Risk Assessment & Management Flashcards
7 cards from real Insurance practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Risk Assessment & Management flashcards as text
Which risk management technique involves transferring the financial consequences of a loss to another party?
Answer: Risk transfer
Risk transfer shifts the financial burden of a potential loss to another party, most commonly through insurance or contractual agreements.
A manufacturer installs sprinkler systems in its warehouse to reduce fire damage. This is an example of:
Answer: Loss reduction
Loss reduction measures are implemented to minimize the severity of a loss after it occurs, such as sprinkler systems limiting fire damage.
What is the primary purpose of a risk register in enterprise risk management?
Answer: To document identified risks, their likelihood, and potential impact
A risk register is a tool used to record and track identified risks, including their probability, potential impact, and mitigation strategies.
Which of the following best describes a 'peril' in insurance terminology?
Answer: The direct cause of a loss
A peril is the direct cause of a loss, such as fire, flood, theft, or accident.
An insurance company uses reinsurance to manage its exposure to catastrophic losses. This is an example of:
Answer: Risk transfer
Reinsurance is a form of risk transfer in which an insurer cedes a portion of its risk to another insurer (reinsurer) in exchange for a premium.
Which method of handling risk is most appropriate when the probability and severity of loss are both very low?
Answer: Risk retention
Risk retention is most suitable for low-frequency, low-severity risks where the cost of transfer or reduction outweighs the expected loss.
What does the term 'loss severity' refer to in risk assessment?
Answer: The dollar amount or financial impact of a loss
Loss severity measures the financial magnitude or dollar impact of a loss event when it occurs.