RMIN 200 Chapter 6

Which one of the following statements is correct with regard to property loss exposures?

Homes can be grouped into classes that face essentially the same loss potential.

Which one of the following statements is correct regarding net income loss exposures?

Net income loss exposures associated with property losses exhibit almost all the characteristics of ideally insurable risks.

The state of Maryland operates a residual market plan (the Maryland Auto Insurance Fund MAIF) that provides coverage for drivers who are unable to obtain coverage from private insurers. Which one of the following is the best rationale for the MAIF program?

"Auto insurance is compulsory, and the program makes it possible for all drivers to have reasonably priced insurance."

Which one of the following statements is correct regarding personnel loss exposures?

"Because retirement is usually planned, most resulting personnel losses can be handled with proper planning."

Which one of the following statements is correct regarding government insurance programs?

"Government programs can operate as reinsurers, reinsuring 100 percent of the risk or that part in excess of the private insurer's retention."

Which one of the following statements is correct with respect to the characteristics of the products liability loss exposure?

"If a product has been widely distributed, a loss could be catastrophic in terms of number of claims."

Which one of the following statements is correct with respect to the characteristics of premises and operations liability loss exposures?

"Premises and operations liability losses are definite in time, cause, and location, and are measurable."

Two individuals each have a 0.5 percent probability of suffering a total homeowners loss in a given year, and those two people pool their loss exposures. Assuming the loss exposures are independent of one another, which one of the following represents the probability of both individuals suffering a total loss with the pooling arrangement in place?"

.000025, or .0025%"

Which one of the following statements is correct regarding characteristics of ideally insurable loss exposures?

A common function that insurance provides is a spreading of risk across a large number of similar exposure units within the same period.

Which one of the following statements is correct?

Contractors must usually provide evidence of liability insurance before a construction contract is granted

Which one of the following statements is correct with regard to risk and ideally insurable characteristics of loss exposures?

Indemnification is the process of restoring an insured to a pre-loss financial condition.

Which one of the following statements is correct?

Insurers investment income helps keep premiums at a reasonable level.

Which one of the following statements is correct regarding the benefits that insurance provides?

Investment income helps keep insurance premiums at a reasonable level.

Delmond Corporation wishes to purchase key person life insurance to provide a financial cushion against the loss of its chief executive officer (CEO). This exposure may fail to meet which one of the following characteristics of an ideally insurable risk?

Measurable

"Following the 9/11 terrorist attacks, insurers became reluctant to provide property insurance on target properties until the federal Terrorism Risk Insurance Program (TRIP) was introduced. What social goal did this government insurance program achieve?"

Prevent economic disruption

Pravalt Construction Company pays less than its competitors for workers' compensation insurance because Pravalt has had substantially fewer employee injuries than other firms in its class. This illustrates which one of the following benefits of insurance?

Promote loss control activity

"Life, health, and retirement causes of loss are"

Subject to moral and morale hazard problems.

"Of all the characteristics of an ideally insurable loss exposure, probably the most important is that"

The insurer is able to charge a premium that the insured can afford to pay.

Pooling arrangements reduce the most risk to the group when

The loss exposures being pooled are independent of one another.

"In a probability distribution, the standard deviation is a measure of which one of the following?

Uncertainty around expected value