Mixed Deck — All RIMS Topics Flashcards

Which risk portfolio strategy concept refers to transferring peak-level losses while retaining moderate, expected losses within the organization?

Answer: Excess of loss (XL) structure

An excess of loss structure has the insurer cover losses above a defined retention (attachment point), while the organization retains routine expected losses below that threshold.

When reviewing D&O insurance market trends, which event type has historically caused the most significant market dislocations?

Answer: Economic downturns coupled with high-profile corporate bankruptcies and securities litigation

Economic downturns trigger shareholder lawsuits and securities class actions, historically causing significant D&O market hardening.

A risk manager recommends redesigning a manufacturing process to eliminate employee exposure to a toxic chemical entirely. This strategy is BEST classified as:

Answer: Risk avoidance

Eliminating the hazard entirely by redesigning the process so the toxic chemical is no longer used constitutes risk avoidance — the activity creating the risk no longer exists.

Under the McCarran-Ferguson Act, which entity has primary regulatory authority over insurance companies in the United States?

Answer: Individual state governments

The McCarran-Ferguson Act of 1945 explicitly grants individual states the primary authority to regulate the insurance industry.

Which of the following is the primary purpose of a risk control self-assessment (RCSA)?

Answer: To enable business units to identify and evaluate their own risks and controls

RCSA empowers operational managers and staff to identify risks and assess the adequacy of existing controls within their own business units.

The RIMS Code of Ethics applies to members in which of the following situations?

Answer: In all professional activities related to risk management

The RIMS Code of Ethics governs member conduct across all professional risk management activities, not just formal RIMS events.

A risk manager observes that reinsurance capacity for catastrophe risks has tightened significantly. What is the most likely direct impact on primary insurance pricing?

Answer: Primary premiums will increase as reinsurance costs are passed to insureds

Reinsurance costs are a key component of primary insurer pricing, so tightening reinsurance capacity typically drives up primary premiums.

When advising a multinational client on a global insurance program, which structure allows local policies to fill gaps where a master policy cannot respond due to local regulations?

Answer: Difference in Conditions (DIC) / Difference in Limits (DIL) structure

A DIC/DIL structure layers local admitted policies beneath the master policy so that local regulatory requirements are met while the master policy fills any gaps in coverage or limits.

In the context of RIMS market analysis, what is a 'capacity constraint' and how does it affect buyer strategy?

Answer: Reduced insurer willingness or ability to underwrite certain risks, requiring buyers to seek multiple markets or retain more risk

Capacity constraints force risk managers to structure layered programs, use alternative risk transfer, or increase retentions to fill coverage gaps.

A risk manager is reviewing a loss sensitive program with a large deductible. Which document obligates the insured to reimburse the insurer for losses paid within the deductible layer?

Answer: Deductible reimbursement agreement

A deductible reimbursement agreement (or loss reimbursement agreement) is the contractual document requiring the insured to repay the insurer for claims paid within the deductible retention.

Which best describes 'professional skepticism' as an ethical practice in risk management?

Answer: Critically evaluating information regardless of its source to ensure accuracy

Professional skepticism means maintaining a questioning mind and critically assessing information, not blanket distrust of all sources.

Which loss control strategy is most appropriate when the frequency of losses is high but severity is low?

Answer: Loss prevention

Loss prevention is most cost-effective for high-frequency, low-severity losses because reducing occurrence frequency directly lowers total loss costs.

A RIMS-certified risk manager is analyzing casualty market trends. Which metric best indicates whether the casualty market is hardening?

Answer: Rising premium rates with stricter underwriting requirements

A hardening casualty market is characterized by rate increases and more restrictive underwriting as insurers respond to adverse loss experience.

Which metric is most useful for comparing the efficiency of different risk financing structures when the cost occurs at different times?

Answer: Gross premium equivalent (GPE)

The gross premium equivalent converts the total cost of alternative financing structures (including retained losses and investment income) to a single comparable premium figure.

Why is maintaining professional boundaries important in client relationships?

Answer: It ensures objectivity and protects both the professional and the client

Professional boundaries maintain objectivity in recommendations, prevent conflicts of interest, and protect both parties from inappropriate dependencies or expectations.

What is residual risk?

Answer: The risk remaining after mitigation measures have been applied

Residual risk is what remains after mitigation measures are applied, and it must be accepted, further reduced, or transferred based on organizational risk tolerance.

Which type of endorsement would a risk manager use to extend a commercial property policy to cover newly acquired locations automatically for a specified period?

Answer: Newly acquired or constructed property provision

The newly acquired or constructed property provision automatically provides temporary coverage for new locations up to a stated limit and time period.

In a 'parametric' insurance product used within a risk portfolio strategy, indemnification is triggered by:

Answer: A predefined index or measurable event parameter reaching a specified threshold

Parametric insurance pays when a measurable trigger (e.g., earthquake magnitude, wind speed, rainfall index) hits a defined threshold, regardless of actual losses incurred.

What is the primary purpose of regulatory compliance in professional practice?

Answer: To protect public safety and ensure minimum standards of care

Regulatory compliance exists primarily to protect public safety by ensuring all practitioners meet minimum standards of competence and ethical conduct.

Which of the following BEST describes the purpose of an organization's 'code of conduct' from a risk management perspective?

Answer: To establish behavioral standards that reduce ethical and compliance risk

A code of conduct establishes clear behavioral expectations that help prevent ethical violations and reduce compliance risk across the organization.