Download AINS 101 Exam Prep 2023-2024 Questions & Answers and more Exams Financial Economics in PDF only on Docsity!
AINS 101 Exam Prep 2023 Questions & Answers
As a single mother on a very tight budget, Ciara is tempted to skimp on her insurance. However, her friend Mehmet tells her not to skimp on insurance, because it will help manage her cash flows. Which one of the following examples best illustrates Mehmet's point?
A. Ciara needs her car to get to her job, and she needs her job to make car payments and pay for her car insurance.
B. When her car's windshield breaks, Ciara has to pay only $100 of the $600 cost of replacing it.
C. When her car's transmission goes out a month after the warranty expires, Ciara is faced with a $1, repair bill.
D. Ciara finds it difficult to come up with a $787 auto insurance premium every six months. - Correct Ans-When her car's windshield breaks, Ciara has to pay only $100 of the $600 cost of replacing it.
Which one of the following statements is correct regarding the benefits provided by insurance?
A. Insurance reduces the financial consequences of loss exposures but not the related uncertainty.
B. The primary role of insurance is to meet mandatory insurance requirements.
C. The reduction in losses paid by insurers due to risk control measures benefits individual insureds but not society as a whole.
D. Insurance helps reduce the financial burden to society by compensating accident victims. - Correct Ans-Insurance helps reduce the financial burden to society by compensating accident victims.
Shelton Industries experienced a fire in its manufacturing plant. Several employees suffered burns and smoke inhalation injuries as they tried to escape the building. Which one of Shelton Industries' commercial property-casualty policies would pay for the employees' injuries and illnesses? - Correct Ans-Workers compensation insurance
A homeowners policy is a type of - Correct Ans-Personal property-casualty insurance policy.
Which one of the following correctly describes a reason for government involvement in property- casualty insurance?
A. Selling insurance provides the government with a non-tax source of revenues and profits.
B. Government programs can meet legitimate public demands unmet by private insurers.
C. Competition from government plans keeps private insurer's premiums competitive.
D. Preventing high-risk individuals or activities from being insured is in the public interest. - Correct Ans- Government programs can meet legitimate public demands unmet by private insurers.
Insurance Company wrote a commercial liability policy for a manufacturer of off-road motorcycles. The potential costs of the insured's loss exposure exceed Insurance Company's capacity. Insurance Company could consider which one of the following types of contractual transferring agreement to meet its needs? - Correct Ans-Reinsurance
In an effort to reduce expenses, increase profitability, and reduce human errors; ABC Insurance Company decided to automate most of its personal lines underwriting function. The company now uses standardized application forms that are submitted electronically to one of the company's regional offices. At each regional office, a computer with a scanner reads the applications. The computer has been programmed with acceptable answers to the questions. If the answers on the application are all acceptable, the policy is automatically issued. Rejected applications are automatically forwarded to a human underwriter who reviews them. The use of this technology has reduced the company's expense ratio by two and a half percent, and reduced the time it takes to issue a policy. ABC Insurance Company's use of computers to evaluate applications electronically is an application of
A. Radiant sensors.
B. Artificial intelligence.
C. - Correct Ans-Artificial intelligence.
Jimmy decided to buy a house in his neighborhood that had been foreclosed on by the bank that held the mortgage. He is hoping to do some renovation and repair work on the house, and then sell it for a quick profit. What type of risk is this? - Correct Ans-Speculative Risk
D. A corporation owned by stockholders that earns profits for the stockholders. - Correct Ans-A corporation owned by policyholders that provides insurance to its policyholders.
A reinsurance company
A. Assumes loss exposures from a primary insurer.
B. Provides primary insurance for loss exposures that private insurers are unwilling to provide.
C. Is formed to write all or part of the insurance for a parent company.
D. Transfers losses to a primary insurer. - Correct Ans-Assumes loss exposures from a primary insurer.
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 - Correct Ans-Computer Vision
Mutual Fund Company (MFC) offers a wide array of mutual fund options to investors. Each mutual fund has a different fund objective and set of investment guidelines that apply to the fund. While MFC gives considerable freedom to its fund portfolio managers, they are required to abide by the fund's investment guidelines. To monitor compliance, MFC developed a computer algorithm. The computer algorithm continuously monitors each fund's compliance with investment guidelines. If a fund manager violates the investment guidelines, the computer immediately notifies MFC's internal control director, and corrective action is taken. MFC's use of the computer algorithm to monitor investment compliance and to provide notification when corrective action is necessary illustrates use of - Correct Ans-Artificial Intelligence
The primary role of insurance is to - Correct Ans-Indemnify individuals and organizations for covered losses
Which one of the following best describes the concept of pooling?
A. Insureds share the cost of each other's losses.
B. Risk management is concerned with positive and negative risks.
C. The financial consequences of unanticipated losses are transferred to an insurer.
D. Insurance benefits society as a whole. - Correct Ans-Insureds share the cost of each other's losses.
A type of insurer that is owned by policyholders and may pay dividends to policyholders as a return of a portion of premiums paid is a - Correct Ans-Mutual insurer.
The state of Maryland operates a residual auto plan (the Maryland Auto Insurance Fund—MAIF) that provides coverage for drivers who are unable to obtain coverage from private insurers. Which one of the following is the best rationale for the MAIF program?
A. Private insurers face limited competition, and the state increases competitive pressures by operating this type of plan.
B. Auto insurance is compulsory, and the program makes it possible for all drivers to have reasonably priced insurance.
C. Private insurers overcharge for auto insurance, and the state provides a low-cost alternative.
D. Auto insurance for high-risk drivers is profitable, and the program enables the state to share in the profits. - Correct Ans-Auto insurance is compulsory, and the program makes it possible for all drivers to have reasonably priced insurance.
ABC Company experienced a dramatic ideological shift in corporate policies after a national election. This is an example of which one of the following quadrants of risk?
A. Operational risk
B. Financial risk
C. Strategic risk
D. Hazard risk - Correct Ans-Strategic Risk
All of the following appear on an insurer's balance sheet, EXCEPT:
A. Liabilities
B. Assets
C. Net income
D. Policyholders' surplus - Correct Ans-Net income
An insurer's balance sheet can best be described as a
A. Relationship between revenue and liabilities.
B. Snapshot of its financial position.
C. Relationship between assets and expenses.
D. Summary of premiums written. - Correct Ans-Snapshot of its financial position
All of the following are categories of liabilities found on an insurer's balance sheet, EXCEPT:
A. Loss and loss expense reserves
B. Policyholders' surplus
C. Unearned premium reserves
D. Other liabilities - Correct Ans-Policyholders' surplus (The major categories of liabilities found on an insurer's financial statements are loss and loss expense reserves, unearned premium reserves, and other liabilities. Policyholders' surplus is not a liability category.)
The financial report for Hometown Insurer contains the following information:
Earned premiums $4,000,
Written premiums $5,000,
Net investment income $1,000,
Incurred losses $3,000,
Incurred underwriting expenses $2,000,
What was the Hometown Insurer's combined ratio? - Correct Ans-(3/4) + (2/5) = .115 (115%)
How do you get combined ratio? - Correct Ans-Loss Ratio + Expense Ratio = (Incurred Losses/Earned Premiums) + (Incurred Underwriting Expenses/Written Premiums)
The financial report for LMN Insurance contains the following information:
Earned premiums $8,000,
Written premiums $10,000,
Incurred losses $6,000,
Incurred underwriting expenses $4,000,
What is LMN Insurance's expense ratio? - Correct Ans-4/10 = .4 (40%)
How do you get expense ratio? - Correct Ans-Incurred underwriting expenses / Written premiums
How do you get loss ratio? - Correct Ans-Incurred Losses / Earned Premiums
As it continues to grow, Anchoy Insurance is examining other distribution channels to more effectively market its products. Through this experience, which of one the following will Anchoy most likely learn?
A. No matter what it selects, Anchoy must use a producer to effectively sell its products.
B. South Insurance purposely writes its policies with hard-to-understand terminology that only its agents can explain, so that its insureds will purchase its products without asking a lot of questions.
C. West Insurance has had three straight years of record-setting low claims and has accumulated more than expected profits; it plans on the trend continuing and overspends on new long-term investments.
D. East Insurance comes up with a new rate structure allowing "preferred customers" discounted policies when they continually re - Correct Ans-East Insurance comes up with a new rate structure allowing "preferred customers" discounted policies when they continually renew year after year; East eventually loses needed revenue but is rewarded by its competitors leaving the market.
What type of financial statement shows the financial position of an insurance company at any particular point in time? - Correct Ans-Balance sheet
Which one of the following is shown on the balance sheet of an insurer?
A. Acquisition expenses
B. Incurred losses
C. Net investment income
D. Cash and short-term investments - Correct Ans-Cash and short-term investments
Which one of the following is a nonadmitted asset?
A. Real estate
B. Stocks
C. Bonds
D. Office equipment - Correct Ans-Office equipment
The financial report for Hometown Insurer contains the following information:
Earned premiums $4,000,
Written premiums $5,000,
Net investment income $1,000,
Incurred Losses $3,000,
Incurred underwriting expense $2,000,
What is Hometown Insurer's expense ratio? - Correct Ans-2/5 = .4 (40%)
The key to the direct writer marketing system is that
A. Customers can get quotes for coverage through web-based portals.
B. An agency is contracted to sell insurance for one insurer or group of insurers.
C. Customers purchase insurance through call centers.
D. The insurer is using its own employees as producers. - Correct Ans-The insurer is using its own employees as producers.
Insuring individuals with a high probability of loss at a cost lower than the insurer would normally charge for that risk because it wasn't aware of the actual risk involved is known as
A. Adverse selection.
B. Unprofitable business.
C. Policyholders' surplus.
D. Capacity. - Correct Ans-Adverse selection.
Clare is a commercial lines underwriter. She always tries to follow underwriting guidelines, effectively evaluate loss exposures, and charge adequate premiums. By doing these things, Clare's goal is to ensure
A. Adequate policyholders' surplus.
A. Field Underwriter
B. Underwriting Technician
C. Corporate Underwriter
D. Line Underwriter - Correct Ans-Corporate Underwriter (Corporate underwriters, sometimes referred to as staff underwriters, perform duties including: developing coverage forms, arranging reinsurance, conducting underwriting audits, researching the market, and revising underwriting guidelines.)
As an experienced underwriter, Rick has learned to make every effort to avoid a mistake that can produce insufficient premium to cover losses, or pricing that isn't competitive. Which one of the following underwriting mistakes can often cause these issues?
A. Misclassifying exposures
B. Recommending the applicant implement risk control measures
C. Using predictive models
D. Adjusting policy terms and conditions - Correct Ans-Misclassifying exposures
(Misclassification of exposures can produce insufficient premium to cover losses or pricing that isn't competitive.)
Which one of the following is a temporary agreement providing insurance coverage until the formal policy is issued?
A. Binder
B. Rating classification
C. Book of business
D. Submission - Correct Ans-Binder (A binder is a temporary agreement providing insurance coverage until the formal policy is issued.)
The size of an employer's loss exposure for workers compensation insurance is based on
A. The number of its employees.
B. The final premium audit.
C. The extent of its operations.
D. The amount of its payroll. - Correct Ans-The amount of its payroll. (The size of an employer's loss exposure for workers compensation insurance is based on the amount of its payroll.)
Which one of the following is the fundamental measure of loss exposure used in insurance rating?
A. Premium
B. Exposure unit
C. Risk
D. Rate - Correct Ans-Exposure unit. (The exposure unit is the fundamental measure of loss exposure used in insurance rating.)
Which one of the following statements is correct regarding the interaction between risk control and other insurer functions?
A. A risk control evaluation can make the difference between the applicant's being rejected or accepted by the underwriter.
B. Risk control representatives compile detailed data for the actuarial department to use in establishing rates.
C. Risk control representatives are responsible for compiling all the information required for a premium audit.
D. Risk control personnel are responsible for answering any complex questions that insureds have about premium audits. - Correct Ans-A risk control evaluation can make the difference between the applicant's being rejected or accepted by the underwriter.
(A risk control evaluation can make the difference between the applicant's being rejected or accepted by the underwriter.)
Anna was reviewing an all-lines submission for SP Markets. SP Markets owns and operates 5 small grocery stores located in the suburbs of Boston. The stores all seem to be well maintained and clean. While the overall loss experience on the account is good relative to the indicated premium, the loss runs show a frequency of small general liability claims from customer slips and falls. Rather than reject the application for SP Markets, Anna would like to suggest a coverage modification to the producer that could make the application acceptable and possibly add value for the insured. Which one of the following is a good coverage modification for Anna to suggest?
A. Propose the general liability coverage at a lower premium level, but apply a small deductible.
B. Offer a proposal with all lines of coverage except the general liability coverage.
C. Propose the general liability coverage, excluding the 2 locations that have - Correct Ans-Propose the general liability coverage at a lower premium level, but apply a small deductible. (By proposing a small deductible for the general liability exposure, the application become acceptable to Anna. The lower premium level may be attractive to the insured, and the deductible may offer a motivation for the risk to put in controls to reduce the frequency of slips and falls. The options of excluding locations or coverage, or quoting an unjustified premium do not add value for the insured.)
Produce, such as apples or grapes, may be priced by the unit or by the pound. In insurance, these measures are similar to
A. Construction cost index.
B. Rates.
C. Exposure units.
D. Premiums. - Correct Ans-Exposure units. (Units, pounds, and exposure units are all multiplied by the rate to arrive at the cost (premium).)
Bob is shopping for auto insurance. Insurance Company A's rating system determines that Bob should be charged $800 per auto. If Bob is looking to insure four autos, what premium will he be charged by Insurance Company A? - Correct Ans-$
Stephanie works for Waynesgood Insurance. She appreciates the help she receives from Clem in the company's claims department who provides her with recent statistics and comments on Waynesgood's customer satisfaction levels. Stephanie works in which one of the following departments?
A. Marketing
B. Underwriting
C. Premium auditing
D. Risk control - Correct Ans-Marketing
Johann is an insurance company employee who investigates the scene of a loss and meets with insureds, claimants, lawyers, Johann is most accurately called
A. A claims supervisor.
B. An adjusting agent.
C. An independent adjuster.
D. A field claims representative. - Correct Ans-A field claims representative
Work on a new claim begins for claim representative Anita upon receipt of a claim notice. Anita gathers initial information and verifies coverage. From the list of activities below, the next step Anita would take in the process is
A. Assign the claim to defense counsel.
B. Set a loss reserve.
C. Make an offer to settle the claim.
D. Retain causation experts. - Correct Ans-Set a loss reserve. (After the claim representative receives notice of a loss, obtains initial information, and verifies coverage, a loss reserve for that claim should be established.)
Compensatory damages represent
A. Out-of-pocket expenses.
B. Damages to deter others from committing wrongful acts.
C. Actual harm suffered.
D. Non-economic loss. - Correct Ans-Actual harm suffered. (Compensatory damages represent actual harm suffered.)
Damages for disfigurement are a form of
A. General damages.
B. Punitive damages.
C. Out-of-pocket damages.
D. Special damages. - Correct Ans-General damages. (Damages for disfigurement are a form of general damages.)
Reggie, Harper, Kimmie, and Stefan work in the claims department of North Insurance Company (NIC). Which one of the following is true regarding the various types of claims personnel employed at NIC?
A. Harper is a specialized claims representative who works for a small local insurance organization.
B. Stefan, a claims supervisor, reviews files and helps determine staff development strategies.
C. Kimmie enjoys her role as a telephone claims representative whose specialty is in-person meetings.
D. Reggie, a field claims representative, works in NIC's main office and likes having an indoor desk job. - Correct Ans-Stefan, a claims supervisor, reviews files and helps determine staff development strategies. (Stefan, a claims supervisor, reviews files and helps determine staff development strategies.)
Willis, a claims representative, is collaborating with his colleague Suzanna from his insurance company's risk control department. How will Suzanna help Willis?
A. Provide claims experience information to help the risk control department.
B. Provide laboratory analysis when Willis is investigating a claim.
C. Provide inventory values and contractors' equipment lists as needed by Willis.
D. Provide information so Willis can appropriately price loss exposures. - Correct Ans-Provide laboratory analysis when Willis is investigating a claim. (Suzanna from risk control will help Willis by providing laboratory analysis when Willis is investigating a claim. A is incorrect as that is what Willis would do to help Suzanna. C is incorrect as these are activities the premium auditing department might do to help Willis. D is incorrect as Willis does not price loss exposures (this is done by underwriting).)
Jerome Wilder is a claims representative with Hermani Insurance. Which group of activities listed below would best exemplify Jerome's actions, in the order they are given, as he systematically handles a new loss in his role?
A. Acknowledging the claim - identifying the policy - contacting the insured
B. Determining the cause of loss - investigating and documenting the claim - identifying the policy
C. Determining the cause of loss and loss amount - identifying the policy - acknowledging the claim
D. Investigating and documenting the claim - contacting the insured - concluding the claim - Correct Ans- Acknowledging the claim - identifying the policy - contacting the insured (Of the choices given, Jerome's actions as he systematically adjusts the loss, in the order given, would be acknowledging the claim - identifying the policy - contacting the insured.)
Henry is a new claims representative with Able Insurers. Which one of the following will Henry find is true as he gains more experience with his company's claims handling process?
A. Henry sits in the cubicle next to another claims representative, Marty, who assigns claims to Henry.
B. Henry will determine the type of loss - such as property damage or liability - for each claim he handles.
C. Henry learns that all claims, no matter the circumstances or parties involved, could involve subrogation.
