TRIP Risk Management 3 — Questions and Answers
Question 1: Which risk management concept describes the variability of actual losses around their expected value?
- Loss severity
- Loss frequency
- Volatility (Correct answer)
- Exposure unit
Correct answer: Volatility
Volatility measures how much actual losses deviate from expected losses, which is critical when deciding how much risk to retain versus transfer.
Question 2: A transportation risk manager uses a probability-impact matrix to prioritize risks. A risk rated 'high probability, high impact' should be addressed by:
- Accepting and monitoring the risk
- Avoiding or aggressively mitigating the risk (Correct answer)
- Transferring only minor portions to insurers
- Delaying action until losses materialize
Correct answer: Avoiding or aggressively mitigating the risk
Risks with high probability and high impact warrant immediate and significant action such as avoidance, elimination, or aggressive loss control measures.
Question 3: Which type of risk is inherent to all transportation businesses in a given market and cannot be eliminated through diversification?
- Speculative risk
- Systematic risk (Correct answer)
- Particular risk
- Pure risk
Correct answer: Systematic risk
Systematic risk affects all companies in an industry or economy (e.g., fuel price spikes, regulatory changes) and cannot be diversified away.
Question 4: An annual aggregate retention of $500,000 in a transportation insurance program means:
- Each individual claim is capped at $500,000
- The insured pays no more than $500,000 in total retained losses per policy year (Correct answer)
- The insurer's total exposure is $500,000
- The policy limit is $500,000
Correct answer: The insured pays no more than $500,000 in total retained losses per policy year
An annual aggregate retention caps the insured's total out-of-pocket retained losses for all claims combined within a single policy year.
Question 5: In transportation risk management, 'moral hazard' refers to:
- The physical condition of vehicles that increases loss probability
- Behavioral changes that increase risk because an insured knows losses are covered (Correct answer)
- Ethical violations by transportation brokers
- Fraudulent claims filed by third parties
Correct answer: Behavioral changes that increase risk because an insured knows losses are covered
Moral hazard occurs when insurance coverage reduces an insured's incentive to prevent losses or behave carefully, because they know they are financially protected.
Question 6: Which risk management document formally outlines a company's philosophy, goals, and guidelines for managing risk across all departments?
- Loss run report
- Risk management policy statement (Correct answer)
- Insurance specification
- Underwriting submission
Correct answer: Risk management policy statement
A risk management policy statement establishes the organizational framework, authority, and objectives for the entire risk management function.
Question 7: A transportation company self-insures its workers' compensation exposure and purchases excess coverage at $500,000. This structure is best described as:
- Captive insurance program
- Retrospective rating plan
- Large-deductible program
- Specific excess workers' compensation coverage (Correct answer)
Correct answer: Specific excess workers' compensation coverage
Specific excess workers' compensation provides reimbursement to the self-insured employer for individual claims that exceed the self-insured retention threshold.
TRIP Risk Management 3
Which risk management concept describes the variability of actual losses around their expected value?