ARM 402 EXAM A, B & C WITH STUDY GUIDE Complete 200 Questions
and Correct Answers Associate in Risk Management (ARM) –
Successfully Treating Risk Updated for 2026
---
SECTION 1: RISK TREATMENT FUNDAMENTALS (Questions 1-25)
Question 1
What is the definition of risk treatment?
A. The process of identifying potential risks to an organization
B. The selection and implementation of actions to help manage or mitigate a risk
C. The evaluation of risk management program effectiveness
D. The transfer of all risks to an insurance carrier
Answer: B. The selection and implementation of actions to help manage or mitigate a risk
Explanation: Risk treatment is defined as the selection and implementation of actions to help
manage or mitigate a risk. It encompasses all the methods used to alter the level of risk,
including avoidance, loss prevention, loss reduction, risk transfer, and retention .
---
Question 2
What is residual risk?
,A. The risk that remains after transferring all risks to an insurer
B. The level of risk remaining after actions are taken to alter the level of risk
C. The risk that is identified during the initial risk assessment
D. The risk that is never identified by the organization
Answer: B. The level of risk remaining after actions are taken to alter the level of risk
Explanation: Residual risk is the level of risk that remains after an organization has implemented
risk treatment measures. It represents the risk that is retained by the organization after all risk
management actions have been taken .
---
Question 3
Which risk control technique involves ceasing or never undertaking an activity so that the
possibility of a future loss occurring from that activity is eliminated?
A. Loss prevention
B. Loss reduction
C. Avoidance
D. Diversification
Answer: C. Avoidance
Explanation: Avoidance is a risk control technique that involves ceasing or never undertaking an
activity so that the possibility of a future loss occurring from that activity is eliminated. For
,example, a company may decide not to manufacture a particular product to avoid product
liability exposures .
---
Question 4
A risk control technique that reduces the frequency of a particular loss is called:
A. Loss reduction
B. Loss prevention
C. Avoidance
D. Diversification
Answer: B. Loss prevention
Explanation: Loss prevention is a risk control technique that reduces the frequency of a
particular loss. It aims to prevent losses from occurring in the first place. Examples include
safety training programs, equipment maintenance, and security measures .
---
Question 5
Which risk control technique reduces the severity of a particular loss?
A. Loss prevention
B. Loss reduction
C. Avoidance
, D. Separation
Answer: B. Loss reduction
Explanation: Loss reduction is a risk control technique that reduces the severity of a particular
loss. It does not prevent the loss from occurring but minimizes its impact. Examples include
sprinkler systems, backup generators, and disaster recovery plans .
---
Question 6
Jill's Dress Cottage recently added an elaborate sprinkler system which cost $9,000. Jill is hoping
that she will be able to obtain a discount on her property insurance as a result of making her
property safer. Jill's decision to add the sprinkler system is an example of which risk
management technique?
A. Loss prevention
B. Avoidance
C. Loss reduction
D. Risk transfer
Answer: C. Loss reduction
Explanation: The sprinkler system reduces the severity of a potential fire loss by minimizing
damage. It does not prevent the fire from occurring but limits its impact. This is a classic
example of loss reduction .
---
and Correct Answers Associate in Risk Management (ARM) –
Successfully Treating Risk Updated for 2026
---
SECTION 1: RISK TREATMENT FUNDAMENTALS (Questions 1-25)
Question 1
What is the definition of risk treatment?
A. The process of identifying potential risks to an organization
B. The selection and implementation of actions to help manage or mitigate a risk
C. The evaluation of risk management program effectiveness
D. The transfer of all risks to an insurance carrier
Answer: B. The selection and implementation of actions to help manage or mitigate a risk
Explanation: Risk treatment is defined as the selection and implementation of actions to help
manage or mitigate a risk. It encompasses all the methods used to alter the level of risk,
including avoidance, loss prevention, loss reduction, risk transfer, and retention .
---
Question 2
What is residual risk?
,A. The risk that remains after transferring all risks to an insurer
B. The level of risk remaining after actions are taken to alter the level of risk
C. The risk that is identified during the initial risk assessment
D. The risk that is never identified by the organization
Answer: B. The level of risk remaining after actions are taken to alter the level of risk
Explanation: Residual risk is the level of risk that remains after an organization has implemented
risk treatment measures. It represents the risk that is retained by the organization after all risk
management actions have been taken .
---
Question 3
Which risk control technique involves ceasing or never undertaking an activity so that the
possibility of a future loss occurring from that activity is eliminated?
A. Loss prevention
B. Loss reduction
C. Avoidance
D. Diversification
Answer: C. Avoidance
Explanation: Avoidance is a risk control technique that involves ceasing or never undertaking an
activity so that the possibility of a future loss occurring from that activity is eliminated. For
,example, a company may decide not to manufacture a particular product to avoid product
liability exposures .
---
Question 4
A risk control technique that reduces the frequency of a particular loss is called:
A. Loss reduction
B. Loss prevention
C. Avoidance
D. Diversification
Answer: B. Loss prevention
Explanation: Loss prevention is a risk control technique that reduces the frequency of a
particular loss. It aims to prevent losses from occurring in the first place. Examples include
safety training programs, equipment maintenance, and security measures .
---
Question 5
Which risk control technique reduces the severity of a particular loss?
A. Loss prevention
B. Loss reduction
C. Avoidance
, D. Separation
Answer: B. Loss reduction
Explanation: Loss reduction is a risk control technique that reduces the severity of a particular
loss. It does not prevent the loss from occurring but minimizes its impact. Examples include
sprinkler systems, backup generators, and disaster recovery plans .
---
Question 6
Jill's Dress Cottage recently added an elaborate sprinkler system which cost $9,000. Jill is hoping
that she will be able to obtain a discount on her property insurance as a result of making her
property safer. Jill's decision to add the sprinkler system is an example of which risk
management technique?
A. Loss prevention
B. Avoidance
C. Loss reduction
D. Risk transfer
Answer: C. Loss reduction
Explanation: The sprinkler system reduces the severity of a potential fire loss by minimizing
damage. It does not prevent the fire from occurring but limits its impact. This is a classic
example of loss reduction .
---
