2024 CPCU 500 Practice Exam New Latest Version Best Studying Material with All Questions , Exams of Credit and Risk Management

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2024 CPCU 500 Practice Exam New Latest Version

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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? A. Operational risk B. Strategic risk C. Operating risk D. Financial risk --------- Correct Answer ----------- A. Operational risk 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: A. A financial risk. B. An operational risk. C. A hazard risk. D. A strategic risk. --------- Correct Answer ----------- D. A strategic risk An organization implements a new procedure that requires employees who travel to take different flights rather than traveling together. This is an example of which one of the following risk control techniques for this human resource risk? A. Duplication B. Separation C. Avoidance D. Loss reduction --------- Correct Answer ----------- B. Separation A storm with high winds or violent gusts of wind with little or no rain is which one of the following? A. Windstorm B. Hurricane C. Earthquake D. Tornado --------- Correct Answer ----------- A. Windstorm Designating and training backup employees for every job, or at least a variety of jobs, is: A. Cross-training.

B. Opposition training. C. Security backup training. D. Redundancy training. --------- Correct Answer ----------- A. Cross-training. An organization must meet the standard of care that it owes to others in order to ensure that: A. Legal obligations are satisfied. B. Operations are efficient. C. Post-loss goals are in place. D. Contracts are not breached. --------- Correct Answer ----------- A. Legal obligations are satisfied. 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: A. The interest rate charged on the loans must be equal. B. The loan durations must be the same. C. Loan defaults are likely to be highly correlated. D. There will be a mismatch between fixed-rate and variable-rate loans. --------- Correct Answer ----------- C. Loan defaults are likely to be highly correlated. Which one of the following provides a measure of the maximum potential damage associated with an occurrence? A. Duration B. Underwriting risk C. Maximum probable loss D. Exposure --------- Correct Answer ----------- D. Exposure Aligning risks with the organization's risk appetite defines: A. Value at risk. B. Tolerable uncertainty C. Compliance. D. Social responsibility. --------- Correct Answer ----------- B. Tolerable uncertainty Fluctuations in the value of stocks or bonds due to interest rate changes is an example of: A. Operational risk. B. Strategic risk. C. Financial risk.

D. Hazard risk. --------- Correct Answer ----------- C. Financial risk. Which one of the following risk management objectives is critical for a manufacturer seeking new capital from investors, stockholders, and creditors? A. Anticipate and recognize emerging risks B. Social responsibility C. Eliminate downside risk D. Reduce the deterrent effects of hazard risks --------- Correct Answer ----------- D. Reduce the deterrent effects of hazard risks Billy owns a beach front cottage which has become his primary residence. Billy's primary concern is that his home will be hit by a hurricane and badly damaged or even destroyed. For Billy, this hurricane risk is a: A. Subjective risk. B. Market risk. C. Strategic risk. D. Speculative risk. --------- Correct Answer ----------- A. Subjective risk During the past year, International Toys has undertaken four capital projects. The company has renovated and refurbished one of its aging warehouse buildings. It has purchased the most recent version of its current order processing computer software. It has added two trucks to its fleet of delivery vehicles. Lastly, it has purchased a new production machine that will allow it to launch a new product line. Which one of the following company projects is the most speculative risk? A. The warehouse refurbishment B. The software upgrade C. The new production machine D. The two new trucks --------- Correct Answer ----------- C. The new production machine Jane always drives to visit her children who live one thousand miles away. She enjoys driving and feels safer in a vehicle than on an airplane because she feels she has more control of her fate. This driving versus flying decision is an example of: A. Subjective risk. B. Objective risk. C. Nondiversifiable risk. D. Speculative risk. --------- Correct Answer ----------- A. Subjective risk. Which one of the following best describes the categories of risk included in the enterprise risk management model? A. Domestic, national, international B. Operational, strategic, financial, and hazard

C. Pure, dynamic, objective, and subjective D. Primary, secondary, and tertiary --------- Correct Answer ----------- B. Operational, strategic, financial, and hazard Risks from accidental loss, including the possibility of loss or no loss defines: A. Enterprise risk. B. Business risk. C. Hazard risk. D. Operational risk. --------- Correct Answer ----------- C. Hazard risk. According to the law of large numbers, as the number of exposure units insured increases, A. The probability of an underwriting loss increases. B. Fewer losses are expected to occur. C. The size of the average loss declines. D. The relative accuracy of predictions about future losses increases. --------- Correct Answer ----------- D. The relative accuracy of predictions about future losses increases. 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: A. Strategic risk. B. Hazard risk. C. Operational risk. D. Financial risk. --------- Correct Answer ----------- B. Hazard risk. George works for a large company and part of his job is to monitor assets according to their liquidity. George is particularly concerned that the company fleet cars are affecting its liquidity and rising fuel prices are having an adverse effect during tight economic markets. If George's concerns were categorized as causes of loss according to the quadrants of risk, his concern most directly relates to which one of the following types of risks? A. Hazard risks B. Financial risks C. Operational risks D. Strategic risks --------- Correct Answer ----------- B. Financial risks Risk can be classified as pure or speculative. Which one of the following is the best example of a speculative risk? A. Purchasing an insurance policy B. Acquiring a new television C. Buying a new personal vehicle

D. Investing in shares of stock --------- Correct Answer ----------- D. Investing in shares of stock Risk can be classified as diversifiable or nondiversifiable. Which one of the following statements is true with respect to this type of risk classification? A. Private insurance tends to concentrate on nondiversifiable risks; government insurance is often suitable for diversifiable risks. B. Diversifiable risks tend not to be correlated so they can be managed through diversification or spread of risk. C. Systemic risks are generally diversifiable. D. Inflation, unemployment and natural disasters, such as hurricanes, are examples of diversifiable risk. --------- Correct Answer ----------- B. Diversifiable risks tend not to be correlated so they can be managed through diversification or spread of risk. The focus of risk quadrants is different from the focus of risk classifications in general. While the classifications of risk focus on some aspect of the risk itself, the four quadrants of risk focus on: A. Pure and speculative risks. B. Subjective and objective risks. C. The source of risk and who has traditionally managed it. D. The determination of whether the risk is diversifiable. --------- Correct Answer ----------

• C. The source of risk and who has traditionally managed it. One enterprise risk management (ERM) approach to categorizing risks involves dividing risks into four risk quadrants. The risks categorized as hazard risks are: A. Fundamental to an organization's existence and business plans. B. Speculative risks that fall outside the operational risk category. C. Traditionally managed by risk management professionals. D. Traditionally handled by the treasury function. --------- Correct Answer ----------- C. Traditionally managed by risk management professionals. Classifying risk appropriately can help in managing risk. Which one of the following statements is correct with respect to the classifications of risk? A. Usually, pure risks and speculative risks can be managed using the same techniques. B. A pure risk is a chance of loss or no loss, but no chance of gain. C. Insurance deals primarily with speculative risk, rather than with pure risk. D. Risk classifications are mutually exclusive, and only one can be applied to any given risk. --------- Correct Answer ----------- B. A pure risk is a chance of loss or no loss, but no chance of gain. Which one of the following statements is accurate regarding pure and speculative risks?

A. Financial investments typically involve pure risk. B. Pure risks may sometimes be desirable. C. Every business venture involves speculative risks. D. A pure risk is a chance of loss or no loss, or a chance of gain. --------- Correct Answer ----------- C. Every business venture involves speculative risks 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? A. Strategic risks B. Operational risks C. Financial risks D. Hazard risks --------- Correct Answer ----------- D. Hazard risks Risk can be classified as subjective or objective. Which one of the following statements is correct with respect to these risk classifications? A. Risk managers focus on objective risk and attempt to avoid allowing subjective risk to affect their decisions. B. Subjective risk can exist even where objective risk does not. C. Individuals' subjective perception of risk in a given set of circumstances is typically much higher than the objective risk. D. Subjective risk is risk associated with individuals; objective risk is risk associated with objects or things. --------- Correct Answer ----------- B. Subjective risk can exist even where objective risk does not. Carol has worked as a payroll clerk for a small organization for 20 years. Over the years she received only two small salary increases and began to embezzle funds from the company since she felt she was not adequately compensated for her job efforts. In terms of the quadrants of risk, Carol's theft risk can be classified as: A. Both a hazard risk and a financial risk. B. Both a hazard risk and an operational risk. C. A strategic risk. D. A financial risk. --------- Correct Answer ----------- B. Both a hazard risk and an operational risk. Pure Risk --------- Correct Answer ----------- A chance of loss or no loss, but no chance of gain Speculative Risk --------- Correct Answer ----------- Involves a chance of gain

Price risk --------- Correct Answer ----------- Uncertainty about cash flows resulting from possible changes in the cost of raw materials and other inputs, as well as cost-related changes in the market for completed products and other outputs Credit risk --------- Correct Answer ----------- 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 risk --------- Correct Answer ----------- based on opinion objective risk --------- Correct Answer ----------- based on facts Diversifiable risk --------- Correct Answer ----------- Not highly correlated - its gains or losses tend to occur randomly and be isolated Diversification --------- Correct Answer ----------- spread of risk Quadrants of risk --------- Correct Answer ----------- Hazard, Operational, Financial, and Strategic Hazard risks --------- Correct Answer ----------- Arise from property, liability, or personnel loss exposures and are generally the subject of insurance Operational risks --------- Correct Answer ----------- fall outside the hazard risk category and arise from people or a failure in processes, systems or controls, including those involving information technology Financial risks --------- Correct Answer ----------- arise from the effect of market forces on financial assets or liabilities and include market risk, credit risk, liquidity risk, and price risk Strategic risks --------- Correct Answer ----------- arise from trends in the economy and society, including changes in economic, political, and competitive environments, as well as from demographic shifts Hazard and operational risks are classified as --------- Correct Answer ----------- Pure risks financial and strategic risks are classified as --------- Correct Answer ----------- speculative risks risk classifications focus on --------- Correct Answer ----------- some aspect of the risk itself the four quadrants of risk focus on --------- Correct Answer ----------- the risk source and who traditionally manages it

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: A. Hazard risk. B. Operational risk. C. Strategic risk. D. Financial risk. --------- Correct Answer ----------- B. Operational risk. 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: A. Risk control. B. Risk retention. C. Risk identification. D. Risk transfer. --------- Correct Answer ----------- A. Risk control. In order to achieve collaboration, group leaders must A. Remain focused on achieving the goals of their individual groups. B. Focus on the worker's personality rather than results. C. Remain focused on preventing stakeholders from straying from the common goal. D. Promote competition among members of the group. --------- Correct Answer ----------- C. Remain focused on preventing stakeholders from straying from the common goal. Which of the following risk management program goals is an essential goal for all public entities? A. Survival B. Continuity of operations C. Growth D. Earning stability --------- Correct Answer ----------- B. Continuity of operations Which one of the following is described as a distributed database that serves as a collectively shared ledger? A. Telematics B. Big data C. Blockchain D. The Internet of Things --------- Correct Answer ----------- C. Blockchain The original cost of a property is known as the

A. Replacement cost. B. Historical cost. C. Market value. D. Tax-appraised value. --------- Correct Answer ----------- B. Historical cost. Which one of the following statements is true if earnings at risk are $200,000 with 90% confidence? A. Earnings at risk are projected to be $180,000. B. Earnings at risk are projected to be less than $200,000 10% of the time. C. Earnings at risk are projected to be $200,000 90% of the time. D. Earnings at risk are projected to be greater than $200,000 10% of the time. --------- Correct Answer ----------- B. Earnings at risk are projected to be less than $200,000 10% of the time. Which one of the following statements is true regarding event tree analysis? A. Event tree analysis can be used to select the most effective strategy to achieve a goal. B. Event tree analysis provides only quantitative information. C. Event tree analysis provides only qualitative information. D. Event tree analysis typically provides only two options, success or failure. --------- Correct Answer ----------- D. Event tree analysis typically provides only two options, success or failure. Regression analysis assumes that A. The variable being forecast varies predictably with another variable. B. Dependent variables are unaffected by independent variables. C. For any given past year, the projected trend value will be the same as the actual outcome. D. The linear regression line is more accurate the further it gets from the actual data values used. --------- Correct Answer ----------- A. The variable being forecast varies predictably with another variable. Taylor owns Paoli Hardware, a mid-sized hardware store with 25 employees. Paoli Hardware has won best local hardware store 3 years in a row. Taylor would like to expand operations and has undertaken a SWOT analysis. His most dedicated customers are generally over 40 years old and engaged in small house projects, but his biggest revenue generator continues to be the sale of lumber. He would like to obtain more commercial customers and increase lumber sales. One of the major complaints Taylor hears from his customers is the difficulty finding local contractors. So, he is considering hiring a general contractor at the store who would also make house calls to assist customers. This will allow him to bill for labor and increase the sale of his products, but he is concerned it may increase his insurance claims and premiums.

One of the younger store employees suggested they create a website to expand sales to on-line purcha --------- Correct Answer ----------- d. Technological advancements The level of confidence an organization places in the organization's risk management culture, practices, and procedures is called A. Risk tolerance. B. Tolerable uncertainty. C. Risk assurance. D. Probable maximum loss. --------- Correct Answer ----------- C. Risk assurance. The process of comparing the key risk indicators of an organization with those of other organizations in the same industry is known as A. Hedging. B. Benchmarking. C. Trend analysis. D. Root cause analysis. --------- Correct Answer ----------- B. Benchmarking. 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? A. Failure mode and effects analysis B. Job safety analysis C. Future states analysis D. Strategy analysis --------- Correct Answer ----------- B. Job safety analysis An organization can use securitization to exchange A. Cash for income-producing assets. B. Debt for income-producing assets. C. Income-producing assets for cash. D. Liabilities for mortgage receivables. --------- Correct Answer ----------- C. Income- producing assets for cash Which one of the following best explains how most smart products potentially improve risk management? A. They assess risks in dangerous areas. B. They generate big data to which advanced analytics can be applied. C. They scan and inspect structures for unsafe conditions. D. They measure worker fatigue. --------- Correct Answer ----------- B. They generate big data to which advanced analytics can be applied.

Tania works in the fraud unit for Greatview Insurance. There is a claimant who appears to be involved in multiple cases of insurance fraud. Tania decides to use social media to obtain information that may be used to develop a profile of the claimant. Tania's use of social media is an example of which one of the following types of data? A. Unstructured external B. Unstructured internal C. Structured internal D. Structured external --------- Correct Answer ----------- A. Unstructured external Regarding diversifiable and nondiversifiable risk, which one of the following statements is accurate? A. An example of a nondiversifiable risk is a fire. B. Risks must be either diversifiable or nondiversifiable. C. An example of a diversifiable risk is inflation. D. Systemic risks are generally nondiversifiable. --------- Correct Answer ----------- D. Systemic risks are generally nondiversifiable. 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 A. Independent. B. Definite. C. Fortuitous. D. Pure risks. --------- Correct Answer ----------- B. Definite. Which one of the following is a data analysis technique that operates in a way similar to the human brain? A. Neural networks B. Social network analysis C. Clustering D. Regression --------- Correct Answer ----------- A. Neural networks Hold-harmless agreements are A. Enforceable without legal consideration. B. Highly regulated. C. Standardized. D. Comprised of two parties—the indemnitor and the indemnitee. --------- Correct Answer ----------- D. Comprised of two parties—the indemnitor and the indemnitee.

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 A. Fire safety. B. Occupancy safety. C. Life safety. D. COPE safety. --------- Correct Answer ----------- C. Life safety. Nancy, the general liability claims manager, is concerned about a significant rise in claim frequency in the state of New Jersey during the past 18 months. She cannot identify the cause of the increase and has asked James, a data analyst, to help. James decides to develop a model to analyze the dataset of New Jersey claims, and see if any previously unknown grouping can be identified for further analysis. Which one of the following data analysis techniques is James using? A. Cluster analysis B. Linear regression analysis C. Classification tree D. Correlation matrix --------- Correct Answer ----------- A. Cluster analysis 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 A. Magnetometers. B. Drone technologies. C. Accelerometers. D. Wearable technologies. --------- Correct Answer ----------- D. Wearable technologies. Which one of the following is an internal source that can often provide information regarding risks that aren't obvious? A. Production manager B. Internal auditing C. Board of directors D. Human resources --------- Correct Answer ----------- B. Internal auditing In a normal distribution 34.13% of all outcomes are within one standard deviation above the mean. The portion between one and two standard deviations above the mean contains 13.59% of all outcomes. What percentage of the total outcomes is between two standard deviations below the mean and two standard deviations above?

A. 20.54%

B. 47.72%

C. 68.26%

D. 95.44% --------- Correct Answer ----------- D. 95.44% Probability analysis is best suited for organizations that have A. A substantial volume of data on past losses. B. Unstable operations. C. A relatively small number of past losses. D. Changing and complex business environments. --------- Correct Answer ----------- A. A substantial volume of data on past losses. A company's benefit administrator, while acting on behalf of the company, invested 100 percent of the plan funds in speculative stock. The return on the investment was ten fold. The duty violated by the plan fiduciary in this instance is A. Prudence. B. Adherence. C. Diversification. D. Loyalty. --------- Correct Answer ----------- C. Diversification. Hanna is preparing her presentation for a meeting. She has a very specific objective which has been shared with the audience. Hanna wants to include several slides in her presentation because she has read that people tend to learn more from presentations that are accompanied by visual aids. Hanna should use the slides to do which one of the following? A. Keep her speaking to a minimum B. Detail as much content as possible C. Provide complex detailed graphics D. Emphasize key points --------- Correct Answer ----------- D. Emphasize key points A worker for Build-Rite Construction Company removed the pressure gauge and warning sticker from an air compressor. The pressure gauge automatically shuts off the compressor when the pressure gets too high. The sticker warned that an explosion could result if the pressure was too high. Without the pressure gauge in place, the air compressor exploded. The explosion killed one worker and severely injured another. If Build-Rite performs a root cause analysis (RCA) of this fatal accident, which one of the following might be determined to be a root cause? A. Removal of the warning sticker B. Explosion of the air compressor C. Removal of the pressure gauge D. Inadequate training --------- Correct Answer ----------- D. Inadequate training

Data analytics is especially useful for A. Internal data. B. Databases. C. Structured data. D. Unstructured data. --------- Correct Answer ----------- D. Unstructured data. 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 A. Robotic process automation. B. Blockchain. C. Telematics. D. Cryptocurrency. --------- Correct Answer ----------- B. Blockchain. The number of auto physical damage claims for fleet vehicles at Right-a-Way Delivery Service in any year is normally distributed. Next year, the expected number of fleet vehicle physical damage claims is expected to be 712 with a standard deviation of 25. Based on this information, what is the probability that between 737 and 762 auto physical damage claims will occur next year? A. 2.2% B. 13.6% C. 24.3% D. 27.2% --------- Correct Answer ----------- B. 13.6% 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 A. Separation. B. Risk transfer. C. Duplication. D. Diversification. --------- Correct Answer ----------- D. Diversification. The fundamental purpose of a risk management framework is to A. Integrate risk management throughout the organization. B. Define and eliminate potential losses.

C. Maximize profits for all stakeholders. D. Reduce the cost of risk. --------- Correct Answer ----------- A. Integrate risk management throughout the organization. Which one of the following statements is true regarding sources of risk affecting property exposures? A. Physical risks to property can generally be broken into two categories: natural and mechanical. B. Risk management has little, if any, effect on controlling the consequences of events caused by natural sources. C. Deliberate acts of individuals or groups are generally considered natural risk sources. D. Risk control techniques can usually manage the likelihood and consequences of human risk sources to some extent. --------- Correct Answer ----------- D. Risk control techniques can usually manage the likelihood and consequences of human risk sources to some extent. Which one of the following statements is true concerning robotic process automation (RPA)? A. RPA cannot be used as part of business process management. B. RPA is more focused on the range of tasks that can be performed by a robot rather than the process of completing a task. C. Although RPA can help control some organizational risks, use of RPA can create other risks. D. When RPA is employed, it always involves the use of robots. --------- Correct Answer ----------- C. Although RPA can help control some organizational risks, use of RPA can create other risks. 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. Dividend payments to shareholders as of the balance sheet date. C. Home Houseware's gross profit margin as of the balance sheet date. D. Home Houseware's financial position as of the balance sheet date. --------- Correct Answer ----------- D. Home Houseware's financial position as of the balance sheet date. An example of a post-loss action for the windstorm cause of loss is A. Designing building and structures to withstand anticipated wind loads. B. Providing storm shutters and blinds. C. Patrolling premises to prevent looting or vandalism. D. Securing materials and equipment --------- Correct Answer ----------- C. Patrolling premises to prevent looting or vandalism.

Which one of the following statements about the balance sheet is correct? A. The balance sheet must always balance, but an exception is that the balance sheet will not balance if net worth is a negative number. B. Change in asset and liability valuation from historical cost to fair value has no effect on the value of shareholders' equity. C. 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. D. The balance sheet contains important financial information about net worth and assets, both which indicate the source of an organization's funding. --------- Correct Answer ----------- C. 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. 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 A. Pure risk. B. Exchange-rate risk. C. Credit risk. D. Liquidity risk. --------- Correct Answer ----------- B. Exchange-rate risk. 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 A. Computer vision. B. Transducer technology. C. Visual acuity. D. Accelerometer technology. --------- Correct Answer ----------- A. Computer vision. Which one of the following is a major benefit that blockchain technology provides to holistic risk management? A. Blockchain technology can monitor driving habits by measuring acceleration, speed, braking, and distance traveled. B. Blockchain technology allows organizations to share data through wireless internet and networking services.

C. Because of their security, blockchains can eliminate the need to verify the accuracy of risk management data. D. Blockchains can monitor things such as heat, moisture, noise, and air quality. --------- Correct Answer ----------- C. Because of their security, blockchains can eliminate the need to verify the accuracy of risk management data. 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? A. HAZOP B. Scenario analysis C. Delphi technique D. SWOT analysis --------- Correct Answer ----------- B. Scenario analysis The important first step in a decision-making model is to A. Define the problem. B. Purchase the technology. C. Assign a data scientist. D. Prepare the data. --------- Correct Answer ----------- A. Define the problem. A risk control technique that reduces the frequency of a particular loss is A. Loss prevention. B. Loss reduction. C. Diversification. D. Duplication. --------- Correct Answer ----------- A. Loss prevention. 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 A. Loss prevention. B. Avoidance. C. Loss reduction. D. Duplication. --------- Correct Answer ----------- C. Loss reduction. Taylor owns Paoli Hardware, a mid-sized hardware store with 25 employees. Paoli Hardware has won best local hardware store 3 years in a row. Taylor would like to expand operations and has undertaken a SWOT analysis.His most dedicated customers are generally over 40 years old and engaged in small house projects, but his biggest revenue generator continues to be the sale of lumber. He would like to obtain more commercial customers and increase lumber sales. One of the major complaints

Taylor hears from his customers is the difficulty finding local contractors. So, he is considering hiring a general contractor at the store who would also make house calls to assist customers. This will allow him to bill for labor and increase the sale of his products, but he is concerned it may increase his insurance claims and premiums. One of the younger store employees suggested they create a website to expand sales to on- line purchas --------- Correct Answer ----------- c. Increase in competition 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 A. Hazard and operability (HAZOP) study. B. Delphi technique. C. SWOT (strengths, weaknesses, opportunities, threats) analysis. D. Facilitated workshop. --------- Correct Answer ----------- A. Hazard and operability (HAZOP) study. Jean is a director on the board of an apparel promotional company. Towards the company, Jean owes a duty of A. Profitability. B. Divided loyalty. C. Undivided time. D. Undivided loyalty. --------- Correct Answer ----------- D. Undivided loyalty. Which one of the following is a major benefit that smart insurance contracts can provide to insurance customers? A. Smart contracts can render a risk completely preventable. B. Smart contracts can significantly increase the speed of premium payments. C. Smart contracts can provide broader coverage at a lower cost. D. Smart contracts can dramatically increase the speed of loss payments. --------- Correct Answer ----------- D. Smart contracts can dramatically increase the speed of loss payments. 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? A. Predictive technique B. Risk management technique C. Risk control technique D. Qualitative analysis --------- Correct Answer ----------- A. Predictive technique After being promoted to a supervisory position, Henry decided that he needed to work on becoming an active listener. All of the following are elements of active listening, EXCEPT: A. Suspension of judgement B. Attention C. Response D. Introduction of new ideas --------- Correct Answer ----------- D. Introduction of new ideas One category of operational risk includes procedures and practices organizations use to conduct their business activities. This category is A. Technological risk. B. Systems risk. C. Business complexity risk. D. Process risk. --------- Correct Answer ----------- D. Process risk. Vandenberg Company retains workers compensation medical expenses. The risk manager ran a regression using workers compensation medical costs as the dependent variable and company payroll (in actual dollars) as the independent variable. Results of the regression were: y = .098 x + 5. Next year's payroll is expected to be $3,750,000. As medical costs continue to rise at a rate higher than inflation, the risk manager would like to adjust the expected medical costs upward by 10%. Based on this information, what are the expected workers compensation medical costs for next year? A. $372, B. $404, C. $409, D. $416,540 --------- Correct Answer ----------- B. $404,

Which one of the following theories of accident causation presumes that accidents are the result of a chain of accidental factors? A. Technique of operations review approach B. Energy transfer theory C. Sequence of events theory D. Job safety analysis --------- Correct Answer ----------- C. Sequence of events theory Which one of the following types of risks can result in losses but not in any gains? A. Hazard risks B. Financial risks C. Speculative risks D. Strategic risks --------- Correct Answer ----------- A. Hazard risks Widget Manufacturing board of directors recently adopted a zero-risk tolerance for work place accidents. Initially the chief risk officer thought this was a great idea, however, he has found it very hard to implement. One reason that a zero-risk tolerance policy is hard to implement is because zero-risk tolerance A. Results in higher capital expenditures and significantly lower returns on investment. B. Results in higher levels of customer defections due to the high costs of implementation. C. Requires supervisors to constantly monitor and often micro-manage their direct reports. D. Will typically result in risk-based decisions that are too rigid and counter-productive. - -------- Correct Answer ----------- D. Will typically result in risk-based decisions that are too rigid and counter-productive. An advantage of a large deductible plan is that it allows the insured organization to A. Decrease its uncertainty about the cost of its retained losses. B. Increase its cost of risk compared with other insurance plans. C. Benefit from the cash flow available on the retained loss reserves. D. Benefit from handling its own claims without insurer control. --------- Correct Answer -- --------- C. Benefit from the cash flow available on the retained loss reserves. An exculpatory clause is A. The intentional relinquishment of a known right. B. A contractual provision that relieves one party from liability resulting from a negligent or wrongful act. C. The surety's right to seek reimbursement from the principal for the surety's payments.

D. The substitution of one party for another. --------- Correct Answer ----------- B. A contractual provision that relieves one party from liability resulting from a negligent or wrongful act. A risk manager and safety engineer need to consider which one of the following interdependent elements when evaluating the premises condition? A. Construction, occupancy, protection, and external exposures B. Air quality and movement C. Ergonomic stress D. Temperature extremes --------- Correct Answer ----------- A. Construction, occupancy, protection, and external exposures The relationship between which two basic measures is critical for risk management in assessing risk and deciding whether and how to manage it? A. Likelihood and consequences B. Exposure and time horizon C. Correlation and likelihood D. Volatility and time horizon --------- Correct Answer ----------- A. Likelihood and consequences Which one of the following is the most intangible and abstract of the four risk quadrants? A. Financial risk B. Hazard risk C. Strategic risk D. Operational risk --------- Correct Answer ----------- C. Strategic risk If an insurer wants to determine the numerical value for a known target variable, it is most likely to use A. A classification tree. B. Association rule learning. C. Cluster analysis. D. Regression. --------- Correct Answer ----------- D. Regression. The emerging technologies applied to risk assessment and control link the physical domain to the virtual domain. Together, these domains linked by the emerging technologies create a A. Connected ecosystem. B. Smart system. C. Risk management information system. D. Risk management matrix. --------- Correct Answer ----------- A. Connected ecosystem.

Under a large deductible plan, the amount that the insurer incurs to adjust losses A. Can be inside or outside the deductible. B. Is prorated between the insured and the insurer based on the size of the loss. C. Is inside, or included, in the deductible. D. Is outside the deductible. --------- Correct Answer ----------- A. Can be inside or outside the deductible. From a system safety perspective, change analysis is an analysis A. That projects the effects a given system change is likely to have on an existing system. B. That identifies the critical components of a system and ranks the severity of losing each component. C. That dissects a repetitive task to determine potential hazards if each action is not performed. D. That uses the results of the other analysis techniques to identify the cause of the accident. --------- Correct Answer ----------- A. That projects the effects a given system change is likely to have on an existing system. 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 A. Frame action design. B. Box action design. C. Diaphragmatic design. D. Rolling weight-bearing design. --------- Correct Answer ----------- B. Box action design. Regarding sexual harassment claims, isolated incidents are insufficient from a legal standpoint to establish the existence of which one of the following types of work environments? A. Hostile B. Unpleasant C. Congenial D. Diverse --------- Correct Answer ----------- A. Hostile 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 A. Robotic process automation. B. Blockchain. C. Data analytics. D. Monte Carlo simulation. --------- Correct Answer ----------- A. Robotic process automation. Which one of the following statements is correct with respect to risk tolerance? A. Risk tolerance levels can have high-end thresholds, low-end thresholds, or both. B. An organization's risk tolerance is typically unrelated to its risk appetite. C. A zero-risk tolerance level will typically result in the best risk-based decisions. D. Risk tolerance is stated in both quantitative and qualitative terms. --------- Correct Answer ----------- A. Risk tolerance levels can have high-end thresholds, low-end thresholds, or both. The balance sheet provides a snapshot of an organization's financial condition A. For at least two points in time for comparison purposes. B. At the start and end of a business day. C. Over one 12 month period. D. At a given point in time. --------- Correct Answer ----------- D. At a given point in time. Olivia is planning a meeting to explain a new cyber security procedure. She expects that the meeting will be impeded by hidden agendas. Which one of the following is the best way for Olivia to deal with potential hidden agendas? A. Olivia should start the meeting by stating that she does not expect everyone like the new procedure, but they must accept it. B. Olivia should refuse to take questions during her meeting, and request that any questions be forwarded to her in writing after the meeting. C. Olivia should start the meeting by asking participants to state their concerns or feeling about the procedure. D. Olivia should hold a separate meeting for those individuals who she suspects have a hidden agenda. --------- Correct Answer ----------- C. Olivia should start the meeting by asking participants to state their concerns or feeling about the procedure. 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: A. Biochemical Sensors B. Thermal Sensors

C. Radiant Sensors D. Mechanical Sensors --------- Correct Answer ----------- D. Mechanical Sensors Catastrophes such as recent earthquakes and the 2011 tsunami in Japan pointed out a need for many organizations to evaluate and manage their: A. Supply-chain risk B. Compliance risk C. Derivative risk D. Political risk --------- Correct Answer ----------- A. Supply-chain risk Which one of the following data capture tools has led to an explosion of risk management innovation by allowing smart products to transmit data to each other and to central hubs? A. Cloud computing B. Blockchain C. Artificial intelligence D. Internet of Things --------- Correct Answer ----------- D. Internet of Things 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: A. Artificial intelligence B. Sensor networks C. Experience rating D. Preventive analytics --------- Correct Answer ----------- D. Preventive analytics 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: A. Predictive analytics B. Big data C. Ergonomics D. Accelerometer technology --------- Correct Answer ----------- C. Ergonomics

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: A. Drones B. Wearables C. Automated sensors D. Robots --------- Correct Answer ----------- D. Robots Risk managers today differ from traditional risk managers in which one of the following ways? A. They attempt to identify a loss's predominant cause B. They attempt to minimize threats and optimize opportunities C. They generally look backward for risk factors D. They struggle with data that is too large to capture, store, and analyze --------- Correct Answer ----------- B. They attempt to minimize threats and optimize opportunities 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: A. Insurtech B. Smart products C. Risk management information systems D. Catastrophe modeling --------- Correct Answer ----------- B. Smart products 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