Exam 1
Section 1
- DETERMINE WHAT RISKS DESERVE THE MOST ATTENTION UNDER THE ERM
- A, B, AND C
- COULD INCREASE THE PROBABILITY OF LOSS
- CANNOT DETERMINE FROM THE INFORMATION PROVIDED
- PRICE RISK
- MORAL HAZARD BECAUSE THE SEVERITY OF LOSS IS INCREASING
- PHYSICAL HAZARD
- FINANCIAL STATEMENT APPROACH
- I AND III ONLY
- PERSONNEL LOSS EXPOSURE
- A STRATEGIC PLAN TO FIND AND TRAIN NEW SALESPERSONS ON AN ON-GOING CONTINUOUS BASIS.
- PROPERTY LOSS EXPOSURE
- NET INCOME LOSS EXPOSURE
- MIGHT CAUSE FIRMS TO PREFER SELF-INSURANCE OVER BUYING INSURANCE, OTHER THINGS EQUAL
- PROACTIVE AVOIDANCE
- II AND III ONLY
- FUTURE LOSS EXPOSURES MIGHT NOT HAVE APPEARED IN THE PAST
- IT CANNOT BE CONSIDERED AS A PHYSICAL HAZARD
- A AND C ARE TRUE
- II AND III ONLY
- ALLOF THE ABOVE (A, B, AND C)
- I AND II ONLY
- SEPARATION OF EXPOSURE UNITS, PROPERTY LOSS EXPOSURE
- POST-LOSS LOSS REDUCTION, PROPERTY LOSS EXPOSURE
- INDIVIDUALS WITH HEALTH INSURANCE USE MORE HEALTHCARE GOODS THAN THOSE WITHOUT
- SEPARATION OF EXPOSURE UNITS
- SUBJECTIVE
- STATIC RISK
- A 30% CHANCE THAT LOSSES WILL BE ≥ $3,000
- HIGH MAXIMUM POSSIBLE LOSS
- AS THE NUMBER OF OBSERVATIONS INCREASES THE DEGREE OF OBJECTIVE RISK WILL DECREASE
- MANAKA BECAUSE THEIR VARIANCE IS HIGHER THAN DRENNAN
- THE INSURER HAS LESS CONFIDENCE IN THE ESTIMATE OF EXPECTED LOSS
- CHARGER FACES THE MOST RISK BECAUSE THEY HAVE A HIGHER MEASURE OF OBJECTIVE RISK
- CHARGER FACES THE MOST RISK BECAUSE THEY HAVE A KNOWN LOSS OF 100 CARS.
Section II
- UU
Section III
- The risk identification process is critical in business management as it helps in pinpointing threats in the operating environment. Target’s management should have identified all potential threats to the system, which could have helped prevent the massive losses of data. They should have streamlined the process of identification of risks to locate all possible loopholes in the network. Experts could have utilized a checklist analysis to ensure Target’s system had no vulnerabilities.
- Target’s case presents a situation of property loss exposure, owing to the tangible nature of the claims. The company faces both direct and indirect losses from the data breach, which could ultimately affect its performance. Indeed, Target had to incur expenses following the incident, including hiring investigators and providing credit monitoring services. Also, the firm faced the indirect risks of a tarnished reputation and long-term loss of business.
- Security experts maintain that Target didn’t have sufficient measures in place to prevent hacking attacks. Further, they also confirmed that the firm had noticed traces of suspicious activity in the system, which were utterly ignored. The information made Target prone to reputation risk, which necessitated enlisting public relations firms.
- Cyber-attacks are considered as a diversifiable risk as firms can mitigate them by managing more-diversified portfolios. In this case, Target can work with public relations firms to restore its reputation.
- The loss of customers’ private information from target systems is a pure risk that only has the outcome of a loss. Target had to incur expenses to salvage the situation, and the practical solution for such cases is transferring risk to insurers.
- Cost of risk is inclusive of the expenses in managing risks and suffering losses. In Target’s case, they had to incur costs like hiring investigators, providing credit monitoring services, and engaging public relations experts. Firms have to bear the burden to ensure they dint crumble from the peril.
- Target’s data breach drove many firms into acquiring insurance coverage against cybercrimes. The strategy typifies a loss reduction control mechanism, as the firms acknowledge the high probability of the risk and choose to share it with insurance firms. In the case of similar catastrophes, the firms could incur fewer losses as insurance firms will cover most of the expenses.
