CRO Insurance & Risk Transfer 4

Question 1

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?

Accepted Answer

$225,000

Answer

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

Question 2

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

Accepted Answer

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

Answer

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.

Question 3

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

Accepted Answer

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

Answer

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

Question 4

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

Accepted Answer

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

Answer

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

Question 5

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

Accepted Answer

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

Answer

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

(CRO) Chief Risk Officer Certification Practice Test

(CRO) Chief Risk Officer Certification Practice Test

CRO Insurance & Risk Transfer 4