Risk Assessment & Underwriting Flashcards
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Read the first 7 Risk Assessment & Underwriting flashcards as text
In underwriting, what does 'adverse selection' refer to?
Answer: Higher-risk applicants disproportionately seeking coverage
Adverse selection occurs when individuals with higher-than-average risk are more likely to purchase insurance, skewing the insured pool.
Which underwriting approach evaluates each risk individually based on its unique characteristics rather than group statistics?
Answer: Judgment underwriting
Judgment underwriting relies on the underwriter's expertise to assess each risk on its own merits when standard rating tables are insufficient.
A purchasing manager is assessing supply chain risk. Which tool provides a visual representation of potential failure points and their causes?
Answer: Fishbone (Ishikawa) diagram
A fishbone diagram maps cause-and-effect relationships, helping identify root causes of potential supply chain failures.
What is the primary purpose of a risk register in procurement?
Answer: To track identified risks, their likelihood, and mitigation plans
A risk register is a living document that captures identified risks, their probability and impact, owners, and planned responses.
When calculating Value at Risk (VaR) for a procurement portfolio, a 95% confidence level over 30 days means:
Answer: There is a 5% chance losses will exceed the VaR amount in that period
VaR at 95% confidence means there is a 5% probability that actual losses will exceed the stated amount during the specified period.
Which type of insurance covers losses resulting from a supplier's failure to deliver goods on time?
Answer: Contingent business interruption insurance
Contingent business interruption (CBI) insurance covers revenue losses caused by disruptions at a supplier's or customer's location.
In risk matrix methodology, a risk rated 'High Likelihood / Low Impact' should primarily be treated with which strategy?
Answer: Mitigate to reduce likelihood
High-likelihood, low-impact risks are best addressed through mitigation controls that reduce how frequently they occur.