Insurance and Finance Flashcards
7 cards from real CPHRM practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Insurance and Finance flashcards as text
A hospital risk manager is asked to justify the return on investment (ROI) of the risk management program. Which metric would BEST demonstrate financial value?
Answer: Reduction in total cost of risk year-over-year relative to program expenditures
ROI is best demonstrated by showing that reductions in total cost of risk (losses, premiums, expenses) exceed the cost of the risk management program itself.
Under a claims-made policy, the 'retroactive date' determines:
Answer: The earliest date from which an occurrence must arise for coverage to apply
The retroactive date sets the earliest point in time from which a covered incident can have occurred; claims arising from incidents before this date are excluded.
A hospital self-insures workers' compensation and purchases aggregate stop-loss at 125% of expected losses. Expected losses for the year are $4 million. At what point does the stop-loss coverage activate?
Answer: $5,000,000
The aggregate stop-loss attachment point is 125% of $4 million = $5 million; losses exceeding this total trigger the stop-loss coverage.
The principle of 'insurable interest' requires that for an insurance contract to be valid:
Answer: The insured must suffer a financial loss if the insured event occurs
Insurable interest means the policyholder must stand to suffer a genuine financial loss from the event insured against, preventing insurance from becoming a wagering instrument.
A hospital risk manager is comparing 'funded' vs. 'unfunded' retention strategies. The primary financial risk of an unfunded retention program is:
Answer: Unexpected large losses must be absorbed from operating revenue, potentially destabilizing cash flow
Without pre-funded reserves, an unexpected large retained loss must be paid directly from operating funds, which can disrupt cash flow and operational stability.
A risk manager reviewing a commercial general liability (CGL) policy notes an 'occurrence' trigger. How does this differ from a claims-made trigger for a hospital facing a long-tail liability like a medication error?
Answer: An occurrence policy covers the incident whenever it is reported, as long as it occurred during the policy period
Under an occurrence trigger, coverage applies based on when the incident happened, not when the claim is filed—so a medication error during the policy year is covered even if the lawsuit comes years later.
A hospital CFO asks the risk manager why the actuarial loss reserve uses a 'discount rate.' The BEST explanation is:
Answer: Future claim payments are worth less in today's dollars, so reserves are adjusted to present value
Discounting reflects the time value of money—since claims will be paid in the future, the reserve needed today (present value) is less than the nominal sum of future payments.