Insurance & Risk Transfer Flashcards

A CRO is reviewing a commercial property policy with an 80% coinsurance clause. The building is worth $1M but insured for $600K. A $300K partial loss occurs. How much will the insurer pay?

Answer: $225,000

The coinsurance formula: ($600K / ($1M × 80%)) × $300K = (600/800) × $300K = $225,000.

Which of the following best describes an 'umbrella' policy compared to an 'excess' liability policy?

Answer: An umbrella provides broader coverage and can drop down over retained limits; an excess policy follows the form of the underlying policy

Umbrella policies can provide broader terms than the underlying policy and drop down to cover some gaps, while true excess policies simply follow the underlying form.

In enterprise risk management, 'risk retention groups' (RRGs) are primarily used by:

Answer: Members of the same industry or profession to share liability risks under a mutual structure

Risk Retention Groups are member-owned liability insurers formed under the federal Liability Risk Retention Act, serving entities with similar liability exposures.

A 'manuscript policy' in commercial insurance is best characterized as:

Answer: A custom-drafted policy negotiated for a specific insured's unique risk profile

Manuscript policies are individually negotiated, non-standard documents tailored to the specific coverage needs of a particular insured.

The 'insurable interest' doctrine in U.S. insurance law requires that:

Answer: The insured must stand to suffer a genuine financial loss if the covered event occurs

Insurable interest ensures insurance is used for indemnification, not speculation, by requiring the insured to have a financial stake in the loss.

When structuring a risk transfer for cyber risk, which policy provision most directly addresses ransomware extortion payments?

Answer: Cyber extortion coverage (threat response)

Cyber extortion coverage specifically responds to ransom demands and associated threat response costs, including negotiation and payment if approved.

A 'loss portfolio transfer' (LPT) is a risk transfer technique where:

Answer: An insurer assumes an existing block of loss reserves from another entity in exchange for a premium

An LPT transfers the liability for a block of existing (typically long-tail) claims reserves from one entity to an insurer, which assumes payment responsibility.