CPCU 500- Becoming a Leader in Risk Management and
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Insurance Exam with verified detailed answers || || || || ||
Risk - ✔✔uncertainty of outcomes
|| || || ||
The insurance industry is evolving as a result of two key, overarching factors that are
|| || || || || || || || || || || || || || ||
influencing virtually every aspect of the insurance value chain: - ✔✔the growing demand
|| || || || || || || || || || || || ||
for risk management consulting
|| || ||
new technology that's helping organizations predict and prevent losses
|| || || || || || || ||
Examples of Technology Used to Predict and Prevent Losses - ✔✔Telematics- has greatly
|| || || || || || || || || || || || ||
influenced vehicle and driver safety || || || ||
Wearables
IoT Sensors
||
Smartphones
Cloud Storage ||
Predictive Models ||
Artificial Intelligence ||
,Law of Large Numbers - ✔✔A mathematical principle stating that as the number of similar
|| || || || || || || || || || || || || || ||
but independent exposure units increases, the relative accuracy of predictions about future
|| || || || || || || || || || || ||
outcomes (losses) also increases. || || ||
Oscar's custom-built vehicle looks like a sausage sandwich on wheels. He plans to drive it to
|| || || || || || || || || || || || || || ||
special events at schools around the country where it will serve as a mobile billboard to
|| || || || || || || || || || || || || || || || ||
promote his product. Oscar is surprised to learn that insurers are reluctant to insure his
|| || || || || || || || || || || || || || ||
vehicle because it fails to meet one of the ideal characteristics of an insurable risk. Which
|| || || || || || || || || || || || || || || ||
characteristic is Oscar's vehicle least likely to meet? || || || || || || ||
Smart Product - ✔✔An innovative item that uses sensors; wireless sensor networks; and
|| || || || || || || || || || || || ||
data collection, transmission, and analysis to further enable the item to be faster, more
|| || || || || || || || || || || || || ||
useful, or otherwise improved.
|| || ||
Sensor - ✔✔A device that detects and measures stimuli in its environment.
|| || || || || || || || || || ||
Wireless sensor network (WSN) - ✔✔A wireless network consisting of individual sensors
|| || || || || || || || || || || ||
placed at various locations to exchange data.
|| || || || || ||
Big data - ✔✔Sets of data that are too large to be gathered and analyzed by traditional
|| || || || || || || || || || || || || || || || ||
methods.
Internet of Things (IoT) - ✔✔A network of objects that transmit data to computers.
|| || || || || || || || || || || || ||
Predictive analytics - ✔✔Statistical and analytical techniques used to develop models that
|| || || || || || || || || || || ||
predict future events or behaviors.
|| || || ||
Data science - ✔✔An interdisciplinary field involving the design and use of techniques to
|| || || || || || || || || || || || || ||
process very large amounts of data from a variety of sources and to provide knowledge
|| || || || || || || || || || || || || || ||
based on the data. || || ||
,These decisions can have far-reaching effects across the insurance value chain: -
|| || || || || || || || || || || ||
✔✔Determining the appropriate coverage limits for an individual policy || || || || || || || ||
Choosing whether to have a prospective customer elaborate on information provided in an
|| || || || || || || || || || || || ||
insurance application ||
Deciding what data to include in a predictive model and where it should come from
|| || || || || || || || || || || || || ||
Determining whether a claim shows signs of fraud and should be reported to the special
|| || || || || || || || || || || || || || ||
investigation unit (SIU) || ||
Deciding the best way to respond empathetically to a customer's claim
|| || || || || || || || || ||
Determining how to describe your ideal job candidate for an open position to a recruiter or
|| || || || || || || || || || || || || || || ||
hiring manager ||
What's the difference between occurrence and claims-made coverage - ✔✔Under an
|| || || || || || || || || || ||
occurrence policy, coverage is triggered for losses that happen within the policy period, even
|| || || || || || || || || || || || ||
if the policy has expired. Under a claims-made policy, coverage is triggered for claims that
|| || || || || || || || || || || || || || || ||
occur after the policy's coverage began (the retroactive date) and are reported within the
|| || || || || || || || || || || || || ||
policy's reporting period.|| ||
social inflation - ✔✔The increasing of insurance losses caused by higher jury awards,
|| || || || || || || || || || || || ||
increase in liberal treatment of claims by workers compensation boards, legislated rises in
|| || || || || || || || || || || || ||
compensation benefit levels (in some cases retroactively), and new concepts of tort and
|| || || || || || || || || || || || ||
negligence, among others. || ||
These are some of the most common risk classifications - ✔✔Pure and speculative risk
|| || || || || || || || || || || || ||
, Subjective and objective risk || || ||
Diversifiable and nondiversifiable risk || || ||
Quadrants of risk (hazard, operational, financial, and strategic)
|| || || || || || ||
Several factors can affect speculative risk - ✔✔Price risk—Uncertainty about cash flows
|| || || || || || || || || || || ||
resulting from possible changes in the cost of raw materials and other inputs (such as
|| || || || || || || || || || || || || || ||
lumber, gas, or electricity), as well as cost-related changes in the market for completed
|| || || || || || || || || || || || || ||
products and other outputs. || || || ||
EXAMPLE- Four Grains Cereal Company signed a contract to deliver 250,000 boxes of
|| || || || || || || || || || || || ||
cereal to a national supermarket chain at a specified price per box of cereal six months from
|| || || || || || || || || || || || || || || || ||
today. Between now and when the grain to make the cereal is purchased, the cost of the
|| || || || || || || || || || || || || || || || ||
grain may increase. If the cost of this important ingredient increases, the profitability of the
|| || || || || || || || || || || || || || ||
transaction will be altered. This financial risk that Four Grains faces is
|| || || || || || || || || || ||
Input Price- Uncertainty of the price of the resources used to produce an organization's
|| || || || || || || || || || || || || ||
product
Output Price- Uncertainty regarding the price an organization can charge for its product
|| || || || || || || || || || || ||
Credit risk- risk that customers or other creditors will fail to make promised payments as
|| || || || || || || || || || || || || || ||
they come due.—Although a credit risk is particularly significant for banks and other
|| || || || || || || || || || || || ||
financial institutions, it can also be relevant to any organization with accounts receivable.
|| || || || || || || || || || || ||
Subjective and objective risks can differ in other ways as well: - ✔✔Familiarity and control
|| || || || || || || || || || || || || ||
|| || || || || || || || ||
Insurance Exam with verified detailed answers || || || || ||
Risk - ✔✔uncertainty of outcomes
|| || || ||
The insurance industry is evolving as a result of two key, overarching factors that are
|| || || || || || || || || || || || || || ||
influencing virtually every aspect of the insurance value chain: - ✔✔the growing demand
|| || || || || || || || || || || || ||
for risk management consulting
|| || ||
new technology that's helping organizations predict and prevent losses
|| || || || || || || ||
Examples of Technology Used to Predict and Prevent Losses - ✔✔Telematics- has greatly
|| || || || || || || || || || || || ||
influenced vehicle and driver safety || || || ||
Wearables
IoT Sensors
||
Smartphones
Cloud Storage ||
Predictive Models ||
Artificial Intelligence ||
,Law of Large Numbers - ✔✔A mathematical principle stating that as the number of similar
|| || || || || || || || || || || || || || ||
but independent exposure units increases, the relative accuracy of predictions about future
|| || || || || || || || || || || ||
outcomes (losses) also increases. || || ||
Oscar's custom-built vehicle looks like a sausage sandwich on wheels. He plans to drive it to
|| || || || || || || || || || || || || || ||
special events at schools around the country where it will serve as a mobile billboard to
|| || || || || || || || || || || || || || || || ||
promote his product. Oscar is surprised to learn that insurers are reluctant to insure his
|| || || || || || || || || || || || || || ||
vehicle because it fails to meet one of the ideal characteristics of an insurable risk. Which
|| || || || || || || || || || || || || || || ||
characteristic is Oscar's vehicle least likely to meet? || || || || || || ||
Smart Product - ✔✔An innovative item that uses sensors; wireless sensor networks; and
|| || || || || || || || || || || || ||
data collection, transmission, and analysis to further enable the item to be faster, more
|| || || || || || || || || || || || || ||
useful, or otherwise improved.
|| || ||
Sensor - ✔✔A device that detects and measures stimuli in its environment.
|| || || || || || || || || || ||
Wireless sensor network (WSN) - ✔✔A wireless network consisting of individual sensors
|| || || || || || || || || || || ||
placed at various locations to exchange data.
|| || || || || ||
Big data - ✔✔Sets of data that are too large to be gathered and analyzed by traditional
|| || || || || || || || || || || || || || || || ||
methods.
Internet of Things (IoT) - ✔✔A network of objects that transmit data to computers.
|| || || || || || || || || || || || ||
Predictive analytics - ✔✔Statistical and analytical techniques used to develop models that
|| || || || || || || || || || || ||
predict future events or behaviors.
|| || || ||
Data science - ✔✔An interdisciplinary field involving the design and use of techniques to
|| || || || || || || || || || || || || ||
process very large amounts of data from a variety of sources and to provide knowledge
|| || || || || || || || || || || || || || ||
based on the data. || || ||
,These decisions can have far-reaching effects across the insurance value chain: -
|| || || || || || || || || || || ||
✔✔Determining the appropriate coverage limits for an individual policy || || || || || || || ||
Choosing whether to have a prospective customer elaborate on information provided in an
|| || || || || || || || || || || || ||
insurance application ||
Deciding what data to include in a predictive model and where it should come from
|| || || || || || || || || || || || || ||
Determining whether a claim shows signs of fraud and should be reported to the special
|| || || || || || || || || || || || || || ||
investigation unit (SIU) || ||
Deciding the best way to respond empathetically to a customer's claim
|| || || || || || || || || ||
Determining how to describe your ideal job candidate for an open position to a recruiter or
|| || || || || || || || || || || || || || || ||
hiring manager ||
What's the difference between occurrence and claims-made coverage - ✔✔Under an
|| || || || || || || || || || ||
occurrence policy, coverage is triggered for losses that happen within the policy period, even
|| || || || || || || || || || || || ||
if the policy has expired. Under a claims-made policy, coverage is triggered for claims that
|| || || || || || || || || || || || || || || ||
occur after the policy's coverage began (the retroactive date) and are reported within the
|| || || || || || || || || || || || || ||
policy's reporting period.|| ||
social inflation - ✔✔The increasing of insurance losses caused by higher jury awards,
|| || || || || || || || || || || || ||
increase in liberal treatment of claims by workers compensation boards, legislated rises in
|| || || || || || || || || || || || ||
compensation benefit levels (in some cases retroactively), and new concepts of tort and
|| || || || || || || || || || || || ||
negligence, among others. || ||
These are some of the most common risk classifications - ✔✔Pure and speculative risk
|| || || || || || || || || || || || ||
, Subjective and objective risk || || ||
Diversifiable and nondiversifiable risk || || ||
Quadrants of risk (hazard, operational, financial, and strategic)
|| || || || || || ||
Several factors can affect speculative risk - ✔✔Price risk—Uncertainty about cash flows
|| || || || || || || || || || || ||
resulting from possible changes in the cost of raw materials and other inputs (such as
|| || || || || || || || || || || || || || ||
lumber, gas, or electricity), as well as cost-related changes in the market for completed
|| || || || || || || || || || || || || ||
products and other outputs. || || || ||
EXAMPLE- Four Grains Cereal Company signed a contract to deliver 250,000 boxes of
|| || || || || || || || || || || || ||
cereal to a national supermarket chain at a specified price per box of cereal six months from
|| || || || || || || || || || || || || || || || ||
today. Between now and when the grain to make the cereal is purchased, the cost of the
|| || || || || || || || || || || || || || || || ||
grain may increase. If the cost of this important ingredient increases, the profitability of the
|| || || || || || || || || || || || || || ||
transaction will be altered. This financial risk that Four Grains faces is
|| || || || || || || || || || ||
Input Price- Uncertainty of the price of the resources used to produce an organization's
|| || || || || || || || || || || || || ||
product
Output Price- Uncertainty regarding the price an organization can charge for its product
|| || || || || || || || || || || ||
Credit risk- risk that customers or other creditors will fail to make promised payments as
|| || || || || || || || || || || || || || ||
they come due.—Although a credit risk is particularly significant for banks and other
|| || || || || || || || || || || || ||
financial institutions, it can also be relevant to any organization with accounts receivable.
|| || || || || || || || || || || ||
Subjective and objective risks can differ in other ways as well: - ✔✔Familiarity and control
|| || || || || || || || || || || || || ||
