Risk Test 1
Identify the Latin phrase for "utmost good faith." a. Uberrimae fidei b. Umraniye lisesi c. Uyma elin picine d. Ukte icinde ukte e. Ukteye getirmek
a
A firm's choice between debt and equity and equity to assets is referred to: a. ratio of capital expenditure. b. corporate governance. c. capital structure. d. cost of capital. e. covenants.
c
A firm's choice between debt and equity refers to its: a. capital expenditure. b. corporate governance. c. capital structure. d. cost of capital. e. covenants.
c
________ is having two potential outcomes for an event or situation.
Uncertainty
Economic risks can include: a. Illegal trade, unemployment, energy price shocks b. Diversification, overemployment, inflation c. Fiscal crisis, bullish stock market, low unemployment d. Profit making, agricultural consequences, food surpluses
a
A smart contract is a a. self-executing digital contract, programmed to carry out certain actions when triggered by specified conditions or events b. contract sent through email c. contract for risk management policy d. digital contract for InsurTech e. all of the above
a
An email can contain a link to what looks like a familiar website, where the user is asked to enter sensitive information. This can be a form of___________ a. Phishing b. Keylogging c. Clickjacking d. Malware
a
An independent agent owns the x-date. Identify the correct explanation for this statement. a. The agent has the right to contact the customer when a policy is due for renewal. b. The agent pays all agency expenses. c. The agent has the responsibility of collecting premiums in all circumstances. d. The agent makes all decisions concerning how the agency operates. e. The agent makes all decisions about the insureds method of paying premiums.
a
Browsers store information about websites visited, such as usernames and passwords into a. Cookies b. File directory c. Download folder d. Both a and b e. DIF: Hard disk
a
Combined ratio is: a. loss ratio plus expense ratio. b. premium ratio plus claims ratio. c. premium ratio minus expense ratio. d. loss ratio minus expense ratio. e. expense ratio by premium ratio.
a
During the 1990s, the soft market conditions lasted longer than usual because the industry had: a. large capacity. b. high combined ratio. c. high premium rates. d. low premium rates. e. small capacity.
a
In insurance, what is redlining? a. when an insurer designates a geographic area and chooses not provide insurance there, or provide it at only substantially higher prices b. when an individual decides whether or not to insure exposures on which applications for insurance are submitted c. the process of evaluating risks, selecting which risks to accept, and identifying potential adverse selection d. requiring a creditor to give you notice that your application was rejected
a
In states that use this method, an insurer or its rating bureau must file its new rates and have them approved by the commissioner before using them. Identify this property/casualty rate regulation method. a. Prior approval method b. File-and-use method c. Twisting method d. Statutory accounting method e. Remittance method
a
Insurers flock to Bermuda because: a. it is a tax haven with no taxes on income, withholding, capital gains, premiums, or profits. b. the people are risk-averse, have a lot of money to spend, and do not have insurers. c. its government provides full protection to insurers when catastrophes hit. d. income earned in this country is allowed to enter other countries without verification from the host country. e. the people are risk-seekers and have a lot of money to spend.
a
Motorized vehicles, furniture, business inventory, clothing, and similar items are properties that are not permanently attached to something else, and therefore are movable. Identify this category of physical property. A) Personal property B) Virtual property C) Non-depreciating property D) Real property E) Non-movable property
a
Real Property represents _______ , while physical property can be _________ a. Permanent structures, real or personal b. Credit, coverage c. Coverage, automotive d. Indirect loss, direct loss
a
The industry uses cash flow underwriting when the: a. combined ratio is low. b. solvency margin is high. c. reinsurance retention ratio is low. d. combined ratio is high. e. solvency margin is low.
a
The infected computers in a botnet are known as a. Zombies b. Cookies c. Trojan d. Virus e. Ransomware
a
The law concerning insurable interest is important to the buyer of insurance because it determines whether the: a. benefits from an insurance policy will be collectible. b. court will favor the insured in case of a dispute. c. insured favors the contract of adherence. d. principle of indemnity holds. e. expectations principle is applicable in the contract.
a
The law of agency is significant to insurance in large part because: a. the only direct interaction most buyers of insurance have with the insurance company is through an agent or a broker. b. it allows the insurance companies to interact directly with the buyers without the help of agents or brokers. c. it gives the insurance company the clarity it requires while passing it's authority as principle to the agent. d. it makes investigation of claims easier. e. it provides clarity on the types of risks and makes risk classification easier.
a
The most important part of insurance regulation is to: a. ensure solvency of insurers. b. categorize risk into appropriate categories. c. ensure that insurers have the option of reinsurance. d. enable insurers to insure catastrophic events. e. ensure that the government insures risks that are not insurable by private insurers.
a
The vexing problem of vanishing premiums has proven to be an expensive lesson for insurance companies on the doctrine of _____—a Latin phrase referring to the doctrine that the master is responsible for the actions taken by his or her servant during the course of duty. a. respondeat superior b. reformatio in peius c. res ipsa loquitur d. restitutio in integrum e. res judicata
a
This act calls for auditor independence and increased disclosure regarding executive compensation, insider trading, and financial statements. It has been successful at improving corporate governance. Publicly traded stock insurance companies are required to comply with this act. Identify it. a. Sarbanes-Oxley (SOX) Act b. Gramm-Leach-Bliley Financial Services Modernization Act (GLBA) c. State Modernization and Regulatory Transparency (SMART) Act d. Health Insurance Portability and Accountability Act (HIPPA) e. Federal Information Security Management Act (FISMA)
a
This element in insurance policies requires the insured to bear some portion of a loss before the insurer is obligated to make any payment. The purpose is to reduce costs for the insurer, thus making lower premiums possible. Identify this element. A) Deductible B) Waiver C) Estoppel D) Coinsurance E) Carryover
a
This is the process of two parties entering into a contract; an agreement is reached only after this process between the contracting parties. Identify this process. a. Consideration b. Underwriting c. Acturial d. Waiver e. Estoppel
a
Two examples of political risk management are: a. Investing in infrastructure in host countries and cultivate a strong track record of being a good corporate citizen and explore public political risk insurance coverage through Seek multiyear policies or coverage for as short a time frame as possible and keep tightlipped about the existence of any political risk coverage you obtain. b. Look closely at foreign operations—current or planned—and identify all possible political risks and engage an insurance broker who doesn't specialize in procuring political risk coverage, so you can strive to bring the same thoroughness to political risk management as the organization brings to more mainstream risks. c. A and B d. A and C
a
Under ______ rate regulation, an insurer can have to wait to use a new rate until the insurance department allows it. a. prior-approval b. open competition c. property-casualty d. closed-competition e. file-and-use
a
What does a spyware do? a. gather information about an individual's web browsing activities and provide them to a third party without the users knowledge or consent b. helps to deal with malicious softwares c. spy on virus, worms and Trojan to prevent further attacks d. spy on hardware of the user computer e. both a and d
a
Which of the following statements is true about premium elements (computation) of life insurance? a. Income from the investments is an offset in the premium calculations. b. The premium is increased because the insurer expects to earn investment income. c. The premium is reduced to cover the insured's marketing and administrative expenses. d. The premium is reduced to recover the taxes levied on the insurer. e. In calculating premiums, an actuary usually reduces the premium to cover the insurer's risk of not predicting future losses accurately.
a
Because of moral hazard issues, an insurer may prefer to value personal property at __________ value, which considers depreciation of the property before valuation. A) fair market B) actual cash C) real cost D) intrinsic E) replacement cost new
b
Fire and allied lines as well as homeowner's have the lowest break-even combined ratio levels because: a. the expenses and claims are expected to be low. b. the level of investment income is expected to be low. c. the premiums rates are high. d. the level of investment income is expected to be high. e. the expenses and claims are expected to be high.
b
For businesses, ________ risks are all the external, uncontrollable risks which could damage a company financially. a. Geopolitical b. Global c. Economic d. Conflict
b
Identify the characteristics of a hard market. a. Insurance rates and insurance capacity are high b. Insurance rates are high and insurance capacity is low c. Insurance rates are low and insurance capacity is high d. Insurance rates and insurance capacity are low e. Insurance rates are negligible and insurance capacity is very high
b
Identify the incorrect statement about reinsurance. a. It increases the financial stability of insurers by spreading risk. b. It facilitates direct assess of the original insured to the reinsurance company. c. It facilitates placing large or unusual exposures with one company. d. It helps small insurance companies stay in business, thus increasing competition in the industry. e. It increases the likelihood of the original insurer to be able to pay its claims.
b
Identify the process that occurs when an insurer designates a geographical area in which it chooses not to provide insurance, or to provide it only at substantially higher prices. a. Actuarial b. Redlining c. Gentrification d. Blockbusting e. Underwriting
b
Identify the vandals who want to break in to a company's security network and steal proprietary information for personal gain. A) Hackers B) Crackers C) Insiders D) Phreakers E) Carders
b
If coverage is at least 80 percent of the value of the property, the property is considered fully covered under the_________ a. Inflation guard endorsement b. Coinsurance clause c. Property provisions d. Valuation clause
b
Insurance contracts are contract of indemnity because: a. the courts favor the insured when terms of the contract drafted by the insurer are ambiguous. b. the insurer agrees to pay no more than the actual loss suffered by the insured. c. the courts read the contract as an insured would. d. insureds have no input in the design of a policy's terms. e. the courts determine the coverage on the basis of the reasonable expectations of the insured.
b
Malicious attempt to disrupt traffic at a website, or on a server or network by flooding it with internet traffic and overloading it, is called a. Phishing b. DDoS attack c. Cookie Theft d. UI Redressing
b
Nonadmitted or nonlicensed insurers are also called: a. alien insurers. b. excess and surplus lines insurers. c. exiled insurers. d. foreign insurers. e. demutualized insurers.
b
Seeking compensation for the use of a registered domain name from the rightful trademark holder is known as a. Cyberquitting b. Cybersquatting c. Cyberspilling d. Both b and c e. Cyberware
b
The adjustments for various factors in life insurance premiums are known as premium elements. First, the premium is reduced because the insurer: a. recognizes that the insured has to pay taxes. b. expects to earn investment income. c. expects additional administrative expenditures. d. has transferred the risk to the insured. e. has a risk of not predicting future losses accurately.
b
This method of protecting e-mail allows the sender of an e-mail to scramble the contents of the document. Before the recipient can read the message, he or she needs to use a password for a private key. This method used for confidential e-mail communication is known as: A) firewall. B) encryption. C) virtual private network. D) gentrification. E) worming.
b
Wesley has no insurance on his home because he "doesn't believe in insurance." Upon his arrival home one afternoon, he discovers that his neighbor's house—only thirty feet from his—is on fire. Wesley promptly telephones the agency where he buys auto insurance and applies for a homeowner's policy, asking that it be put into effect immediately. He answers all the questions the agent asks but fails to mention the fire next door. The insurer has the right to void this contract because Wesley is guilty of: a. misrepresentation. b. concealment. c. recommendation. d. indemnity. e. treason.
b
What is web robot? a. Software installed in the computer b. software application running automated tasks (scripts) c. web software for robot d. website using robot e. interconnection of robots
b
When an insured specifically requests a certain kind of coverage when applying for insurance and is not told it is not available, that coverage likely exists, even if the policy wording states otherwise, because the agent implied such coverage at the time of sale, and the insurer cannot deny it. Which of the following best explains this situation? a. Escrow b. Waiver c. Escheat d. Duress e. Estoppel
b
When you have a loss because of damage to your property, would you get the full value of the loss? a. Yes, that's why you buy insurance b. No, you will get the value of the loss after you pay the deductible c. You always pay co-insurance of 10% of your loss d. Deductibles are not allowed in insurance e. Co-insurance is never used
b
_________ requires you to carry an amount of insurance equal to a specified percentage of the value of the property if you wish to be paid the amount of loss you incur in full. a. Deductibles b. Coinsurance c. Valuation Clause d. Indemnity
b
___________ is the risk that events or actions in one country (or region) could influence political or social policy or events in another country or region. a. Global risk b. Geopolitical risk c. Political risk d. Economic risk
b
What are botnets? a. Computers with anti virus software b. Smartphones with no charge c. Network of computers infected with malware d. System generated networks e. Both b and d
c
A program or code that replicates itself inside a computer or network with the intent to damage, destroy, or hijack an operating system or control program, is called a. Trojan b. Worm c. Virus d. Antivirus e. None of the above
c
A restaurant whose main food supplier had suffered a direct physical loss, would be unable to serve customers, causing an indirect loss to the restaurant. Coverage for this... a. type of indirect business interruptions is not covered by insurance b. direct physical loss to property at the premises is not covered by insurance c. type of indirect loss is available through contingent business interruption insurance d. type of indirect loss is not covered by insurance
c
A virtual private network (VPN) allows a. Users to get access to internet b. Users to install antivirus software c. Remote users to gain secure access to a corporate network d. Remote users to hijack corporate network e. Remotes users to gain access to other users computers
c
Banking failures, asset bubbles and energy price shocks are examples of what: a. Political Risk b. Geopolitical Risk c. Global Economic Risk d. Technological Risk
c
Because security may be breached from people within the company, Internet access is generally available only to authorized internal and external users via the use of passwords. One of the best ways to protect emails is through __________ a. Firewalls b. Virtual Private Networks c. Encryption d. Antivirus protection
c
Consideration is the: a. process of two parties entering into a contract. b. process of confirming the lack performance of an activity prohibited by law. c. the price each party demands for agreeing to carry out his or her part of the contract. d. change in the contract agreement when the party to whom the offer was made requests for change in terms. e. process where a contract is converted to an written document to be enforceable by law.
c
Identify the characteristics of a soft market. a. Insurance rates and insurance capacity are high b. Insurance rates are high and insurance capacity is low c. Insurance rates are low and insurance capacity is high d. Insurance rates and insurance capacity are low e. Insurance rates are negligible and insurance capacity is very high
c
Identify the people who hold special "licenses" and provide access to nonadmitted insurers. a. Goodwill agents or brokers b. Stock agents or brokers c. Surplus lines agents or brokers d. Demutualized agents or brokers e. Amortized agents or brokers
c
Identify the term used to describe insurers of the insurance companies. a. Redliners b. Underwriters c. Reinsurers d. Actuaries e. Assessors
c
If you call a GEICO agent in the middle of the night to obtain insurance for your new automobile, you are covered as of the time of your conversation with the agent. Identify this authority of the agent. a. Duress authority b. Facultative authority c. Binding authority d. Waiver authority e. Estoppel authority
c
Inducing a policyholder to cancel one contract and buy another by misrepresenting the facts or providing incomplete policy comparisons is characterized as which of the following? a. misappropriation of funds b. rebating c. twisting d. unfair practice e. committing fraud
c
Is written by companies authorized to write insurance in the country where a risk exposure is located a. Non-admitted coverage b. Compliance coverage c. Admitted insurance d. Non-admitted insurance
c
Risk management techniques for cyber risk includes a. Firewalls, System audits b. Data protection and security, digital Signatures c. Both a and b d. Hiring domain name hijackers e. a, b and d
c
The mortality curve illustrates the relationship between: a. age and the probability of illness. b. age and the probability of healthy life. c. age and the probability of death. d. age and the probability of life with illness. e. age and the probability of insurability.
c
The use of deductibles _______ the cost of claims to insurer a. Increases b. Maximizes c. Reduces d. Replaces
c
Under this reinsurance arrangement, the original insurer is obligated to automatically reinsure any new underlying insurance contract that meets the terms of a prearranged contract, and the reinsurer is obligated to accept certain responsibilities for the specified insurance. Thus, the reinsurance coverage is provided automatically for many policies. Identify this arrangement. a. Facultative arrangement b. Ceding arrangement c. Treaty arrangement d. Contingent arrangement e. Assumption arrangement
c
What is the amount of claim on our building valued at $1,000,000 if our coinsurance requirement is 90% and we have a $300,000 loss. a. $630,000 b. $600,000 c. $300,000 d. $730,000
c
When an email or other electronic communication appears to come from a trusted individual or institution but is actually fraudulent; this is called a. Denial of Service b. Keylogging c. Phishing d. Cookie Theft e. None of the above
c
When an individual or a business reserves a domain name that uses the trademark of a competitor. a. Cybersquatting b. Website hijacking c. Domain name hijacking d. Trademark copywriting
c
When the combined ratio is low, the industry obtains more cash that can be invested by: a. encouraging gentrification. b. demutualizing to stock companies. c. lowering its underwriting standards. d. encouraging redlining. e. increasing actuarial standards.
c
Which statement is FALSE for Blockchain? a. The data about each transaction is encoded into a block of digital data with a unique signature or identity. b. Each cryptographic block is permanently connected to the blocks before and after it, creating an endless, unbreakable chain. c. The blocks can be altered. d. The blockchain grows as new blocks are added. e. Blocks cannot be removed from the chain or reorganized within it
c
Why might an American company operating in a foreign country choose to purchase non-admitted coverage? a. For the U.S. dollar to be exchanged at a higher rate b. To seek multiyear policies or coverage for as long a time frame as possible. c. So, they can utilize terms and conditions familiar to U.S. risk managers d. Because they provide no flexibility in underwriting.
c
_____ gives the insurer whatever claim against third parties the insured may have as a result of the loss for which the insurer paid. a. Demutualization b. Gentrification c. Subrogation d. Estoppel e. Waiver
c
A balanced sheet provides a snapshot of a firm's: a. cash flows. b. risk management activities. c. future strategies. d. assets and liabilities. e. stock prices.
d
A jeweler has a forward contract to reduce the risk of fluctuation in gold prices in the future. Identify the risk reduction strategy involved. a. Securitization b. Amortization c. Risk retention d. Hedging e. Excess loss coverage
d
An insurer may be profitable even if the combined ratio is over 100 percent because of: a. premium income. b. lack of insurance claims. c. decrease in expenses. d. investment income. e. reinsurance.
d
At any point in time, insurance markets may be in a hard market or soft market conditions because of: a. the amortization cycle. b. the actuarial cycle. c. gentrification. d. the underwriting cycle. e. the redlining cycle.
d
Crackers are vandals who a. break in to a company's security network and steal proprietary information for personal gain b. are potential terrorists c. bring systems down, steal data, or modify data to destroy its integrity d. all of the above e. both a and c
d
Identify the characteristic feature of brokers than differentiates them from agents. a. They are compensated by the insured. b. They do not represent the insurance company or the buyer. c. They legally represent the insurance company. d. They act as the insured's legal agent when the business is placed with an insurer. e. They work under the agent, who hire and train them and pay them a monthly salary.
d
Identify the law that deals basically with the legal consequences of people acting on behalf of other people or organizations. a. Law of numbers b. Law of adverse selection c. Law of moral hazard d. Law of agency e. Law of torts
d
If this requirement in a contract is absent, enforcing the contract would be contrary to public policy. Identify this requirement. a. Offer and acceptance b. Consideration c. Competent parties d. Legal purpose e. Legal form
d
Russell, an auto insurance agent, knew that Gyle's seventeen-year-old son, Phelix, was allowed to drive the covered automobile, and also knew the company did not accept such risks. If Russell issues the policy, the company looses the right to refuse coverage on this basis later in the policy period. This is an example of: a. an estoppel. b. a conditional binder. c. a contract of adhesion. d. a waiver. e. a supplementary binder.
d
The company transferring risk in a reinsurance arrangement is called the: a. assuming insurer. b. facultative insurer. c. contingent insurer. d. ceding insurer. e. demutual insurer.
d
The deployment of nuclear, chemical, biological and radiological technologies and materials, creating international crises and potential for significant destruction is an example of: a. Global Economic Risk b. Cultural Risk c. Geopolitical Risk d. Conflict Risk
d
The fact that buyers usually have no influence over the content or form of insurance policies has had a significant impact on the way courts interpret policies when there is a dispute. Which of the following is true when there is a dispute and the matter goes to court? a. When the terms of a policy are ambiguous, the courts favor the insurer. b. When the terms of a policy are ambiguous, it is assumed that the insured that writes the contract should know what it wants to say and how to state it clearly. c. The policy language generally is interpreted according to the underwriter who is knowledgeable about insurance. d. The policy language is interpreted according to the insured's level of expertise and situation. e. When the terms are not ambiguous, the courts have changed the contract in favor of the insured.
d
When people are negotiating with insurers for coverage, they make statements concerning their exposures, and these statements are called: a. indemnifications. b. recommendations. c. undertakings. d. representations. e. references.
d
Which of the following statements is true about the insurance regulation scheme? a. Under the current scheme, federal legislatures pass insurance laws that form the basis for insurance regulation. b. To ensure the smooth operation of insurance markets and the solvency of insurers, insurance laws are concerned only with the operations and investments of insurers. c. Trade practices, including marketing and claims adjustment, are not part of the law. d. The laws provide standards of financial solvency, including methods of establishing reserves and the types of investments permitted. e. State insurance laws are concerned not only with the licensing requirements for insurers, agents, brokers, and claims adjusters.
d
_____ is the process of paying insureds after they sustain losses. a. Underwriting b. Actuary c. Blockbusting d. Claims adjusting e. Redlining
d
Aim of cyber attack is to a. Damage and disrupt data b. Destroy and steal data c. Upload useful data d. All of the above e. Both a and b
e
Disputes over the rights to a domain name result from specific events. This event occurs when an individual or a business reserves a domain name that uses the trademark of a competitor. Identify this event. A) Domainsquatting B) Domain name cross-over C) Domain name duplication D) Domain name malfunctioning E) Domain name hijacking
e
During the credit crisis of 2008, what did insuring credit default swaps mean? a. The banks had to bear the risks of all mortgages in case of a default. b. The issuers of mortgage-backed securities were responsible for payment to mortgage-backed securities investors in case of a default. c. The banks that had provided loans at sub-prime rates were responsible for payment in case of a default. d. The insurance companies would not be responsible for payments related to mortgage-backed securities. e. The insurer, rather than the MBS issuer, will deliver the promised payment to mortgage-backed securities investors in the event of default.
e
Each line of business has its own break-even point because: a. the firm uses different strategies for each line to mitigate risks. b. each line in an industry has a different loss payment time horizon but similar length of time for the investment of the premiums. c. each line in an industry has varying length of time for the investment of premiums but similar loss payment time horizon. d. all lines in an industry have similar loss payment time horizon and length of time for the investment of the premiums. e. each line has a different loss payment time horizon and length of time for the investment of the premiums.
e
Identify the correct statement about risk-based capital. a. It is an asset that does not appreciate. b. These are unearned premiums which may turn into a liability in the future. c. It is an asset with values that are stagnant over time. d. These are assets than have the lowest risk of all other assets. e. Equities held as investments are examples of this asset.
e
Identify the misrepresentation under which an insurance contract would be voidable. a. You stated in an application for life insurance that you were born on March 2 when in fact you were born on March 12. b. You apply for life insurance and state that you are in good health, when in fact, you have a cold. c. By mistake, you stated in an application for life insurance that you were born on 1980, when in fact you were born on 1984. d. You state for life insurance that your annual income is $150,000 when in fact it is $200,000. e. You apply for life insurance and state that you are in good health, even though you've just been diagnosed with a severe heart ailment.
e
Identify the process of classifying the potential insureds into the appropriate risk classification in order to charge the appropriate rate. a. Redlining b. Gentrification c. Actuary d. Blockbusting e. Underwriting
e
Some sources in which malware can spread are a. suspicious email attachments or download software from unknown sources b. USB flash drives c. malicious apps disguised to look like popular apps d. fake Wi-Fi Hotspots. e. All of the above
e
The underwriters and the actuaries share similar activities within the insurance company. They are a. The underwriters care about sustainability of the clients while the actuaries try to avoid "red lining" b. The actuaries compute reserve and rates while the underwriters use the rates for specific pools of similar risk exposures c. Actuaries are allowed to discriminate on the basis of credit scoring, but underwriters do not d. Both can impact the solvency of the insurers if they do not compute the rate accurately e. b and d
e
They are composed of sophisticated statistical and technological mathematical equations and analysis that help predict future occurrences of natural and human-made disastrous events with large severity of losses. They rely on computer technology to synthesize loss data, assess historical disaster statistics, incorporate risk features, and run event simulations as an aid in predicting future losses. Identify the topic of discussion. a. Incident command system b. Environmental impact assessment c. Attribution theory d. Data mining e. Catastrophe modeling
e
Types of Cyber Crimes Reported to the FBI's Internet Crime Center are a. Real Estate b. Corporate Data Breach c. Identity Theft d. Credit card fraud e. All of the above
e
What is FALSE about encryption? a. It allows the sender of an e-mail to scramble the contents of the document. Before the recipient can read the message, he or she needs to use a password for a private key b. It is used for confidential communications c. It is used for higher security in databases and file storage systems d. DropBox uses encryption-at-rest to secure users data e. None of the above are false
e
What is the difference between Trojan and virus? a. Trojans do not self replicate or reproduce by infecting other files b. Trojans require actions by a user to activate c. Trojans do not require actions by a user to activate d. Both a and c e. Both a and b
e
Which of the following statements is true about nonadmitted coverage? A) They are written by companies authorized to write insurance in the country where a risk exposure is located. B) They use the country's currency for premiums and claims. C) Premiums are tax deductible in countries where nonadmitted coverage is permitted. D) If they are prohibited in a country, claim payments must be made directly to the local subsidiary. E) They use English, utilize terms and conditions familiar to U.S. risk managers, and provide flexibility in underwriting.
e
Which of the following statements is true about types of insurers and licensing requirements? a. If an insurer has a license in one state, he/she can conduct business in any state in the country. b. Companies chartered in a state are known as family insurers. c. Foreign insurers are those formed in another country. d. Alien insurers are those organized in another state. e. The commissioner has more control over domestic insurers than alien insurers.
e
8. Craig is a reckless driver. He is careless because his Porsche is insured and he knows that losses incurred will be covered. This is an example of a:
morale hazard
7. Slippery roads, which often increase the number of auto accidents is an example of: a. intangible hazards. b. moral hazards. c. physical hazards. d. morale hazards. e. causal hazards.
physical hazards
Identify the distance between the highest possible outcome value to the lowest in a distribution.
range
Economists and risk management professionals consider most people to be ________
risk averse
A problem with the _____ as a measure of risk is that by squaring the individual deviations from the mean, you end up with a measure that is in squared units. a. standard deviation b. range c. mode d. confidence level e. variance
variance
What is the primary goal of InsurTech? a. Improving efficiency b. Improving technology c. Insuring technologies d. disrupting Insurance and Risk management e. both a and
A
Which of the following statements correctly differentiate between perils and hazards? a. Perils refer to the number of losses during a specified period and hazards refer to the average dollar value of a loss per occurrence. b. Both perils and hazards are causes of loss; perils are tangible, hazards are intangible. c. Perils are causes of loss; hazards are conditions that increase perils. d. Perils are diversifiable risks; hazards are nondiversifiable risks. e. Perils are consequences of losses; hazards are cause of losses
C
The Securitization process is a. never used by insurance companies b. moving the liabilities of banks/loaners into the hands of investors c. very safe d. to move illiquid assets off the balance sheet of banks in order to get liquid cash instead e. none of the above
D
What are credit default swaps? a. Instruments that guarantee payments in case debt defaults b. The reason AIG was bailed out in 2008 by the Federal government c. is a regular insurance policy like life insurance with insurable interest in the person d. a and b only e. a, b and c
D
Which of the following is a similarity between forwards and futures? a. Both are traded in the over-the-counter market. b. Both can be tailored to meet specific customer needs. c. Both trade on an exchange with standardized contract specifications. d. The prices for both derive from the spot, or cash market, which is "today's" price for a particular asset. e. Both are agreements that give the right (but not the obligation) to buy or sell an underlying asset at a specified price at a specified time in the future.
D
4. Rebecca has been badly injured while using a product manufactured by Huergo Manufacturing Co. Which of the following liability best explains the situation if Huergo is held liable for Rebecca's injury? a. Customer liability b. Product liability c. Market liability d. Professional liability e. Premises liability
Professional liability
A smart contract is a a. self-executing digital contract, programmed to carry out certain actions when triggered by specified conditions or events b. contract sent through email c. contract for risk management policy d. digital contract for InsurTech e. all of the above
a
For insurance companies, the liabilities comprise mostly reserves for claims on the products sold by the life insurer. These reserves are computed by: a. actuaries. b. underwriters. c. covenants. d. accountants. e. assessors.
a
Identify the statement that defines sustainability. a. The capacity to maintain a certain process or state. b. The value created by a company with a good reputation and good products. c. The price of the stock times the number of shares traded d. Value of equity held by the owners of a company plus income in the form of dividends. e. The process of evaluating risks, selecting which risks to accept, and identifying potential adverse selection.
a
Identify the statement that explains the function of a cash flow analysis. a. It looks at the amount of cash that will be saved and brings it into today's present value. b. It is used to inform a firm's planning activities particularly around decision of purchases of capital equipment. c. It enables the actual financial operation of the business to be measured against the forecast. d. It provides a forecast of revenues and expenditures. e. It focuses on identifying the changes to an organization that are required for it to achieve strategic goals.
a
Insurance is ____________ when the possible loss is relatively large compared to the amount of the premium. a. economically feasible b. undesirable c. under-priced d. progressive e. regressive
a
Only one way insurers envision using blockchain technology is by a. execution of insurance policies via smart insurance contracts b. drones c. Internet of Things d. Big Data analysis e. All of the above
a
The risk of an insurer with more exposures is relatively lower than that of an insurer with fewer exposures under the same expected distribution of losses. How do small insurers reduce the uncertainty in predicting losses? a. They use the sharing of data that exists in the insurance industry. b. They try to reduce the severity of exposures. c. They use the risk avoidance method to reduce losses. d. They use the risk retention method to reduce losses. e. They cannot reduce the uncertainty in predicting losses.
a
The term InsurTech refers to a. The application of technological innovations to insurance and risk management and encompasses a number of different technologies b. Changing consumer expectations as well as technological advances c. Getting insurance for technologies d. Physical devices embedded with electronic sensors e. Both a and c
a
These derivative tools are traded in the over-the-counter market, and contract characteristics can be tailored to meet specific customer needs. Farmers and grain elevator operators also use them to lock in a price for their corn or soybeans or wheat. Identify them. a. Forwards b. Futures c. Swaps d. Options e. Coupons
a
This process involves charting entire spectrums of risk, not individual risk "silos" from each separate business unit. It becomes useful both in identifying risks and in choosing approaches to mitigate them. They present a cumulative picture of all the risks in one risk management solution chart. Identify the process. a. Risk mapping b. Risk benchmarking c. Risk profiling d. Risk retention e. Principal agent analysis
a
Today we can have our claims paid up in a day. Why? a. b and c b. Telematics c. Drones d. Big Data e. none of the above
a
When insurers or risk managers use frequency and severity to project the future, they use trending techniques that apply to the loss distributions known to them. Identify the most commonly used tool to predict future losses and claims based on the past. a. Regression analysis b. ANOVA c. Factor analysis d. Chi square testing e. Analysis of covariance
a
When top managers of a mutual company decide they need to raise capital and become stock companies, they may go through a process called: a. demutualization. b. reverse stocking. c. reinsurance. d. rationalization. e. amortization.
a
When we are pretty certain that the future will be similar to the past, a _________ can be used to predict future loss. a. loss distribution b. variance in probability statistics c. average loss analysis which is frequency d. average accounting computations e. None of the above
a
Which of the following explains the difference between options and futures/forward contracts? a. An option is the right to buy or sell, whereas a futures/forward contract is an obligation to buy or sell. b. An option is traded in the over-the-counter market, whereas a futures/forward contract is traded on an exchange. c. An option has standardized contract specifications, whereas a futures/forward contract can be tailored to meet specific customer needs. d. An option is traded on an exchange, whereas a futures/forward contract is traded in the over-the-counter market. e. An option is an obligation to buy or sell, whereas a futures/forward contract is the right to buy or sell.
a
All risks are not insurable. Identify the feature that does not meet the requirement of a risk that is perfectly suited for insurance. a. The losses that occur are accidental. b. The number of similar exposure units is small. c. The probability distribution of losses can be determined. d. A catastrophe cannot occur. e. Losses are definite.
b
An insurance company needs to incorporate financial activities to ensure viability (not becoming insolvent). What are they? a. No insurance policies to be issued in high risk areas. b. Asset-liabilities matching and appropriate reserves c. No debt d. Good capital structure e. Not investing in the stock market
b
Credit Default Swap is used in the Securitization process to a. Give bankers/loaners cash to give loans b. Guarantee the new securities in case of default by the loan taker c. To create liquidity for the banks d. to underwrite the new securities e. none of the above
b
Glasgow Tech. is a highly leveraged corporation. What does this mean? a. Glasgow Corporation has numerous risk exposures due to operations all over the world. b. Glasgow Corporation has taken many loans to finance its operations. c. Glasgow Corporation has a very high P/E ratio. d. Glasgow Corporation has to receive huge amounts of money they owe (accounts receivables). e. Glasgow Corporation has financed its operations by itself and has not taken any loans.
b
Identify the noninsurance instruments used to hedge, or protect, against adverse movements in prices in stocks or in commodities such as rice and wheat or rates such as interest rates or foreign exchange rates. a. Mutual funds b. Derivatives c. Covenants d. Hedge funds e. Annuities
b
Identify the process that evaluates all the risks of the organizations and measures the frequency and severity of each risk. a. Principal agent analysis b. Risk profiling c. Risk mapping d. Risk benchmarking e. Risk retention
b
In this process, the risks that have been underwritten are pooled together into a bundle, which is then considered an asset and the underwriter then sells its shares; hence, the risk is transferred from the insurers to the capital markets. Identify this process. a. Reinsurance b. Securitization c. Credit swapping d. Redlining e. Gentrification
b
The balance sheet of Liquid life insurance company showed on the assets side a. the future claims to be paid b. the investments portfolio c. the asset-liability matching d. the enterprise risk management of the insurer e. unpaid premium reserve
b
The balance sheet of Liquid life insurance company showed on the assets side_____ and liabilities side __________________ a. the future claims to be paid on the assets side and furniture on the liabilities side b. the investments portfolio and reserves for claims c. the process of asset-liability matching d. the enterprise risk management (risk map) of the insurer e. unpaid premium reserve
b
The bulk of the premium required by the insurer to assume risk is used to compensate those who incur covered losses. Loss sharing is accomplished through premiums collected by the insurer from all insureds—from those who may not suffer any loss to those who have large losses. In this regard, the losses are shared by all the risk exposures. This is the essence of: a. risk acceptance. b. risk pooling. c. risk severity. d. risk mapping. e. risk transfer.
b
The disruption of the insurance model is driven by a. Financial and non-financial firms b. Changing consumer expectations as well as technological advances c. Stock market collapse d. Capital structure decisions e. All of the above
b
The firm must maintain assets to cover the reserves and still leave the insurer with an adequate net worth in the form of: a. liability accounts. b. capital and surplus. c. asset portfolio. d. accounts receivables. e. investment portfolio.
b
The insured goes with the independent agent if the agent no longer sells for the insurance company. This ownership right can be sold to another agent, and when the independent agent decides to retire or leave the agency, the right to contact large numbers of customers creates a substantial market value for the agency. This marketing system is known as: a. the managerial agency system. b. the American agency system. c. the general agency system. d. the branch office system. e. the special agency system.
b
What is Telematics? a. Big Data analytics b. The tracking and monitoring of vehicles through GPS and communication systems. c. Tracking of drones d. Monitoring Internet of Things e. All of the above
b
When we say financial statements of a firm, we are referring to: a. the accounts receivables and balance sheets. b. the income statements and balanced sheets. c. the accounts payable and balance sheets. d. the accounts receivables and accounts payables. e. the nominal ledger.
b
Which of the following best describes stockholders' wealth? a. Value of equity held by the owners of a company plus salary from a job in the company. b. Value of equity held by the owners of a company plus income in the form of dividends. c. Value of equity held by the owners of a company plus income in the form of increasing stock prices. d. Value of equity held by the owners of a company plus income in the form of stocks. e. Value of equity held by the owners of a company plus future security.
b
Which of the following explains the details of the contracts and promises between the debt contract parties? a. Capital structures b. Covenants c. Underwritings d. Actuaries e. Due diligence
b
Which of the following statements is true about an insurance firm? a. The reserves for insurance products are computed by underwriters. b. Actuaries use mortality tables and life expectancy tables to estimate the future losses that the insurer must pay. c. Morality tables show the length of life expected for people born in each year. d. Life expectancy tables indicate the percent of expected deaths for each age group. e. Underwriters specialize in forecasting the losses and developing the losses' potential future impact on the insurers.
b
What roles (objectives) contribute to the definition of risk? a. The need to make money all the time b. Both the need to maximize value and stay solvent c. Stay solvent as is the view of actuaries d. Make lots of money as is the view of financial people e. None of the above
both need to maximize value and stay solvent
A firm's brand equity entails the value created by a company with: a. consistent profits. b. the largest market share. c. a good reputation and good products. d. frequent advertising. e. a strong risk management system.
c
A large percentage of insurance companies' liabilities consist of _______ which represent future financial obligations, such as payment of claims. a. investments b. assets c. reserves d. capital e. surplus
c
For an insurance company, the asset-liabilities matching ensures: a. that insurance policies are not issued at high risk areas. b. risk minimization so that minimum claims are filed. c. liquidity so that when claims come due the firm has available cash to pay for losses. d. transparency among the insurers and the policyholders. e. that individuals and groups that do not have to ability to pay premiums are not insured.
c
Identify the correct statement about independent agents. a. They usually represent a single insurance company. b. They are compensated on a salary basis by the insurance firm. c. They pay all agency expenses. d. They have the responsibility of collecting premiums on all circumstances. e. Legally, they represent the customers.
c
Identify the derivative tools that are agreements to exchange or transfer expected future variable-price purchases of a commodity or foreign exchange contract for a fixed contractual price today. a. Forwards b. Futures c. Swaps d. Options e. Coupons
c
Identify the risk of loss from failure of a counterparty, or second party, in a derivatives contract to perform as agreed or contracted. a. Prepayment risk b. Concentration risk c. Credit risk d. Reinvestment risk e. Leverage risk
c
Machine learning (ML) is a. a subset of AI b. Ability of computer to learn and act without being explicitly programmed c. Both a and b d. Cloud technology e. Blockchain
c
The idea behind usage-based insurance policies is that a. insurer uses Bitcoin to determine rates b. When an insurer uses prediction analysis to determine rates c. automobile insurance premiums should more accurately reflect the driving behavior of individual drivers d. both a and b e. none of the above
c
The law of large numbers holds that: a. risk increases as the number of exposures increases. b. risk is independent of the number of exposures. c. risk decreases as the number of exposures increases. d. the severity of risk increases as the number of exposures increases. e. the frequency of risk increases as the number of exposures decreases.
c
What do you find in common between prohibition of "red lining" and the UN 17 Sustainable development Goals? (new material in chapter 5a) a. "Zero hunger" b. "Clean water and Sanitation" c. "Reduced inequalities" d. "Decent work and economic growth" e. "Good Health and well-being"
c
What is web scraping? a. creating new websites with Big Data b. uploading data to websites c. a technique for extracting and collecting unstructured data from websites d. creating new websites for Blockchain e. all of the above
c
What of the following statements is true about risk assumption? a. Retention is especially attractive to small organizations who seek treaty reinsurance. b. Many large corporations use captives, which are a form of reinsurance, to transfer their risk. c. When a business creates a subsidiary to handle the risk exposures, the business creates a captive. d. A captive firm is independent of its parent company. e. When an organization uses a highly formalized method of retention of a risk, it is aid the organization has reinsured the risk.
c
Which of the following statements is correct about exclusive agents and independent agents? a. The compensation of independent agents is lower than those paid to exclusive agents. b. Like for independent agents, the customer is considered to be the exclusive agents' rather than the insurers. c. Unlike independent agents, exclusive agents do not own the x-date. d. The exclusive agent has as much independence as those who operate under the independent agency system. e. Average operating expenses and premiums for personal lines of insurance tend to be higher for exclusive agents than for those in the independent agency system.
c
Which of the following statements is true about agents and brokers? a. Both agents and brokers legally represent the company. b. Both agents and brokers represent the buyer. c. Both agents and brokers are compensated by the insurer. d. A broker legally represents the company, whereas an agent represents the buyer. e. Both agents and brokers are compensated by the insured.
c
The reason that uncertainty is unsettling is not the uncertainty itself but the: a. consequences of different outcomes. b. expected outcomes. c. unpredictability of outcomes. d. lack of accurate tools to measure it. e. variability of predictable outcomes.
consequences of different outcomes
Insurable losses must be fortuitous; that is, they must: a. have high severity of loss. b. be reasonably predictable. c. not occur twice to the same person. d. be a matter of chance. e. have low frequency of loss.
d
Reserving liabilities involves the calculation of the amount that the insurer needs to set aside to pay future claims. It's equivalent to the _____ of a nonfinancial firm. a. equity b. assets c. reserves d. debt e. market value
d
Reserving liabilities involves the calculation of the amount that the insurer needs to set aside to pay future claims. The investment side includes decisions about asset allocation to achieve the best rate of return on the assets entrusted to the insurer by the policyholders seeking the security. The allocation of assets is necessary to meet the timing of the claims obligations. This activity is called: a. gentrification. b. due diligence. c. redlining. d. asset-liabilities matching. e. blockbusting.
d
Some areas where companies are deploying Artificial Intelligence are a. Agent assistance b. Contact centers c. Underwriting and claims d. All of the above e. None of the above
d
The coefficient of variation is calculated by dividing the: a. mean of the distribution by its standard deviation. b. mean of the distribution by its variance. c. variance of the distribution by its standard deviation. d. standard deviation of the distribution by its mean. e. variance of the distribution by its mean.
d
The combination of two elements of insurance physically reduces the risk, both in number and in the anxiety it causes. Identify these elements. a. Risk pooling and risk mapping b. Risk mapping and risk transfer c. Risk acceptance and risk mapping d. Risk pooling and risk transfer e. Risk severity and risk transfer
d
The enterprise risk manager depends on two types of experts to ensure the liabilities side of the business is well managed. Identify these experts. a. Assessors and accountants b. Actuaries and covenants c. Covenants and attorneys d. Actuaries and underwriters e. Underwriters and assessors
d
The role of chief risk officer (CRO) expanded the traditional risk manager's role by: a. developing an entirely independent department specialized in risk management. b. hiring professionals who are specialized in mitigating specific types of risks. c. performing only the risk management functions in an organization. d. integrating the firm's silos, or separate risks, into a holistic framework. e. treating all the risks individually and finding a solution to mitigate each risk independently.
d
The use of blockchain technology by the insurer Global Insurance Company a. Improved contract certainty b. Improved compliance and country alignment c. Reduced contract certainty d. Both a and b e. Both b and c
d
What is the difference between the risk of losing cash as opposed to furniture destroyed in fire? a. Cash is hazard risk and furniture is financial risks b. Both risks are financial risks c. Both risks are hazard risks d. Cash is financial risk and furniture is hazard risk e. None of the above
d
Which of the following statements is true about a general agent? a. They are employees of insurance companies. b. While working for an insurance company, they are given the title of agent or special agent. c. They may be agent or brokers for the insurer. d. They are authorized by contract with the insurer to sell insurance in a specified territory. e. Their primary responsibility is to selling insurance to multimillion dollar companies.
d
Which of the following statements is true about stock insurers? a. They are owned and controlled by their policyowners. b. They have no stockholders and issue no capital stock. c. People become owners by purchasing an insurance policy from the mutual insurer. d. They are organized in the same way as other privately owned corporations. e. Profits are shared with owners as policyowners' dividends.
d
"Sustainability" is a major global goal of "win-win". What are the main goals? a. A UN movement to change the political structure of the world we live in and have brotherly love b. A UN nuclear non-proliferation agreement between the large nations (G-20) c. The UN goals include "believing in women," "Peace, Justice and strong institutions" and "Life on the land" and "life under water" among many others d. The UN goals include "no sexual harassment" and "no poverty" among others e. none of the above
e
A blockchain is a a. centralized registry of transactions b. private registry of transactions c. collection of transactions d. collection of money e. decentralized, public, permanent, register of secured, verifiable transactions
e
Agreements that give the right (but not the obligation) to buy or sell an underlying asset at a specified price at a specified time in the future are known as: a. forwards. b. futures. c. coupons. d. swaps. e. options.
e
How sustainability and InsurTech can work hand in hand? a. InsurTech can help in "Zero hunger" by new food inventions b. InsurTech IoT, AI and Machine learning can create robots to ensure "Clean water and Sanitation." c. Education in technologies across gender and nationalities will "Reduced inequalities" d. Blockchain, AI and Machine learning are known to help in health care and improve "Good Health and well-being" e. All the above
e
Identify the correct statement about life and health insurance. a. Private life insurance companies provide insurance, and individuals have to buy their products on an involuntary basis. b. Property/casualty insurers do not sell health insurance. c. Life and health insurance is available only on an individual basis. d. The Social Security program provides substantial amounts of life/health insurance, and individuals voluntarily decide whether or not to buy their products. e. It covers exposures to the perils of disability and old age.
e
Identify the element of insurance that uses the law of large numbers to reduce the possibility of missing future loss predictions. a. Risk mapping b. Risk transfer c. Risk severity d. Risk acceptance e. Risk pooling
e
Insurers pool similar risk exposures together to compute their own risk of missing the prediction. Identify this process of evaluating a risk and classifying it with similar risks. a. Actuary b. Redlining c. Gentrification d. Reinsuring e. Underwriting
e
Investors in Mortgage Backed Securities are not a. the bankers since they give mortgages b. you and me since we borrow money to buy our homes c. the special purpose vehicle (SPV) d. All the above e. none of the above
e
What is the law of large numbers? Why do insurers rely on the law of large numbers? a. it is a mathematical phenomenon known to improve expected losses b. as the sample size decline the standard deviation is getting smaller and insurers want to predict correctly c. insurers rely on predictions, not the law of large numbers d. we cannot prove the law of large numbers e. as the sample size increases the standard deviation is getting smaller and insurers want to predict losses correctly
e
Which of the following examines every action and items in the financial statement of companies to ensure the data reflect true value? a. Underwriting b. Actuary c. Redlining d. Blockbusting e. Due diligence
e
Which of the following is a company that provides insurance coverage to its parent company and other affiliated organizations? a. Stock insurance company b. Reinsurance company c. Mutual insurance company d. Demutual insurance company e. Captive insurance company
e
Which of the following statements is true about the managerial system? a. Branch managers can employ agents without the consent of the company. b. Compensation plans for agents trained and employed by the branch manager is determined by the branch manager. c. All expenses of maintaining the branch office are paid by the branch manager. d. A branch office is an independent business entity started by the branch manager of an insurance firm. e. The insurance company has complete control over the details of the operations of branch offices
e
5. Which of the following is an economic peril? a. E-commerce b. Theft c. Vandalism d. Mold e. Employee strikes
employee strikes
The total number of fire claims for the two locations A and B is the same. What does this mean?
frequency is the same
6. In a meeting with the board of directors, the risk manager said, "There were three instances of product liability against our firm last year." He is referring to the: a. severity of losses. b. hazards. c. perils. d. frequency of losses. e. intangibility of losses.
frequency of loss
3. Which of the following is an example of pure risk? a. Product success risk b. Regulatory change risk c. Market risk d. Reputational risk e. Intellectual property violation risk
intellectual property violation risk
_____ is the notion of how often a certain event will occur. a. Likelihood b. Severity c. Forecasting d. Plausibility e. Backcasting
likelihood
Name the main categories of risks
pure vs. speculative diversifiable vs. non-diversifiable idiosyncratic (particular) vs. systemic