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CAIB 3 > Chapter 6 > Flashcards

Chapter 6 Flashcards

1
Q

Describe four advantages brokers realize when using risk management in their sales process.

A

i) Clients who are more knowledgeable about their insurance
ii) Clients will be more likely to renew coverages
iii) Clients will be more likely to refer others to brokerage
iv) Clients will be more satisfied with claims process

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2
Q

Describe the process of identification of loss exposures.

A

This process recognizes losses that may occur.

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3
Q

Describe the process of analysis of loss exposures.

A

This process estimates the impact losses may have

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4
Q

What are the three criteria used when classifying loss exposures?

A

i) Identifying type of value exposed to losses
ii) Identifying perils causing losses
iii) Identifying financial impact of losses

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5
Q

What are four values exposed to loss?

A

i) Property Valuses
ii) Net Income Values
iii) Liability Loss
iv) Personnel Loss

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6
Q

What are two types of property values exposed to loss?

A

i) Tangible Property
ii) Intangible Property

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7
Q

Explain the following property loss exposure: Debris removal

A

Expenses that are incurred while removing debris after losses.

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8
Q

Explain the following property loss exposure: Demolition Expense

A

Expenses incurred demolishing undamaged portion of buildings after losses.

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9
Q

Explain the following property loss exposure: Undamaged property

A

Loss in value property occurring after losses to related structures (Drop in value of silo after barn is lost in fire.)

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10
Q

Explain the following property loss exposure: Increased cost construction.

A

Expenses incurred bringing buildings up to code while repairing damage after losses.

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11
Q

Explain the following property loss exposure: Pair or set value

A

Decrease in value of remaining item in a pair or set after loss to other portion of pair or set.

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12
Q

Explain the following property loss exposure: Going concern value

A

Difference in value of property that must be sold after losses and value of operating business.

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13
Q

What are four intangible properties exposed to loss?

A

i) Securities
ii) Trademarks
iii) Right to collect accounts
iv) Copyrights

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14
Q

What are two factors that impact on net income?

A

i) Decrease in revenues
ii) Increase in expenses

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15
Q

State five loss exposures that will result in decreases in revenues.

A

i) Business interruption
ii) Contingent business interruption
iii) Loss of profits on finished goods
iv) Reduced rental income
v) Decreased collection of accounts receivable

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16
Q

State three loss exposures that will result in increase in expenses.

A

i) Increase in accounts receivable
ii) Increased in rental expenses
iii) Expediting expenses

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17
Q

When assessing liability exposures, what are two factors to consider?

A

i) Entity to whom duty is owed
ii) Source of legal duty

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18
Q

What are three expenses court action may cause.

A

i) Costs to investigate
ii) Payment of an award for damages or costs of corrective actions
iii) Amounts of out of court settlements

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19
Q

Identify three peril categories and provide three examples of each.

A

i) Category: Natural perils
Examples: Cave-in, collapse, drought

ii) Category: Human perils
Examples: Arson, change or temperature, chemical leakage

iii) Category: Economic perils
Examples: War, currency fluctuations, depression

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20
Q

Which peril category is beyond human control?

A

Natural perils

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21
Q

Identify which peril category the following loss exposures belong, Natural, Human, or Economic: Cave-in

A

Natural

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22
Q

Identify which peril category the following loss exposures belong, Natural, Human, or Economic: Depression

A

Economic

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23
Q

Identify which peril category the following loss exposures belong, Natural, Human, or Economic: Arson

A

Human

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24
Q

Identify which peril category the following loss exposures belong, Natural, Human, or Economic: Fungi

A

Natural

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25
Q

Identify which peril category the following loss exposures belong, Natural, Human, or Economic: Water Hammer

A

Human

26
Q

Identify which peril category the following loss exposures belong, Natural, Human, or Economic: Earthquake

A

Natural

27
Q

Identify which peril category the following loss exposures belong, Natural, Human, or Economic: War

A

Economic

28
Q

Identify which peril category the following loss exposures belong, Natural, Human, or Economic: Embezzlement

A

Human

29
Q

When assessing financial impact of losses, what factors will impact his assessment?

A

i) Loss frequency
ii) Loss severity

30
Q

When reviewing loss frequency, what categories have been established? Also describe and provide an example of each.

A

i) Category: Almost nil
Description: Almost no possibility, very unlikely
Example: Meteorite impact

ii) Category: Slight
Description: It may happen, but hasn’t
Example: Loss from uncontrolled wildfire

iii) Category: Moderate
Description: It occurs from time to time
Example: Windstorms or hailstorms

iv) Category: Definite
Description: It occurs regularly
Example: Shoplifting

31
Q

When reviewing loss severity, what categories are assessed? Also describe and provide an example of each.

A

i) Category: Slight
Description: Organization can easily pay for loss
Example: Paper damaged during printer jam

ii) Category: Significant
Description: Organization cannot pay for entire loss, part must be transferred
Example: Damage caused by summer hailstorm

iii) Category: Severe
Description: Organization must transfer loss or risk failure
Example: Major loss due to fire

32
Q

State if you would treat the following loss exposure:
Frequency = definite
Severity = slight

A

No

33
Q

State if you would treat the following loss exposure:
Frequency = slight
Severity = significant

A

Yes

34
Q

Describe the inverse relationship between loss frequency and severity.

A

When loss severity goes down, frequency goes up. When loss frequency goes down, severity goes up.

35
Q

State five tools used by risk managers to identify and analyze loss exposures.

A

i) Standardized surveys and questionnaires
ii) Financial statements and underlying records
iii) Other records and documents
iv) Flowcharts
v) Personal inspections

36
Q

Identify an advantage and disadvantage of the following: Standardized Surveys

A

Advantage – Easy to complete
Disadvantage – No requirement to go beyond questions asked

37
Q

Identify an advantage and disadvantage of the following: Balance Sheets

A

Advantage – Helps identify existence of assets
Disadvantage – Values will be inaccurate

38
Q

Identify an advantage and disadvantage of the following: Other Records and Documents

A

Advantage – Helps in identifying future changes in organization
Disadvantage – All documents not available

39
Q

Identify an advantage and disadvantage of the following: Flowcharts

A

Advantage – Identifying bottlenecks in production
Disadvantage – Does not indicate probability of losses

40
Q

What is the best method to identify and analyze loss exposures?

A

Personal inspections cannot be replaced with other methods.

41
Q

What are two ways to avoid loss exposures and provide a weakness of this method?

A

i) Completely avoiding exposure
ii) Eliminating exposure
Weakness: Avoiding one exposure, usually creates another exposure

42
Q

What is the purpose of loss prevention techniques?

A

Loss prevention techniques address frequency of losses.

43
Q

What is the purpose of loss reduction techniques?

A

Loss reduction techniques address severity of losses.

44
Q

Describe pre-loss, loss reduction measures, and provide an example when reviewing property loss exposures.

A

Pre-loss, loss reduction measures attempt to reduce amount of loss prior to losses occurring. These measures would include placing all flammable liquids in flammable liquid storage cabinets.

45
Q

Describe post-loss, loss reduction measures, and provide an example when reviewing property loss exposures.

A

Post loss, loss reduction measures attempt to reduce amount of loss by halting its progress. These measures would include installation of sprinkler systems.

46
Q

What two methods may be used when using segregation of exposure units?

A

i) Separation
ii) Duplication

47
Q

Describe separation and provide an example when reviewing property loss exposures.

A

Separation occurs when organizations split a single asset or function into two or more locations. Separation of property values occurs when organizations store merchandise in more than one warehouse.

48
Q

What is a weakness of separation?

A

Although separation sounds good on paper, separation may interrupt normal operations of businesses.

49
Q

Describe duplication and provide an example when reviewing property loss exposures.

A

Duplication occurs when complete asset or structure is held in reserve to replace damaged assets or structures.

50
Q

What is a weakness of duplication?

A

Duplication can be a very expensive method of loss control.

51
Q

Describe contractual transfer and provide an example when reviewing property loss exposures.

A

Contractual transfer occurs when businesses transfer liability for losses to some other organization or person.

52
Q

What is accomplished with risk financing?

A

Risk financing provides funding for losses that occur.

53
Q

Describe two risk financing techniques available to risk managers.

A

i) Retention is using money from within organizations to pay for losses
ii) Contractual transfer uses money from outside organizations to pay for losses

54
Q

State two examples when forced retention may be imposed upon organizations.

A

i) Losses from occurrences that cannot be insured (e.g. war)
ii) Money required to pay required deductibles

55
Q

State two examples when optional retention may be used by organizations.

A

i) When losses are small and are within business’s financial ability (e.g. broken windows)
ii) When losses are small and expected, therefore budgeted (e.g. shoplifting)

56
Q

What are two ways businesses may transfer losses in contract?

A

i) Non-insurance transfer
ii) Commercial insurance

57
Q

Describe one type of non-insurance contractual transfer.

A

Hold harmless agreements are contracts when one organization agrees to hold harmless another organization. (e.g. Landlord held harmless by tenant in lease agreement)

58
Q

When should insurance be recommended?

A

When no other risk financing technique or loss control technique is sufficient.

59
Q

What are three problems that could still occur when using insurance as the transfer technique?

A

i) Insurer may declare bankruptcy
ii) Loss may not be insured when client expected coverage or amount of settlement is less than client expected
iii) Amount of coverage may be insufficient for losses incurred

60
Q

What are the three forecasts risk managers must use when selecting risk management techniques?

A

i) Forecast frequency and severity of potential losses
ii) Forecast effect risk control or risk financing methods will have on potential losses
iii) Forecast expenses of methods under consideration

CAIB 3 (7 decks)

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