Insurance Risk Assessment & Management 2

Question 1

Which risk management technique involves transferring the financial consequences of a loss to another party?

Accepted Answer

Risk transfer

Answer

Risk transfer shifts the financial burden of a potential loss to another party, most commonly through insurance or contractual agreements.

Question 2

A manufacturer installs sprinkler systems in its warehouse to reduce fire damage. This is an example of:

Accepted Answer

Loss reduction

Answer

Loss reduction measures are implemented to minimize the severity of a loss after it occurs, such as sprinkler systems limiting fire damage.

Question 3

What is the primary purpose of a risk register in enterprise risk management?

Accepted Answer

To document identified risks, their likelihood, and potential impact

Answer

A risk register is a tool used to record and track identified risks, including their probability, potential impact, and mitigation strategies.

Question 4

Which of the following best describes a 'peril' in insurance terminology?

Accepted Answer

The direct cause of a loss

Answer

A peril is the direct cause of a loss, such as fire, flood, theft, or accident.

Question 5

An insurance company uses reinsurance to manage its exposure to catastrophic losses. This is an example of:

Accepted Answer

Risk transfer

Answer

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.

Insurance Practice Test