Chapter 1

Question 1

When did the concept of measuring risk originate

Answer 1

the concept of measuring risk dates from the middle of the 17th century

Question 2

Who first proposed the theory of probability

Answer 2

two mathematicians, Fermat and Pascal, first proposed the theory of probability

Question 3

When did we first start expressing the severity of a risk in numerical terms

Answer 3

in the thirteenth century. Previously the numbers 0-9 where not widely used in the Western world.

Question 4

when did basic algebra originate.

Answer 4

basic algebra originated in 1565.

Question 5

who created basic algebra.

Answer 5

a mathematician and physician called Cardano, who produced a mathematical analysis of games of chance.

Question 6

what significant development took place in 1662.

Answer 6

The publication of an analysis of records of births and deaths in London. This was compiled by businessman called John Graunt .

Question 7

What are Renn and Rohrmann’s four levels of risk perception

Answer 7

Renn and Rohrmann’s Framework for risk perception is structured around the following four levels: cultural influences, Media influence, emotional factors and common sense.

Question 8

What are the key elements of risk perception

Answer 8

• voluntariness
• controllability
• delay
• man-made and natural risks
• familiarity
• expected benefits
• media
• dread and unknown risks
• other influences of risk perception

Question 9

what are dread risks

Answer 9

dread risks are characterised by perceived lack of control, catastrophic potential, inequitable distribution of risks and benefits and dreadful consequences

Question 10

what are unknown risks

Answer 10

unknown risks are those less generally known, with limited knowledge of the risk, perhaps with delayed effect and where the risk type is new

Question 11

what is the first level in Renn and Rorhmann’s structured framework of risk perception

Answer 11

Common sense

collective reasoning strategies

Question 12

what is the second level in Renn and Rorhmann’s structured framework of risk perception

Answer 12

Emotional factors

Knowledge of risk

Question 13

what is the third level in Renn and Rorhmann’s structured framework of risk perception

Answer 13

Media influence

Social, political and economic culture

Question 14

what is the fourth level in Renn and Rorhmann’s structured framework of risk perception

Answer 14

Cultural influences

Personal identity and views

Question 15

what is speculative risk

Answer 15

speculative risk is where someone deliberately chooses to place money or resources at risk in the hope of obtaining a positive outcome

Question 16

what is pure risk

Answer 16

pure risk is a category of risk in which loss is the only possible outcome: there is no beneficial result

Question 17

Strategic risk - define

Answer 17

associated with long-term objectives of an organisation.

closely related but not the same as speculative risks

Question 18

operational risk - define

Answer 18

operational risk is defined as risk of loss resulting from inadequate or failed internal processes, people and systems or from external events

Question 19

Types of operational risk

Answer 19

• management of fraud (internal and external)
• damage to physical assets
• business disruption
• system failure
• employment practices
• workplace safety
• outsourcing
• supplier disruption
• customer service issues

Question 20

market risk - define

Answer 20

market risk, also referred to as systemic risk, is concerned with the risk of losses in trading positions arising from movements in market prices

Question 21

what is credit risk

Answer 21

credit risk is risk that a counterparty will suffer real or perceived deterioration of financial strength, or be unable to pay amounts when full due.

Question 22

what is liquidity risk

Answer 22

liquidity risk is the risk of running out of cash when it is needed to meet financial obligations (e.g. the payment of valid insurance claims)

Question 23

what is business risk

Answer 23

business risk is the probability of loss inherent to an organisation’s operations and environment, such as competition and adverse economic conditions that may impair its ability to provide returns on investment

Question 24

what is insurance risk

Answer 24

insurance risk associated with any one insurance contract is twofold: uncertainty that an insured event will occur, and uncertainty of the amount of any resulting claim

Question 25

what is reputation risk

Answer 25

reputation risk is the possible loss of an organisation’s reputation. it is closely associated with brand management

Question 26

what are regulatory risks

Answer 26

regulatory risks are associated with factors an organisation needs to consider because of the regulatory environment in which it operates

Question 27

what are legal risks

Answer 27

legal risks are associated with alleged or actual breach of contract between an organisation and a counterparty

Question 28

what does the EU gender directive 2012 require from insurers

Answer 28

that they reconsider the use of gender-based pricing and cover

Question 29

what is every risk associated with

Answer 29

cause and effect

Question 30

how can we classify risk consequences

Answer 30

once a risk has been evaluated, its consequences can be classified according to whether:

• they can be tolerated
• they can be tolerated with financial compensation (insurance), or
• they are totally unacceptable

Question 31

when did modern risk management originate

Answer 31

modern risk management is a new discipline, effectively dating from the latter part of the 20th century

Question 32

what is risk management based on

Answer 32

risk management is based on fundamental mathematical concepts of risk perception and measurement developed by mathematicians and scientists during the last three hundred years.

Question 33

how far back can we trace mathematical analysis of games of chance

Answer 33

we can trace mathematical analysis of games of chance back to the 16th century. analysis of historical life expectancy data and shipping records can be traced back to the 17th century

Question 34

what did the use of statistics allow which was previously unfeasible

Answer 34

statistics from past data allowed people to judge what may happen in the future and formed the basis of insurance business

Question 35

what developments took place in the 18th and 19th centuries that allowed the development of insurance

Answer 35

The 18th and 19th centuries saw developments saw developments in statistical analysis, analysis of distributions and theorems based on these advances, such as regression to the mean

Question 36

what was first recognised in the 20th century, which was previously adopted as an axiom

Answer 36

by the early 20th century it was recognised that history was not always a reliable guide to future events. Emphasis was placed on dealing with uncertainty and making decisions with a range of possible outcomes

Question 37

when did the discipline of risk management develop as we recognise it today

Answer 37

the discipline of risk management as we recognise it today developed after World War II and was accelerated by technology advances such as the availability of computers.
People stopped relying on insurance and concentrated on preventing or mitigating the effects of risk incidents

Question 38

In addition to the development of risk management, what else developed after WW2

Answer 38

health and safety measures became commonplace. continuity plans came into existence, ensuring business continuity in the event of disaster.

Question 39

how has Government regulation evolved in recent decades

Answer 39

Government regulation has widened and there is growing emphasis on responsibility and accountability for not controlling risk

Question 40

People are more willing to accept risks…

Answer 40

…they think they can control

Question 41

Man-made and natural risks are perceived differently…

Answer 41

…with the latter being more accepted than the former