CGFO Risk Management 4 — Questions and Answers
Question 1: Which governmental risk management concept refers to losses that have occurred but have not yet been reported to the risk management office?
- Deferred losses
- Incurred but not reported (IBNR) claims (Correct answer)
- Contingent liabilities
- Long-tail exposure
Correct answer: Incurred but not reported (IBNR) claims
IBNR reserves account for claims that have already happened but have not yet been filed or discovered, which is critical for accurate financial reporting.
Question 2: A county risk manager implements a driver safety training program to reduce auto liability losses. This is an example of which risk management technique?
- Risk transfer
- Risk avoidance
- Loss control / risk reduction (Correct answer)
- Risk retention
Correct answer: Loss control / risk reduction
Loss control measures reduce the frequency or severity of losses; driver training targets the behavioral causes of automobile accidents.
Question 3: Under GASB Statement No. 10, how should a government report its participation in a risk-sharing pool on its financial statements?
- Only as a footnote disclosure with no balance sheet entry
- As a prepaid expense equal to the full policy limit
- As an expenditure/expense equal to premiums paid to the pool (Correct answer)
- As a long-term debt obligation for future pool assessments
Correct answer: As an expenditure/expense equal to premiums paid to the pool
GASB 10 requires governments participating in risk pools to report the amounts contributed to the pool as an expenditure or expense in the period incurred.
Question 4: Which of the following is the most accurate description of 'sovereign immunity' as it relates to government liability?
- A government's right to tax its citizens without judicial review
- The historical doctrine that protects governments from being sued without their consent (Correct answer)
- A constitutional prohibition on private lawsuits against the federal government
- An insurance clause that exempts the government from punitive damages
Correct answer: The historical doctrine that protects governments from being sued without their consent
Sovereign immunity is the legal principle that a sovereign government cannot be sued without its consent, though most states have waived immunity to varying degrees through tort claims acts.
Question 5: When a risk manager assesses a hazard using a 'probability x impact' matrix, the quadrant with HIGH probability and HIGH impact should be treated with which priority?
- Accept and monitor periodically
- Transfer or mitigate immediately — highest priority (Correct answer)
- Delegate to department heads without escalation
- Document only; no action required
Correct answer: Transfer or mitigate immediately — highest priority
High-probability, high-impact risks require immediate attention through aggressive mitigation or transfer strategies because they pose the greatest threat to the organization.
Question 6: A government entity purchases an umbrella policy with a $10 million limit above a $1 million self-insured retention (SIR). A $4 million judgment is rendered. How much does the entity pay out-of-pocket?
- $0 — the umbrella covers the entire judgment
- $1 million — the SIR amount (Correct answer)
- $3 million — the excess above the umbrella attachment
- $4 million — umbrella policies never pay governmental claims
Correct answer: $1 million — the SIR amount
The entity is responsible for the $1 million SIR; the umbrella policy pays the remaining $3 million of the $4 million judgment.
Question 7: Which of the following is a key advantage of a government joining an intergovernmental risk pool compared to purchasing commercial insurance?
- Elimination of all potential losses through shared coverage
- Access to dividends or return of surplus if claims are below projections (Correct answer)
- Guaranteed premiums that never increase regardless of losses
- Immunity from legal judgments because pooled funds are exempt from garnishment
Correct answer: Access to dividends or return of surplus if claims are below projections
Intergovernmental pools may return surplus funds (dividends) to members when aggregate claims are lower than projected, a benefit not typically available with commercial insurers.
CGFO Risk Management 4
Which governmental risk management concept refers to losses that have occurred but have not yet been reported to the risk management office?