AINS 21 Section B

Which one of the following tasks is the responsibility of a staff underwriter as opposed to a line underwriter?

Review and revise rating plans

A producer will generally review a company's loss run report while performing which one of the following functions?

Risk management review

Damages for pain and suffering are a form of

general damages.

In a liability claim, damages awarded for pain and suffering incurred by the claimant are referred to as

general damages.

Which one of the following lines of business is most likely to be rated using judgment rates?

inland marine insurance

Incurred losses (including loss adjustment expenses) divided by earned premium is the formula for

loss ratio

The insurer's rights to recover and sell or otherwise dispose of insured property on which the insurer has paid a total loss are called

salvage rights.

Which one of the following concerning claim status reports is true?

Claim status reports are vital to an insurer because the reports advise the insurer how the claim is progressing on a periodic basis.

The principal method of determining a prospect's insurance needs is through

Completing a risk management review for the prospect.

Bob is shopping for auto insurance. Insurance Company A's rating system determines that Bob should be charge $800 per auto. If Bob is looking to insure four autos, what premium will he be charged by Insurance Company A?

$3,200 Correct. $800 per auto x 4 autos = $3,200

Which one of the following statements is true regarding elements of good-faith claim handling?

Claim representatives should use policy provisions, such as arbitration clauses, when applicable, to resolve disputes over the settlement amount.

Sports, Inc. is looking to obtain a commercial property policy on its building for $400,000. If their insurer decides to charge them a rate of $0.50 per $100 of building insurance, what premium must Sports, Inc. pay?

$2,000 Correct. [$400,000 (insured value) ÷ $100 (exposure unit size)] x $0.50 (rate per unit) = $2,000.

John had an unendorsed homeowners policy. John's two-year-old bicycle was stolen. The bicycle's purchase price was $700, its current replacement cost is $800, and depreciation was estimated at $450. What was the bicycle's actual cash value?

$350 Correct. ACV=Replacement cost - Depreciation. The bicycle's actual cash value is $350: $800 − $450 = $350.

An insurance contract is designed to be all of the following in the event of a claim, EXCEPT:

A means to provide a profit to the insured

Principals often authorize another party to act on their behalf. This relationship is called

Agency.

The Bakery, an applicant for commercial property insurance, has experienced a series of property losses over the past three years. In order to find this applicant viable, the underwriter agrees to increase the property deductible. This type of underwriting modification is known as

Amending policy terms and conditions.

Which one of the following is a common alternative dispute resolution (ADR) technique.

Arbitration.

Which one of the following is a negotiation process in which a neutral outside party helps participants examine the issues and develop a mutually agreeable settlement?

Mediation.

If an insured's house burns to the ground due to faulty wiring, the most difficult part of the claim handling process will probably be

Determining the amount of damages.

An underwriter receives a renewal application for a property quote from his producer. The applicant has had a series of small losses in the recent past. The underwriter is debating whether to reject the submission or quote it with a property deductible of $5,000. During which one of the following steps in the underwriting process is the underwriter involved?

Developing underwriting alternatives

Which one of the following insurance distribution channels usually cuts compensation costs greatly but has higher advertising costs?

Direct response

Because insurers control how claims are resolved, courts reason that insurers should be responsible for the outcome of their claim handling if they have acted in bad faith. Therefore, courts hold insurers to a higher standard of conduct to

Discourage insurers from abusing their position of power.

The state advisory organization has developed a new homeowners form, which increases the personal property limits for guns, silverware, jewelry, and boats. Jancy Insurance Company is considering modifying this form for its own use. Which one of the following of Jancy's staff would be involved in this research and development of this new form?

Emma, the staff underwriter

The focus of a line underwriter is

Evaluating new submissions and renewal underwriting.

During which one of the following steps in the underwriting process would an underwriter request a risk control visit to a prospective policyholder's location?

Evaluating the submission

All of the following are examples of insurance distribution channels, EXCEPT:

Exclusive agency

Produce, such as apples or grapes, may be priced by the unit or by the pound. In insurance, these measures are similar to

Exposure units.

Which one of the following is the fundamental measure of loss exposure used in insurance rating?

Exposure units.

The authority that the principal specifically grants to the agent is contained in the agency contract. This authority is known as

Express authority.

All of the following are claim practices that are usually prohibited under unfair claim practices laws, EXCEPT:

Failing to pay a claim that is not covered even when the insured depends on such payment

An independent agency

Has the right to switch a customer's coverage to another insurer.

Michelle is shopping for auto insurance. Which one of the following insurance agents is most likely to be able to give her quotes from several different, unrelated insurers?

Independent agent

Gulford Insurance Company (Gulford) is a direct writer of commercial insurance in Pennsylvania. The management team is frustrated by the continued lack of success in the more rural western part of the state. It is difficult to penetrate the market without a local presence, but the cost of assigning agents to this territory is not justified by the returns. Which one of the following distribution systems would best allow Gulford the local presence in a cost-effective manner?

Independent agents

Facultative reinsurance is arranged by underwriting for

Individual policies.

Most insurers give some producers the authority to pay claims up to a certain amount. In this role, producers function much like an

Inside claim representative.

From an insured's point of view, relative to the concept of agency, little distinction exists between the

Insurance agent and the insurer.

Class rating relies on

Insureds with similar characteristics.

Which one of the following describes the effect underwriting standards can have on premium?

Insurers can lower premiums for better-than-average risks.

The best description of a third-party claim is a claim

Made against the policyholder by someone to whom the policyholder may be liable.

The best description of a first-party claim is a claim

Made by the policyholder against the insurer.

Which one of the following statements is correct regarding consulting services?

Many producers offer consulting services for which they are paid on a fee basis.

Marvin suffered a fire loss at his residence. The claim representative valued several antiques at a very low price. Marvin refuses to settle his claim with his insurer. Which one of the following is Marvin's recourse?

Marvin may follow the appraisal provision in the policy to settle the dispute over the value of the damaged property.

Which one of the following is true about the participation of the head of the underwriting department in the insurer's management?

May participate in selecting the type of marketing system to be used

Which one of the following would have an insurable interest in real property?

Mortgagee that has provided a mortgage loan on the property

Fictitious Consultants Inc. (FCI) has been hired by a local insurance company located in Claremont, CA to introduce The Omnichannel Marketing System (OMS) as a sales tool. Knowing that Claremont is a college town with five undergraduate colleges alone, FCI believes that targeting the young demographic in the city will pay dividends in sales traffic for the insurance company. Given the young demographic, what three channels of the OMS would FCI expect to bring in the most hits for the insurance company?

Online, Mobile App, Social Media

Staff underwriters share research of the market responsibilities with actuarial and marketing departments. Research includes an ongoing evaluation of which one of the following?

Optimal product mix in the book of business

The primary duty of a principal to its agent is to

Pay the agent for services performed.

People who handle claims may be staff claim representatives, independent adjusters, employees of third-party administrators, or

Producers who sell policies to insureds.

The functions that insurance producers perform vary widely from one marketing system to another. Which one of the following functions do all producers perform?

Prospecting

Actual cash value (ACV) is

Replacement cost minus depreciation.

An applicant for commercial property insurance is found unacceptable by an underwriter due to the nature of its operations and the construction of the building it occupies. If the applicant installs an automatic fire-extinguishing sprinkler system, the underwriter will approve the application. This type of underwriting modification is known as

Requiring risk control measures.

Donna is an insurance producer. She makes an appointment with a potential policyholder to review the prospect's loss exposures. She asks the prospect to complete a questionnaire to assist her in this effort. Donna is conducting a

Risk management review.

Underwriting management develops underwriting guidelines, which

Specify the insurer's attitude toward applicants exhibiting certain characteristics.

Maja's, a professional liability underwriter, primary responsibilities involve formulating underwriting policy and revising underwriting guides for various lines of professional liability insurance that will be used by personnel in the company's field offices. Maja is functioning as a

Staff underwriter.

The selection of a distribution channel for an insurer's products and services depends, partly, on customer preferences. Which one of the following statements is true regarding customer preferences that should be considered when selecting a distribution channel?

The channel should be consistent with the customer's expectations for service.

When selecting a distribution channel, which one of the following is an important consideration with regard to customers' needs and characteristics?

The ease of accessibility within the channel

Which one of the following statements is correct with respect to insurance distribution systems?

The expertise of current staff and producers must be sufficient to manage the selected system.

Which one of the following is true regarding the delegation of underwriting authority by underwriting management?

The extent of underwriting authority granted to an agent generally depends on premium volume and loss experience.

All of the following correctly describe reasons for the use of independent adjusters, EXCEPT:

The insured may retain an independent adjuster if settlement negotiations with the insurer are not progressing satisfactorily.

Prospective loss costs indicate

The money the insurer can expect to need to pay for future claims for each exposure unit.

All of the following are true about the insurance agency relationship, EXCEPT:

The principal is the party the agent authorizes to bind coverage.

The law of large numbers states that as the number of similar but independent exposure units increases,

The relative accuracy of predictions about future outcomes increases.

Which one of the following statements is correct with respect to selecting a distribution channel?

The types of insurance products and services to be delivered by the insurer must fit the marketing channel selected.

The foundation of good faith claim handling is

Thorough, timely, and unbiased investigations.

Underwriting management monitors underwriting results

Through a process called an underwriting audit.

Lou is a claim manager at a small property-casualty insurance company. Lou takes pride in the fact that because of his leadership, his company has gained a public reputation for resisting legitimate claims. Ultimately, this reputation

Undermines the effectiveness of his company's advertising.

All of the following are principal sources of underwriting information, EXCEPT:

Underwriting authority reports

All of the following are correct with respect to the elements of good-faith claim handling, EXCEPT:

When resolving a coverage question, insurers should avoid the appearance of bad faith by dealing only with those lawyers hired to defend the insured.

If a claim is complex or if settlement negotiations are not progressing with the insurer, the insured may hire

a public adjuster.

Homeowners insurance is rated using

class rates

If a claim representative's investigation determines that no coverage applies for a liability claim, the insurer will

deny the claim.

In an insurance transaction, the insured is designated the

first party.

Damages for disfigurement are a form of

general damages.

Work on a new claim begins for the claim representative upon receipt of the notice of loss. The representative obtains initial information and verifies coverage. Next, the representative should

set a loss revenue.

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

special damages.