AINS 101 Exam Prep

A liability loss has the following damages: Medical expenses: $10,000 Damages for disfigurement: $50,000 Damages for pain and suffering: $100,000 What is the amount of general damages? A. $ 60,000 B. $110,000 C. $150,000 D. $160,000

$150,000 (The amount of general damages is $150,000. General damages are for losses that do not have a specific economic value.)

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?

$3200

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.)

The financial report for Hometown Insurer contains the following information: Earned premiums $4,000,000 Written premiums $5,000,000 Net investment income $1,000,000 Incurred losses $3,000,000 Incurred underwriting expenses $2,000,000 What was the Hometown Insurer's combined ratio?

(3/4) + (2/5) = .115 (115%)

The financial report for Hometown Insurer contains the following information: Earned premiums $4,000,000 Written premiums $5,000,000 Net investment income $1,000,000 Incurred Losses $3,000,000 Incurred underwriting expense $2,000,000 What is Hometown Insurer's expense ratio?

2/5 = .4 (40%)

The financial report for LMN Insurance contains the following information: Earned premiums $8,000,000 Written premiums $10,000,000 Incurred losses $6,000,000 Incurred underwriting expenses $4,000,000 What is LMN Insurance's expense ratio?

4/10 = .4 (40%)

An insurer has decided to take an extremely narrow interpretation of a property insurance policy provision to limit the number of loss payments it will need to make. It realizes that its interpretation is probably wrong, but it knows that individual insured's loss amounts will be small, such that most insureds will not take the trouble to file lawsuits against it. The insurer may be violating the principle that an insurance policy is A. A conditional contract. B. A contract of utmost good faith. C. A contract of adhesion. D. A contract of indemnity.

A contract of utmost good faith. (An insurance policy is a contract of utmost good faith and both parties to it, the insurer and the insured, are expected to be ethical in their dealings with each other.)

Which one of the following describes the characteristics of a mutual insurance company? A. A corporation owned by policyholders that provides insurance to its policyholders. B. An unincorporated association that provides reciprocal coverage to subscribers. C. An unincorporated association that earns profits for its individual investors. D. A corporation owned by stockholders that earns profits for the stockholders.

A corporation owned by policyholders that provides insurance to its policyholders.

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.

A field claims representative

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.)

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

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.)

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.)

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.

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.

Alicia works for the Drewman Agency, Sandi at insurer Greenway Insurance, and Rosa at Grossman Brokers, all as customer service representatives. Which one of the following is true regarding their work? A. Alicia can process policy endorsements and explain coverage to her customers. B. Sandi, Alicia, and Rosa are not involved in the generation of new business. C. Rosa can provide superior service but is not generally involved in attracting new customers. D. Sandi is the only one who can replicate the activities of a producer.

Alicia can process policy endorsements and explain coverage to her customers.

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.)

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.

Ideally insurable loss exposures are subject to losses that A. Are immeasurable in terms of frequency or severity. B. Occur gradually over long periods of time. C. Are definite in time, cause, and location. D. Result from unidentifiable causes.

Are definite in time, cause, and location. (Ideally insurable loss exposures are subject to losses that are definite in time, cause, and location.)

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

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. Risk management information systems. D. Actuator technology.

Artificial intelligence.

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.

Assumes loss exposures from a primary 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.

What type of financial statement shows the financial position of an insurance company at any particular point in time?

Balance sheet

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

Binder (A binder is a temporary agreement providing insurance coverage until the formal policy is issued.)

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

Cash and short-term investments

The insurance agent suggested that Sally's Snack Shop buy a policy that combines property, crime, and liability coverages into one policy. This is referred to as a(n)

Commercial Package Policy (CCP)

Coverage for money and other business property from various causes of loss such as burglary, robbery, theft, and employee dishonesty typically is provided by

Commercial crime insurance.

Waycroft Industries is working with their insurance producer Graydon Murphy. Graydon and the risk managers at Waycroft have already completed the first step of the risk consultation process. The second step of the process is A. Determining the standards of acceptable performance to be used. B. Revising the standards or correcting any substandard performance. C. Comparing an organization's results with established performance standards. D. Doing an evaluation of any substantially exceeded standards.

Comparing an organization's results with established performance standards. (The second step of the risk consultation process is comparing an organization's results with established performance standards.)

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

Insurance policies are written in such a way that the parties have to perform only under certain conditions, because an insurance contract is a A. Contract of adhesion. B. Conditional contract. C. Contract of utmost good faith. D. Contract of indemnity.

Conditional contract. (An insurance policy is a conditional contract because the parties have to perform only under certain conditions. An insurer pays a claim only when a covered loss occurs. The insured must fulfill certain duties before a claim is paid, such as giving the insurer prompt notice of a loss.)

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 B. Underwriting Technician C. Corporate Underwriter D. Line Underwriter

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.)

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.

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.)

When preprinted forms do not provide the terms of coverage needed by a particular insured or small group of insureds, the insurer may A. Ask the customer to resubmit an application. B. Draft a manuscript form to meet the customer's needs. C. Work with an advisory organization to develop a form. D. Incorporate statutes into a policy.

Draft a manuscript form to meet the customer's needs. (When preprinted forms do not provide the terms of coverage needed by a particular insured or small group of insureds, the insurer may draft a manuscript form to meet the customer's needs.)

One of the reasons for insurance regulation is to prevent destructive competition. In which one of the following scenarios would destructive competition be exhibited? A. North Insurance is trying to break into a specialized type of insurance market that is generally out of range for most customers; North decides to price its coverages commensurate with other insurers offering similar policies. 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 renew year after year; East eventually loses needed revenue but is rewarded by its competitors leaving the market.

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.

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.)

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.)

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.

Exposure units. (Units, pounds, and exposure units are all multiplied by the rate to arrive at the cost (premium).)

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

Insurance deals primarily with loss exposures that are fortuitous. Which one of the following statements best characterizes fortuitous losses? A. Fortuitous loss exposures are expected. B. Fortuitous losses are beyond the insured's control. C. Fortuitous loss exposures are generally predictable. D. Fortuitous losses are intentional.

Fortuitous losses are beyond the insured's control.

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.)

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.)

Producer Gerald Hilker is one of the most successful producers at the Westfield Agency, which represents several different insurers. Because of this, which one of the following is most likely true? A. Gerald makes most of his income from commissions from customer sales. B. Gerald usually presents a proposal for coverage soon after meeting prospective insureds. C. Gerald's interactions with customers usually end after he issues them their policies. D. Gerald, due to his success at the agency, is more accurately an "agent" than a "producer".

Gerald makes most of his income from commissions from customer sales. (Gerald makes most of his income from commissions from customer sales. B and C are both incorrect as a long term relationship with customers is more beneficial than a one time or hurried sale. D is incorrect as the two terms are synonymous for anyone selling insurance for one or more insurers.)

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.

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. 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.

Robin, a producer from Grantley Insurance, is always alert to changes in her clients' loss exposures. Why is this so important? A. Implemented risk management techniques may prove to be ineffective or become obsolete. B. Knowledge of such changes will inform their efforts to create a list of experts that can be called to assist. C. Producers have expertise about risk financing through insurance. D. Producers can aid clients in developing risk management cost allocation plans.

Implemented risk management techniques may prove to be ineffective or become obsolete. (Correct. Producers should be alert to changes in clients' loss exposures because implemented risk management techniques may prove to be ineffective or become obsolete.

How do you get loss ratio?

Incurred Losses / Earned Premiums

How do you get expense ratio?

Incurred underwriting expenses / Written premiums

The primary role of insurance is to

Indemnify individuals and organizations for covered losses

Private insurers are reluctant to provide windstorm insurance on coastal properties. This is because the loss exposures fail to meet the criterion that ideally insurable exposures must be A. Independent and not catastrophic. B. Fortuitous. C. Definite and measurable. D. A large number of similar exposure units.

Independent and not catastrophic. (Because many properties can be damaged in the same hurricane or tropical storm, coastal properties are not independent, and potential losses are catastrophic.)

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.

Carlos is new to the insurance business and is learning about insurance regulation and what he, now working with Grady Insurance, will need to be aware of regarding the subject of compliance. Which one of the following will Carlos find is accurate as he better understands why insurance is regulated? A. Insurance regulation protects customers by guaranteeing insurance is available and accessible to everyone who needs it. B. The U.S. insurance industry is governed by federal laws that protect citizens by leveling the playing field for insurers and policyholders. C. Insurance regulation speaks to the types of risks insurers may cover, but does not play a part in how they invest their profits. D. Insurance regulation prevents insurers from covering catastrophic occurrences so insurers can remain solvent.

Insurance regulation protects customers by guaranteeing insurance is available and accessible to everyone who needs it.

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.

Which one of the following best describes the concept of pooling? A. The financial consequences of unanticipated losses are transferred to an insurer. B. Risk management is concerned with positive and negative risks. C. Insureds share the cost of each other's losses. D. Insurance benefits society as a whole.

Insureds share the cost of each other's losses.

An insurance policy is considered a contract of adhesion when it is drafted by the A. Third party. B. Insured. C. Insurance commissioner. D. Insurer.

Insurer. (Insurance is considered a contract of adhesion when one party, the insured, must adhere to the contract as written by the other party (the insurer). The insurer determines the wording of the policy, and the insured has little choice but to take it or leave it.)

The big differences between property and liability policies are found in their A. Insuring Agreements B. Conditions C. Exclusions D. Definitions

Insuring Agreements (The big differences between property and liability policies are found in their insuring agreements.)

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.

Lacey is a customer service representative (CSR) who has been employed by Greeley Insurance for five years. She worked in Greeley's call center for just a year when she was moved to a busy insurance office staffed primarily with claims representatives and producers. As she continues her exemplary service to Greeley and its customers, which one of the following best describes how she supports her fellow insurance professionals in her role as a CSR? A. Lacey is not permitted to show empathy or take information related to a new loss that just occurred. B. Lacey performs all the roles of a claims professional and a producer but with a different title. C. Lacey has been trained to replicate many of the activities performed by producers. D. Lacey is not permitted to give advice on how a customer may meet specific coverage needs.

Lacey has been trained to replicate many of the activities performed by producers. (Lacey has been trained to replicate many of the activities performed by producers.)

How do you get combined ratio?

Loss Ratio + Expense Ratio = (Incurred Losses/Earned Premiums) + (Incurred Underwriting Expenses/Written Premiums)

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

Marketing

Which one of the following lists provides the optimum order of responsibilities that a producer may engage with any customer on a continual basis? A. Meeting a prospective customer, giving advice, issuing the policy, adjusting a claim B. Meeting a prospective customer, doing a needs and activities analysis, preparing a coverage proposal, closing the sale C. Meeting a prospective customer, issuing the policy, collecting premiums, adjusting a claim. D. Meeting a prospective customer, reviewing a loss run, issuing a policy, receiving a commission

Meeting a prospective customer, doing a needs and activities analysis, preparing a coverage proposal, closing the sale

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

Misclassifying exposures (Misclassification of exposures can produce insufficient premium to cover losses or pricing that isn't competitive.)

The Insurance Services Office, Inc. (ISO) commercial package policy is an example of a A. Modular policy. B. Manuscript form. C. Self-contained policy. D. Single insurance document.

Modular policy. (ISO commercial package policy is an example of a modular policy; it combines different coverage parts related to different lines of business.)

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.

All of the following appear on an insurer's balance sheet, EXCEPT: A. Liabilities B. Assets C. Net income D. Policyholders' surplus

Net income

Ling has noticed that her neighbor has recovered money for two homeowners property claims and an auto damage claim he has filed in recent years. Ling has been paying insurance premiums for many years and has never suffered a loss or made a claim. She feels that her insurance contracts over the years have been worthless to her. What Ling does not understand is that she has been paying premiums for a contract A. That is nontransferable. B. Of unequal amounts. C. Of adhesion. D. Of utmost good faith.

Of unequal amounts.

Which one of the following is a nonadmitted asset? A. Real estate B. Stocks C. Bonds D. Office equipment

Office equipment

A homeowners policy is a type of

Personal property-casualty insurance policy.

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.)

Which one of the following accurately describes activities related to customer service representatives? A. It costs more in advertising to keep an existing customer than to attract a new one. B. It takes longer to renew an existing account than it does to write a piece of new business. C. Profitability in the insurance business is directly linked to customer retention. D. Excellent service builds strong relationships but not necessarily customer loyalty.

Profitability in the insurance business is directly linked to customer retention.

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 most of the small claims. D. Offer a proposal for all lines of coverage, but price the general liability at an unjustified premium level.

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.)

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.

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).)

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.)

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

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. Renegade is committed to branching out in the near future to include more coverages for specialized small businesses.

Renegade keeps enough cash assets on hand to cover claims on policies long after it collected the premiums from customers.

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.

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.)

Which one of the following represents uncertainty about outcomes that can be negative or positive? A. Loss exposure B. Transfer C. Risk D. Pooling

Risk

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.

Producer Josh never tires in encouraging insureds to adopt and sustain a robust and measurable risk management program. As part of this effort, which one of the following will Josh find is true? A. The second step occurs when the producer and the business agree on what success looks like for the risk management program. B. Risk management goals should be attainable to the organization, but they should also pose a challenge. C. Results-based standards are always more important than activity standards to the overall success of an organization. D. The first - and most important of all steps in the process - is to establish standards of acceptable performance.

Risk management goals should be attainable to the organization, but they should also pose a challenge.

New homeowner and small business owner Sallie learns that an insurance policy may contain other documents than its insurance forms. Accordingly, which one of the following will Sallie find is true regarding her new insurance purchases? A. As Sallie's policy coverages are relatively common, she will simply require a manuscript policy. B. Sallie's application may contain endorsements which modify the basic policy form. C. Sallie learned all policies, personal and commercial, contain relevant statutory terms for clarity. D. Sallie's application for insurance was returned to her as it was no longer useful after receiving her policy.

Sallie's application may contain endorsements which modify the basic policy form.

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.)

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.)

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.)

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.

Snapshot of its financial position

What term refers to the ability of an insurer to meet its obligations as they become due?

Solvency

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.)

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

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.

Stefan, a claims supervisor, reviews files and helps determine staff development strategies. (Stefan, a claims supervisor, reviews files and helps determine staff development strategies.)

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

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.

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 most accurately describes one of the policy provisions in an insurance policy? A. The declarations state the insurer's promise to the insured. B. The definitions contain a list of forms included in the policy. C. The conditions state what the insurer specifically will not cover. D. The exclusions are in place to reduce duplicate coverage.

The exclusions are in place to reduce duplicate coverage. (The exclusions are in place to reduce duplicate coverage. A is incorrect as the insuring agreement, not the declarations, state the insurer's promise to the insured. B is incorrect as the declarations, not the definitions, contain a list of forms included in the policy. And C is incorrect as the exclusions, not the conditions, state what the insurer specifically will not cover.)

Adhering to the characteristics of an ideally insurable loss exposure in selling insurance help assure that A. The losses associated with it typically involve small amounts. B. The insurer is able to predict the amount and timing of each future loss. C. The insurer can charge a high premium for the coverage. D. The insurer is able to charge a premium that the insured can afford to pay.

The insurer is able to charge a premium that the insured can afford to pay. (Adhering to the characteristics of an ideally insurable loss exposure in selling insurance help assure that the insurer is able to charge a premium that the insured can afford to pay.)

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.

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. D. Customers can get quotes for coverage through web-based portals.

The insurer is using its own employees as producers.

Leadon Transportation is using the expertise of its producer Carmen to help the organization understand how to correct substandard performance as well as evaluate exceeded standards. One measurement she will use is the cost of risk which is best described as A. The terms of insurance or other risk-financing mechanisms. B. The total cost of all aspects of the organization that relate to managing risk. C. Substandard performance and/or risk management standards. D. The allocation of risk management costs.

The total cost of all aspects of the organization that relate to managing risk. (Cost of risk involves the total cost of all aspects of the organization that relate to managing risk.)

Tony is a producer working with several different insurers. Which one of the following most accurately describes Tony's activities for reaching and serving customers? A. Tony will generally need to spend less time insuring a family's activities than a business' services and liabilities. B. Tony's job of selling is usually confined to the one type of insurance coverage the customer initially requests from him. C. A loss run will be most helpful to Tony in helping his personal customers with their risk management concerns. D. Policy issuance is a more important function of Tony's work than making sales or claims handling.

Tony will generally need to spend less time insuring a family's activities than a business' services and liabilities.

Adjuster Toni is evaluating damages in a bodily injury liability claim where she has determined that the insured is completely at fault for the accident. The claimant suffered a sprain and strain injury to his neck. His special damages total $1,500. He was out of work for a week, was disabled and prevented from performing some regular activities for a month, and attended physical therapy for six weeks. In assessing general damages, Toni should A. Multiply $1,500, the amount of special damages, by six, the number of weeks of physical therapy, and pay $9,000. B. Use past cases which are similar as a guide. C. Consider what she would want to be paid if she were in claimant's shoes. D. Multiply the amount of special damages of $1,500 by three as a rule of thumb, and pay $4,500.

Use past cases which are similar as a guide. (In assessing general damages, Toni should use past cases which are similar as a guide.)

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 $1,100 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.

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