FREE Financial Management For Project Managers Risk Management Questions and Answers

Question 1

Retention comes in a variety of forms, known as .

Accepted Answer

2; active and passive

Answer

In risk management, retention refers to the strategy of accepting the financial burden of a risk rather than transferring it to another party. The two primary forms of retention are active retention, where a company consciously decides to bear a known risk, and passive retention, where a company unknowingly or unintentionally retains a risk due to oversight or lack of awareness.

Question 2

Which of the following describes the spreading of losses suffered by a select few across the entire group, replacing actual loss with average loss as a result?

Accepted Answer

pooling

Answer

Pooling is a fundamental principle of insurance where the losses of a few are shared among many. This mechanism replaces the actual, potentially large, loss for an individual with an average loss, making it more manageable and predictable for all participants. It's the core idea behind how insurance works to mitigate individual financial risk.

Question 3

The _____________ level is largely responsible for regulating insurance.

Accepted Answer

state

Answer

In the United States, insurance regulation is primarily handled at the state level, not federal. Each state has its own department of insurance responsible for licensing insurers, approving policy forms, regulating rates, and ensuring solvency to protect policyholders. This decentralized approach allows for regulations tailored to local market conditions and consumer needs.

Question 4

A(n) ____________ insurer is one that is owned by a parent company with the intention of covering the loss exposures of the parent company.

Accepted Answer

captive

Answer

A captive insurer is an insurance company established and owned by a parent company or group of companies, primarily to insure the risks of its owner(s). Instead of purchasing insurance from commercial insurers, the parent company essentially self-insures through its captive. This allows for greater control over coverage, claims, and potentially lower costs for specific risks.

Question 5

What qualifies as a feature of an insurance contract and which of the following does not?

Accepted Answer

equal value exchange

Answer

Insurance contracts are characterized by an unequal exchange of values, making 'equal value exchange' not a feature. The insured pays a relatively small premium, but the insurer promises to pay a much larger sum if a covered event occurs, or nothing at all if it doesn't. This aleatory nature, where the outcome depends on an uncertain event, distinguishes it from typical commercial contracts.

Financial Management for Project Managers Practice Test

Financial Management for Project Managers Practice Test

FREE Financial Management For Project Managers Risk Management Questions and Answers