attempt 21

Wear and tear, rust, marring, and scratching are examples of maintenance perils that are usually excluded by property insurance policies because

Losses arising from these perils are certain to occur

Other than some type of merger, layoff, or organizational change, which one of the following is an example of a situation

When employees follow a manager to a new organization

The last step in the risk management process is too

monitor results

Traditionally, the risk management professional's role has been associated with loss exposures related to

pure risk

Which one of the following identifies the two broad categories of risk management techniques

risk control

Which one of the following is considered to be an acquisition expense for an insurance company

sales commissions

Outdoor designs company makes cedar patio furniture, odcs lumber supplier, l and l wood products, is the largest and most competitive supplier of lumber in the area. ocds risk manager is concerned that a disruption in the supply of lumber from l and l due to a large fire loss would adversely affect its production. which one of the following would best minimize the adverse effect odx of large loss experienced by l and l

separation

Which one of the following statements is correct

insurer's investment income helps keep premiums at a reasonable level

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 is

$420

A payment by a liability insurer to the insured for travel expenses incurred at the insurer's request would be categorized as

A supplementary payment

A business manufactures a product that is harmful to the public if used improperly. More than three licensed insurance companies have refused to provide commercial general liability coverage for the business. the producer should contact which one of the following to attempt to arrange coverage

A surplus lines broker

Loss reserves are amounts designated by insurers to pay claims for losses that have

Already occurred but are not yet settled

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

A reinsurance company

Assumes loss exposures from a primary insurer

Which one of the following statements about good faith negotiations is correct

Claim representative can use arbitration clauses to resolve disputes over the settlement amount

Which one of the following concerning claim status report is true

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

Which one of the following statements describes the monitoring and revising step in the risk management process

Check to make sure the decisions made are still valid, and make changes as needed

A policy that combines property, crime and liability coverages into one policy is referred to as a

Commercial umbrella policy

Individuals and families benefit from effective risk management in which one of the following ways

Continuing activities following an accident or other loss, and thus reducing inconvenience

Because the insurance company usually determines policy wording and the insured has little choice but to take it or leave it an insurance contract is a

Contract of adhesion

If an insured submits a claim for a seven year old refrigerator that was damaged due to lightning, the adjuster will probably factor in an allowance for wear and tear. this is called

Depreciation

Which one of the following insurance customers may be compelled to meet its liability insurance needs through the excess and surplus lines market

Hazardous waste facility

Ships and their cargoes represent a special category of property insurance. Which one of the following statements is correct with respect to this category?

Even more than other property, ocean cargoes fluctuate in value according to their location

An increase in earned premiums with no charge in written premiums or any other financial figures will generally cause a decrease in all of the following, except

Expense ratio

Which one of the following statements is correct regarding government involvement in insurance

Federal and state government are involved in insurance to facilitate compulsory insurance purchases

Which one of the following correctly describes a reason for government involvement in property-casualty insurance

Government programs can meet legitimate public demands unmet by private insurers

Which one of the following is the correct formula for net investment income?

Investment income-investment expenses

Rachel is an insurance broker. she has received a sales referral from another broker concerning an airport management company, airport ltd. The company plans to operate a large, national airport in a major city and has requested a quote for airport liability coverage. Rachel will probably recommend the use of which one of the following types of policy forms?

Manuscript

Edna, who participates in a homeowners reciprocal exchange knows that the members of the exchange insure members loss exposures. A policy issued by the reciprocal insurer specifies the attorney in facts authority to implement its powers on behalf of Edna and the other members of the exchange. Since this information regarding the powers of the attorney in face affects coverage but does not have the force of conditions, it is found under policy's

Miscellaneous provision

in insurance terminology, equipment such as tractors, bulldozers, road graders, front end loaders, and forklifts designed primarily for off road use are considered to be

Mobile equipment

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

Mortgagee that has provided a mortgage loan on the property

Which one of the following statements is true

Mutual insurance companies include some large national insurers

Many insurers marketing through the independent agency system use

National advertising programs intended to enhance the company image

An analyst in the financial department for an insurer has calculated the loss ratio to be 1.03 this result indicates that the insurer is

Paying out approximately 1.03 in claim related expenses for every 1.00 collected

Joe owns a building covered by a property insurance policy. Joe intentionally sets fire to and destroys this building. He then files a claim with his insurance company. Which one of the following statements best describes why Joe would be precluded from recovering under his policy for this loss?

Payment of the claim would be a violation of public policy

Interest that may accrue on damages before a judgment has been rendered is

Prejudgment interest

Property insurance policies usually exclude coverage for damage from water seepage, insects, or rodents because these types of damages are

Preventable through proper care and maintenance

One of the greatest challenges for an insurer dealing with a catastrophe is staffing. All of the following are likely responses to this challenge, Except

Purchasing catastrophe reinsurance

the most difficult time for an insurer to change distribution systems is when

Renewing an existing book of business

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

Risk management review

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

Solvency

What is the most common reason premium audits are conducted?

The amount of the loss exposure is unknown at the start of the policy period

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 satifactorily

prospective loss costs indicate

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

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 the insurer must fit the marketing

one of the benefits to a business of retaining a loss exposure instead of insuring it is

a reduction in expenses

Compensatory damages represent

actual harm suffered

An independent business owner or firm that sells insurance by representing customers rather than insurers is which one of the following

an insurance broker

Ideally insurable loss exposures are subject to losses that

are definite in time, cause and location

One of the four elements required for a finding of negligence is that the breach of duty must

be the proximate cause of the injury or damage

Products liability loss exposures arise out of injuries or damage that result from an organization's

defective product

The two objectives of insurance policy form regulation are to ensure that policies are clear and readable and to

detect and address any policy provisions that are unfair

the processing of almost every claim involves which one of the following activities?

determining the amount of damages or extent of loss

Many property insurance policies contain a provision that reduces the amount of recovery for loss if the property is underinsured. this provision is known as

coinsurance

When a business suffers loss of income following a liability suit that causes customers to lose confidence in the business products, what type of loss has the business suffered?

damage to reputations

Under a liability policy, the maximum an insurer will pay for injury to any one person is known as the

each person limit

A net income loss exposure is a condition that presents the possibility of loss caused by a reduction in net income. In a given time period, net income equals revenue minus

expenses and income taxes

The scope of an agents authority can go beyond the terms of the agency contract and may include authority to perform other tasks customary to the agency relationship. this authority is referred to as

implied authority

Most bad faith claims arising out of contracts are insurance related. All of the following explains why this is the case except

in comparison to other contracts, insurance contracts require a low standard of conduct

Which one of the following statements is correct

in the exclusive agent and direct writer marketing systems, insurers might assist producers with prospecting

The value of an insurance contract in the event of a claim

includes peace of mind

Sometimes the existence of insurance encourages losses. The result of this phenomenon is that it

increasing the total cost of insurance

Coverage for miscellaneous types of property such as movable property, goods in domestic transit, and property used in transportation and communication, typically is provided by

inland marine insurance

Exposures with the potential of low frequency but high severity should generally be

insured because they are highly unpredictable

An insurance policy is considered a contract of adhesion when it is drafted by the

insurer

In the legal relationship known as agency, which one of the following is the principal?

insurer

Claim representative Jan is reviewing an auto liability claim concerning a two car collision that has just been assigned to her. she notes that the insured was clearly 100 percent at fault for the accident. No one was injured. The estimate for the costs of the repair to claimant's car and a substitute auto for the week it will take to perform the repairs is 3,000 which one of the following best describes the approach Jan should take in setting the case reserve

set it as 3000 representing an estimate of what Jan expects to pay settle the claim

While Wanda was mowing her lawn, the lawn mower made a popping noise and suddenly exploded. Engine parts flew through the air and struck Wanda's grandfather in the eye. As a result of losing his vision, Wanda's grandfather, homer, sued the lawnmower manufacture. Homers best approach in the lawsuit is to assert

strict liability

An insuring agreement may state the insurer's promise to do all of the following in the event of a covered loss, except

surcharged the insured

Retention is often used in combination with insurance as a way of treating

the potential for financial ruin

From a risk management viewpoint, insurance is used to

transfer the cost of losses

For an insurer to be solvent, states require it to have financial reserves

well in excess of its ordinary expenses