CPCU 500 EXAM QUESTIONS AND ANSWERS MANAGING EVOLVING RISKS WITH COMPLETE SOLUTIONS.

CPCU 500 EXAM QUESTIONS AND ANSWERS MANAGING EVOLVING RISKS WITH COMPLETE SOLUTIONS. "WOTF data capture tools has led to an explosion of risk management innovation by allowing smart products to transmit data? - Correct Answer Internet of Things" Which one of the following statements about the use of drones is true? - Correct Answer Drones may be equipped with cameras that relay data in real-time" "Which one of the following uses infrared light to detect nearby objects? - Correct Answer Lidar" "Risk managers today differ from traditional risk managers in WOTF ways? - Correct Answer They attempt to min threats & optimize opportunities" "According to the law of large numbers, as the number of exposure units insured increases - Correct Answer The relative accuracy of predictions about future losses increases" "A new computer chip that could position a company for explosive growth is an example of - Correct Answer Strategic risk" "AMRM Insurance Company sells insurance in Virginia, North Carolina, South Carolina, and Georgia. The company has compiled a policyowner data base that can be used to send text messages when hurricanes approach. The company provides early warnings, storm updates from the National Weather Service, and hurricane safety measures. The company credits the system with reduced hurricane claims. The use of the texting system is an example of - Correct Answer Preventive analytics" "The traditional definition of risk management reflects the traditional concept of risk as - Correct Answer Negative" "WOTF is true regarding the evolution of risk and risk management? - Correct Answer The definition of risk has evolved to included +/- attributes" "Many auto manufacturers have automated a portion of their assembly lines by introducing a smart product. The smart product performs repetitive tasks, such as making the same weld on each vehicle frame as it passes the smart product. These smart products, which can be fixed or mobile, reduce repetitive motion injuries that humans might suffer. They can also be used to perform dangerous tasks and in heavy-lifting jobs. These smart products are called - Correct Answer Robots" "Which one of the following is described as a distributed database that serves as a collectively shared ledger? - Correct Answer Blockchain" "Autonomous Vehicle Applications (AVA) is a start-up company that develops safety technologies that can be sold to companies that are producing autonomous vehicles. One technology AVA is developing allows an autonomous vehicle to detect, extract, and analyze images; and then to respond to the images. For example, the technology would detect a presence in a crosswalk, extract the image, and a computer would analyze the image. When the image was determined to be a human being, the vehicle would slow down or stop until the crosswalk was clear. This technology, which is designed to capture and analyze images, and to act on the recognition of the image; is called - Correct Answer Computer vision" "The important first step in a decision-making model is to A. Prepare the data. B. Assign a data scientist. C. Define the problem. - Correct Answer C. Define the problem." "Which one of the following is a technique that can destroy motivation, rather than build it? A. Seeking feedback on yourself from peers, managers, and subordinates B. Seeking stakeholder input when making decisions C. Promoting competition among units D. Requesting equipment, staff, and other resources needed to support stakeholders - Correct Answer C. Promoting competition among units" "Catastrophes such as recent earthquakes and the 2011 tsunami in Japan pointed out a need for many organizations to evaluate and manage their - Correct Answer Supply-chain risk" "Which one of the following best explains how most smart products potentially improve risk management? - Correct Answer They generate big data to which advanced analytics can be applied" "Take Your Order (TYO) is a company that specializes in taking product orders for vendors. The manufacturer of a product can run a television or internet ad for a product with a toll-free number. Customer calls for the products are routed to TYO, where one hundred operators are available to receive the calls. Each operator is assigned a cubicle with a computer terminal, video display monitor, and a telephone. TYO experienced high workers compensation claims from its operators, claiming neck strain, eye strain, and wrist pain. In an effort to reduce such injuries, TYO evaluated each operator's work area. The height of chairs and video monitors were adjusted, curved computer keyboards and wrist-rests were provided, and the telephones were replaced with audio headsets. Workers compensation costs dropped significantly. The science of designing work spaces based on interaction between people and the equipment in the work s - Correct Answer Ergonomics" "Don is the Risk Manager for Rafferty Corporation. One of his peers, Sally, asks him one day, "How do you define risk?" When Don replies, which one of the following statements is accurate? - Correct Answer Risk has different meanings within the risk management and insurance communities." "In an effort to reduce expenses, increase profitability, and reduce human errors; ABC Insurance Company decided to automate most of its personal lines underwriting function. The company now uses standardized application forms that are submitted electronically to one of the company's regional offices. At each regional office, a computer with a scanner reads the applications. The computer has been programmed with acceptable answers to the questions. If the answers on the application are all acceptable, the policy is automatically issued. Rejected applications are automatically forwarded to a human underwriter who reviews them. The use of this technology has reduced the company's expense ratio by two and a half percent, and reduced the time it takes to issue a policy. ABC Insurance Company's use of computers to evaluate applications electronically is an application of - Correct Answer Artificial intelligence" "A municipal water plant installed water flow sensors and water pressure sensors on the water pipes leaving the plant. The sensors make sure water is flowing properly and that there are no leaks or clogs which could produce a loss. These types of sensors are - Correct Answer Mechanical sensors" "Which one of the following is a tool that can be used by fraud investigators to compare documents and analyze notes? - Correct Answer Text mining" "Last year, three Metro City firemen died responding to a fire at a chemical plant, when they were overcome by toxic fumes. In response, Metro City is purchasing advanced first responder gear. It includes special flame retardant suits with chemical and explosive fume sensors, air quality sensors, and heat sensors. Responders will also wear special watches that will track a responder's pulse, respiration, and blood pressure; and helmets that include video cameras. All of these sensors will feed data to a computer in real-time. The computer will analyze the data and issue threat levels and evacuation orders, if necessary. The protective gear Metro City will purchase and the data transmission and analysis capability illustrate the use of - Correct Answer Smart products" "Precision Electronic Components manufactures circuit boards, microchips, and other electronic products. Given the precision necessary for their products, the manufacturing environment must be controlled. Temperature, humidity, static electricity and other factors must be monitored. After losing several batches of products due to human monitoring failures and imprecise adjustments, the company moved to a system of sensors. The sensors monitor and regulate temperature, humidity, static electricity, and other factors. The sensors transmit data to and from each other, and the manufacturing environment is continuously adjusted to assure production is successful. The network of sensors transmitting data and the autonomous corrective actions without human interaction is called - Correct Answer The Internet of Things" "Mutual Fund Company (MFC) offers a wide array of mutual fund options to investors. Each mutual fund has a different fund objective and set of investment guidelines that apply to the fund. While MFC gives considerable freedom to its fund portfolio managers, they are required to abide by the fund's investment guidelines. To monitor compliance, MFC developed a computer algorithm. The computer algorithm continuously monitors each fund's compliance with investment guidelines. If a fund manager violates the investment guidelines, the computer immediately notifies MFC's internal control director, and corrective action is taken. MFC's use of the computer algorithm to monitor investment compliance and to provide notification when corrective action is necessary illustrates use of - Correct Answer Artificial intelligence" "Data Entry Company (DEC) offers customers data entry services. A customer can hire DEC to enter survey data to be analyzed. Many DEC employees spend long hours entering data on a computer. DEC has experienced neck strain and wrist pain complaints from their employees, increasing the company's workers compensation costs. DEC investigated the complaints of its data-entry employees. DEC adopted curved keyboards for data entry, wrist-rests for those entering data, and uniform chair heights and display monitor heights to reduce neck strain claims. The science of designing work spaces based on the health concerns of those who will operate in the work space is called - Correct Answer Ergonomics" "WOTF is an ex of wearable? - Correct Answer Helmets that monitor fatigue" "The National Ocianic (NOA) Monitors tsunami risk. Using the tsunami detection buyous (smart prod) illustrates - Correct Answer CAT management" "The diff between risk tech & insuretech is - Correct Answer Risk tech goes beyond insuretech by expanding its focus to making risk financing more efficient & preventing & mitigating losses in a variety of indv." "In addition to metal detectors, many airports have installed a 2nd type of scanning tech 4 checked baggage & cargo to detect explosives based on air samples. Which sensor used for risk assemt and control? - Correct Answer Biochemical sensors (home diagnosis tests, wearable fitness monitors, diabetes tests)" "William is a risk manager for Green Mountain Trucking. He has always analyzed auto loss frequency and severity rates for the fleet. William would like to collect data on vehicle speeds, braking patterns, and distance traveled and compare that with the loss history. Which one of the following would help William capture and analyze this data? - Correct Answer Vehicle Telematics" "Southwest Interstate Railroad (SIR) is concerned about the number derailments in recent years. It's not cost effective to use human assets to inspect tracks, bridges, and trestles. Instead, SIR has started to use drones. A drone can fly low over tracks and above/below bridges and trestles. The drones record video that is transmitted to corporate headquarters where it is simultaneously scanned for derailment hazards. In the past six months, the drones detected a track blockage caused by a rock slide and damage to tracks in a remote area cause by an earthquake. SIR dispatched work crews to make the tracks once again passable, and no derailments occurred. SIR's use of drones, video, real-term video scanning, and computer analysis illustrates which one of the following? - Correct Answer Preventive Analytics" "WOTF is true about preventive analytics - Correct Answer Uses smart products and data analytics to identify root loss causes and their implicaitions." "The emerging techs applied to risk assessment and control link the physical domain and virtual domain. Together, these domains linked by the merging techs create a - Correct Answer Connected ecosystem" "In remodeling the primary office location, Phil, who is a partner in his family's construction business, found asbestos in the attic of the building. He is concerned not only about the current tear-out exposure but is also aware that asbestos may have resulted in unidentified harm. In the "quadrants of risk," Phil's concern about the asbestos most likely falls into which one of the following quadrants of risk? - Correct Answer Hazard risk" "Which of the following risk management program goals is an essential goal for all public entities? - Correct Answer Continuity of operations" "An organization must meet the standard of care that it owes to others in order to ensure that - Correct Answer Legal obligations are satisfied." "Jean is the Risk Manager for a Fortune 1000 company. Her CFO has tasked her to analyze vulnerabilities in the firm's supply chain. The adequacy of suppliers to meet an organization's needs would be an example of which one of the following types of risk? - Correct Answer Operational risk" "Fluctuations in the value of stocks or bonds due to interest rate changes is an example of - Correct Answer Financial risk" "One of the levels of risk a business faces is the risk of accidental loss, including the possibility of loss or no loss. This category of risk is - Correct Answer Hazard risk" "Which one of the following provides a measure of the maximum potential damage associated with an occurrence? - Correct Answer Exposure" "Which one of the following risk management objectives is critical for a manufacturer seeking new capital from investors, stockholders, and creditors? - Correct Answer Reduce the deterrent effects of hazard risks" "Company G is a manufacturer of high profile golf equipment. The risk management professional for Company G is concerned about loss of business related to product design. Failing to respond to changing customer demand and preferences in the design of golf clubs could cost Company G significant market share. Categorized according to the quadrants of risk, this exposure to loss is classified as - Correct Answer A strategic risk" "Classifying risk appropriately can help in managing risk. Which one of the following statements is correct with respect to the classifications of risk? - Correct Answer A pure risk is a chance of loss or no loss, but no chance of gain." "Risk can be classified as pure or speculative. Which one of the following is the best example of a speculative risk? - Correct Answer Investing in shares of stock" "In an effort to grow its personal lines book, an insurer decides to offer discounts on homeowners and personal auto insurance to the employees of its largest business lines account. Which one of the following risk measures is most likely to increase as a result of this marketing decision? - Correct Answer Correlation" "Hardware Store has been able to control its prices and inventory since it has no competitors. A new highway currently being constructed is going to allow increased competition for Hardware Store. According to the quadrants of risk, this risk of increased competition falls into the category of - Correct Answer Strategic risk." "aligning risks with the organization's risk appetite defines - Correct Answer Tolerable uncertainty" "The fundamental purpose of a risk management framework is to - Correct Answer Integrate risk management throughout the organization" "Mid-State Packing Company, a meat processing company, is the largest private sector employer in Metro City. First National Bank of Metro City loans money to Mid-State Packing Company and to many of the employees of Mid-State. The problem with First National Bank of Metro City loaning money to both the business and many employees of the business is that - Correct Answer Loan defaults are likely to be highly correlated." "Which one of the following risk management program goals enhances an organization's reputation? - Correct Answer Social responsibility" "Which one of the following is one of the five steps of the risk management process? - Correct Answer Scan environment" "Which one of the following statements is true regarding the basic measures that apply to risk management? - Correct Answer . Consequences measure the degree to which an occurrence could positively or negatively affect an organization." "Risk can be classified as diversifiable or nondiversifiable. Which one of the following statements is true with respect to this type of risk classification? - Correct Answer diversifiable risks tend not to be correlated so they can be managed through diversif or spread of risk" "Risks from accidental loss, including the possibility of loss or no loss defines - Correct Answer Hazard Risk" "The relationship between two basic measures is critical for risk mangt in assessing risk and deciding whether and how to manage it - Correct Answer likelihood and consequences" "one enterprise risk management (ERM) approach to categorizing risks involves dividing risks into 4 quads. The hazard risks are - Correct Answer Traditionally managed by RM pros" "Insurance Deals primarily with - Correct Answer Puer risks" "Brendan is a new risk manager at a Shelton Manufacturing in North Carolina. Because the company has never experienced any consequences from a hurricane, the previous risk manager never really analyzed the risks associated with such an event. Brendan feels that a hurricane could trigger multiple far-reaching consequences and that the risk requires a thorough analysis. Due to Shelton Manufacturing's lack of historical data Brendan has decided to use a structured process that incorporates expert opinions into the probability estimations. Which one of the following types of risk assessment is Brendan using? - Correct Answer Predictive technique" "SoCal Movie Company produces movies at a studio in Southern California. The risk manager decided to identify the range of potential consequences associated with various risks that the company faces. For example, if a severe earthquake occurred while the company was filming a movie, there could be deaths and injuries, destruction of movie sets, delays in production, costs associated with filming at an alternative location, and loss of reputation and good will. The type of analysis performed by the risk manager is called - Correct Answer Scenario analysis." "The second step in the root cause analysis (RCA) process is charting the agents that directly result in one event triggering another event. In RCA, these agents are called - Correct Answer Causal factors" "Which one of the following types of risk analysis uses historical data to assign specific values to consequences and their probabilities to reach a numeric indication of the level of risk? - Correct Answer Quantitative analysis" "To accurately determine its level of risk, an organization must examine the effectiveness of its efforts to prevent losses from occurring and to reduce the severity of losses that do occur. An organization's efforts in this area are called - Correct Answer Risk control" "An organization has had a high percentage of repetitive stress injuries to workers in a particular phase of their production process. The risk manager has been asked to analyze these injuries from a system safety analysis perspective. Which one of the following techniques should the risk manager use to investigate these accidents? - Correct Answer Job safety analysis" "A risk manager for an organization has proposed a meeting to ask a series of "What if?" questions to project the consequences for implementing alternative processes under consideration. Which one of the following system safety analysis techniques is the risk manager proposing? - Correct Answer Change analysis" "The use of risk quadrants to identify and categorize risk can provide a framework for risk identification. One quadrant includes such risks as loss of production due to a key supplier not delivering raw materials or a mechanical breakdown of equipment. This risk quadrant is - Correct Answer Operational risk." "Harris Company is analyzing its workers compensation loss exposure. Harris Company retains most of the exposure and purchases excess insurance to cap its liability on any individual claim. Because Harris Company has a large work force, it can predict its workers compensation cost with some level of accuracy. For next year, the risk manager estimates that there is a 70% chance that workers compensation costs will be $6 million or less, a 25% chance workers compensation costs will be between $6 million and $8 million, and a 5% chance workers compensation costs will exceed $8 million. The type of analysis the risk manager performed is called - Correct Answer Quantitative analysis" "Home Appliance Company has decided to change its production method. Previously, small teams of workers assembled washers, dryers, and dishwashers. Under the new production method, an assembly-line will be used, with some functions performed by robotics. Before making the change, Home Appliance Company has created a team of experts from company personnel to identify all of the risks inherent in the new production method and to recommend measures to address these risks. The team will assemble in a facilitated workshop and follow these steps: Divide the production method into components Review each component to identify risk Identify causes and potential outcomes for each risk Develop a solution for each risk. This team approach is risk identification is called a - Correct Answer Hazard and operability (HAZOP) study" "SE Industries has identified windstorm as a risk. The risk manager has assembled a team to project the potential consequences of windstorm. The team includes individuals from various functions within the organization. Which one of the following team approaches to risk identification is SE Industries using - Correct Answer Scenario analysis" "After a month in which three employees were seriously injured at company paper mills, Ashley, the risk manager of Bright White Paper Company, wanted some answers about the causes of employee injuries. Ashley independently contacted the plant manager and foreman at each of the company's plants. She asked each person to complete a confidential questionnaire regarding safety procedures. After receiving the responses to the questionnaire, Ashley summarized the results and asked the same questions again instructing each person to consider revising their responses based on the initial questionnaire results. The analysis revealed that new workers were not being properly trained and that a lax attitude toward safety was present at the majority of the plants. The team approach to risk identification Ashley employed is called - Correct Answer The Delphi technique" "Risk manager Christine is analyzing the risks faced by her company, Clear Sky Technology. She assigns a rating based on the significance of the consequences of the various risks. Her four ratings are: Low, Medium-Low, Medium-High, and High. The ratings that Christine assigns are a - Correct Answer Qualitative assessment." "Modifying the contact surface or basic structure that can be affected by installing breakaway highway light poles or requiring front and side airbags in automobiles to cushion occupants' impact is a basic strategy of the - Correct Answer Energy transfer theory" "Root cause analysis (RCA) encompasses a variety of tools, philosophies, and processes. There are several broadly defined RCA approaches, according to their basic approach or field of origin. Which one of the following approaches to RCA evolved from quality control procedures for industrial manufacturing? - Correct Answer Production-based RCA" "An organization practicing holistic risk management would assess the cost of raw materials and foreign exchange risk under which one of the following quadrants of risk? - Correct Answer Financial risk" "A systematic procedure that uses the results of other analysis techniques to identify the predominant determinants of an accident is called - Correct Answer Root cause analysis" "From a system safety perspective, change analysis is an analysis - Correct Answer That projects the effects a given system change is likely to have on an existing system" "Which one of the following statements about root cause analysis (RCA) is true? - Correct Answer A root cause must produce effective recommendations for prevention of future accidents." "Northern Consolidated is evaluating the financial risk associated with its investment portfolio. The risk manager knows that as interest rates increase, bond values decrease. This relationship is known as - Correct Answer A Covariance" "A worker from build-rite construction co. removed the pressure gauge and warning sticker from an air compressor. If build-rite performs a root cause analysis of this fatal accident WOTF - Correct Answer Inadequate training" "Murray trucking is in evaluating which risk factor most likely lead to the most costly accidents. They are evaluating risk factors such as speed, weather conditions, driver experience, distance traveled, and gross vehicl weight. WOTF statistical measurement would be useful for the risk manager when calculating the probabi of the diff risk factors causing severe accidents? - Correct Answer Variace" "WOTF system safety techniques is best suited to analyze repetitive human tasks performed in a sufficiently stable environment where most hazards are foreseen? - Correct Answer Job safety analysis" "Eastside fitness has decided to merge with a Yoga studio with 2 locations nearby. WOTF quadrants of risk will be most influenced by this decision? - Correct Answer Strategic risk" "Clear-Rite Company specializes in the clean-up of hazardous chemical spills. Workers performing clean-up operations must use safety suits to prevent exposure to the chemicals. The suits include pulse and respiration monitors, body temperature sensors, and chemical sensors. The monitors and sensors report data to a mobile operations center which is deployed to each clean-up site. The pulse and respiration monitors and the sensors that are part of the protective gear are called - Correct Answer Wearable technologies" "After one ee was involved in several workplace accidents, the risk manager and the ind safety engineer concluded that these resulted from ancestry and social env of the person. WOTF accident causation theories considers this - Correct Answer sequence of events theory" "According to the technique of operations review approach, , one category of fault of an org's mang is - Correct Answer Failure to take responsib" "WOTF theories of accident causation presumes that accidents are the result of a chain of accidental factors? - Correct Answer Sequence of events theory" "Which one of the following is true about the liability involved in contracting services? - Correct Answer The responsibility that certain duties be performed safely cannot be delegated to another party, such as the duty of common carriers to carry passengers safely." "The risk control technique that reduces the severity of a particular loss is which one of the following? - Correct Answer Loss reduction" "Commercial general liability insurance policies written on an occurrence basis apply to bodily injury and property damage that occurs during the policy period. This provision supports the principle that insurable loss exposures must ideally be - Correct Answer Definite (in time)" "Construction contracts typically hold the - Correct Answer Landowner harmless for certain construction-related claims" "Blithe Drug Manufacturing has developed a drug that cures obesity. However, the side effects are significant and potentially fatal. Blithe decides not to manufacture and sell the drug. This is an example of - Correct Answer Avoidance" "Under a large deductible plan, the amount that the insurer incurs to adjust losses - Correct Answer Can be inside or outside the deductible" "A large deductible is similar to a self-insured retention (SIR) in that both - Correct Answer Require the insured organization to retain a relatively large amount of loss" "Ivanhoe Corporation purchases stock in a bank and in a pharmaceutical manufacturer. Because these are unrelated industries, Ivanhoe hope that any losses in one stock will be more than offset by profits in another. Ivanhoe is using which one of the following risk management techniques? - Correct Answer Diversification" "Which one of the following technologies can provide the infrastructure upon which smart contracts are built and implemented? - Correct Answer Blockchain" "Internet of Things (IoT) devices, sensors, wearables, and telematics devices have had the greatest impact on which one of the following risk treatment techniques? - Correct Answer Risk modification" "When organizations invest their assets among a mix of stocks and bonds from companies in different industry sectors they are using the risk management technique of - Correct Answer Diversification" "Which one of the following is a risk control technique that reduces the frequency of a particular loss? - Correct Answer Loss prevention" "Advancements in machine learning and artificial intelligence (AI) have helped insurers do all of the following, EXCEPT: - Correct Answer Completely prevent customers' risk" "Telematics devices allow organizations to accurately identify patterns of risk and predict risk for which one of the following types of loss exposures? - Correct Answer Automobile" "Which one of the following is a major benefit that smart insurance contracts can provide to insurance customers? - Correct Answer Smart contracts can dramatically increase the speed of loss payments" "A local shopping center reduced its net income loss after a fire by incurring additional expenses to shorten the time it takes to repair the damage and reopen the shopping center. Bob, the owner of the center, hired a contractor to work around the clock until repairs were completed. This reduced Bob's net income loss because he was able to repair the shops sooner. Bob's action is an example of which one of the following risk management techniques? - Correct Answer Loss reduction" "An excess liability insurance policy that covers a claim in excess of the underlying limits only if the loss is covered by the underlying policy is called - Correct Answer A following-form excess policy." "Private insurers are reluctant to provide windstorm insurance on coastal properties. This is because the loss exposures fail to meet the criterion that ideally insurable exposures must be - Correct Answer Independent and not catastrophic" "Party A and Party B have entered into a contract specifying that Party A will hold Party B harmless from claims arising from their joint fault. This is an example of which one of the following forms of a hold-harmless agreement? - Correct Answer Intermediate form" "Ideally insurable loss exposures are subject to losses that - Correct Answer Are definite in time, cause, and locatio" "Large deductible plans - Correct Answer Lower an organization's cost of risk" "An advantage of a large deductible plan is that it allows the insured organization to - Correct Answer Benefit from the cash flow available on the retained loss reserves" "An organization that operates warehouses in two locations is using the risk control technique of - Correct Answer Separation" "Emerald Industries has just invested a large sum in new, highly-sophisticated computer equipment and building renovations. Emerald installed state-of-the-art smoke detection devices throughout the facility. Emerald's state-of-the-art smoke detection devices are an example of - Correct Answer Loss reduction" "A1 Architectural Design relies on its historical files and blueprints. The partners of the firm are discussing risk control measures that can be implemented to provide protection against property-related losses. Which one of the following would likely offer the best protection for this exposure? - Correct Answer Duplication" "Which one of the following risk control techniques might actually increase loss frequency? - Correct Answer Separation" ""The contractor agrees to indemnify and hold harmless the owner against claims, damages, bodily injury, or property damage arising out of the contractor's work and caused by any act of omission of the contractor, his agents, and his employees." This is an example of which one of the following forms of a hold-harmless agreement? - Correct Answer Limited form" "Concerning fundamental guidelines of contractual risk transfer management, it is wise to - Correct Answer Require a certificate of insurance for contractual liability before contract operations begin" "Liability loss exposures associated with an activity are not easily transferred, especially those that involve harm to third parties. For example, if negligence by a property owner's landscaping contractor creates a hazard that injures a visitor on the owner's property, the contractor would be primarily liable - Correct Answer restricting the rule exempting the person who hires an independent contractor (the principal) from liability for the independent contractor's torts. So they have established some exceptions to this rule: The principal is directly liable for negligence in selecting the contractor, giving directions, or failing to stop any unnecessary dangerous practices of which the principal was aware. The principal's responsibility for certain duties to be performed safely cannot be delegated to another party. The owner of an apartment building, for example, cannot transfer to a contractor its duty to keep common areas safe. If the subcontracted work is inherently dangerous to others (such as blasting or excavating near a public highway), the principal that hired the contractor can be held liable for a third-party injury caused by the contractor's negligence." "An exculpatory clause is - Correct Answer A contractual provision that relieves one party from liability resulting from a negligent or wrongful act" "The risk manager of a large manufacturing company has been asked by the CFO to develop a strategy to eliminate property damage at a particular site. Which one of the following risk control techniques can the risk manager use to reduce the probability of loss to zero? - Correct Answer Avoidance" "Each of the risk control techniques of duplication, separation, and diversification - Correct Answer Reduce the severity of loss associated with the organization's loss exposures" "Leasing is a useful noninsurance risk control transfer because - Correct Answer Certain loss exposures accompany property ownership but do not accompany its use or occupancy." "Hold-harmless agreements areSelect one:A. Comprised of two parties—the indemnitor and the indemnitee.B. Enforceable without legal consideration.C. Highly regulated.D. Standardized. - Correct Answer A. Comprised of two parties—the indemnitor and the indemnitee." "Statutory limitations on hold-harmless agreements vary in the - Correct Answer C. Types of noninsurance transfers to which the statutes apply." "A noninsurance transfer in which the transferor transfers a loss exposure to the transferee, thereby eliminating the possibility that the transferor will suffer a loss from the transferred exposures is a noninsurance - Correct Answer Risk control transfer." "When negotiating noninsurance risk transfer terms, risk management professionals should consider theSelect one:A. Reduction in insurer risk charges and premium taxes that might result.B. Legal enforceability of contract provisions.C. Effect on the organization's relationship with its insurance broker.D. Effect on the organization's insurance program. - Correct Answer Legal enforceability of contract provisions" "In both noninsurance risk control and noninsurance risk financing transfers, - Correct Answer A contract is usually formed before any loss occurs." "Which one of the following statements is true regarding contracting for services as a noninsurance risk control transfer? - Correct Answer Liability loss exposures associated with an activity are not transferred easily, especially regarding harm to third partie" "Traunton Manufactuing is considering a new manufacturing process that involves the use of a highly explosive chemical. After much analysis, Traunton abandons the idea in favor of a process that does not use the chemical. The risk control technique Traunton has chosen to address the human resource risk is - Correct Answer Avoidance" "When an ee retires or resigns, the most significant loss to the organization is typically the - Correct Answer Future value that the individual would have provided to the organization" "WOTF stmt is true regarding sources of risk affecting property exposures? - Correct Answer Risk control techniques can usually manage the likelihood and consequences of human risk sources to some extent" "Earthquake-resistant construction, used in buildings under three stories tall, that integrates roof and floor diaphragms that can flex to transmit and distribute the forces an earthquake exerts on a structure, is called - Correct Answer Box action design" "The risk control measures used to protect ppl and property from the adverse effects of hostile fires are collectively called - Correct Answer Fire Safety" "Buildings constructed of reinforced concrete have been successful withstanding this disaster, but building all structures in this manner is neither practical or economical. This statement pertains to WOTF disasters? - Correct Answer Tornado" "Directors' and officers' fiduciary duties include the duty of - Correct Answer Obedience" "Certain types of property losses such as drought, flood, and earthquake are referred to as natural because - Correct Answer It is beyond human control" "Motley Manufacturing is considering locating one of its facilities in northern California, but is concerned about the possibility of loss due to which one of the following natural hazards, which has one of the highest loss exposures for this phenomenon in this part of the country? - Correct Answer Earthquake" "Creative Catering has a 15 year old vehicle that was originally built to prepare and serve sandwiches and drinks at various outdoor functions such as car shows, sporting events, etc. The vehicle is of low value but it generates approximately $100,000 a year in sales. The risk management professional will primarily be concerned about its - Correct Answer Economic value" "Which one of the following is a possible cause of ergonomic stress? - Correct Answer Office lighting" "One of the characteristics of individuals and groups of individuals that affects susceptibility to injury or death caused by a building fire is - Correct Answer age" "An employee benefit plan fiduciary has a duty of prudence, meaning that - Correct Answer The fiduciary must carry out the duties with the skill, prudence, and diligence of a prudent person familiar with such matters" "Some buildings have modest economic value but still have high replacement costs. One prime reason for this might be because of - Correct Answer Construction styles that are large or ornate" "Which one of the following valuation standards is most appropriate for valuing products that are relatively indistinguishable from one another, such as agricultural products, oil, or precious metals? - Correct Answer Market value" "Maintaining roof and wall systems, including roof tie-downs, in good repair and providing adequate supports for outside structures is a pre-loss action for - Correct Answer Windstorm" "The portion of fire safety that focuses on the minimum building design, construction, operation, and maintenance requirements necessary to assure occupants of a safe exit from the burning portion of the building is - Correct Answer Life safety" "Employers face a number of potential loss exposures due to federal legislation and state laws. Of the various types of Employment Practices Liability (EPL) claims, which one of the following is a major type of EPL claim? - Correct Answer A retaliation claim" "The risk management professional for a large multi-location super market chain in the New England area observed that all of the buildings have a flat roof. His concern is primarily due to the possible loss resulting from - Correct Answer Weight of snow, sleet, and ice" "The occupancy class characterized by a large # of ppl who gather in a space that is relatively unfamiliar to them is - Correct Answer Mercantile" "WOTF is a pre-loss action for the flood cause of loss? - Correct Answer Stock disaster supplies" "Location is a key pre-loss activity to control earthquake damage b/c - Correct Answer structures situated on stable earth can absorb most earthquake shock waves" "The RM pro for a local municipality is concerned that the community's ability to fight fires would be diminished if the firehouse and its fire engines were destroyed. On what basis might the RM pro value the fire engines if presumption of service was primary goal? - Correct Answer Replacement cost val" "Directors & officers are considered to have met their duty of care if they have met 2 diff standards. WOTF is one of these standard? - Correct Answer Act in a manner believed to be in the corporations best interests." "Wrongful termination claims can sometime allege implied employment contracts arising from wotf types of docs? - Correct Answer EE handbook" "Jean is a director on the board of an apparel promotion company. Towards the company, Jean owes a duty of: a) Undivided time b) Profitability c) Divided loyalty d) Undivided loyalty - Correct Answer Unidivided loyalty" "Disaster recovery plans for windstorms should reflect not only weather condition, but also the difference in - Correct Answer warning times" "A post-loss action for a flood cause of loss is - Correct Answer Clearing of drains of debris" "An org implements a new procedure that req ee who travel to take diff flights rather than traveling together. This is an ex f wotf risk control tech? - Correct Answer Separation" "The amount that property is worth based on the ability of the property to produce income is known as - Correct Answer Econ val" "One of the reasons that building occupancies affect life safety is that diff occupancies have diff - Correct Answer Features that affect safe exits from a building" "The life safety code req that many buildings or structures should have - Correct Answer Fire alarms" "The orginal cost of a property is known as the - Correct Answer Historical cost" "WOTF types of personal losses usually develops more slowly as a result of some organic/inorganic agent being absorbed, ingested, inhaled, or impairs a function of the body? - Correct Answer Illness" "Workplace disabilities can be categorized as injuries/ illness. A work-related illness can result from WOTF? - Correct Answer Inhalation" "Which one of the following statements is true regarding operational risk? A. Financial institutions and their regulators typically define operational risk to include market risk and credit risk.Incorrect. Operational risk is integrated in every activity of an organization. B. Operational risk is integrated in every activity of an organization. C. Operational risk is best managed during the course of business by an organization's front-line managers. D. Most current methods of managing operational risk are informal. - Correct Answer Operational risk is integrated in every activity of an organization" "One category of operational risk includes procedures and practices organizations use to conduct their business activities. This category is: Systems risk. B. Process risk. C. Technological risk. D. Business complexity risk. - Correct Answer Process risk" "Risk indicators such as experience and authority levels apply to which one of the following operational risk classes? - Correct Answer PPL" "Local Petroleum Distributors (LPD) sells gas and diesel fuel to 72 independent gas stations and convenience stores. Receiving accurate data on the fuel needs of its customers is a critical operational concern. LPD installed sensors in the fuel storage tanks owned by each customer. At 11 PM each evening, the sensors send fuel data electronically to LPD. LPD receives the data, and a computer enters each record. The data are analyzed, and the analysis determines which retailers require a fuel shipment in the next three days. The electronic system has increased operational efficiency as shipments can be better coordinated, and retailers are no longer required to measure the fuel level and report manually. LPD's use of a computer to enter the data reported by the sensors is an example of - Correct Answer Robotic process automation" "Which one of the following statements is true concerning robotic process automation (RPA)? A. When RPA is employed, it always involves the use of robots. B. Although RPA can help control some organizational risks, use of RPA can create other risks C. RPA cannot be used as part of business process management. D. RPA is more focused on the range of tasks that can be performed by a robot rather than the process of completing a task. - Correct Answer Although RPA can help control some organizational risks, use of RPA can create other risks." "Insurance Company monitors key indicators of underwriting effectiveness. Some indicators they monitor include: percentage of business quoted that was written, application processing time, premium volume handled by underwriters, skill level of underwriters, and benchmarking between different underwriting offices. The indicators of underwriting performance Insurance Company uses are called - Correct Answer Control indicators" "The board of directors of Insurance Company wants assurance that the company's recently-instituted "commitment to risk management" has been communicated to and accepted by all company employees. Which one of the following would be the best method to determine if employees had been informed of the commitment to risk management and had accepted it? A. Check employee absenteeism before and after the policy was instituted. B. Ask the internal audit department to administer a risk management questionnaire to employees. C. Ask senior management to prepare a report on the subject. D. Use a measure such as sales per employee or net income per employee to track performance. - Correct Answer Ask the internal audit department to administer a risk management questionnaire to employees." "Which one of the following is an example of a report that would most likely contain both quantitative and qualitative data? A profit and loss statement B. A customer satisfaction survey C. A disaster recovery plan D. A financial statement - Correct Answer A customer satisfaction survey" "The process of comparing the key risk indicators of an organization with those of other organizations in the same industry is known as - Correct Answer Benchmarking" "Which one of the following statements about blockchain is true? . Blockchain stores a record of transactions across a network of servers. B. Although blockchain can increase efficiency of operating systems, the tradeoff is data inaccuracy. C. While blockchain can reduce operational risks, it is easy to manipulate and hack. D. Blockchain centralizes control of transaction data on a single computer server - Correct Answer Blockchain stores a record of transactions across a network of servers" "Which one of the following commonly used categories of operational risk includes risks associated with technology and equipment? a. Process B. People C. External events D. Systems - Correct Answer Systems" "Insurance Company monitors key indicators of underwriting effectiveness. Some indicators they monitor include: percentage of business quoted that was written, application processing time, premium volume handled by underwriters, skill level of underwriters, and benchmarking between different underwriting offices. The indicators of underwriting performance Insurance Company uses are called - Correct Answer Control Indicators" "The board of directors of Insurance Company wants assurance that the company's recently-instituted "commitment to risk management" has been communicated to and accepted by all company employees. Which one of the following would be the best method to determine if employees had been informed of the commitment to risk management and had accepted it? - Correct Answer Ask the internal audit department to administer a risk management questionnaire to employees" "Which one of the following is an example of a report that would most likely contain both quantitative and qualitative data? - Correct Answer A customer satisfaction survey" "The process of comparing the key risk indicators of an organization with those of other organizations in the same industry is known as - Correct Answer Benchmarking" "Which one of the following statements about blockchain is true?. a. Blockchain stores a record of transactions across a network of servers. B. Although blockchain can increase efficiency of operating systems, the tradeoff is data inaccuracy. C. While blockchain can reduce operational risks, it is easy to manipulate and hack. D. Blockchain centralizes control of transaction data on a single computer server - Correct Answer Blockchain stores a record of transactions across a network of servers" "Which one of the following commonly used categories of operational risk includes risks associated with technology and equipment? - Correct Answer Systems" "Three HillsLaw is a legal firm specializing in multiple-plaintiff cases. One current case involves alleged birth defects caused by exposure to polluted groundwater. There are currently 78 plaintiffs represented in the pending legal action. Up-to-date records on the condition of each child is a critical operational concern. Three HillsLaw turned to a secured digital ledger system in which independent third parties (nurses, physicians, and parents) can update the status of individual children, and the record for the entire group is automatically updated. The latest update showed seven children have died, 14 have a terminal diagnosis, 27 have permanent disabilities, and 30 cases are listed as "developing" (awaiting definitive diagnosis). The secured distributed ledger system used by Three HillsLaw is called - Correct Answer Blockchain" "The level of confidence an organization places in the organization's risk management culture, practices, and procedures is called - Correct Answer risk assurance" "Which one of the following statements is true regarding an effective risk reporting system? - Correct Answer An effective reporting system provides info flow up and down the lines of authority" "Sixth National Bank stores all of its financial records in an electronic data base. Sixth National customers are able to access their accounts on-line with a user identification number and a password. Last weekend, a computer hacker was able to breach the firewall of the electronic database and gain access to customer account data. This operational risk for Sixth National Bank is - Correct Answer Systems risk" "Chuck is Vice President of Claims for Insurance Company. The company has 37 adjusters in the field, and needs to hire four new adjusters. Chuck is curious about the relationship between prior experience of the adjuster and policyowner complaints. He collected data on the number of complaints for each adjuster on staff over time. Then he used a statistical technique to analyze the relationship between adjuster experience and complaints, and the trend of the relationship over time. The statistical analysis confirmed that that there were significantly fewer complaints with more experienced adjusters, and that the relationship grew stronger with more years of experience. The technique Chuck used to relate indicators to outcomes is called A. Central tendency analysis. B. SWOT analysis. C. Analysis of variance. D. Regression analysis. - Correct Answer Regression analysis - can be used to measure the relationship between a dependent variable (complaints) and an independent variable (adjuster experience)." "One category of operational risk includes procedures and practices organizations use to conduct their business activities. This category is A. Business complexity risk. B. Systems risk. C. Technological risk. D. Process risk. - Correct Answer Process Risk" "Which one of the following statements is true regarding operational risk? A. Operational risk is best managed during the course of business by an organization's front-line managers. B. Financial institutions and their regulators typically define operational risk to include market risk and credit risk. C. Operational risk is integrated in every activity of an organization. D. Most current methods of managing operational risk are informal. - Correct Answer Operational risk is integrated in every activity of an organization" "Which one of the following statements is true regarding key risk indicators (KRI)? A KRI is a financial metric used to help define potential losses. B. A KRI is an effective predictor of external event risk. C. A KRI is the event or circumstance that directly led to a loss. D. A KRI must be leading, rather than lagging, to be effective. - Correct Answer A KRI must be leading, rather than lagging, to be effective." "Owners' equity represents the capital contributed by an organization's owners plus the organization's A. Treasury stock. B. Net worth. C. Retained earnings. - Correct Answer Retained earnings" "Which one of the following is an example of a noncurrent liability? A. Short-term debt B. Long-term notes payable C. Unearned revenue D. Accounts payable - Correct Answer Long term notes payable" "Which one of the following statements is true regarding a generic model of a securitization? - Correct Answer The organization sells income-producing assets to an SPV in exchange for cash" "The process of creating a marketable investment security based on the expected cash flows from a financial transaction is .A Trading. B. Securitization. C. Derivation. D. Investment. - Correct Answer Securitization" "Jeremy purchased some long-term corporate bonds when he retired. He plans to use the periodic interest payments from the bonds to supplement his other sources of retirement income. However, some of the companies that issued the bonds that Jeremy purchased may become insolvent and unable to make periodic interest payments. This risk that Jeremy took when he invested in the corporate bonds is called A. Credit Risk B. Price risk. C. Interest rate risk. D. Exchange-rate risk. - Correct Answer A. Credit Risk" "Which one of the following statements is true about an organization's balance sheet? A. Total assets must equal total liabilities on the balance sheet. B. The balance sheet summarizes revenues and expenses for an accounting period. C. Total liabilities minus owners' equity equals total assets on the balance sheet. D. The balance sheet shows the financial position of a business on a specific date. - Correct Answer The balance sheet shows the financial position of a business on a specific date." "An organization can use securitization to exchange A. Liabilities for mortgage receivables. B. Debt for income-producing assets. C. Cash for income-producing assets. D. Income-producing assets for cash. - Correct Answer D. Income-producing assets for cash." "One financial risk for an insurer is that the insured will not pay all of the premiums when the premiums are due. This type of risk is called A. Credit risk B. Interest rate risk. C. Underwriting risk. D. Price risk - Correct Answer Credit Risk" "Like most insurance companies, the majority of Insurance Company's portfolio is invested in bonds. If interest rates increase, the value of the bonds in the portfolio will decrease. This risk to Insurance Company is called A. Interest rate risk. B. Credit risk. C. Liquidity risk. D. Price risk. - Correct Answer interest rate risk" "An important liquidity measure for a business is its working capital. Working capital is equal to A. Total assets minus current assets. B. Total assets minus total liabilities. C. Owners' equity minus current liabilities. D. Current assets minus current liabilities. - Correct Answer Current assets minus current liabilities" "A construction company based in the U.S. has building contracts in five different foreign nations. The construction company agreed to accept payment for its work in each country's currency. The risk of loss of value when these foreign payments are converted to U.S. dollars is called - Correct Answer Exch rate risk" "The basic accounting equation on which the balance sheet is structured is - Correct Answer Assets = Liabilities + Net Worth" "The basic accounting equation on which the balance sheet is structured is A. Assets = Liabilities + Net Worth B. Liabilities = Assets + Net Worth C. Net Worth = Liabilities + Assets D. Assets = Liabilities - Net Worth - Correct Answer Assets = Liabilities + Net Worth" "If an organization directly securitized its income-producing assets without using a special purpose vehicle (SPV) as an intermediary, investors A. Should not consider the overall credit risk of the organization. B. Would avoid investing in the organization altogether. C. Should examine individual borrowers' payments to the organization. D. Must consider the overall credit risk of the organization. - Correct Answer Must consider the overall credit risk of the organization" "On a local television program, a financial reporter stated, "There will be big news this week about Sixth National Bank's bad real estate development loans. Unless they get acquired soon, the bank will be broke." The next morning, long lines of depositors waited outside of each Sixth National Bank branch. When the branches opened, depositors began withdrawing their funds. Sixth National Bank did not have enough funds to pay all the depositors and had to close early, which only further compounded the problem. Which one of the following financial risks is Sixth National Bank facing by not having enough cash on hand to meet the immediate demand? A. Credit risk. B. Default risk. C. Liquidity risk. D. Exchange rate risk. - Correct Answer Liquidity risk" "Home Housewares Inc. is a retail store applying for commercial coverage with ABC Insurance. The underwriter requested a copy of Home Houseware's most recent financial statements. The underwriter will use the balance sheet to determine A. Home Houseware's sources of cash as of the balance sheet date. B. Home Houseware's gross profit margin as of the balance sheet date. C. Home Houseware's financial position as of the balance sheet date. D. Dividend payments to shareholders as of the balance sheet date. - Correct Answer Home Houseware's financial position as of the balance sheet date." "Jones, Inc. buys grain from local farmers and re-sells the grain to a number of customers. Jones, Inc. has been approached by Snack Cracker Company. Snack Cracker would like to purchase wheat and corn from Jones, Inc. to use in the crackers it produces. Snack Cracker would like to pay for the grain within 30 days of the date the grain is delivered. As Snack Cracker is a new customer, Jones, Inc. asked to review its financial statements. Which balance sheet ratio would best assist Jones, Inc. in determining if Snack Cracker can pay for the grain within 30 days of the sale? A. Equity-to-assets ratio B. Current ratio C. Debt-to-assets ratio D. Debt-to-equity ratio - Correct Answer Current ratio" "Which one of the following statements about the balance sheet is correct? A. The balance sheet contains important financial information about net worth and assets, both which indicate the source of an organization's funding. B. Net worth is positive whenever the value of assets exceeds the value of liabilities and negative if the value of liabilities exceeds the value of assets. C. The balance sheet must always balance, but an exception is that the balance sheet will not balance if net worth is a negative number. D. Change in asset and liability valuation from historical cost to fair value has no effect on the value of shareholders' equity. - Correct Answer Net worth is positive whenever the value of assets exceeds the value of liabilities and negative if the value of liabilities exceeds the value of assets." "The balance sheet provides a snapshot of an organization's financial condition A. At the start and end of a business day. B. For at least two points in time for comparison purposes. C. Over one 12 month period. D. At a given point in time. - Correct Answer At a given point in time" "A major benefit of involving a special purpose vehicle (SPV) in a securitization transaction is that investors can decide whether to invest in the securities based on the A. Number of borrowers involved and their individual risk. B. Overall credit risk of the organization. C. Risk presented by the income-producing assets held as collateral by the SPV. D. Organization's balance sheets. - Correct Answer Risk presented by the income-producing assets held as collateral by the SPV." "A facility established for the purpose of purchasing income-producing assets from an organization, holding title to them and then usin