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
An actuary calculates that 1 in 1,000 homes will experience a total fire loss each year. This statistic represents:
Answer: Loss frequency
Loss frequency is the expected number of losses in a given time period, expressed as a rate or probability — here, 0.1% of homes per year.
Which term describes the tendency of higher-risk individuals to seek insurance more than lower-risk individuals, skewing the insured pool?
Answer: Adverse selection
Adverse selection occurs when individuals with a higher-than-average risk of loss are more likely to purchase or retain insurance, creating an unbalanced risk pool.
What does 'risk pooling' accomplish in insurance?
Answer: It allows many insureds to share losses, making individual losses more predictable
Risk pooling spreads losses across a large group of insureds, using the law of large numbers to make aggregate losses more predictable and manageable.
A tornado destroys an entire neighborhood, causing simultaneous losses for many insureds. This is an example of:
Answer: Fundamental risk
Fundamental risks are caused by economic, social, or natural forces affecting large numbers of people simultaneously, making them difficult to insure privately.
Which risk management step involves evaluating the effectiveness of implemented risk controls?
Answer: Risk monitoring and review
Risk monitoring and review is the ongoing process of tracking identified risks, evaluating control effectiveness, and identifying new risks as circumstances change.
A business purchases an umbrella liability policy to cover losses exceeding its primary policy limits. This is an example of:
Answer: Excess risk transfer
An umbrella policy provides additional liability coverage beyond the limits of underlying primary policies, transferring excess risk to the insurer.
Which of the following scenarios best illustrates 'risk identification' in the risk management process?
Answer: Listing all potential hazards and exposures a business faces
Risk identification is the process of recognizing and cataloging all potential sources of loss or harm that an organization may face before analyzing or addressing them.