Risk Management Principles Flashcards
6 cards from real PGI practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 6 Risk Management Principles flashcards as text
What is 'operational risk' in the context of risk management?
Answer: The risk of loss resulting from inadequate or failed internal processes, people, systems, or from external events
Operational risk is the risk of loss from failures in internal processes, people (human error, fraud), systems (IT failures), or from external events (natural disasters, cyber attacks). It is distinct from financial risks like market and credit risk.
What is 'catastrophe modelling' and why is it important for insurers?
Answer: Using probabilistic computer models to estimate the frequency, severity, and potential losses from catastrophic events, informing underwriting, pricing, and reinsurance decisions
Catastrophe modelling uses probabilistic models incorporating physical event parameters (wind speed, ground motion) and exposure data to estimate the distribution of losses from catastrophic events. Insurers use it for pricing, accumulation management, and reinsurance purchasing.
What is 'supply chain risk' and how does it create insurance exposure?
Answer: Risk that disruptions in the supply chain interrupt the insured's business, creating contingent business interruption exposure even when the insured's own premises are undamaged
Supply chain risk arises when disruptions at upstream suppliers or downstream distributors interrupt the insured's business operations, even when the insured's own premises are undamaged. This creates contingent business interruption exposure.
What is a 'risk heat map' used for in enterprise risk management?
Answer: A visual tool plotting risks on a matrix by likelihood and impact, allowing prioritization of risk treatment efforts
A risk heat map plots identified risks on a two-dimensional matrix (likelihood vs. impact), using color coding to visually prioritize which risks require immediate attention versus those that can be monitored or accepted.
What is 'counterparty risk' in the context of insurance arrangements?
Answer: Risk that the insurer, reinsurer, or other counterparty fails to meet their financial obligations under a contract
Counterparty risk in insurance is the risk that the other party (insurer, reinsurer, cedant) fails to fulfill its financial obligations — for example, an insolvent reinsurer failing to pay claims, leaving the cedant exposed.
What is the ISO 31000 framework's approach to risk management?
Answer: A universal risk management framework providing principles, a framework, and a process applicable to any organization of any size or sector
ISO 31000 provides universal principles, a framework, and a process for managing risk, applicable to organizations of any type, size, sector, and risk profile. It is not prescriptive but provides guidance adaptable to each organization's context.