Chapter 5 CPCU 520

Premium auditor Dennis was inspecting an insured's work site which appeared to run smoothly. However in questioning the employees, Dennis learned that they were apathetic toward equipment maintenance. They entered false information into the maintenance logs and skipped scheduled facility cleaning sessions. This type of situation uncovered by Dennis is indicative of

A morale hazard.

New exposures are an important area in which an auditor might provide information to underwriting. New exposures can result from a change in operations or from

A new venture.

Which one of the following statements is true concerning the premium auditing process?

A premium auditor's job involves not only counting loss exposures, but also classifying them correctly.

The term risk control refers to

A technique to prevent or mitigate losses

If an error in a premium audit is detected, the rating bureau cannot calculate the correct experience modification until

It receives the correct audit data

Misclassifying hazardous business into a lower-rated classification results in

Loss of premium volume.

Martina, a premium auditor for Cintriell Insurance Company is conducting a premium audit for Carolina's Cookies. Carolina mentioned to Martina that she is opening a coffee shop at another location. By sharing this information, Martina would provide a contribution to which one of the following insurer functions?

Marketing

Which one of the following statements is correct regarding insurers' involvement in safety management programs for insureds?

Part of a risk control consultant's role in developing a safety management program is assisting the insured in establishing risk control goals.

Which one of the following morale hazards might a premium auditor uncover for underwriting?

Poor financial record keeping

Which one of the following statements is correct with regard to the importance of accurate premium audits?

Premium audit errors can cause an insurer problems in customer retention, goodwill, efficiency, and collections.

The foundation of the premium collection process for auditable commercial business is the

Premium audit.

Lily, a premium auditor, works for Worthley Insurance Company. She has recently audited Taunton's Trucking. Which one of the following cases illustrates how Lily assists underwriting?

Premium auditor Lily identifies a pattern of inaccurate information given by producer Daniel.

Which one of the following may be the only insurer representative that meets insureds, sees their operation, and reviews their financial records?

Premium auditors

Which one of the following statements about premium auditing is true?

Premium auditors determine whether a given policy uses the correct rating classification

It is important to increase the deposit premium for a renewal policy based on the premium audit results. Keeping the deposit premium at a realistic level provides additional cash at policy inception and

Prevents any later collection problems.

Which one of the following is a way in which risk control activities can help insurers meet their profit goals?

Providing an additional source of revenue

Which one of the following is an actual step in the premium auditing process?

Reporting the audit findings

Risk control can assist premium auditing by

Reporting the existence of new operations.

Which one of the following statements is true concerning risk control?

Risk control can assist marketing by providing advice on improving safety

Which one of the following statements is correct with regard to the risk control function of insurers?

Risk control helps insurers meet profit goals by improving the quality of underwriting decisions

Timely and correct premium audits can significantly benefit

The insurer's collections.

Which one of the following statements is correct with respect to premium auditing?

The need for a premium audit arises because some insurance policies have adjustable premiums

Which one of the following statements is correct regarding the relationship between risk control and claims?

The risk control department needs claim experience information to direct loss-control resources and efforts to crucial areas

Which one of the following statements is correct regarding how a prompt and accurate premium audit can affect the insurer's financial position?

Timely premium audits directly affect the insurer's cash flow management

All of the following are reasons insurers conduct premium audits

To collect ratemaking data, to deter and detect fraud, and to determine correct premiums

Reasons insurers conduct premium audits

To determine correct premiums, to deter and detect fraud, and to collect ratemaking data

Which one of the following best describes the purpose of a safety program developed by an insurer's risk control representative?

To raise workers' awareness of loss exposures and appropriate safety behaviors

Which one of the following best describes the purpose of a safety program developed by an insurer's risk control representatives?

To raise workers' awareness of loss exposures and appropriate safety behaviors

Premium auditing contributes most directly to

Underwriting

Premium auditor Ralph became concerned about an increase in hazard from the insured's chemical operations. In an audit Ralph discovered the plant had added a product that could greatly increase the products liability exposure. Due to the misclassification of the current loss exposures, the information discovered by Ralph is most useful to which one of the following insurer functions?

Underwriting

Which one of the following statements is correct with respect to the premium auditing process?

-Once premium auditors have obtained the data necessary for calculating the premium, they must decide whether the data are reasonable. -A premium auditor's job involves not only counting loss exposures, but also classifying them correctly.

Which one of the following statements is correct with respect to premium audits?

-Policyholders are far less likely to submit false or misleading information when they know it will be verified by a premium auditor -When a policy is written subject to audit, the exact exposure and premium bases cannot be known until the end of the policy period.

Which one of the following statements is correct regarding the interaction between risk control and other insurer functions?

-Risk control personnel can assist underwriters in modifying a new applicant's loss exposures to meet eligibility requirements -A risk control evaluation can make the difference between the applicant's being rejected or accepted by the underwriter.

Correct Statement

By exercising sound risk control, organizations fulfill occupational safety and health standards and comply with local, state, and federal laws.

After auditing a large commercial shipping operation, premium auditor Carl realized that the insured exposure had been grossly underestimated. The most likely result of this error is

An inadequate deposit premium for a renewal.

Which one of the following is the best example of an insurer's risk control activities generating addition revenue for the insurer?

An insurer provides industrial hygiene services to a self-insured firm for a fee

Which one of the following is the best example of an insurer's risk control activities generating additional revenue for the insurer?

An insurer provides industrial hygiene services to a self-insured firm for a fee.

In which one of the following ways are premium auditors most helpful to claim representatives?

By verifying the classification codes assigned to an insured's claims

Claims information can be valuable to premium auditing in the verification of employment classifications. However, premium auditing provides an even more valuable contribution to the claims function by verifying or correcting the

Classification codes assigned to an insured's claims.

The risk control service of conducting a physical survey consists of

Collecting underwriting information on a customer's loss exposures

Developing a safety management program begins with a

Complete evaluation of the policyholder's operations.

Which one of the following statements is correct with respect to developing safety management programs?

Developing a safety management program begins with a complete evaluation of the policyholder's operations

Which one of the following statements is correct with respect to developing safety management programs?

Developing a safety management program begins with a complete evaluation of the policyholder's operations.

Many of Fredine Insurance Company's risk control activities help the insurer reach its profit goals by reducing the frequency and severity of covered losses that would detract from Fredine's profits. Which one of the following activities provides an additional revenue source that contributes directly to Fredine's profit goals?

Fredine sells unbundled risk control services to self-insured companies.

Premium that has been developed by audit is

Fully earned

Incorrect or incomplete audits affect the insurer by

Impacting customer retention.

Which one of the following statements is correct regarding the importance of accurate premium audits for insurance rates?

Inaccurate premium audits affect the equity and accuracy of class rates.

Insurer P considered an insured's industrial class to be in classification A while premium auditors in the same state classified it differently. This discrepancy in rating the industrial class differently results in

Inequitable rates for all insureds in the state for those two classes.

It is important that premium audits be accurate for the sake of which one of the following?

Insurance rates

Which one of the following statements is true concerning premium audits?

Insurers conduct premium audits to determine correct policy premiums

A crucial responsibility of the premium auditing function is to classify insured exposures correctly. Underwriting must establish the classifications

When the policy is issued.