TRIP Risk Management 2 — Questions and Answers
Question 1: Which risk management technique involves transferring the financial consequences of a loss to another party through a contract?
- Risk retention
- Risk avoidance
- Risk transfer (Correct answer)
- Risk reduction
Correct answer: Risk transfer
Risk transfer shifts the financial burden of a potential loss to another party, most commonly through insurance contracts or hold-harmless agreements.
Question 2: A transportation company discovers that its auto liability losses fluctuate significantly year to year. Which risk management tool is best suited to predict future losses?
- Trend analysis
- Hazard identification
- Loss forecasting using actuarial methods (Correct answer)
- Risk mapping
Correct answer: Loss forecasting using actuarial methods
Actuarial methods use historical loss data and statistical techniques to forecast future losses, accounting for volatility in transportation liability claims.
Question 3: In the context of transportation risk, a 'retained risk' that is formally funded through a dedicated account is best described as:
- Self-insured retention (SIR)
- Captive insurance
- Funded retention (Correct answer)
- Deductible program
Correct answer: Funded retention
Funded retention occurs when a company sets aside specific financial reserves to pay for anticipated retained losses rather than purchasing external insurance.
Question 4: Which component of a risk management program establishes the maximum amount of loss a transportation company is willing to absorb before insurance responds?
- Aggregate stop-loss limit
- Retention level (Correct answer)
- Coverage trigger
- Primary limit
Correct answer: Retention level
The retention level defines the threshold of loss the insured accepts responsibility for before transferring risk to an insurer.
Question 5: A trucking firm implements GPS tracking, mandatory rest periods, and driver safety training. These measures are examples of:
- Risk financing
- Loss control (Correct answer)
- Risk avoidance
- Captive formation
Correct answer: Loss control
Loss control encompasses proactive measures designed to reduce the frequency and severity of losses before they occur.
Question 6: The process of systematically identifying all potential exposures a transportation company faces before selecting risk management strategies is called:
- Risk mapping
- Exposure identification (Correct answer)
- Hazard analysis
- Vulnerability assessment
Correct answer: Exposure identification
Exposure identification is the foundational step in risk management that catalogs all assets, activities, and liabilities that could result in financial loss.
Question 7: When a transportation company uses a high deductible policy with a large self-insured retention, the primary benefit compared to guaranteed-cost insurance is:
- Elimination of all retained risk
- Improved cash flow and potential cost savings if losses are low (Correct answer)
- Guaranteed premium stability
- Avoidance of claims administration
Correct answer: Improved cash flow and potential cost savings if losses are low
High-deductible programs reduce upfront premiums and allow companies with good loss experience to retain savings, improving cash flow compared to fully-insured programs.
TRIP Risk Management 2
Which risk management technique involves transferring the financial consequences of a loss to another party through a contract?