Describe the 2 elements of risk - correct answer 1.) Uncertainty of outcomes: risk involves uncertainty about the type of outcome, timing o outcome, or
... [Show More] both
2.) possibility of a negative outcome: at least of the potential outcomes is negative
Whats the difference between possibility and probability? - correct answer Possibility: outcome may or may not occur
Probability: likelihood that an outcome will occur
Does Possibility or Probability measure risk? - correct answer Probability does, possibility DOES NOT
Explain how understanding various outcome probabilities can aid an organization in its risk management efforts - correct answer With understanding various outcome possibilities, an organization can focus on its risk management efforts on risk that can be appropriately manages.
Also it can also use probabilities to determine which risks to take and which ones not
Describe how classifying risk helps an organization'r risk management process - correct answer Classification can help with assessing and managing risks.
Many risks in the same classification have similar attributes and can be managed with similar techniques
Helps with the administrative function of risk management by helping to ensure that risks in the same classification are less likely to be overlooked
Compare pure and speculative risk
Why is it important to distinguish between them? - correct answer Pure risk: chance of loss or no loss
Speculative risk: chance of profit or loss
the two different types of risk must be managed differently
Why might subjective and objective risks differ? - correct answer Familiarity and control
Consequences over likelihood
Risk awareness
Contrast diversifiable and nondiversifiable risk - correct answer Diversifiable risk: not highly correlated and can be managed through diversification (spread) of risk
Nondiversiifiable risk: are correlated, their gains/losses tend to occur simultaneously rater then randomly
Describe the contrasts of risk - correct answer Hazard risks (ie. property, liability, or personal loss exposures and are generally the subject o insurance)
Operational risks
financial risks
strategic risks
Insurable interest - correct answer insured person derives a financial or other kind of benefit from the continuous existence, without impairment or damage, of the insured object
Bailee - correct answer a person or party to whom goods are delivered for a purpose, such as custody or repair, without transfer of ownership.
Peak season endorsement - correct answer This endorsement offers more coverage on the insured inventory during peak seasons
Inflation guard protection - correct answer Insurance that intermittently increases in value in order to keep a realistic amount of coverage, due to the rapidly inflating cost of building materials.
Coinsurance clause - correct answer property insurance provision that penalizes the insured's loss recovery if the limit of insurance purchased by the insured is not equal to or greater than a specified percentage (commonly 80 percent) of the value of the insured property.
In what 2 ways does an insurer benefit when property is insured to value? - correct answer When properly insured:
premium is adequate to cover potential losses
simplifies the underwriting process by reducing the need to determine exact values during underwriting
How do coinsurance clauses encourage commercial property insureds to insure their property to value? - correct answer Makes the insured responsible for retaining part of any loss if the property is under insured below some specified amount of the propertys insurable value
What are 2 reasons why insureds have difficulty maintaining property insurance limits that meet/exceed coinsurance requirements or the insurance-to-value requirement? - correct answer Values change over time
policy limit is selected at the time policy is purchased, but amount of insurance necessary to meet coinsurance requirements is based on the insureds property value t the time of loss
Actual cash value - correct answer is a method of valuing insured property, or the value computed by that method. Actual Cash Value (ACV) is not equal to replacement cost value (RCV). ACV is computed by subtracting depreciation from replacement cost.
replacement cost - correct answer the amount that an entity would have to pay to replace an asset at the present time, according to its current worth
broad evidence rule - correct answer outlining the guidelines insurers must go about determining the value of lost, stolen or damaged property.
Describe 3 common methods of determining ACV for property - correct answer replacement cost - depreciation
market value
broad evidence rule
Describe the types of property for which market valuation may be useful - correct answer when property of like kind/quality is unavailable for purchase, such as other collectiibles
may be irreplaceable, making replacemnt costs impossible
Why mus the value of land be eliminated when determining values for buildings on that land? - correct answer most insurance policies dont cover land
Identify the factors considered when determining a buildings ACV under the broad evidence rule - correct answer obsolescence
buildings present use and profitability
present neighborhood characteristics
Explain how insurers reduce the potential moral hazard related to offering coverage on a replacement cost basis - correct answer
Explain why the functional valuation method might be used for some types of property - correct answer used when replacing buildings/personal property with property of like kind and quality is not practical and when ACV is not practical use
Identify the 2 types of big data that are available to insurers - correct answer intereal data and data from external sources
How do insurers use telematics? - correct answer this data is used to determine driving patterns that lead to accidents as well as reflect safe driving
structured data
unstructured data
economic data
geodemographic data - correct answer information with a high degree of organization, such that inclusion in a relational database is seamless and readily searchable by simple, straightforward search engine algorithms or other search operations
information that either does not have a pre-defined data model or is not organized in a pre-defined manner.
data (quantitative measures) describing an actual economy, past or present.
study of the population and its characteristics, divided according to regions on a geographical basis
What differentiates big data from traditional data? - correct answer
differentiate the velocity of traditional data and big data - correct answer [Show Less]