Client Advisory & Consultation Flashcards

A client's risk advisor recommends increasing their self-insured retention (SIR). Which financial condition BEST supports this recommendation?

Answer: The client has strong cash flow, low debt, and the ability to fund moderate retained losses

A higher SIR is appropriate when the client has the financial capacity (strong cash flow, low leverage) to absorb retained losses, thereby reducing premium costs on the insured layer.

During a client advisory session on cyber risk, which exposure is MOST commonly underestimated by organizations that focus only on first-party cyber losses?

Answer: Third-party liability arising from a data breach affecting customers or vendors

Organizations often focus on their own (first-party) recovery costs but underestimate the significant third-party liability exposure from lawsuits brought by customers or business partners affected by a data breach.

A risk advisor helps a client negotiate manuscript policy language. What is the PRIMARY advantage of manuscript coverage over standard form policies?

Answer: Manuscript language can be customized to address the client's unique exposures not covered by standard forms

Manuscript policies are custom-drafted to address specific exposures, operations, or contractual requirements that standard ISO or AAIS forms do not adequately cover.

A client is reviewing vendor contracts and asks their risk advisor about the implications of an indemnification clause. What is the risk advisor's MOST important advisory point?

Answer: The scope of the indemnification obligation must be matched to adequate contractual liability insurance coverage

When a client accepts broad indemnification obligations, the risk advisor must ensure corresponding insurance coverage (e.g., contractual liability under CGL) is in place to fund those potential obligations.

Which risk financing technique involves the client pre-funding expected losses in a dedicated account while retaining the risk rather than transferring it to an insurer?

Answer: Funded reserve / funded retention program

A funded retention program involves setting aside capital in a dedicated reserve or trust to pay for anticipated losses, making retention financially organized and disciplined rather than ad hoc.

A client's risk advisor is presenting recommendations to the board of directors. What is the MOST effective way to structure the presentation for board-level stakeholders?

Answer: Open with strategic risk context and financial impact, then summarize key decisions needed from the board

Board presentations are most effective when they begin with strategic context and material financial implications, then narrow to the specific decisions or approvals required from directors.

A client asks their risk advisor to explain the concept of 'total cost of risk' (TCOR). Which components are included in TCOR?

Answer: Insurance premiums, retained losses, risk control costs, and risk management administrative costs

TCOR is the comprehensive measure of all risk-related spending including premiums, self-insured/retained losses, loss control investment, and internal risk management administration costs.