor identified risks across the organization
A risk register is a centralized repository that catalogs identified risks along with their likelihood, impact, owners, and mitigation strategies.
Question 3: Which type of government risk pool operates by charging members premiums and paying claims from pooled funds, similar to a commercial insurer?
- Reinsurance pool
- Risk retention group
- Intergovernmental risk sharing pool (Correct answer)
- Captive insurance company
Correct answer: Intergovernmental risk sharing pool
Intergovernmental risk sharing pools allow multiple government entities to combine their exposures and losses, spreading risk across all members.
Question 4: In risk financing, 'attachment point' refers to:
- The date when insurance coverage becomes effective
- The loss level at which excess insurance coverage begins to pay (Correct answer)
- The maximum limit available under a reinsurance treaty
- The point at which a claim is assigned to a specific adjuster
Correct answer: The loss level at which excess insurance coverage begins to pay
The attachment point is the dollar threshold at which an excess or umbrella policy begins to respond after the underlying coverage or self-insured retention is exhausted.
Question 5: A government's total cost of risk (TCOR) calculation should include all of the following EXCEPT:
- Insurance premiums paid
- Self-insured losses retained
- Administrative costs of the risk management program
- Projected future tax revenue from insured properties (Correct answer)
Correct answer: Projected future tax revenue from insured properties
TCOR encompasses premiums, retained losses, and risk management administration costs — it does not include revenue projections unrelated to risk financing.
Question 6: Which concept describes the situation where a single insurance contract covers multiple government entities under one consolidated policy?
- Blanket coverage
- Wrap-up insurance
- Master policy arrangement (Correct answer)
- Excess liability umbrella
Correct answer: Master policy arrangement
A master policy arrangement (or master municipal policy) provides consolidated coverage for multiple affiliated government entities under a single contract.
Question 7: For a government self-insurance program, an actuarial study is most critically used to:
- Negotiate lower premiums with commercial insurers
- Determine the appropriate reserve levels needed to pay future claims (Correct answer)
- Identify which employees are highest risk
- Calculate the depreciated value of government property
Correct answer: Determine the appropriate reserve levels needed to pay future claims
Actuarial studies project the ultimate cost of claims, including incurred but not reported (IBNR) losses, so that adequate reserves can be established.
CGFO Risk Management 3
Under the GASB framework, which of the following requires governments to record an insurance liability on their financial statements?