AINS 21 - Segment B
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 special damages?
$10,000
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?
$150,000
Staff underwriter duties
- Research the market - Formulate underwriting policy - Revise underwriting guidelines - Evaluate loss experience - Research and develop coverage forms - Review and revise pricing plans - Arrange treaty reinsurance - Assist others with complex accounts - Conduct underwriting audits - Participate in industry associations - Conduct education and training
The insured's washing machine was damaged by a covered loss. At the time of the loss, the actual cash value (ACV) of the machine was $300. Repairs would cost $250. The scrap metal dealer would pay $100 for what remains of it. Which one of the following calculations correctly determines whether or not the washing machine was a constructive total loss? A. $300 ACV - $100 salvage value = $200. This loss was a constructive total loss. B. $300 ACV - $100 salvage value = $200. This loss was not a constructive total loss. C. $300 ACV - $250 repairs = $50. This loss was a constructive total loss. D. $300 ACV - $250 repairs = $50. This loss was not a constructive total loss.
A. $300 ACV - $100 salvage value = $200. This loss was a constructive total loss.
A type of insurance rate that applies to all insureds in the same rating category is known as A. A class rate. B. A schedule rate. C. A judgment rate. D. An experience rate.
A. A class rate.
All of the following are factors in determining the replacement cost of real property, EXCEPT: A. Actual cash value of the property B. Type and quality of the construction C. Square footage of the property D. Construction cost per square foot
A. Actual cash value of the property
A reservation of rights letter A. Advises the insured that the insurer is investigating the claim but retains the right to deny coverage later. B. Advises the insurer that the insured has made a claim, but retains the right to withdraw the claim later. C. Lists all of the rights that an insurer has under an insurance policy. D. Lists all of the rights that an insured has under an insurance policy.
A. Advises the insured that the insurer is investigating the claim but retains the right to deny coverage later.
the laws of agency impose all of the following specific duties on all agents except: A. Apparent authority B. Loyalty C. Accounting D. Relaying information
A. Apparent authority
One aspect of good-faith claim handling is the fair evaluation of the claim. A fair approach to evaluating liability claims is for the claim representative to evaluate them A. As if no coverage limit existed. B. As they relate to similar claims with similar coverage and limits. C. From the claimant's perspective. D. By forming a claim committee for the purpose of achieving greater impartiality.
A. As if no coverage limit existed.
Juan received a phone call from an angry policyholder. The insured received a bill as a result of a workers compensation premium audit. The individual does not understand why premium has increased when his total payroll is lower than originally projected. Juan advises the insured that he will contact the auditor, review the audit, and call back with an explanation. Which one of the following producer functions is Juan performing? A. Customer service B. Consulting C. Risk management review D. Premium collection
A. Customer service
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 A. Depreciation. B. Replacement cost. C. Agreed amount. D. Stated amount.
A. Depreciation.
Rhonda is a personal lines insurance producer. under the terms of her agency contracts, the insurers forward policies promptly to Rhonda's customers and send premium invoice with the policy. insureds are instructed to remit premium payments to their insurer. the insurers calculate Rhonda's commissions and forward those commission payments to her monthly. Rhonda is operating under which one of the following payment procedures? A. Direct bill basis B. Statement basis C. Account current basis D. Item basis
A. Direct bill basis
T.Roy Insurance Company is selecting a distribution channel for its products. Which one of the following best describes the type of consideration that T.Roy should give to its operations? A. Does it have the necessary financial resources? B. Will customers be willing to pay a premium for services? C. What are customer's expectations regarding accessibility? D. Can customers navigate easily within the channel?
A. Does it have the necessary financial resources?
In a constructive total loss, the property cannot be repaired A. For less than actual cash value minus anticipated salvage value. B. For less than salvage value minus actual cash value. C. For less than salvage value minus agreed value. D. For less than subrogation value minus salvage value.
A. For less than actual cash value minus anticipated salvage value.
An independent agency A. Has the right to switch a customers coverage to another insurer B. Represents customers rather than insurers and shops insurers to find the best coverage and value for its customers C. Generally represents only one insurer D. Typically only handles commercial insurance accounts
A. Has the right to switch a customers 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? A. INDEPENDENT AGENT B. EXCLUSIVE AGENT C. EXPRESS AGENT D. IMPLIED AGENT
A. INDEPENDENT AGENT
Most bad-faith claims arising out of contracts are insurance-related. All of the following explains why this is the case, EXCEPT: A. In comparison to other contracts, insurance contracts require a low standard of conduct. B. Insurers have an implied duty of good faith and fair dealing when settling claims. C. Insurers generally control claim investigation, evaluation, negotiation, and settlement. D. Insurance contracts involve the public interest and unequal bargaining power.
A. In comparison to other contracts, insurance contracts require a low standard of conduct.
Which one of the following is true concerning the direct response distribution channel to market insurance? A. It relies heavily on advertising B. There is less contact between the insurer and the customer with its use C. It relies heavily on producer interaction D. Commission costs are generally increased
A. It relies heavily on advertising
Claim management involves many duties crucial to good-faith claim handling such as consistent supervision, thorough training, and A. Manageable caseloads. B. Organizational skills. C. Expense management. D. Customer service soft skills.
A. Manageable caseloads.
Which one of the following would have an insurable interest in real property? A. Mortgagee that has provided a mortgage loan on the property B. Former owner of the property C. Bank that has provided a personal credit card to the owner of the property D. Someone expressing interest in purchasing the property
A. Mortgagee that has provided a mortgage loan on the property
Many insurers marketing thought the independent agency system use A. NATIONAL ADVERTISING PROGRAMS INTENDED TO ENHANCE THE COMPANY IMAGE B. LOCAL ADVERTISING FOCUSING ON SPECIFIC AGENCIES C. WORD-OF-MOUTH ADVERTISING D. DIRECT MAIL ADVERTISING LISTING EVERY AGENT WITH A PHOTO OF EACH
A. NATIONAL ADVERTISING PROGRAMS INTENDED TO ENHANCE THE COMPANY IMAGE
Insurers using direct response marketing A. Often advertise heavily, which can be costly B. Use personal contact rather than the internet for sales C. Use a select group of agents D. Do not target market
A. Often advertise heavily, which can be costly
Staff underwriters share research of the market responsibilities with actuarial and marketing departments. Research includes an ongoing evaluation of which one of the following? A. Optimal product mix in the book of business B. Revision to coverage forms C. The hit ratios by underwriter D. Average loss ratio for a book of business
A. Optimal product mix in the book of business
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: A. Purchasing catastrophe reinsurance. B. Establishing relationships with independent adjusters to help manage overflow. C. Bringing in catastrophe teams of claim representatives from other regions. D. Identifying and training staff from non-claim areas to assist.
A. Purchasing catastrophe reinsurance.
A bank recently began selling insurance and advertises a discounted auto loan rate to any new or used car buyer who also purchases auto insurance through the bank. This discount is an example of A. Rebating B. Binding C. Mixed marketing D. Contingent commissions
A. Rebating
When selecting a distribution channel, which one of the following is an important consideration with regard to customers' needs and characteristics? A. The ease of accessibility within the channel B. The target market C. The expertise of current staff D. The compatibility of the channel with established channels
A. The ease of accessibility within the channel
Which of the following statements is correct with respect to insurers' use of the internet and insurance portals? A. The internet provides lead-generation and cross-selling opportunities for all products. B. The primary goal of the use of insurance portals is to reduce staffing costs. C. The use of insurance portals eliminates insurers' need to screen and fully underwrite the leads generated. D. Maintaining an internet presence increases an insurer's underwriting and claim processing costs.
A. The internet provides lead-generation and cross-selling opportunities for all products
Which one of the following statements is correct with respect to selecting a distribution channel? A. The types of insurance products and services to be delivered by the insurer must fit the marketing channel selected. B. The primary consideration is what approach will allow the insurer to operate efficiently. C. Customers are prepared to spend a reasonable amount of time and effort interacting with a distribution channel if that channel saves them money. D. The majority of customers prefer to speak with a producer or service representative rather than access their account information online.
A. The types of insurance products and services to be delivered by the insurer must fit the marketing channel selected.
The foundation and primary focus of good faith is A. Thorough, timely, and unbiased investigations. B. Training. C. Prompt and courteous service. D. Efficiency.
A. Thorough, timely, and unbiased investigations.
It is unfair trade practice for a lender to require that a borrower purchase insurance from the lender or from any insurance producer recommended by the lender. This unfair trade practice is called A. Tie-in sale B. Twisting C. Misrepresentation D. Rebating
A. Tie-in sale
Compensatory damages represent A. Out-of-pocket expenses. B. Actual harm suffered. C. Non-economic loss. D. Damages to deter others from committing wrongful acts.
B. Actual harm suffered.
In deciding which applicants they are willing to insure, insurance underwriters need to recognize the effects of adverse selection. Which one of the following is the best example of adverse selection? A. After a neighbor's business is burglarized, Anna installs an alarm system in her store. B. After learning that a particularly active hurricane season is expected, several homeowners in a coastal community increase the limits on their windstorm coverage. C. Before installing an in-ground swimming pool in her home's back yard, Lucy increases the deductible on her homeowners policy. D. Before buying his first motorboat, Luis purchases a watercraft insurance policy.
B. After learning that a particularly active hurricane season is expected, several homeowners in a coastal community increase the limits on their windstorm coverage.
A person or entity that would suffer a financial loss if property were damaged has A. A renewable interest. B. An insurable interest. C. A discretionary interest. D. A contractual interest.
B. An insurable interest.
Which one of the following distribution channels is also an efficient way to handle claim reporting and billing inquiries? A. Affinity marketing B. Call centers C. Direct response D. Financial institutions
B. Call centers.
Which one of the following concerning claim status reports is true? A. Claim status reports are not vital to an insurer because the reports are usually read only by insurance department employees. B. Claim status reports are vital to an insurer because the reports advise the insurer how the claim is progressing on a periodic basis. C. Claim status reports are not vital to an insurer because the reports are used only as a method of illustrating work that needs to be done by the claims adjuster. D. Claim status reports are vital to an insurer because the reports provide work for the claim representatives, rounding out their written and verbal skills.
B. Claim status reports are vital to an insurer because the reports advise the insurer how the claim is progressing on a periodic basis.
Claim representative Beth adjusted a property damage claim in which the insured's loss totaled $2,500. She knew that the insured had suffered some financial hardships and was eager to receive some cash as soon as possible. Optimistic that the insured could be persuaded to take less than the full value of the claim if a draft was delivered right away, she offered $1,500 to settle the claim. The insured surprised Beth by filing a small claims suit against the insurer in which he recovered the full $2,500 value of the claim. This is not the first time this tactic has backfired on Beth. Beth may be in violation of which one of the following unfair claim practices regulations? A. Failing to reasonably investigate claims for damages under insurance policies B. Compelling an insured to sue to recover amounts due under an insurance policy C. Failing to respond to demands to settle under an insurance policy D. Misrepresenting insurance policy provisions
B. Compelling an insured to sue to recover amounts due under an insurance policy
The principal method of determining a prospect's insurance needs is through A. Determining how much the prospect is willing to pay for insurance coverage B. Completing a risk management review for the prospect C. Reviewing the prospect's current insurance policies D. Asking the prospect what coverage they would like to purchase
B. Completing a risk management review for the prospect
All of the following insurance distribution channels use personal contact as a sales method, except: A. Independent agency B. Direct response C. Direct writing D. Exclusive agency
B. Direct response
Which one of the following statements is true regarding laws prohibiting unfair claims practices? A. The federal government has enacted an unfair claims practices law to which all states must adhere, unless their law is more stringent. B. Each state that has such a law will usually list insurer or claim representative practices that are prohibited. C. The laws specifically list acceptable actions or processes that insurers may take. D. The laws apply only to actions by the insurer and not by individual claim representatives.
B. Each state that has such a law will usually list insurer or claim representative practices that are prohibited.
Damages for the loss of the ability to bear children are a form of A. Punitive damages. B. General damages. C. Special damages. D. Out-of-pocket damages.
B. General damages.
Unfair discrimination is prohibited under state insurance laws as an unfair trade practice. However, an insurer's ability to discriminate fairly is essential so A. Insurers can refuse to provide coverage based on an applicant's age and marital status. B. Insureds are charged a premium commensurate with their loss exposures. C. Insurers can select the specific people in a given area to be offered coverage. D. Insureds can be guaranteed the coverages they want at the price they request.
B. Insureds are charged a premium commensurate with their loss exposures.
Which of the following statements is correct? A. When consulting services are provided, insurance premiums, commissions, and fees are billed together B. Many producers offer consulting services for which they are paid on a fee basis C. It is illegal for producers to reduce their consulting fees in recognition of commissions received D. Producers are restricted to only providing services to their current insureds
B. Many producers offer consulting services for which they are paid on a fee basis
An important aspect of acknowledging a claimant's bodily injury liability claim, upon first contact, is to try to obtain information on the A. Claimant's sources of additional income. B. Nature and extent of the injury. C. Claimant's accident history. D. Claimant's medical history.
B. Nature and extent of the injury.
A risk retention group can write insurance only for its members, and it may write A. Any line of business approved by the state department of insurance. B. Only commercial liability insurance. C. Only personal liability insurance. D. Only workers compensation insurance.
B. Only commercial liability insurance.
In individual rating, A. Underwriters are often forced to make an arbitrary judgment. B. Points are added or subtracted to arrive at a rate. C. Individual insureds are assigned to a specific class. D. The law of large numbers allows accurate premium determination.
B. Points are added or subtracted to arrive at a rate.
People who handle claims may be staff claim representatives, independent adjusters, employees of third-party administrators, or A. Special claims representatives. B. Producers who sell policies to insureds. C. Self-insurer claim representatives. D. Private claims representatives.
B. Producers who sell policies to insureds.
The laws of agency impose all of the following specific duties on all agents except: A. Accounting B. Profitability C. Loyalty D. Obedience
B. Profitability
Which one of the following tasks is the responsibility of a staff underwriter as opposed to a line underwriter? A. Assist producers and insureds in determining appropriate coverage B. Review and revise rating plans C. Verify that policies are issued with appropriate forms D. Prepare premium quotations
B. Review and revise rating plans
A nonadmitted insurer is typically a A. Captive insurer B. Surplus line insurer C. Reciprocal insurer D. Reinsurer
B. Surplus lines insurer
In a bad-faith lawsuit, claimant Jerry alleges improper conduct on the part of claim representative,Twila, who works for a large insurance company. As is generally the case in such bad-faith allegations, which one of the following parties would be the defendant? A. The insurance producer B. The insurer C. Jerry D. Twila
B. The insurer
Which one of the following statements is true with regard to internet distribution channels for settling insurance? A. The objective of group marketing is to sell insurance products an services over the internet. B. The objective of insurance portals is to deliver leads to the firms whose products they offer through their sites. C. "Franchise marketing" is also known as affinity marketing. D. Mass marketing plan offer insurers' policies to a small number of targeted individuals based upon their demographic characteristics.
B. The objective of insurance portals is to deliver leads to the firms whose products they offer through their sites.
The producer who is an employee of a direct writer system generally receives A. Fee income and perhaps a bonus. B. Commission income only. C. A salary and perhaps a bonus. D. A salary and contingent commission.
C. A salary and perhaps a bonus.
Juanita is the senior claim officer for Worthy Insurance Company, which uses the claim audit as a performance measure for its claim operations. Claim audits usually evaluate both quantitative and qualitative factors. Which one of the following factors is qualitative for Juanita and her staff? A. Percentage of recovery from subrogation B. Average claim settlement value by claim type C. Accurate evaluation of insured's liability D. Accuracy and completeness of data entry
C. Accurate evaluation of insured's liability
Jerry is an experienced claim adjuster who handles claims for Jackson Insurance Company during hurricane season when Jackson's staff adjusters need assistance. Jerry is A. A public adjuster. B. A third-party adjuster. C. An independent adjuster. D. A hurricane adjuster.
C. An independent adjuster.
A person or entity that would suffer a financial loss if property were damaged has A. A discretionary interest. B. A contractual interest. C. An insurable interest. D. A renewable interest.
C. An insurable interest.
Which one of the following statements is correct regarding considerations involved in the selection of insurance marketing systems and distribution channels? A. The direct writer system dominates the medium-to-large-sized commercial insurance business B. Personal insurance customers require the most direct involvement from the producer C. An insurer con exercise the greatest control over producers in the direct writer system D. Small-business customers have not shown an interest in exploring various distribution channels
C. An insurer con exercise the greatest control over producers in the direct writer system
Among other things, a binder provides A. Operations of the insured B. Policy conditions and exclusions C. Applicable coverages and limits D. Insured's financial profile
C. Applicable coverages and limits
A loss reserve that is assigned to an individual claim is called a A. Third-party reserve. B. Bulk reserve. C. Case reserve. D. Deferred reserve.
C. Case reserve.
Authority that the insurance company specifically grants to an agent is called A. Binding authority B. Apparent authority C. Express authority D. Implied authority
C. Express authority
Binding authority is a form of A. Implied authority B. Absolute authority C. Express authority D. Apparent authority
C. Express authority
Damages for pain and suffering are a form of A. Punitive damages. B. Out-of-pocket damages. C. General damages. D. Special damages.
C. General damages.
Which one of the following statements is correct? A. Insurance producers are prohibited from accepting referrals from strategic partners, such as banks or real estate brokers B. Cold calling, or cold canvas, is generally not used by insurance producers because it is an ineffective method of prospecting C. In the exclusive agent and direct writer marketing system, insurers might assist producers with prospecting D. All insurance producers perform the same functions, which are specified in state insurance regulations
C. In the exclusive agent and direct writer marketing system, insurers might assist producers with prospecting
The managers of an independent agency are hoping to earn contingent commissions from several insurers at the end of the year. What should the agency managers attempt to do to earn contingent commissions? A. Reduce the number of homeowners policies written for houses in urban areas compared to the homeowners policies written for houses in rural areas. B. Reduce the number of employees required to acquire and service the policies in the agency. C. Increase the premium volume and profitability level of the agency's business with those insurers. D. Increases the level of customer service provided to policyholders and claimants.
C. Increase the premium volume and profitability level of the agency's business with those insurers.
A goal of the claims function is to support the profit goal of the A. Policyholder. B. Claimant. C. Insurer. D. Insured.
C. Insurer.
The independent agency and brokerage marketing system uses A. Direct writer producers B. Captive agents C. Managing general agents D. Exclusive agents
C. Managing general agents
Despite the unique challenges and variations from case to case, the last step in the claim handling process is usually A. Determining cause of loss. B. Determining the amount of damages. C. Negotiating and settling. D. Verifying coverages.
C. Negotiating and settling.
The primary duty of a principal to its agent is to A. Generate sales leads for the agent B. Hire and train sales people C. Pay the agent for services performed D. Be obedient
C. Pay the agent for services performed
Jorgen is a claim supervisor who is devising a new response plan for his employer so that it can handle catastrophe claims more effectively. All of the following are factors he should consider, EXCEPT: A. Increasing the role of producers through increased settlement authority B. Giving the policyholder the benefit of any doubt as to the valuation of property C. Requesting that personnel staff temporary claim offices without pay. D. Retaining independent adjuster firms
C. Requesting that personnel staff temporary claim offices without pay.
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 A. Assign the claim to defense counsel. B. Make an offer to settle the claim. C. Set a loss reserve. D. Retain causation experts.
C. Set a loss reserve.
Which one of the following statements is true regarding the agency contract? A. An agency contract is also known as an agency endowment. B. Insurance agency contracts usually have a fixed expiration date, at which time the parties negotiate the renewal. C. The agency contract states the scope of the agency's authority to conduct business for the insurer. D. The agent is the principal in the agency contract relationship.
C. The agency contract states the scope of the agency's authority to conduct business for the insurer.
An agency bill process in which the producer is usually not required to pay the insurer until the premium is collected from the policyholder is known as A. The account current basis B. The statement basis C. The item basis D. The direct bill basis
C. The item basis
All of the following are true about the insurance agency relationship except: A. The agency agreement is a written agreement between the insurer and an agent. B. The agency agreement gives the agent the right to represent the insurer and sell insurance on the insurer's behalf. C. The principal is the party the agent authorizes to bind coverage. D. Thea gent is the party authorized by the principal to act on the principal's behalf.
C. The principal is the party the agent authorizes to bind coverage.
People who handle claims fall into a number of categories. Those who handle claims, keep claim records, and perform statistical analysis on behalf of self-insureds are called A. Independent adjusters. B. Claim managers. C. Third-party administrators. D. Staff claim representatives.
C. Third-party administrators.
Brad is a claim representative and has received a claim from an insured. The insured backed his car into a post and slightly damaged the bumper. Brad does a quick estimate and sees that the damage probably does not even exceed the insured's deductible, so he puts the claim aside to work on a larger more complicated claim. After four weeks of hearing nothing, the insured eventually gets upset and contacts Brad's manager and the state insurance department. Which one of the following best addresses the question of whether Brad's actions likely constitute a violation of the states unfair claims practices act? A. Yes, because most of these laws require that insurers contact the insured about a claim within one week of first receiving the claim report. B. No, because Brad has not officially declined the claim or told the insured that the amount of the claim is less than the insured's deductible and therefore is not subject to these laws. C. Yes, because most of these laws generally prohibit failure to acknowledge and promptly respond to communications about a claim. D. Yes, because most of these laws prohibit claim representatives from making their own estimates as to the damage incurred and require that a licensed estimator make the estimate.
C. Yes, because most of these laws generally prohibit failure to acknowledge and promptly respond to communications about a claim.
An employee of an insurance company who performs some or all of the insurer's claim-handling activities is called A. A field claim adjuster. B. An inside claim representative. C. A public adjuster. D. A staff claim representative.
D. A staff claim representative.
When an insurance company appoints an insurance agent to serve as its representative, what specifies the scope of authority given to the agent in this relationship? A. Binding authority B. Implied authority C. A unilateral contract D. An agency contract
D. An agency contract
One who offers claim handling services to insurance companies for a fee is A. A staff claim representative. B. An outside claim representative. C. A public adjuster. D. An independent adjuster.
D. An independent adjuster.
All of the following are similarities between agents and brokers except: A. Both are intermediaries between insurers and insurance buyers B. Both collect premiums from insureds and remit to insurers C. Both sell insurance appropriate to customers' insurance needs D. Both are legal representatives of insurers
D. Both are legal representatives of insurers
Loss reserves are funds held by an insurer to pay claims for losses that have occurred but have not yet been settled. Such funds assigned to an individual claim create a A. Claim reserve. B. Damage reserve. C. Suit reserve. D. Case reserve.
D. Case reserve.
Insurers handling catastrophe claims should be prepared for A. Mortgagees that are eager to abbreviate their procedures. B. News media eager to promote aggressive behavior. C. Claimants who are not eager to assert their rights. D. Claimants who are aggressive in their pursuit of settlement
D. Claimants who are aggressive in their pursuit of settlement
Which one of the following is an example of general damages? A. Lost wages B. Hospital expenses C. Prescription costs D. Compensation for disfigurement
D. Compensation for disfigurement
Which one of the following methods of premium collection is generally used for personal insurance policies and small commercial accounts? A. Account current basis bill B. Item basis bill C. Agency bill D. Direct bill
D. Direct bill
Insurance Company D (ICD) has traditionally used regional brokers to market and produce its insurance products. The management team at ICD has decided it wants to launch a new specialized product. The marketing plan includes ICD's desire to control the targeted number of monthly applications as well as the methods that will be used to advertise and campaign to achieve the desired results. Which one of the following distribution systems will best allow ICD the desired control? A. Independent agency B. Exclusive agency C. Regional brokerage D. Direct writer
D. Direct writer
Julio, a producer for Argot's Insurance Company, submits an application for a 50-year-old residence to Mathilde, the underwriter. Julio wants to know why the homeowners rate is higher for his 50-year-old residence. Mathilde explains that the homeowners rate for the 50-year-old residence is not the same for a five-year-old residence because the exposures are different. Which one of the following underwriting profitability functions of Argot is Mathilde's explanation supporting? A. Guarding against adverse selection B. Enforcing policy guidelines C. Protecting the homeowner rate D. Ensuring adequate policyholder's surplus
D. Ensuring adequate policyholder's surplus
When insurers willingly pay what they owe on all claims, a positive attitude naturally flows down through management and affects claim representatives' communication with the public. This positive attitude flow is part of A. State regulatory requirements. B. Common law compliance. C. The Model Unfair Claims Practices Act. D. Good faith claim handling.
D. Good faith claim handling.
Rating systems rely on A. Statistical analysis of past losses. B. Assigning all insureds to classes. C. Investment earnings supplementing premiums. D. Grouping insureds with similar loss characteristics.
D. Grouping insureds with similar loss characteristics.
The scope of an agent's 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 A. Contractual authority B. Express authority C. Apparent authority D. Implied authority
D. Implied authority
In handling catastrophe claims, insurers should do all of the following, EXCEPT: A. Settle all questions of property valuation in favor of the policyholder B. Use abbreviated claim handling procedures C. Increase settlement authority of producers D. Increase record keeping requirements
D. Increase record keeping requirements
In which of the following types of insurance marketing systems does the agency or agent usually own the expiration lists? A. Alternative distribution system B. Direct writing system C. Exclusive agency system D. Independent agency system
D. Independent agency system
Most insurers give some producers the authority to issue claim payments, up to a certain amount, directly to insureds. In this role, producers function much like a(n) A. Outside claim auditor. B. Insurance appraiser. C. Public adjuster. D. Inside claim representative.
D. Inside claim representative.
From an insured's point of view, relative to the concept of agency, little distinction exists between the A. Broker and the claimant. B. Insurance agent and the insurance department. C. Insurer and the insurance department. D. Insurance agent and the insurer.
D. Insurance agent and the insurer.
Producers are prohibited from paying a portion of the premiums for a policy or giving any commission to a policyholder. Actions of this type are called A. Contingent commissions B. Tie-in sales C. Misrepresentation of dividends D. Rebating
D. Rebating
If a third party sues the agent in connection with activities performed on behalf of the principal, the principal must A. Reimburse the agent for any liability incurred, whether or not the agent was a fault B. Bring a countersuit against the third party C. Provide legal defense for the agent D. Reimburse the agent for any liability incurred, if the agent was not at fault
D. Reimburse the agent for any liability incurred, if the agent was not at fault
Actual cash value (ACV) is A. Replacement cost plus depreciation. B. Agreed value minus depreciation. C. Replacement cost minus agreed value. D. Replacement cost minus depreciation.
D. Replacement cost minus depreciation.
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? A. Set it at zero dollars, because the claim is expected to resolve within a week. B. Set it at a predetermined percentage above $3,000, in case the original estimate is lower than the actual costs. C. Set it at a predetermined percentage below $3,000, in the expectation that some money can be saved on the claim. D. Set it at $3,000, representing an estimate of what Jan expects to pay to settle the claim.
D. Set it at $3,000, representing an estimate of what Jan expects to pay to settle the claim.
In order to expedite claim handling during a catastrophe, an insurer will consider all of the following modifications to procedures, EXCEPT: A. Temporarily increasing claim handling authority for producers B. Using abbreviated claim handling procedures C. Making advance payments to policyholders D. Suspending the use of independent adjusting firms
D. Suspending the use of independent adjusting firms
After investing significant resources to develop a web based system, a personal lines insurer has decided to expand its territory by assuming the role of a direct writer and using the internet as a distribution channel. what is the insurers greatest concern with the existing book which used independent agents as the distribution system? A. Clear communication with existing customers B. The quality of the existing book compared to the new book C. The service needs of the existing book D. The agents own the expirations for the existing book
D. The agents own the expirations for the existing book
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
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
Line underwriter duties
- select insureds - classify and price accounts - recommend or provide coverage - manage a book of business - support producers and insureds - coordinate with marketing efforts
A group of policies with a common characteristic, such as a territory or type of coverage, or all policies written by a particular insurer, producer, or agency is referred to as A. A book of business. B. A line of business. C. A policy group. D. A coverage pool.
A. A book of business.
Gulford Insurance Company is licensed in the state where it is incorporated. Gulford is also licensed in several other states. In these other states, Gulford is A. A foreign insurer. B. A nonadmitted insurer. C. A domestic insurer. D. An alien insurer.
A. A foreign insurer.
Which one of the following statements about licensing insurers is correct? A. Alien insurers must satisfy the requirements of domestic insurers and must usually establish a branch office and have funds on deposit in the U.S. B. Insurers that are not licensed in a particular state are expressly prohibited from writing any type of insurance in that state. C. If any insurer applying for a license in a given state meets that state's financial requirements, the insurance commissioner must grant the license. D. To be licensed in an additional state, a domestic insurer need only demonstrate that it satisfies the requirements imposed in its home state.
A. Alien insurers must satisfy the requirements of domestic insurers and must usually establish a branch office and have funds on deposit in the U.S.
How does the law of large numbers assist insurers? A. Allows reliable estimates of future loss amounts B. Assures a profit, given sufficient number of policies C. Prevents catastrophic losses from any single event D. Predicts who will likely suffer losses
A. Allows reliable estimates of future loss amounts
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 A. Amending policy terms and conditions. B. Using facultative reinsurance. C. Requiring loss control measures. D. Using schedule rating modifications.
A. Amending policy terms and conditions.
A type of insurance rate that reflects the unique characteristics of an insured or the insured's property is known as A. An individual rate. B. An experience rate. C. A judgment rate. D. A class rate.
A. An individual rate.
An agent may at times act on behalf of the principal in ways that the principal did not intend, and a third party reasonably believes that the agent has sufficient authority. This authority is known as A. Apparent authority. B. Contractual authority. C. Implied authority. D. Express authority
A. Apparent authority.
Rating agencies such as Dun & Bradstreet (D&B) provide A. Data on credit ratings of businesses. B. Information about business operations' safety records. C. Data on motor vehicle reports. D. Aggregate loss experience data.
A. Data on credit ratings of businesses.
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? A. Developing underwriting alternatives B. Monitoring underwriting decisions C. Evaluating the submission D. Implementing the underwriting decision
A. Developing underwriting alternatives
Erin has recently graduated from college and relocated to Chicago. She has purchased a car and rented an apartment and now needs to purchase insurance. Erin is looking for minimum coverages and the lowest price available. Which one of the following is likely the best distribution system to meet Erin's needs? A. Direct writer Internet search B. Financial institution C. Independent agent D. Regional broker
A. Direct writer Internet search
The common distinction between line underwriters and staff underwriters is that line underwriters A. Implement the steps in the underwriting process. Staff underwriters assist underwriting management with formulating underwriting policy. B. Conduct underwriting audits. Staff underwriters prepare files for the data entry department. C. Develop underwriting guides. Staff underwriters provide service to policyholders. D. Research the market. Staff underwriters verify that policies are issued with the appropriate forms and endorsements.
A. Implement the steps in the underwriting process. Staff underwriters assist underwriting management with formulating underwriting policy.
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? A. Independent agents B. Surplus lines brokers C. National brokers D. Exclusive agents
A. Independent agents
Which one of the following describes the effect underwriting standards can have on premium? A. Insurers can lower premiums for better-than-average risks. B. The more services provided, the more premiums will increase. C. Reduced cash flow drives up premium interest charges. D. If more causes of loss are covered, premiums will increase.
A. Insurers can lower premiums for better-than-average risks.
Rebating A. Is not allowed in most states. B. Reinforces the principles of insurance. C. Promotes competition. D. Is not considered an unfair trade practice in most states.
A. Is not allowed in most states.
Insurance agency employees known as customer service representatives (CSRs) or customer service agents (CSAs) A. Must obtain an agent's license in some states. B. Are not permitted to bind insurance coverage. C. Have no licensing requirements. D. Have separate licenses to solicit business in all states.
A. Must obtain an agent's license in some states
Which one of the following classifications of insurance personnel must be licensed in each state in which they do business? A. Producers of insurance products B. Underwriters of property and casualty insurance C. Consultants who give insurance advice or counsel about policies D. Claim adjusters who represent insurers
A. Producers of insurance products
The most difficult time for an insurer to change distribution systems is when A. Renewing an existing book of business. B. Entering a new target market. C. Launching a new insurance product. D. Expanding to a larger territory.
A. Renewing an existing book of business.
A producer will generally review a company's loss run report while performing which one of the following functions? A. Risk management review B. Claims handling C. Sales D. Customer service
A. Risk management review
A rating plan available to commercial insurance applicants that awards debits and credits to a submission based on specific categories is known as a(n) A. Schedule rating plan. B. Retrospective rating plan. C. Experience rating plan. D. Financial rating plan.
A. Schedule rating plan.
Underwriting management develops underwriting guidelines, which A. Specify the insurer's attitude toward applicants exhibiting certain characteristics. B. Ensure that unprofitable business will be offset by profitable business. C. Vary from one underwriter to another. D. Set firm standards that rarely, if ever, are modified.
A. 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 A. Staff underwriter. B. Line underwriter. C. Chartered underwriter. D. Field underwriter.
A. Staff underwriter.
Anyone who is not a party to an insurance contract who submits a claim against an insured is known as the A. Third party. B. Claimant party. C. First party. D. Second party
A. Third party.
All of the following are principal sources of underwriting information, EXCEPT: A. Underwriting authority reports B. Applications C. Producers D. Financial rating services
A. Underwriting authority reports
Sometimes a policy is cancelled or non-renewed even though the agent was paid its commission. In these situations the agent will be requested to return the A. Unearned commission. B. Earned commission. C. Contingent commission. D. Estimated commission.
A. Unearned commission.
At year-end, SBC Insurance Company posted the following results: Incurred losses - $18 million Loss adjustment expenses - $2 million Underwriting expenses - $5 million Written premiums - $26 million Earned premiums - $24 million Based upon the company's year-end results, which one of the following represents SBC's loss ratio?
B. 83%
Underwriting management arranges treaty reinsurance to reinsure A. Individual accounts. B. A group or group of insureds. C. Insureds that do not meet underwriting guidelines. D. All insurance of the primary insurer.
B. A group or group of insureds.
Sofie and the members of her homeowner's association have homeowner's policies on their coastal dwellings. They have heard that there are eleven named hurricane storms predicted for their coastal area this year. Sofie and the homeowner association members plan to increase their homeowner's property coverage limits to handle their concern about the possible hurricane damage. Their action is known as A. Property limits assessment. B. Adverse selection. C. Prevention of inadequate property limits. D. Prevention of errors and omission claims.
B. Adverse selection.
Independent agent networks are known as A. Direct writers. B. Agent clusters. C. Exclusive agents. D. Agent forces.
B. Agent clusters.
In most states, how many days' notice must an insured be given of an insurer's intent to cancel or nonrenew coverage? A. No more than 10 days B. At least 30 days C. Not fewer than 45 days D. At least 60 days
B. At least 30 days
How do underwriting guidelines help an insurer achieve its goals? A. By maintaining a consistently applied set of behavioral measurements against which an individual's performance will be measured B. By providing rules that guide underwriters toward consistent decisions C. By establishing the criteria required for treaty reinsurance to apply D. By creating a channel for communication for the insurer's vision, mission, and objectives
B. By providing rules that guide underwriters toward consistent decisions
Anyone who submits a claim to an insurer may be called a A. Third-party claimant. B. Claimant. C. Claim producer. D. First-party claimant.
B. Claimant.
The purpose of underwriting is to A. Maximize the impact of adverse selection on the portfolio. B. Develop and maintain a profitable book of business for the insurer. C. Compile information to develop a profile of loss exposures. D. "Pre-qualify" or field underwrite applicants.
B. Develop and maintain a profitable book of business for the insurer.
One way for claim managers to help maintain an insurer's underwriting profit is to A. Grant claim staff complete autonomy as to spending decisions. B. Establish appropriate spending policies. C. Achieve the lowest settlements possible. D. Retain high-priced experts whenever possible.
B. Establish appropriate spending policies.
To achieve profitability, the underwriting function serves which one of the following additional purposes? A. Selecting accounts with a lower-than-average chance of loss B. Guarding against adverse selection C. Transferring the risks of individuals and businesses D. Charging fair premiums for applications that are accepted
B. Guarding against adverse selection
An important question for an insurer to ask when examining customers' needs and characteristics to select a distribution channel is A. Does cost outweigh the benefit? B. How quickly can inquiries and transactions be processed? C. Who is the target market? D. Is the expertise of the current staff adequate?
B. How quickly can inquiries and transactions be processed?
Insurance Company is updating its marketing plan for the coming year. The management team is proposing a combination of the distribution systems and channels. A consideration unique to combining distribution systems and channels is A. Which system will be the most cost effective to implement that the insurer has used successfully in the past. B. If customers will receive a consistent message about products and services no matter which system they choose. C. How the insurer will market to all channels so that potential customers will know what is available to them. D. If the insurer will offer a discount in premium to customers who purchase insurance over the Internet.
B. If customers will receive a consistent message about products and services no matter which system they choose.
The value of an insurance contract in the event of a claim A. Is purely financial. B. Includes peace of mind. C. Is purely remedial. D. Includes the opportunity to profit.
B. Includes peace of mind.
In an insurance agency relationship, the agent's fundamental responsibility is to act for the benefit of the A. Insured. B. Insurer. C. Policyholder. D. Broker.
B. Insurer.
Which one of the following will draft a manuscript policy or endorsement that is worded to address the specific needs of the insured? A. Underwriting supervisor B. Line underwriter C. Staff underwriter D. Underwriting specialist
B. Line underwriter
An insurance company needs to hire an employee with knowledge of insurance policy forms and the ability to relate policy provisions to the loss exposures of individual policyholders. The person will also prepare premium quotes and process cancellations. This company is currently in need of a A. Producer. B. Line underwriter. C. Staff underwriter. D. Premium auditor.
B. Line underwriter.
Which one of the following statements is correct with respect to line underwriters? A. Line underwriters select and rate new business. They are not generally involved in the proposal or renewal process. B. Line underwriters offer assistance to producers by inquiring about an insured's risk management program. C. Line underwriters formulate underwriting policy and develop underwriting guides. D. Line underwriters focus on risk characteristics and need not be knowledgeable about policy forms and provisions.
B. Line underwriters offer assistance to producers by inquiring about an insured's risk management program.
The best description of a third-party claim is a claim A. Made by the policyholder against the insurer. B. Made against the policyholder by someone to whom the policyholder may be liable. C. Made by the insurer against the policyholder. D. Made by the liable party against the policyholder.
B. Made against the policyholder by someone to whom the policyholder may be liable.
An underwriter is working with a risk control representative on a new opportunity. Given the complexity of the exposures, a physical survey is conducted by the risk control representative, and a formal report is prepared. The report reveals that the insured owns several unattended properties, and that they were unlocked when the risk control representative conducted the survey. This failure to properly secure an unattended building would be an indicator to the underwriter of which one of the following types of hazard? A. Physical B. Morale C. Moral D. Legal
B. Morale
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 A. Changing insurance rates, rating plans, or policy limits. B. Requiring risk control measures. C. Amending the policy terms and conditions. D. Using facultative reinsurance.
B. 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 A. Cold canvas review. B. Risk management review. C. Sales closing call. D. Customer service analysis.
B. Risk management review.
Underwriting management develops underwriting guidelines, which A. Vary from one underwriter to another. B. Specify the insurer's attitude toward applicants exhibiting certain characteristics. C. Set firm standards that rarely, if ever, are modified. D. Ensure that unprofitable business will be offset by profitable business.
B. Specify the insurer's attitude toward applicants exhibiting certain characteristics.
Which one of the following statements is correct with respect to insurance distribution systems? A. All insurance distribution systems are equally effective in accomplishing both sales and service activities. B. The expertise of current staff and producers must be sufficient to manage the selected system. C. Insurers specializing in large commercial accounts should select a direct response distribution system. D. Multiple distribution systems cannot be used simultaneously because they do not generally complement each other.
B. The expertise of current staff and producers must be sufficient to manage the selected system
All of the following correctly describe reasons for the use of independent adjusters, EXCEPT: A. Insurers may use independent adjusters when special skills and expertise are needed, for example to investigate aircraft accidents. B. The insured may retain an independent adjuster if settlement negotiations with the insurer are not progressing satisfactorily. C. In some areas it is not economically feasible to set up claim offices, and insurers may contract with independent adjusters to handle claims in these remote areas. D. In the case of a catastrophic loss such as a hurricane, an insurer may not have sufficient staff to manage the large number of claims, and may use independent adjusters.
B. The insured may retain an independent adjuster if settlement negotiations with the insurer are not progressing satisfactorily.
Which one of the following statements is correct with respect to selecting a distribution channel? A. Customers are prepared to spend a reasonable amount of time and effort interacting with a distribution channel if that channel saves them money. B. The types of insurance products and services to be delivered by the insurer must fit the marketing channel selected. C. The majority of customers prefer to speak with a producer or service representative rather than access their account information online. D. The primary consideration is what approach will allow the insurer to operate efficiently.
B. The types of insurance products and services to be delivered by the insurer must fit the marketing channel selected.
One of the responsibilities of underwriting management is to arrange reinsurance. One type of reinsurance is arranged to automatically reinsure a portion of all eligible risks of the primary insurer. This arrangement is called A. Underwriting reinsurance. B. Treaty reinsurance. C. Facultative reinsurance. D. Temporary reinsurance.
B. Treaty reinsurance.
While evaluating an application, an underwriter thinks that the class of business is not one that the company wishes to write, but would need to physically inspect to be certain. The underwriter also realizes that the business is located in an undesirable section of the city. Based on the location alone, the underwriter decides not to issue the policy. According to many state insurance laws, this would be an example of A. Fair discrimination. B. Unfair discrimination. C. Regulated discrimination. D. Diversification.
B. Unfair discrimination.
When an insurance company appoints an insurance agent to serve as its representative, what specifies the scope of authority given to the agent in this relationship? A. A unilateral contract B. Binding authority C. An agency contract D. Implied authority
C. An agency contract
All of the following are true about the insurance distribution system, EXCEPT: A. The direct response system advertises to encourage potential customers to contact the insurer to purchase insurance. B. Managing general agencies appoint and supervise independent agents for insurers that operate in the system. C. An agency expiration list is the record of policies that have lapsed or been canceled due to overdue premiums. D. Insurance brokers are independent business owners or firms that place insurance by representing the customers, not insurers.
C. An agency expiration list is the record of policies that have lapsed or been canceled due to overdue premiums.
Most insurers give some producers the authority to pay claims up to a certain amount. In this role, producers function much like A. A field claim representative. B. A public adjuster. C. An inside claim representative. D. An independent adjuster.
C. An inside claim representative.
A producer is usually paid a fee for performing which one of the following functions? A. Prospecting B. Policy issuance C. Consulting D. Premium collection
C. Consulting
Rating agencies such as Dun & Bradstreet (D&B) provide A. Data on motor vehicle reports. B. Information about business operations' safety records. C. Data on credit ratings of businesses. D. Aggregate loss experience data.
C. Data on credit ratings of businesses.
When a firm is selecting a distribution channel, which one of the following is an important consideration with regard to its operations? A. How quickly can inquiries and transactions be processed in the channel? B. What are customers' expectations regarding accessibility to the channel? C. Does the selected channel capitalize on its core capabilities? D. Are customers willing to pay a premium for personalized products and services through the channel?
C. Does the selected channel capitalize on its core capabilities?
The compensation arrangements of direct writer insurers tend to: A. Emphasize renewal of existing customers. B. Be salary with no bonus income. C. Emphasize sales to new customers. D. Be salary with no commission income.
C. Emphasize sales to new customers
Which one of the following is the fundamental measure of loss exposure used in insurance rating? A. Risk B. Rate C. Exposure unit D. Premium
C. Exposure unit
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. Premiums. C. Exposure units. D. Rates.
C. Exposure units.
While developing goals for its book of business, an insurer's staff underwriter decides to increase its market share of workers compensation insurance in the construction industry. This type of underwriting activity is known as A. Providing assistance to policyholders. B. Developing underwriting guides. C. Formulating underwriting policy. D. Reviewing and revising rating plans.
C. Formulating underwriting policy.
Which one of the following statements is correct with regard to the submission evaluation step in the underwriting process? A. An applicant's financial status as indicated by a financial rating service is an incidental piece of underwriting information for evaluating potential loss exposures. B. When an insurance application form is completed properly, an underwriter normally does not need any additional information. C. Government records that provide underwriting information include motor vehicle reports, criminal records, and civil court records. D. While producers for direct writing and exclusive agency insurers perform field underwriting to screen applicants, independent agents and brokers generally do not
C. Government records that provide underwriting information include motor vehicle reports, criminal records, and civil court records.
Facultative reinsurance is arranged by underwriting management for A. Groups of policies. B. Policies covered by the treaty. C. Individual policies. D. All eligible policies.
C. Individual policies.
Which one of the following is true about the participation of the head of the underwriting department in the insurer's management? A. Reviews all underwriting decisions for adherence to underwriting guidelines B. Is generally restricted to enforcing underwriting guidelines C. May participate in selecting the type of marketing system to be used D. Is heavily involved in the day-to-day claims, finance, and actuarial decisions, as well as other decisions
C. May participate in selecting the type of marketing system to be used
Offering a cash payment or something of value to an applicant as an inducement to buy or maintain insurance is called A. Tie-in. B. Twisting. C. Rebating. D. Misrepresentation.
C. Rebating.
Which one of the following statements regarding underwriter responsibilities is correct? A. Line underwriters are generally responsible for completing underwriting audits of the branch or region in which they work. B. Line underwriters often serve on industry committees that study standard policy forms and recommend changes. C. Staff underwriters typically share responsibility for researching fundamental insurance issues with the actuarial and marketing departments. D. Staff underwriters offer valuable technical assistance to the insured's risk manager and the producer who is directly responsible for determining what coverage best meets the insured's needs.
C. Staff underwriters typically share responsibility for researching fundamental insurance issues with the actuarial and marketing departments.
Which one of the following statements about licensing insurers is correct? A. A license authorizes an insurer to write business, but it indicates nothing about the insurer's financial strength or competence. B. Once a state insurance commissioner issues a license to transact insurance business, that license cannot later be revoked. C. State laws require that domestic stock insurers satisfy minimum capital and surplus requirements before a license is granted. D. To facilitate entry into the industry, in most states the process of obtaining a license for a new insurer is relatively brief and simple.
C. State laws require that domestic stock insurers satisfy minimum capital and surplus requirements before a license is granted.
Paying close attention to hazards is an important consideration when reviewing an underwriting submission. An underwriter should recognize a moral hazard, which is a condition A. Of property, persons, or operations to be insured that increases loss frequency or severity. B. Of carelessness or indifference that increases loss frequency or severity. C. That increases the likelihood that a person will intentionally cause or exaggerate a loss. D. That increases the likelihood that a person will break the law.
C. That increases the likelihood that a person will intentionally cause or exaggerate a loss.
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? A. Customers value a challenging experience when conducting business with insurers. B. Customers are always willing to pay more for good service. C. The channel should be consistent with the customer's expectations for service. D. Speed is not an important consideration for customers.
C. The channel should be consistent with the customer's expectations for service.
Tobias, a successful producer with Barnley's Insurance Company, is struggling with an intricate quote on homeowners coverage for his insured, Hanna. Hanna not only has substantial collections of guns and silverware, but also has a small farm located at her premises. Which one of the following individuals from Barnley Insurance Company could provide assistance and support to Tobias? A. The claims representative B. Staff underwriter C. The line underwriter D. The actuary
C. The line underwriter
Prospective loss costs indicate A. The increase in loss costs that the insurer can expect to pay for each $100 of insurance purchased. B. The aggregate loss in dollars that an insurer can expect to need to pay from a particular book of business. C. The money the insurer can expect to need to pay for future claims for each exposure unit. D. The additional costs an insurer can expect to pay over historical loss costs with the addition of considerations for profits and expenses.
C. The money the insurer can expect to need to pay for future claims for each exposure unit.
The law of large numbers states that as the number of similar but independent exposure units increases, A. Divergence from the norm will be in inverse proportion to the increase in size of the sample. B. Divergence from the norm will be in direct proportion to the increase in size of the sample. C. The relative accuracy of predictions about future outcomes increases.. D. The relative accuracy of predictions about future outcomes decreases.
C. The relative accuracy of predictions about future outcomes increases.
Victor, the sales manager for Hallbinger's Insurance Company, wants the company to grow in written premium. He wants his agents to write more auto and homeowners business. In order to do so, the company must have adequate capacity. Which one of the following impacts Victor's agents and the company the most concerning surplus and capacity? A. Sales must submit business with a lower-than-average chance of loss. B. Claims must pay only covered losses and have low expenses. C. Research and development must create policies which are marketable. D. Underwriting practices must generate policy premiums that exceed losses and expenses.
D. . Underwriting practices must generate policy premiums that exceed losses and expenses.
Sometimes an agent may be eligible for a commission based on its premium volume and profitability. This type of compensation is called A. An indirect commission. B. An annual commission. C. A sales commission. D. A contingent commission.
D. A contingent commission.
An insurance company employee who investigates the scene of a loss; meets with insureds, claimants, lawyers, and others; and inspects damage is most accurately called A. A third-party administrator. B. An adjusting agent. C. An independent adjuster. D. A field claim representative.
D. A field claim representative.
If a claim is complex or if settlement negotiations are not progressing with the insurer, the insured may hire A. A senior claim representative. B. A public defender. C. An independent adjuster. D. A public adjuster.
D. A public adjuster.
An independent business owner or firm that sells insurance by representing customers rather than insurers is which one of the following? A. An independent adjuster B. An underwriter C. An independent agent D. An insurance broker
D. An insurance broker
How do states prohibit unfair discrimination by insurers? A. By requiring reunderwriting of policyholder complaints B. By examining insurers' mission statements and objectives C. By reviewing each policy cancellation or nonrenewal and the justification for the insurer's action D. By prohibiting rejection of applications due to certain characteristics without justification
D. By prohibiting rejection of applications due to certain characteristics without justification
Sofie, a property underwriter for Cintriell Insurance Company is reviewing a new homeowners application. Sofie has changed the protection class to unprotected, as the fire protection class listed by the producer is an eight and is incorrect. Which one of the following line underwriter activities is Sofie performing? A. Coordinating with producer efforts B. Recommending correct coverage C. Selecting insureds D. Classifying and pricing accounts
D. Classifying and pricing accounts
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? A. Determining underwriting alternatives B. Implementing the underwriting decision C. Monitoring the loss exposures D. Evaluating the submission
D. Evaluating the submission
Which one of the following would be a critical strength required for a personal lines insurer planning to expand geographically through web-based distribution? A. Service capabilities B. Coverage expertise C. Producer force D. Financial resources
D. Financial resources
Under certain circumstances, an insurer may authorize the adjustment of claims by producers. One of the benefits of providing producers with draft authority is that A. It gives agents the option of providing coverage for smaller claims that staff adjusters might deny. B. Claim payments by producers are not included in loss ratio calculations. C. Claim handling by producers is immune to regulatory scrutiny. D. If an agent can issue a draft directly to the insured, it reduces the time an insured waits for payment.
D. If an agent can issue a draft directly to the insured, it reduces the time an insured waits for payment.
Given the complexity of commercial insurance, which one of the following is best suited for its distribution? A. Direct response B. Internet C. Group marketing D. Independent agencies
D. Independent agencies
Insurance Services Office A. Calculates expense allowances to determine rates. B. Manages workers compensation information. C. Is responsible for rate determination in the property-casualty industry. D. Is an insurance advisory organization.
D. Is an insurance advisory organization.
Which one of the following is a condition that increases the likelihood that a person will intentionally cause or exaggerate a loss? A. Physical hazard B. Morale hazard C. Legal hazard D. Moral hazard
D. Moral hazard
The functions that insurance producers perform vary widely from one marketing system to another. Which one of the following functions do all producers perform? A. Risk management review B. Premium collection C. Consulting D. Prospecting
D. Prospecting
Which one of the following methods of prospecting is more likely to be used by an experienced producer than a new insurance producer? A. Direct mail B. Cold canvass C. Interactive web sites D. Referrals from present clients
D. Referrals from present clients
Which one of the following best describes the elements of authority and control in an agency relationship? A. Neither the agent nor the principal have authority or control over each other's actions. B. The agent and principal both have authority and control over each other's actions. C. The principal has authority to act for the agent; the agent has control over the principal's actions on the agent's behalf. D. The agent has authority to act for the principal; the principal has control over the agent's actions on the principal's behalf.
D. The agent has authority to act for the principal; the principal has control over the agent's actions on the principal's behalf.
An insurer engages in unfair discrimination if it rejects an application based solely on all of the following factors, EXCEPT: A. The applicant's race B. The applicant's gender C. The applicant's address D. The applicant's loss exposures
D. The applicant's loss exposures
Which one of the following is true regarding the delegation of underwriting authority by underwriting management? A. Highly centralized insurers restrict underwriting authority to both the home and field offices. B. Front-line underwriters operate primarily from the home office. C. Most insurers' underwriting decisions are either highly centralized or highly decentralized. D. The extent of underwriting authority granted to an agent generally depends on premium volume and loss experience.
D. The extent of underwriting authority granted to an agent generally depends on premium volume and loss experience.
One of the roles of underwriting management is arranging reinsurance. Which one of the following statements explains how treaty reinsurance helps an insurer meet its obligations? A. The reinsurer assumes a portion of the losses from all policies that have been specifically listed and insured under the treaty. B. The reinsurer delegates underwriting authority to the primary insurer, helping the primary insurer achieve consistent results. C. The reinsurer monitors the results of the primary insurer's underwriting guidelines to ensure compliance. D. The reinsurer automatically assumes a portion of all of the primary insurer's insurance that is eligible under the treaty.
D. The reinsurer automatically assumes a portion of all of the primary insurer's insurance that is eligible under the treaty.
Underwriting management monitors underwriting results A. To allow the insured to adjust goals if results are not as expected. B. By issuing periodic bulletins to field offices. C. To determine if coverage changes will increase sales. D. Through a process called an underwriting audit.
D. Through a process called an underwriting audit.
Why do states require that insurers notify the insured before a policy is to be canceled or nonrenewed? A. To reduce the opportunity for an insurer to redline B. To provide the state an opportunity to investigate the reason for the cancellation or nonrenewal C. To eliminate the possibility of an insurer canceling all policies covering a category of business or in a geographic area D. To give the policyholder an opportunity to replace the coverage
D. To give the policyholder an opportunity to replace the coverage
