Worksheets5022 Quiz
Total questions: 50
Worksheet time: 25mins
What are the two main categories of risk treatment techniques?
Risk reduction and risk financing
Risk avoidance and risk acceptance
Risk prevention and risk transfer
Risk appetite and risk tolerance
Why consider risk appetite when designing risk treatments?
To ensure all risks are fully eliminated
To match treatments with acceptable risk levels
To ignore low-likelihood risks
To always reduce costs
What is the main goal of implementing risk treatment in risk management?
Eliminate all possible risks faced by the organization
Reduce the likelihood and/or impact of risks to acceptable levels
Transfer all risks to insurance providers
Comply solely with regulatory requirements
How should risk treatment relate to organizational objectives?
Designed independently of strategic objectives
Relevant only for operational risks
Support the achievement of objectives within risk appetite
Focus only on financial performance
What does risk avoidance involve?
Reducing the consequences of a risk event
Transferring all risks to another party
Not engaging in activities that create risk
Setting a higher risk appetite
Why is segregation with redundancy important?
A. IT systems never fail
B. Data centers cannot be insured
C. System failures can have severe consequences
D. IT risks are always low impact
Why automate key process steps as a risk control?
Eliminate the need for oversight
Reduce human error and increase consistency
Increase operational complexity
Transfer risk to IT suppliers
What is true about legal and regulatory requirements as risk controls?
Irrelevant to risk control decisions
May require minimum standards regardless of cost
Always define risk appetite
Eliminate the need for internal controls
What does duplication or segregation with redundancy mean?
Having spare capacity ready for incidents
Merging activities for economies of scale
Removing backup systems to cut costs
Using a single supply route for all inputs
What is a key input to a BIA?
Staff performance appraisals only
Information on core activities, dependencies, and timing
Historical financial statements only
Exclusive focus on reputational risk
Why not limit risk management to pre-identified risks?
Emerging and unexpected risks can also threaten objectives.
Pre-identified risks are never material.
Only emerging risks can be insured.
Risk registers are updated annually.
What is Business Impact Analysis (BIA) mainly about?
Analyzing share price performance
Identifying and assessing the impacts of business interruption
Determining tax strategies
Benchmarking profits against competitors
What characterizes an effective BCM test?
Start with complex live
Use resources that are unavailable
Start simple and escalate
Include only senior management
What is a key element of BCM?
Ignoring minor threats
Identifying key infrastructure and resources for continuity
Focusing only on shareholder communication
Ensuring only external stakeholders know the plan
Which control manages credit risk exposure?
Set no credit limits
Use credit checks and set limits
Pay suppliers immediately without verification
Ignore overdue receivables
How to develop a BCM culture in an organization?
Embed BCM into strategic and daily management.
Conduct one large-scale test.
Focus only on technical solutions.
Keep BCM limited to specialists.
What is normally included in a Crisis Management Plan?
Annual financial statements only
Plan overview, roles, escalation procedures, contact details
Insurance premium details
Product pricing schedules
Which control reduces unauthorized payment risk?
Single-person approval of transfers
Segregation of duties between initiators and approvers
Shared generic login for banking
Allow verbal approval without documentation
What distinguishes preventive and detective controls?
Preventive controls identify errors after they occur.
Preventive controls stop errors; detective controls find them after.
No real difference.
Both are only relevant for IT risks.
True statement about risk-related controls?
Always designed without risk appetite
Cost and complexity should match risk significance
Never need review
Identical across all units
How to integrate BCM with risk management?
Treat BCM as a separate project
Use risk assessments and BIAs to inform continuity strategies
Conduct BCM once a decade
Only involve external consultants
Why consider internal and external dependencies in BCM planning?
External dependencies are always more important
Dependencies reveal single points of failure across processes and suppliers
Only external suppliers can fail
Internal processes never depend on external services
What is the main purpose of risk financing in an organization?
Eliminate all risks from activities
Fund negative financial consequences of risk events
Ensure no external capital is used
Maximize short-term profits regardless of risk
Risk financing belongs to which phase of risk?
Risk identification
Risk analysis
Risk treatment
Risk communication
What is the core mission of risk management as discussed in lectures?
Avoid all risks at any cost
Retain only risks that provide a good return
Transfer all risks to insurers
Minimize insurance premiums
Risk financing techniques mainly include which two categories?
Risk avoidance and acceptance
Risk retention and transfer
Risk diversification and sharing
Risk reporting and reduction
Which statement best describes risk transfer?
Selling high-risk business units
Using insurance or contracts to pass financial consequences to another party
Creating internal reserves for losses
Sharing information with regulators
Which of the following is NOT typically an insurance intermediary?
Brokers
Banks as strategic partners
Dealers
Regulators
Banks act as intermediaries for insurers mainly when
Marine hull insurance only
Mortgage and loan protection insurance
Reinsurance treaties
Professional indemnity insurance for brokers
What is a responsibility of insurers and brokers toward their agents?
Provide training and be responsible for actions within their authority
Pay all client claims directly to agents
Allow agents to issue reinsurance contracts
Guarantee agents a minimum commission
What is a key advantage of distributing insurance products via the internet or call centers?
Avoid all regulatory oversight
Guarantee the lowest premiums
Centralize customer service and reduce admin costs
No need for actuarial pricing
Domestic policies typically include all EXCEPT:
Home buildings and contents
Private motor vehicle insurance
Industrial special risks
Travel insurance
What does a policy schedule primarily contain?
Generic wording for all clients
Details specific to the policy, such as sums insured and insured parties
Optional for marine policies only
Prepared by the regulator
Policy wording in a booklet usually sets out:
List of intermediaries
Extent of cover, conditions, exclusions, and optional extensions
Insurer’s financial statements
List of reinsurers
Which document sets out how the insurer intends to settle a claim?
Basis of settlement clause
Title
Preamble
Policy schedule
Why is reinsurance important?
Guarantees profit to insurers
Allows insurers to accept large or volatile risks safely
Eliminates the need for regulation
Replaces all primary insurance
Excess of loss reinsurance is suitable when:
Losses are frequent but small
Occasional large losses could seriously affect the portfolio
Insurer wishes to avoid small claims
Insurer writes only domestic household policies
What does retrocession mean in reinsurance?
Reinsurers reinsure part of the risks they accepted
Reinsurers cancel all previous treaties
Insurers sell capital to investors
Policyholders buy extra cover directly
What is a key advantage of a captive?
Always replaces traditional insurance
Provides lower overall cost of insurable risk by bypassing frictional costs
Guarantees investment returns
Operates without regulation
Group captives are owned by:
Single corporation
Group of organizations jointly owning the captive
Only insurers
Government
Protected cell companies (PCCs) are characterized by:
No legal segregation between cells
Legal segregation of each cell’s assets and liabilities
Available only to life insurers
Unregulated entities
What is the primary purpose of ART methods?
Replace all traditional insurance regulations
Provide additional or complementary risk financing beyond traditional insurance
Eliminate the need for risk retention
Guarantee profits to reinsurers
Dual trigger policies pay out only when:
Any single insured event occurs
Two specified events occur together
Insurer’s share price falls
No loss occurs, but volatility increases
Weather derivatives are mainly used by organizations that:
Have no exposure to weather
Hedge financial exposures to weather-related indices like temperature or rainfall
Must comply with statutory insurance
Operate only in financial markets
What is a key caveat when designing international insurance programs?
Only the insurer needs involvement; other functions add little value.
Tax, legal, and regulatory issues can seriously affect success.
Local standards should be ignored for global wording.
Identical policies are always possible in all countries.
What is the primary purpose of a business continuity plan (BCP)?
To comply with legal requirements only
To reduce insurance costs
To ensure the organization can continue operations during a disruption
To eliminate all business risks
Which of the following best describes the term 'moral hazard'?
Increased risk due to lack of insurance
Risk that arises from the behavior of insured parties
Risk that is purely financial in nature
Risk associated with natural disasters
What is the main function of an insurance broker?
To underwrite insurance policies
To manage claims on behalf of insurers
To provide legal advice on insurance contracts
To act as an intermediary between clients and insurers
Which of the following is a common method of risk financing?
Risk avoidance
Risk acceptance
Risk transfer
Self-insurance
What is the significance of a risk register?
It is used solely for compliance audits
It documents all financial transactions
It tracks identified risks and their management strategies
It serves as a marketing tool for the organization
