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ERM - Midterms > ERM - Lesson 4 > Flashcards

ERM - Lesson 4 Flashcards

1
Q

4 Categories Under Loss or Risk Control

A
  1. Avoidance
  2. Loss Reduction
  3. Loss Prevention
  4. Diversification
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2
Q

3 Risk Handling Techniques

A
  1. Loss or Risk Control
  2. Risk Transfer
  3. Loss Financing
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3
Q

4 Categories Under EXTERNAL Loss Financing

A
  1. Insurance
  2. Hedging
  3. Contractual Transfer
  4. Limited Liability
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4
Q

2 Categories Under INTERNAL Loss Financing

A
  1. Retention
  2. Self-Insurance
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5
Q

A risk management strategy that involves taking an offsetting position in a financial instrument to reduce the risk of loss

A

Hedging

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6
Q

3 choice of risk-handling techniques is a function of:

A
  1. Frequency and severity of loss;
  2. The size of the firm or economic entity; and
  3. The supply of insurance
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7
Q

6 Loss or Risk Control (All techniques designed to reduce frequency or severity of loss)

A
  1. Loss prevention
  2. Avoidance
  3. Loss reduction
  4. Duplication and separation
  5. Diversification
  6. Loss control and Federal Regulatory Agencies
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8
Q

Techniques : Frequency

A

Loss Prevention

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9
Q

Techniques : Frequency and severity both zero

A

Avoidance

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10
Q

Techniques : severity, might occur post-loss, e.g., salvage

A

Loss Reduction

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11
Q

Techniques : (frequency and severity), examples are redundant records or geographic dispersion of exposure units

A

Duplication and separation

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12
Q

Techniques : Multiple Product Lines

A

Diversification

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13
Q

Techniques : (OSHA, CPSC, EPA impose specific requirements, compliance costs may result)

A

Loss control and Federal Regulatory Agencies

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14
Q

How we pay the losses

A

Loss Financing

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15
Q

You bear the risk

A

Retention

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16
Q

Low frequency, low severity

A

Retain
Risk Assumption and Loss Control

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17
Q

Low frequency, high severity

A

Transfer (Don’t retain)
Insurance and Loss Control

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18
Q

High frequency, low severity

A

Retain, Control (Don’t Transfer)
Self- Insurance (for larger firms)
Loss Control

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19
Q

High frequency, high severity

A

Avoid (Don’t Retain)
Avoidance (if possible)
Loss Control

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20
Q

Can be seasonal in nature

A

Problems

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21
Q

Difficult to measure

A

Problems

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22
Q

Best measurement still can only be an estimate

A

Problems

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23
Q

Must be cost-efficient

A

Loss Prevention

24
Q

Activities that prevent losses

A

Loss Prevention

25
Q

Aim is to minimize impact when losses occur

A

Loss Reduction

26
Q

Examples are Duplication and Seperation

A

Loss Reduction

27
Q

An estimate (numerical or verbal) as to the number of times the loss will occur.

A

Relative Frequency

28
Q

Always ___________ in, if ____________

A

Always engage in, if beneficial

29
Q

Take various steps to reduce the probability of losses occurring.

A

Loss Prevention

30
Q

Steps designed to reduce the severity

A

Loss Reduction

31
Q

Take steps to reduce the damage before and after a loss.

A

Loss Reduction

32
Q

6 Government and Loss Control

A
  1. Occupational Safety and Health Act of 1970 (OSHA)
  2. Consumer Product Safety Act of 1972 (CPSA)
  3. Comprehensive Environmental Response, Compensation Liability Act of 1980 (CERCLA)
    (Superfund)
  4. Food and Drug Administration (FDA)
  5. The Clean Air Act
  6. The Water Pollution Control Act
33
Q

Risk-bearing financial institutions,

A

Risk Transfer

34
Q

Hold-harmless agreements

A

Risk Transfer

35
Q

Choosing form of business organization to transfer risk from individuals to entity

A

Risk Transfer

36
Q

Take on financial risk for free

A

Risk-bearing financial institutions

37
Q

Transfers risk to another party

A

Contractual transfer agreements

38
Q

Transfer of risk through a contract

A

Hold harmless agreements

39
Q

Provided to the owners of certain types of business organizational forms.

A

Limited Liability

40
Q

6 Categories under Loss Financing

A
  1. Insurance
  2. Insurance with deductibles (and self-insured retentions [SIRs])
  3. Hedging
  4. Retention
  5. Self-insurance
  6. Captive insurers (dedicated risk-financing units)
41
Q

Transfers of risk to an insurer for a premium

A

Insurance

42
Q

Appropriate when loss-frequency is low, but potential severity is high.

A

Insurance

43
Q

Financial advantages of insurance

A

Tax Issues

44
Q

2 Categories under Insurance

A
  1. Moral Hazard
  2. Deductibles
45
Q

What we pay in insurance

A

Insurance Premium

46
Q

Not aware that there are existing risks

A

Risk Risk

47
Q

2 Reasons Why do companies self-insure?

A
  1. Save money
  2. Better control
48
Q

3 Categories under Better Control

A
  1. Loss Prevention Incentives
  2. Improved claims settlement
  3. Profitability and investment earnings
49
Q

Is when an organization sets aside funds to cover potential losses.

A

Self-Insurance

50
Q

This can be done for a specific type of risk, such as property damage or employee injury, or for a general pool of risks.

A

Self-Insurance

51
Q

Is when an organization decides to bear the risk of loss without any form of financial protection.

A

Risk assumption

52
Q

This can be a risky strategy, as it exposes the organization to the full financial impact of any losses that occur.

A

Risk assumption

53
Q

A method of self-insuring

A

Captive Insurance Companies

54
Q

A company formed to write insurance for a parent company

A

Captive Insurance Companies

55
Q

3 Motives for starting a captive

A
  1. Save the overhead and profits of the insurance company.
  2. Earn investment income on the premium.
  3. Tax advantages

ERM - Midterms (5 decks)

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