Risk Financing & Transfer Strategies Flashcards
7 cards from real RIMS 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 Financing & Transfer Strategies flashcards as text
Which risk financing strategy involves an organization retaining financial responsibility for losses rather than transferring them to an insurer?
Answer: Risk retention
Risk retention means the organization absorbs losses internally, either deliberately (active retention) or by default (passive retention).
A captive insurance company is best described as:
Answer: A licensed insurer wholly owned by the insured to fund its own risks
A captive is a licensed insurance subsidiary created and controlled by its parent organization to finance the parent's own risks.
Under a retrospective rating plan, the final insurance premium is determined by:
Answer: The insured's actual loss experience during the policy period
Retrospective rating adjusts the premium after the policy period ends based on the insured's own actual losses, subject to minimum and maximum premium caps.
Which of the following is the PRIMARY advantage of a large deductible program over a guaranteed-cost insurance policy?
Answer: Allows the insured to retain investment income on funds held for losses
Under a large deductible program the insured retains funds until losses are paid, earning investment income on those reserves that would otherwise go to the insurer.
A risk retention group (RRG) under the federal Liability Risk Retention Act of 1986 must be:
Answer: Composed of members engaged in similar or related business activities
RRGs must be owned and controlled by their members, who must be engaged in similar or related businesses, allowing them to pool liability exposures.
In a finite risk insurance program, the primary distinguishing feature compared to traditional insurance is:
Answer: Limited risk transfer combined with a significant timing or investment risk element
Finite risk programs blend limited underwriting risk transfer with timing and investment risk, smoothing an organization's loss costs over multiple years.
Which of the following statements BEST describes a loss-sensitive insurance program?
Answer: The insured's premium varies based on its own actual loss experience
Loss-sensitive programs (such as retrospective rating or paid-loss plans) link the insured's premium directly to its own loss outcomes.