Questions On Risk Management Homework Answer

Question :

Question 1a	Explain the Definition of Historical Risk
Question 1b	What is Loss Exposure?
Question 1c	How does objective risk differ from subjective risk?
Question 2	Identify the major type of personal risks that are associated with economic insecurity
Question 3	Explain the Law of Large Numbers
Question 4	What are two major differences between insurance and gambling?
Question 5a	Explain the advantages of using insurance in a risk management program
Question 5b	Explain the disadvantages of using insurance in a risk management program
Question 6	What is enterprise risk management and how does it differ from traditional risk management?
Question 7a	What is meant by the “securitization of risk”?
Question 7b	How does a catastrophe bond differ from a regular corporate bond?
Question 8a	Describe the basic features of mutual insurers
Question 8b	Identify the major types of mutual insurers
Question 9a	Define the meeting of underwriting
Question 9b	Briefly explain he basic principles of underwriting
Question 9c	Identify the major sources of information available to underwriters.
Question 10	Briefly describe the role of the following in adjusting claims: Agents Staff claims representatives Independent adjusters Public adjusters

Answer :

Question 1a

Explain the Definition of Historical Risk

Answer

Historical risk is the probability of the loss that can be incurred in the future financial year. It incurred due to market uncertainty that cannot be control by the business organization. It can be minimize by implementing the appropriate business strategies.

Question 1b

What is Loss Exposure?

Answer

Loss exposure is the probability that loss can be incurred due to some unavoidable condition. It is the condition that cannot be controlled and risk exposure can be done due to future events. It is uncertain to predict such event and exposure of loss.

Question 1c

How does objective risk differ from subjective risk?

Answer

It is the degree of risk that disclose the variance between the actual and expected loss. It incurred due to exposure of uncertain event. It is related to the number of exposure incurred. while subjective risk incurred due to uncertain event of mental condition of a person.

Question 2

Identify the major type of personal risks that are associated with economic insecurity

Answer

Economic insecurity incurred when there is unexpected adverse economic event arise. Personal risk associates with economic insecurities will incurred due to property damaged, inflation, insufficient income.

Question 3

Explain the Law of Large Numbers

Answer

It is the sample size that led to close the large number of population in the given scenario. It provide the higher probability of the closure to true population. If the sample size is the larger than it will provide the higher probability to select the every units in the given scenario and provide more assurance towards the entire population size.

Question 4

What are two major differences between insurance and gambling?

Answer

Factors	Insurance	Gambling
Risk exposure	It can be done only in case of risk existence.	It generate the risk in itself.
Security	It is done to established the security.	It is done to create the risk.
Objectivity	It has the object to minimize the risk in the given scenario.	While it is done for the entertainment purpose and to create profitability.
Legal obligation	It is the valid and legal contract between tow party.	It is not legal and accepted by law.

Question 5a

Explain the advantages of using insurance in a risk management program

Answer

It is the risk assessment that has been covered by the insurance to keep the consumer or client safe from the risk exposure. It is done to quantify the risk exposure that can be incurred in the consumer life due to some unavoidable economic event. It provide the advantages such as:-

It reduce the liability obligation in adverse scenario.
provide the assurance to protect assets in adverse situation

Question 5b

Explain the disadvantages of using insurance in a risk management program

Answer

Following disadvantages can be observed in this case:-

It has the opportunity cost as premium for the insurance require to be paid in advance.
it is time and cost to consider the best insurance company.
Consumer attitude towards the loss will be tax expenditure as the insurance cover will provide the benefit.
It also provide the fluctuation in the earning after the loss raised due to unavoidable situation.

Question 6

What is enterprise risk management and how does it differ from traditional risk management?

Answer

Enterprises risk management is the strategies develop by the top management of the company to mitigate the risk from the overall perspective so that business growth can be ensure.

Enterprise Risk Management	Traditional Risk Management
It adopt the holistic approach.	It adopted the segment wise approach.
It keeps the overall organization observation approach.	It does not have broad organizational observation.
It help to increase the overall value creation and reducing the risk.	It provide the management of the uncertain event for the assets of the company.
It provide the solution for the risk reduction for the entire risk.	It provide the solution based on the specific scenario or department or case.

Question 7a

What is meant by the “securitization of risk”?

Answer

Securitization of the risk is done to reduce the systematic risk associated with the assets. It is done to provide the assurance for the fund invested in the assets. In this case security is backed through the mortgage.

Question 7b

How does a catastrophe bond differ from a regular corporate bond?

Answer

catastrophe bond is the debt instrument that provide the high yield to the investor. It is issued by the insurance sectors company to raise fund in the event of disaster. It allow the CAT holder to receive the claim only in case of natural disaster. while corporate bound issued by the company from the any sector and industry in the market to raise the fund. Investor of such bound will receive the fix amount of interest at the predetermined interest rate on specific time.

Question 8a

Describe the basic features of mutual insurers

Answer

Mutual insurer company is the company that is own by the policyholder. Basically it provide the insurance to the member of the company. It manner can adopt to become the management of the company. It provide the regular dividend to the policy holder by investing the fund received from the members and policyholders. Federal law implies on such kind of company.

Question 8b

Identify the major types of mutual insurers

Answer

Assessment mutual	They charge higher amount of the premium if the claim to be paid by the company is higher than the cost of project.
Advance premium mutual	It is the common format that does not charge the higher premium for the policy sold to the consumer. Each year measurement for the consumer will be done and premium will be charge accordingly.

Question 9a

Define the meeting of underwriting

Answer

Underwriting is the process done by the underwriter in the financial industry to assess the risk of other party and take the consideration in form of fees. They play essential role to in the financial industry to reduce the risk. For instance if the company is coming with the IPO then underwriters provide the assurance for the 100% subscription in the market.

Question 9b

Briefly explain he basic principles of underwriting

Answer

Basic principle of underwriting is to select the subject for insurance company in the manner so that it can reduce the risk and meet the object for the general company.

Question 9c

Identify the major sources of information available to underwriters.

Answer

Underwriter require the information to assess the risk for the exposure in the given situation. Such information can be taken from:-

Agent report, inspection report, physical inspection and checking report provided by supervisors and MIB report.

Question 10

Briefly describe the role of the following in adjusting claims:

Agents
Staff claims representatives
Independent adjusters
Public adjusters

Answer

Name	Role of adjusting claim
Agents	They sell, negotiate different types of insurances to the clients. They act as marketer to convince clients to take insurance policies.
Staff claim representative	They work for insurance companies to investigate and settle the claims. There role is to act as intermediaries between customers and insurance companies.
Independent adjusters	He is an independent insurance professional who helps policyholders to settle their insurance claims on behalf of policyholders.
Public Adjusters	The role of public adjuster is to help an individual to represent them and helping them in documenting their insurance claims.

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Questions On Risk Management Homework Answer

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