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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. - ✔✔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. - ✔✔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? - ✔✔Workers compensation insurance A homeowners policy is a type of - ✔✔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. - ✔✔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? - ✔✔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. - ✔✔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? - ✔✔Speculative Risk Which one of the following best describes the concept of pooling?
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. - ✔✔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 - ✔✔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 - ✔✔Artificial Intelligence The primary role of insurance is to - ✔✔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. - ✔✔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 - ✔✔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. - ✔✔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 - ✔✔Strategic Risk Renegade Insurance prides itself on its upstanding reputation through its commitment to small communities' homeowners coverage needs over the past twenty years. Which one of Renegade's actions over this time would best illustrate its continued commitment to maintaining its solvency? A. Renegade emphasizes that its insurance is readily available and accessible to customers in its service area that need it. B. Renegade's producers know policy language well so that they can easily and understandably answer policyholders' questions. C. Renegade keeps enough cash assets on hand to cover claims on policies long after it collected the premiums from customers.
D. Summary of premiums written. - ✔✔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 - ✔✔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? - ✔✔(3/4) + (2/5) = .115 (115%) How do you get combined ratio? - ✔✔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? - ✔✔4/10 = .4 (40%) How do you get expense ratio? - ✔✔Incurred underwriting expenses / Written premiums How do you get loss ratio? - ✔✔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. Anchoy can use group marketing to target large numbers of recent local college graduates. C. Using call centers will take away its need for customer service representatives or chatbots. D. It will market through banks and financial services when utilizing the exclusive agency distribution channel. - ✔✔Anchoy can use group marketing to target large numbers of recent local college graduates. Spencer Insurance Associates is an independent agency selling primarily homeowners policies. This agency A. Is free to work with as many different insurers as it wants. B. Generally represents its customers rather than insurance companies. C. Can use the policyholder expiration lists, but they are owned by insurers. D. Cannot commit an insurer to write a policy, unlike a broker, who usually can. - ✔✔Is free to work with as many different insurers as it wants. The key to the direct writer marketing system is that A. Customers purchase insurance through call centers. B. An agency is contracted to sell insurance for one insurer or group of insurers. C. The insurer is using its own employees as producers.
C. Bonds D. Office equipment - ✔✔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? - ✔✔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. - ✔✔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. - ✔✔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. B. A significant bonus. C. A collaborative relationship with her producers. D. Adverse selection. - ✔✔Adequate policyholders' surplus. Which one of the following statements is correct regarding the interaction between risk control and other insurer functions? A. Risk control representatives are responsible for compiling all the information required for a premium audit. B. Risk control personnel can assist underwriters in modifying a new applicant's loss exposures to meet eligibility requirements. C. By making marginal accounts acceptable, risk control helps the Claims Department settle losses. D. Risk control personnel are responsible for answering any complex questions that insureds have about premium audits. - ✔✔Risk control personnel can assist underwriters in modifying a new applicant's loss exposures to meet eligibility requirements. Brian works in the Underwriting department for DGH Insurance. In addition to carefully selecting insureds, he works with producers and premium auditors to ensure accurate classification and pricing. Brian is a A. Staff underwriter B. Corporate underwriter C. Field underwriter D. Account manager - ✔✔Field underwriter Aimee recently accepted a job in the Underwriting department at Noble Insurance Company. Her responsibilities will include developing coverage forms, arranging reinsurance agreements, and conducting underwriting audits. Which one of the following is the title of Aimee's new job? A. Field Underwriter
D. The amount of its payroll. - ✔✔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 - ✔✔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. - ✔✔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.) Tony now works at the corporate level for Newtown Insurance. He is considered a staff underwriter. Which one of the following is primarily a responsibility of staff underwriters? A. Manage a book of business B. Support producers C. Recommend coverage
D. Revise underwriting guidelines - ✔✔Revise underwriting guidelines (Revising underwriting guidelines is primarily a responsibility of staff underwriters.) Jill works in the field for Goshen Mutual as a line underwriter. Which one of the following is primarily a responsibility of line underwriters? A. Revise underwriting guidelines B. Select insureds C. Research the market D. Develop coverage forms - ✔✔Select insureds (One of the primary responsibilities of line underwriters is to select insureds.) Which one of the following is the first step in the underwriting process? A. Develop underwriting alternatives B. Evaluate the submission C. Monitor the underwriting decision D. Determine an appropriate premium - ✔✔Evaluate the submission (Evaluating the submission is the first step in the underwriting process.) 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 - ✔✔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
D. A field claims representative. - ✔✔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. - ✔✔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.) Understanding the steps in the claims handling process is important to new claims reps. Which one of the following steps generally comes after investigating and documenting the claim and before concluding the claim? A. Acknowledging a claim B. Determining cause of loss and loss amount C. Identifying the policy D. Contacting the insured - ✔✔Determining cause of loss and loss amount. (Between the two steps of investigating and documenting the claim and concluding the claim is the step of determining cause of loss and loss amount.) A person or entity that would suffer a financial loss if property were damaged has A. A contractual interest. B. A discretionary interest. C. An insurable interest. D. A renewable interest. - ✔✔An insurable interest. (A person or entity that would suffer a financial loss if property were damaged has an insurable interest.)
Subrogation is the insurer's right to A. Estimate the value of the damaged property. B. Transfer coverage to a third party. C. Drop a claim in exchange for an agreed amount of money. D. Recover its claim payment from the responsible party. - ✔✔Recover its claim payment from the responsible party. (Subrogation is the insurer's right to recover its claim payment from the responsible party.) 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. - ✔✔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. - ✔✔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.
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. D. Henry learns that policy denials do not need to be routinely reflected or included in the claims file. - ✔✔Henry will determine the type of loss - such as property damage or liability - for each claim he handles. Bill's three-year-old stereo was completely destroyed in a covered loss. Its expected useful life was ten years. Its replacement cost is $600. Its actual cash value (ACV) is A. $ 60. B. $180. C. $420. D. $600. - ✔✔$420. (The stereo's Depreciation is 3/10 x $600 = $180. The ACV is $600 - $180 = $420.) After Marvin's car was stolen, and he was reimbursed for the loss by Greatson Insurance, the police found and returned the vehicle, which was dented and spray-painted, but still had parts that could be usable. Greatson's rights to recover and sell or otherwise dispose of insured property on which it has paid a total loss are called A. Constructive rights. B. Catastrophe rights. C. Fiduciary rights. D. Salvage rights. - ✔✔Salvage rights. (Salvage rights allow the insurer to recover and sell or otherwise dispose of insured property on which the insurer has paid a total loss.) Damages for pain and suffering are a form of A. Punitive damages. B. Out-of-pocket damages. C. General damages.
D. Special damages. - ✔✔General damages. (General damages include pain and suffering.) A liability adjuster must be concerned with specific, out-of-pocket expenses when evaluating the damages being claimed. The technical term for such expenses is A. Measurable damages. B. Special damages. C. General damages. D. Punitive damages. - ✔✔Special damages. (The technical term for such expenses is special damages.) Actual cash value (ACV) is A. Agreed value minus depreciation. B. Replacement cost plus depreciation. C. Replacement cost minus agreed value. D. Replacement cost minus depreciation. - ✔✔Replacement cost minus depreciation. Wayne, an insured, submits a claim for a seven-year-old refrigerator that was damaged due to lightning. Claims representative Guillaume will probably factor in an allowance for wear and tear. This is called A. Replacement cost. B. Stated amount. C. Depreciation. D. Agreed amount. - ✔✔Depreciation. A liability loss has the following damages: Medical expenses: $10, Damages for disfigurement: $50, Damages for pain and suffering: $100,
