Assignment 2 Quiz Questions

A. Sales; agent license revoked. This is not a case involving a claim. The agent would lose his license, not the insurer for which he works. .

Danny's insurance agent was caught embezzling several insureds' premiums, which involves what area of insurance company operations and what punishment by state regulators? A. Sales; agent license revoked B. Underwriting; agent license revoked C. Claim handling; operating license suspended D. Claim handling; operating license revoked

C. Destructive competition in the insurance industry could result in insurance shortages.

Destructive competition in the insurance industry could result in A. Oversupply of insurance. B. Excess regulation. C. Insurance shortages. D. Inadequate regulation.

C. The terrorism insurance program prevented economic disruption.

Following the terrorist attacks on the United States, insurers became reluctant to provide property insurance on target properties until the federal Terrorism Risk Insurance Program (TRIP) was introduced. Which one of the following social purposes did this government insurance program serve? A. Incentive to purchase insurance B. Pooling of loss exposures C. Prevent economic disruption D. Reduced risk to society

C. For an insurer to be considered solvent, states require it to have financial reserves well in excess of its ordinary expenses.

For an insurer to be considered solvent, states require it to have financial reserves A. As a fraction of its ordinary expenses. B. Equal to its ordinary expenses. C. Well in excess of its ordinary expenses. D. Double its ordinary expenses.

D. Generally, a foreign insurer's license must be renewed annually.

Generally, how often must a foreign insurer's license be renewed? A. Every five years B. Every two years C. Semi-annually D. Annually

A. Flex rating laws permit insurers to adjust rates within a range without prior approval.

How does a flex rating law work? A. Insurers may adjust rates within a range without prior approval. B. Insurers may change rates without prior approval, but they are subject to regulatory review. C. Insurers may adjust rates within a range with prior approval. D. Insurers may adjust rates at will, but are required to file a rate schedule.

A. A state mandatory rate law requires the insurer to use state developed rates.

In developing insurance rates, a state mandatory rate law requires the insurer to A. Use state developed rates. B. Establish and file rates for all admitted lines of insurance. C. Use rates developed by the National Association of Insurance Commissioners (NAIC). D. Maintain rates equal to policyholder surplus. .

C. Reinsurance transfers potential costs of loss exposures from one insurer to another. Mutuals provide insurance for their own policyholders. Reciprocals provide insurance for their subscribers. An interinsurance exchange is another name for a reciprocal.

Insurance Company wrote a commercial liability policy for a manufacturer of off-road motorcycles. The potential costs of the insured's loss exposure exceed Insurance Company's capacity. Insurance Company could consider which type of contractual transferring agreement to meet its needs? A. Mutual insurance B. Reciprocal insurance C. Reinsurance D. Interinsurance

B. Sales. Establishing financial requirements is a part of insurer solvency regulation.

Market conduct regulation focuses on insurers' treatment of applicants for insurance, insureds, and others who present claims for coverage. Market conduct regulation affects which one of the following areas of operation? A. Financial requirements B. Sales C. Field examinations D. Annual statements

C. Most states have surplus lines laws that require that all surplus lines business be placed through a surplus lines broker.

Most states regulate the excess and surplus lines market by A. Establishing a monitoring board comprised of all insurers licensed to do business in the state. B. Examining the market conduct practices of the unlicensed insurers. C. Requiring that licensed surplus lines brokers transact business with the unlicensed insurers. D. Approving the policy forms and rates used by the unlicensed insurers.

A. Prompt and professional loss adjustment services are a responsibility of the claims function.

Prompt and professional loss adjustment services are a responsibility of what part of an insurer's organization? A. The claims function B. The loss control function C. The premium audit function D. The underwriting function

A. Sales; agent license revoked. Unfair underwriting practices are unfair discrimination and canceling or not renewing policies, contrary to state regulations.

Riko's insurance agent was caught embezzling several insureds' premiums, which involves what area of insurance company operations and what punishment by state regulators? A. Sales; agent license revoked B. Underwriting; agent license revoked C. Claim handling; operating license suspended D. Claim handling; operating license revoked

A. The surplus lines market can provide coverage for unusual or unique loss exposures.

Some communities in the US celebrate holidays with firecrackers. Firecracker vendors put stands in the parking lots of shopping centers before the holidays. One shopping center owner want to sponsor a firecracker vendor's booth found that his insurance did not cover the exposure. He found that none of the insurers licensed to do business in the state sold insurance coverage for the exposures. How can the shopping center owner obtain appropriate coverage for the exposure from the firecracker vendor's booth? A. By obtaining coverage through the excess and surplus lines market B. By pooling the risk with other shopping center owners with similar exposures C. Through a proportionate sharing arrangement with multiple insurers D. From alien insurers in countries that also celebrate holidays with firecrackers

B. Use-and-file laws.

Some insurance rating laws allow rates to be put into use immediately but require insurers to files the rates with the state within a specific period of time. These types of laws are known as A. File-and-use laws. B. Use-and-file laws. C. Prior-approval laws D. Flex rating laws.

B. Use-and-file laws.

Some insurance rating laws allow rates to be put into use immediately but require insurers to files the rates with the state within a specific period of time. These types of laws are known as A. File-and-use laws. B. Use-and-file laws. C. Prior-approval laws. D. Flex rating laws.

D. State government can provide workers compensation insurance as a competitor to private insurers or as a residual market.

State governments can be involved in insurance at various levels. Some states provide which one of the following types of insurance in competition with private insurers? A. Crop B. Flood C. General liability D. Workers compensation

C. The capital of a stock insurance company comes primarily from the sale of company stock.

The capital of a stock insurance company comes primarily from A. Sale of insurance policies. B. Return on invested premium reserves. C. Sale of company stock. D. Leveraging the difference from when a premium is paid in and when a claim is paid out.

A. The premium charged for an insurance policy should be commensurate with the exposure.

The premium charged for an insurance policy should be A. Commensurate with the exposure. B. Equal to the exposure. C. Concurrent with the exposure. D. Equivalent to the exposure.

D.Detect and address any policy provisions that are unfair.

The two objectives of insurance policy form regulation are to ensure that policies are clear and readable and to A. Ensure that the insurers rights are protected. B. Ensure policies are negotiable between an insurer and insured. C. Limit policies' length and complexity. D. Detect and address any policy provisions that are unfair.

C. Unfair trade practices acts involve the insurance company operations of sales, underwriting, and claim handling.

Unfair trade practices acts involve which one of the following insurance company operations? A. Rate filings B. Coverage form design C. Underwriting D. Financial reporting

A. Solvency refers to the ability of an insurer to meet its obligations as they become due.

What is solvency? A. The ability of an insurer to meet its obligations as they become due B. Transparency of policy language C. The process of a state taking over the assets and obligations of a failing insurer D. Destructive competition

D. Solvency refers to the ability of an insurer to meet its obligations as they become due.

What term refers to the ability of an insurer to meet its obligations as they become due? A. Capacity B. Reserves C. Capital D. Solvency

A. Whether the characteristics of the customer match the insurer's eligibility and selection guidelines best describes what is determined by the insurer's staff review of applications from prospective insureds.

Which one of the following best describes what is determined by the insurer's staff review of applications from prospective insureds? A. Whether the characteristics of the customer match the insurer's eligibility and selection guidelines B. Whether the account should be written as a personal insurance policy or a commercial insurance policy C. Whether any loss control recommendations will be made D. Whether claims will be paid or denied

B. A hazardous waste facility is an example of a business with an unusual loss exposure that may be unable to find coverage in the standard market.

Which one of the following insurance customers may be compelled to meet its liability insurance needs through the excess and surplus lines market? A. Hair salon in a strip mall B. Hazardous waste facility C. Family restaurant D. Clothing store in a mall

B. A major airline is an example of a business needing higher liability limits than those available in the standard market. Another example is a company involved in shipping oil in large tankers

Which one of the following insurance customers might be able to meet its liability insurance needs through the excess and surplus lines market? A. Hobby shop in a proprietor-owned building B. Major airline requiring multi-billion dollar limits C. Plumbing outfit with one full-time and two part-time employees D. Landscaping company with two full-time and five seasonal workers

A. Insurer licensing is a key focus of states' insurance regulation.

Which one of the following is a key focus of states' insurance regulation? A. Insurer licensing. B. Product branding. C. Premium taxation. D. Producer concentration.

A. Surplus line insurers

Which one of the following is generally exempt from state insurance regulations pertaining to policy forms and rates? A. Surplus line insurers B. Workers compensation insurers C. Commercial property insurers D. Health insurers

A. Insurers may use different terms for these functions..

Which one of the following is true about the functions within an insurance organization? A. Each function contributes or detracts from the overall effectiveness of the insurer. B. Insurers use common terminology to identify these functions. C. These well defined functions operate with a high degree of independence. D. The essential functions are always performed by insurer personnel

B. If regulators determine that an insurer is insolvent, the state insurance department places it in receivership. If the insurer cannot be rehabilitated, it is liquidated according to the state's insurance code.

Which one of the following is true regarding the administration of the Insurance Regulatory Information System (IRIS)? A. If the insurer has financial ratios that are inside predetermined norms, IRIS identifies the company for regulatory attention. B. If regulators determine that an insurer is insolvent, the state insurance department places it in receivership. C. If an insurer cannot be rehabilitated, the state's guaranty fund may be available to increase the effects of the insurer insolvency. D. Under a special provision in state licensing laws, state regulators are empowered to completely take over an insurer at any time.

C. Fair Access to Insurance Requirements (FAIR) plans make basic property insurance available to property owners who can't get it otherwise because of their property's location or any other reason.

Which one of the following statements concerning government insurance programs is true? A. Businesses seeking flood insurance under the National Flood Insurance Program (NFIP) must purchase it at local federal government offices. B. Various state insurance programs provide crop insurance for perils such as drought, disease, excessive rain and hail. C. Fair Access to Insurance Requirements (FAIR) plans make basic property insurance available to property owners who can't get it otherwise. D. The federal government provides workers compensation insurance to employers who cannot get it from private insurers.

B. Government can act as reinsurer, reinsuring 100 percent of the risk or that part in excess of the private insurers' retention.

Which one of the following statements is correct regarding government insurance programs? A. Government insurers cannot function as primary insurers for duties such as collecting premiums, providing coverage, or paying claims. B. Government programs can operate as reinsurers, reinsuring 100 percent of the risk or that part in excess of the private insurer's retention. C. Government partnerships with private insurers usually develop in especially desirable lines of business. D. Government insurance programs cannot operate in direct competition with private insurers.

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

Which one of the following statements is correct regarding government involvement in insurance? A. Federal and state government are involved in insurance to facilitate compulsory insurance purchases. B. Most organizations obtain workers' compensation insurance through federal or state insurance programs. C. Government insurance plans typically incur significant costs in marketing and sales commissions. D. Legislators find it more straightforward to invite and analyze bids from private insurers than to establish government plans

A. Mutual insurance companies include some large national insurers and many regional insurers.

Which one of the following statements is true? A. Mutual insurance companies include some large national insurers. B. Mutual insurers are usually large national insurers. C. Mutual insurers are exclusively regional or local insurers. D. Mutual insurers include few regional insurers.

B. A large catastrophe could lead to an insurer's insolvency if its financial condition is not adequate.

Why are insurance regulators concerned about the effects of large catastrophes? A. They could lead to destructive competition. B. Insurers may become insolvent. C. Insurance rates will rise. D. Licensed insurers will be unable to handle demand.

A. Surplus line

insurersWhich one of the following is generally exempt from state insurance regulations pertaining to policy forms and rates? A. Surplus line insurers B. Workers compensation insurers C. Commercial property insurers D. Health insurers

B. Owners of reciprocal insurance exchanges are also known as

subscribersOwners of reciprocal insurance exchanges are also known as A. Policyholders. B. Subscribers. C. Correspondents. D. Names.

B. A mutual insurer is owned by its policyholders and formed as a corporation for the purpose of providing insurance to them.

A mutual insurance company is owned by A. Independent investors. B. Policyholders. C. State insurance departments. D. Mutual funds.

C. A reciprocal is an unincorporated association providing coverage to subscribers. A captive provides insurance for a parent company. Reinsurance transfers an insurer's potential costs of loss exposures to another insurer. A stock insurer is a corporation owned by stockholders.

A reciprocal insurance exchange A. Is a subsidiary that provides all or part of the insurance for a parent company. B. Transfers potential costs of insured loss exposures from one insurer to another insurer. C. Is an unincorporated association providing insurance coverage to its subscribers. D. Is a stock corporation providing insurance for its policyholders.

A. A stock insurer is distinguished from a mutual insurer by the fact that owners are not necessarily insureds. rights.

A stock insurer is distinguished from a mutual insurer by the fact that A. Owners are not necessarily insureds. B. It seeks to generate a profit. C. It is governed by a board of directors. D. Owners have voting

C. A state workers compensation fund is not a private (nongovernmental) insurer.

All of the following are types of private insurers, EXCEPT: A. Stock insurers B. Mutual insurers C. State workers compensation funds D. Reciprocal insurance exchanges

D. An insurer formed in one state, but doing business in another state, is known as a foreign insurer in the state where it is doing business.

An Ohio insurer that is licensed to sell insurance in Michigan is known as what in Michigan? A. An alien insurer B. A domestic insurer C. A captive insurer D. A foreign insurer