Chapters 4 & 5:
Review Questions
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Insurance Review Questions: Chapters 4 & 5, Study notes of Credit and Risk Management
Review questions and answers for chapters 4 and 5 of a finance textbook focusing on insurance, including topics such as earthquake insurance, risk classification, branches of insurance industries, and insurance contracts.
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2011/2012
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Chapters 4 & 5:
Review Questions
for review use of FIN3360 students only, distributing, posting, or emailing is not permitted please note that actual exam questions can/will be different, including by style, content, format, and subject
Questions - i
- Why are earthquakes difficult to insure in a privately-operated insurance system?
- Who would be receiving a subsidy if an insurer created a special insurance pool of people causing 2 or more accidents?
Questions - ii
- Why is theft jewelry a more difficult exposure to insure than fire loss?
- What are the 4 major principles of risk classification?
Answers - ii
- Why is theft jewelry a more difficult exposure to insure than fire loss? not all crimes are beyond the control of the insured, and the insurer must protect itself from fraud (easy in the case of jewelry)
- What are the 4 major principles of risk classification? 1. separation and class homogeneity, 2. reliability, 3. incentive value, 4. social acceptability
Answers - iii
- What are the major branches of private life and non-life insurance industries? 1. fire insurance, 2. business income interruption, 3. marine insurance, 4. casualty insurance, 5. life insurance, 6. medical or disability insurance
- What is the difference between a civil wrong and a criminal act (and give an example)? a civil wrong involves injury to a person or their property (causing a car accident by talking on a cellphone while driving); a criminal wrong involves a crime defined by statute (arson or burglary) ; some acts can be both
Questions - iv
- Define a “reasonable person”:
- If an insurance payment is based on the “peril” of human survival, the contract is called what?
Questions - v
- Stock insurance companies have all of the following characteristics except? a. ownership by people other than insureds b. management elected by owners c. profits distributed to insureds d. incorporation
- GLB Act allows banks, investment companies/ security dealers, and insurance companies to combine and form ______________________
Answers - v
- Stock insurance companies have all of the following characteristics except? a. ownership by people other than insureds b. management elected by owners c. profits distributed to insureds d. incorporation
- GLB Act allows banks, investment companies/ security dealers, and insurance companies to combine and form Financial Service Holding Companies
Answers - vi
- What areas of law should agents know? since insurance is made by contract and sold by agents: contract law and law of agency. Property: ownership, misrepresentation, negligence law; Life: tax law; Adjuster: waiver and estopel
- Why could there be a conflict between agents and underwriters? agent may want to see underwriter accept exposures, underwriter may believe prudent to decline application or accept at much higher premium
Questions - vii
- What is the difference between an agent and a broker?
- Why do life insurance agents and property insurance agents have different grants of authority?
Questions - viii
- A waiver is? a. a condition in property insurance b. a condition in life insurance only c. a condition in both life and property insurance d. an abandonment of a right
- If an insurer ratifies an agent action, it means: a. The agent is fired b. The agent is promoted c. The agent acted illegally, but the insurer pays d. The agent acted beyond authority, but the company accepts the result
Answers - viii
- A waiver is? a. a condition in property insurance b. a condition in life insurance only c. a condition in both life and property insurance d. an abandonment of a right
- If an insurer ratifies an agent action, it means: a. The agent is fired b. The agent is promoted c. The agent acted illegally, but the insurer pays d. The agent acted beyond authority, but the company accepts the result
Answers - ix
- Estoppel is? a. voluntary abandonment of right b. previous conduct is inconsistent with known right and individual will be estopped from asserting the right in court c. stopping on the EL (railroad overcrossing)
- If an agent is a employee of the insurance company: a. The agent is a direct writer b. The agent is a casualty underwriter c. The agent is a comprehensive insurer d. The agent works for an investor-owned company