CPHRM Risk Financing 2

Question 1

Which risk financing option provides the greatest potential cost savings to a healthcare organization with consistently favorable loss experience?

Accepted Answer

Self-insurance with a funded reserve

Answer

Self-insurance allows organizations with low and predictable losses to retain premium savings rather than paying fixed commercial premiums that include insurer profit and overhead.

Question 2

Loss reserves established in a healthcare self-insurance program represent:

Accepted Answer

An estimate of the total cost of known and unreported claims yet to be fully paid

Answer

Loss reserves are actuarially estimated liabilities reflecting both reported but unpaid claims (RBNS) and incurred-but-not-reported (IBNR) claims.

Question 3

The 'tail' coverage endorsement in a claims-made professional liability policy covers:

Accepted Answer

Claims arising from incidents that occurred during the policy period but reported after it expires

Answer

Tail (extended reporting period) coverage protects the insured for claims reported after a claims-made policy ends for incidents that occurred while the policy was in force.

Question 4

When evaluating alternative risk transfer (ART) mechanisms, a healthcare risk manager should primarily assess:

Accepted Answer

Cost-effectiveness, financial security of the arrangement, and alignment with the organization's risk tolerance

Answer

Evaluating ART mechanisms requires balancing cost efficiency, the financial soundness of counterparties, and whether the structure fits the organization's overall risk appetite.

Question 5

Which term describes the annual premium paid to a captive insurer that is set to cover expected losses plus administrative and reinsurance costs?

Accepted Answer

Pure premium

Answer

The pure premium (or burning cost) represents expected losses per unit of exposure and forms the foundation for captive pricing before adding loadings for expenses and profit.

CPHRM Exam Practice Test

CPHRM Exam Practice Test

CPHRM Risk Financing 2