CPHRM Insurance and Finance 5

Question 1

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?

Accepted Answer

Reduction in total cost of risk year-over-year relative to program expenditures

Answer

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.

Question 2

Under a claims-made policy, the 'retroactive date' determines:

Accepted Answer

The earliest date from which an occurrence must arise for coverage to apply

Answer

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.

Question 3

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?

Accepted Answer

$5,000,000

Answer

The aggregate stop-loss attachment point is 125% of $4 million = $5 million; losses exceeding this total trigger the stop-loss coverage.

Question 4

The principle of 'insurable interest' requires that for an insurance contract to be valid:

Accepted Answer

The insured must suffer a financial loss if the insured event occurs

Answer

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.

Question 5

A hospital risk manager is comparing 'funded' vs. 'unfunded' retention strategies. The primary financial risk of an unfunded retention program is:

Accepted Answer

Unexpected large losses must be absorbed from operating revenue, potentially destabilizing cash flow

Answer

Without pre-funded reserves, an unexpected large retained loss must be paid directly from operating funds, which can disrupt cash flow and operational stability.

CPHRM Exam Practice Test

CPHRM Exam Practice Test

CPHRM Insurance and Finance 5