CAS Online Course 1

C. Protection.

COPE is an acronym for the basis used to examine commercial property loss exposures. The letter P in COPE represents: A. Physical hazards. B. Proximity. C. Protection. D. Probability.

C. To assume a loss exposure with potential financial consequences that are higher than its financial condition would otherwise permit

One of the functions of reinsurance is to increase large-line capacity. Which one of the following best describes this function from the perspective of a primary insurer? A. To withdraw from a market segment in a geographic area B. To limit liability for a single loss that occurs over more than one policy period C. To assume a loss exposure with potential financial consequences that are higher than its financial condition would otherwise permit D. To reduce the financial consequences of a single catastrophic event that causes multiple losses

D. Retention ratio.

One of the most telling measurements of customer satisfaction is: A. Insurance department complaints. B. Consumer reports surveys. C. Hit ratio. D. Retention ratio.

A. Helps to reduce risk in society.

One of the primary social benefits of pooling is that it: A. Helps to reduce risk in society. B. Decreases the members' expected cost. C. Transfers risk from the individual to the pool. D. Acts as a loss control technique.

C. General damages.

Damages that courts award in order to compensate claimants for such things as pain and suffering that do not involve specific measurable expenses are referred to as: A. Compensatory damages. B. Special damages. C. General damages. D. Punitive damages.

A. Provide training and periodic rehearsals of the procedures

Daniel has developed a business continuity plan to address the threat of the loss of utility services at his company's large manufacturing plant. The management team has reviewed his plan and agrees that the plan can be quickly read and understood and should be effective in the event of a crisis. Daniel has provided copies of the plan to all relevant parties. Which one of the following should be Daniel's next step? A. Provide training and periodic rehearsals of the procedures B. Develop a business recovery and restoration plan C. Locate a backup manufacturing site D. Perform a cash flow analysis

B. National accounts

Daniel is an insurance producer with over 20 years of experience. He has placed insurance programs using reinsurance arrangements, retention plans, and various captive arrangements. He has negotiated broad coverage and high limits for his customers. With which one of the following customer groups is Daniel most likely working? A. Small business B. National accounts C. Middle markets D. Individuals

A. National accounts

Daniel is an insurance underwriter with over 20 years of experience. He has worked with reinsurers, surplus lines brokers, retention plans, and various captive arrangements. With which one of the following customer groups is Daniel most likely working? A. National accounts B. Middle markets C. Individuals D. Small businesses

B. Duplication.

Dave owns a computer store. He stores backup media copies of confidential records off site in case there is a fire at the computer store. The risk control technique Dave is using to protect the confidential records is: A. Avoidance. B. Duplication. C. Separation. D. Diversification.

D. Traditionally managed by risk management professionals

One approach to categorizing risks involves dividing risks into risk quadrants. The risks categorized as hazard risks are: A. Speculative risks that fall outside the operational risk category B. Fundamental to an organization's existence and business plans C. Traditionally handled by the chief financial officer D. Traditionally managed by risk management professionals

B. Loss reserves.

One of the biggest problems in measuring insurer profitability arises from errors in estimating: A. Unearned premiums. B. Loss reserves. C. Investment income. D. Underwriting expenses.

C. Uncertainty as to the type and timing of an outcome

One of the elements of risk is uncertainty. Which one of the following best describes the uncertainty that risk involves? A. Uncertainty as to how to manage potential losses B. Uncertainty as to whether a negative outcome is possible C. Uncertainty as to the type and timing of an outcome D. Uncertainty as to whether insurance is available

D. The individual must provide the systematic framework for coverage to the claim representative.

One of the first determinations a claim representative must make is whether or not the person involved in a loss is covered. In order for an individual to be covered under a property insurance policy, all of the following conditions must apply, EXCEPT: A. The individual must suffer a financial loss as a result of a covered occurrence. B. The individual must fall within the definition of "insured" under the policy. C. The individual must have an insurable interest in the damaged or destroyed property. D. The individual must provide the systematic framework for coverage to the claim representative.

D. Complete evaluation of the policyholder's operations.

Developing a safety management program begins with a: A. Positive safety attitude among all workers. B. Service contract to provide periodic testing and maintenance of all fire protection systems. C. Series of safety-related subjects. D. Complete evaluation of the policyholder's operations.

D. Risk management review.

Donna is an insurance producer. She makes an appointment with a potential policyholder to review the prospect's loss exposures. She asks the prospect to complete a questionnaire to assist her in this effort. Donna is conducting a: A. Customer service analysis. B. Cold canvas review. C. Sales closing call. D. Risk management review.

D. Morale hazard.

Driving carelessly or failing to lock an unattended building are examples of: A. Moral hazard. B. Physical hazard. C. Legal hazard. D. Morale hazard.

public fire protection

Fire protection equipment and services made available through governmental authority to all properties within a defined area

B. Avoid adverse selection against reinsurers.

One reason that reinsurance treaties usually require primary insurers to cede all risks within identified classes is to: A. Nullify the effects of poor underwriting by primary insurers. B. Avoid adverse selection against reinsurers. C. Reduce the need for facultative reinsurance. D. Ensure adequate reinsurance premiums for reinsurers.

D. To assume a loss exposure with potential financial consequences that are higher than its financial condition would otherwise permit

One of the functions of reinsurance is to increase large-line capacity. Which one of the following best describes this function from the perspective of a primary insurer? A. To limit liability for a single loss that occurs over more than one policy period B. To withdraw from a market segment in a geographic area C. To reduce the financial consequences of a single catastrophic event that causes multiple losses D. To assume a loss exposure with potential financial consequences that are higher than its financial condition would otherwise permit

B. Are based on operating profitability.

Models that describe the current market in terms of past insurance underwriting cycles: A. Are based on the demand for insurance. B. Are based on operating profitability. C. Must discount current period structural changes. D. Are based on anecdotal reports of repeated patterns.

B. The loss exposures being pooled are independent of one another.

Pooling arrangements reduce the most risk to the group when: A. The loss exposures in the pool are geographically concentrated. B. The loss exposures being pooled are independent of one another. C. The risk of loss for pool members is perfectly positively correlated. D. The size of the pool is limited.

D. Adverse selection.

A situation that occurs because people with the greatest probability of loss are the ones likely to purchase insurance is known as: A. Underwriting selection. B. Applicant "pre-qualification." C. Loss exposure evaluation. D. Adverse selection.

focus group

A small group of customers or potential customers brought together to provide opinions about a specific product, service, need, or other issue

mill construction

A subclassification of joisted masonry construction that uses heavy timber for columns, beams, supports, and ties; has a minimum two-hour fire-resistance rating on bearing walls; and has an absence of floor joists

captive

A subsidiary formed to insure the loss exposures of its parent company and the parent's affiliates

insurance expense exhibit

A supplement to the statutory Annual Statement that allocates revenues and expenses by line of business and provides calculations of operating returns for the purpose of assessing profitability by line

diary (suspense)

A system to remind claims personnel to perform a particular task on a claim

C. $48,000

ABC Insurance Company (ABC) has entered into a 60% quota share treaty with XYZ Reinsurance Company (XYZ). An $80,000 loss occurs that is subject to the reinsurance treaty. Under the terms of the treaty, how much would XYZ indemnify ABC for the loss? A. $0 B. $32,000 C. $48,000 D. $80,000

A. Multidivisional structure

ABC Insurance Company is organized by geographic regions and has departmental operations within each region. Which one of the following best describes ABC's organizational structure? A. Multidivisional structure B. Functional structure C. Operational structure D. Flat organizational structure

A. Claims.

An insurer's core functions are marketing and distribution, underwriting, and: A. Claims. B. Actuarial. C. Risk control. D. Information technology.

reservation of rights letter

An insurer's letter that specifies coverage issues and informs the insured that the insurer is handling a claim with the understanding that the insurer may later deny coverage should the facts warrant it

A. Predictive analytics

An insurer's marketing department is working with the underwriting department to determine what characteristics of middle market businesses result in the most profitable commercial insurance accounts. Which one of the following methods would be most effective in identifying these characteristics? A. Predictive analytics B. Situational analysis C. Market segmentation D. Market monitoring

B. The claim department's behavior.

An insurer's public image is determined largely by: A. Defense attorneys. B. The claim department's behavior. C. State regulators. D. The actuarial department.

reinsurance intermediary

An intermediary that works with primary insurers to develop reinsurance programs and that negotiates contracts of reinsurance between the primary insurer and reinsurer, receiving commission for placement and other services rendered

A. The fire resistive construction of this building is the best type of construction to prevent damage from most causes of loss.

An office and a restaurant are tenants in a building. The building construction is fire-resistive, and ISO has assigned it a public protection class (PPC) of 9. It is surrounded by an open area for parking, and is equipped with a sprinkler system. Due to the cooking operations, greasy soot accumulates in vents and flues over the cooking stoves in the restaurant. Based on these facts, which one of the following statements is true concerning the exposure this building presents? A. The fire resistive construction of this building is the best type of construction to prevent damage from most causes of loss. B. From an occupancy standpoint, this building does not present a significant hazard. C. The PPC rating of 9 indicates that the property is located close to an adequate water supply for the purposes of fire suppression. D. From an external loss exposure standpoint, this building presents a significant hazard.

D. Premises loss exposures.

An office building houses a small tax accounting firm with 10 employees. Most clients visit the office in person, and very little travel is required by the accountants. When underwriting commercial general liability coverage for this risk, the primary concern would be: A. Completed operations loss exposures. B. Operations loss exposures. C. Products loss exposures. D. Premises loss exposures.

D. Economy of operations.

An organization generally should not incur substantial costs in exchange for slight benefits under its risk management program. By comparing its costs of risk management with other similar organizations, an organization can measure its pre-loss goal of: A. Tolerable uncertainty. B. Social responsibility. C. Legality. D. Economy of operations.

association

An organization of member companies that reinsure by fixed percentage the total amount of insurance appearing on policies issued by the organization

B. Enhanced decision making.

An organization that has adopted an enterprise-wide risk management (ERM) approach monitors risks, threats, and opportunities that arise from a variety of sources. The two important benefits provided by this approach versus traditional risk management are improved risk communication and: A. Increased focus on transfer of risk. B. Enhanced decision making. C. Centralization of risk ownership. D. Increased focus on avoidance of risk.

statistical agent

An organization that helps insurers satisfy legal requirements for reporting data to regulators

third-party administrator (TPA)

An organization that provides administrative services associated with risk financing and insurance

functional structure

An organizational structure in which departments are defined by the operation they perform

multidivisional structure

An organizational structure in which divisions are organized into separate profit centers

wet pipe sprinkler systems

Automatic fire sprinkler systems with pipes that always contain water under pressure, which is released immediately when a sprinkler head opens

dry pipe sprinkler systems

Automatic fire sprinkler systems with pipes that contain compressed air or another inert gas that holds a valve in the water line shut until an open sprinkler head releases the gas and allows water to flow through the previously dry pipe to the sprinkler head

B. Economy of operations

When it comes to providing management with the desired level of assurance, with which one of the following does tolerable uncertainty conflict? A. Legality B. Economy of operations C. Social responsibility D. Survival

D. Are drawn from exposures similar to those expected in the future.

When selecting appropriate data for ratemaking analysis, actuaries should select loss and exposure data that are reasonably current and that: A. Depict the lowest loss payments. B. Depict the greatest loss payments. C. Are drawn from exposures that depict the insurers' past experience. D. Are drawn from exposures similar to those expected in the future.

A. Identify the organization's critical functions.

Which one of the following activities is the first step in the business continuity process? A. Identify the organization's critical functions. B. Develop a business continuity strategy. C. Develop a business continuity plan. D. Evaluate the effect of risks on the organization's critical functions.

D. Modified fire-resistive construction

Which one of the following has load-bearing walls and columns of masonry or reinforced concrete construction and has a fire-resistance rating of one to two hours? A. Fire-resistive construction B. Masonry noncombustible construction C. Joisted masonry construction D. Modified fire-resistive construction

B. Modified fire-resistive construction

Which one of the following has load-bearing walls and columns of masonry or reinforced concrete construction and has a fire-resistance rating of one to two hours? A. Fire-resistive construction B. Modified fire-resistive construction C. Masonry noncombustible construction D. Joisted masonry construction

B. National accounts

Which one of the following insurance consumer groups would have the most risk financing alternatives available to them? A. Middle markets B. National accounts C. Individuals D. Small business

B. A drug manufacturer seeking umbrella liability insurance

Which one of the following insurance customers is most likely to obtain coverage through a surplus lines broker? A. A homeowner seeking flood insurance B. A drug manufacturer seeking umbrella liability insurance C. A contractor seeking workers compensation insurance D. An 18-year-old seeking personal auto insurance

C. A one-location furniture manufacturer with a risk manager on staff

Which one of the following insurance customers would fit in the middle market group? A. A pharmaceutical company with manufacturing operations throughout the United States and Canada B. A nail salon with six employees in a rented location C. A one-location furniture manufacturer with a risk manager on staff D. A family of five individuals that owns a house and two cars

C. Actuarial

Which one of the following insurer functions includes calculating insurance rates, developing rating plans, estimating loss reserves, and providing predictive modeling services? A. Underwriting B. Premium auditing C. Actuarial D. Accounting and finance

C. Meeting social responsibilities

Which one of the following insurer performance goals is the most difficult to evaluate? A. Meeting profitability goals B. Meeting legal requirements C. Meeting social responsibilities D. Meeting customer needs

D. They increase a primary insurer's assets without increasing its liabilities.

Which one of the following is a benefit of contingent surplus notes as an alternative to traditional reinsurance? A. They are linked to industry experience rather than that of the primary insurer. B. The primary insurer may receive both a ceding commission and profit commission. C. The investors assume a portion of the primary insurer's risk. D. They increase a primary insurer's assets without increasing its liabilities.

C. Weak financial condition

Which one of the following is a characteristic of an organization that would be more appropriate for risk transfer than risk retention? A. High risk tolerance B. Loss control capabilities C. Weak financial condition D. Diversity of loss exposures

B. Access security

Which one of the following is a claim control used to help meet regulatory compliance? A. Structured settlements B. Access security C. Special damages D. Annual Statements

B. Reinsurance

Which one of the following is a constraint of underwriting policy? A. Economy B. Reinsurance C. Underwriting management D. Competition

B. National Flood Insurance Program (NFIP)

Which one of the following is a federal insurance plan in which the government can partner with private insurers, who sell insurance and provide claim settlement services? A. Beach and Windstorm Plan B. National Flood Insurance Program (NFIP) C. Terrorism Risk Insurance Program (TRIP) D. Residual Auto Plan

D. Combined ratio

Which one of the following is a financial measure of underwriting performance? A. Retention ratio B. Line of business mix C. Hit ratio D. Combined ratio

A. Distributional edit review

Which one of the following is a key test or check that should be considered in a review of reasonableness of the data? A. Distributional edit review B. Program controls C. Output controls D. Error procedures

C. Mediation

Which one of the following is a negotiation process in which a neutral outside party helps participants examine the issues and develop a mutually agreeable settlement? A. Arbitration B. Mini-trial C. Mediation D. Appraisal

B. A hold-harmless agreement

Which one of the following is a noninsurance risk transfer measure? A. A rent-a-captive arrangement B. A hold-harmless agreement C. A finite risk plan D. A large deductible plan

C. Maintaining high levels of liquidity typically results in a lower rate of return on investments.

Which one of the following is a problem with an individual or organization maintaining high levels of liquidity? A. Maintaining high levels of liquidity makes it difficult to manage cash flow variability. B. Maintaining high levels of liquidity leads to increased risk control expenses. C. Maintaining high levels of liquidity typically results in a lower rate of return on investments. D. Maintaining high levels of liquidity requires a high tolerance for risk.

A. Transfer

Which one of the following is a risk financing technique? A. Transfer B. Loss prevention C. Separation D. Diversification

B. Insurers begin to start to increase premiums and restrict writing risks

Which one of the following is a sign that the insurance market is beginning to harden? A. Insurer investment income begins to show increased returns B. Insurers begin to start to increase premiums and restrict writing risks C. Underwriting expense ratios begin to decrease with the market D. When there is an expansion in the amount of insurance written

C. Regulatory controls

Which one of the following is a stabilizing control that ensures the sustainability of insurance companies and their ability to provide compensation for insureds' losses? A. Competition B. Underwriting cycles C. Regulatory controls D. Market intelligence

C. Reporting the audit findings

Which one of the following is an actual stage of the premium auditing process? A. To deter and detect fraud B. Meeting regulatory requirements C. Reporting the audit findings D. Instill confidence with insureds

D. Reducing cash flow variability

Which one of the following is an advantage of risk transfer that appears to be valued by investors? A. Maintaining control of the claims process B. The ancillary services provided C. Avoiding adverse employee relations D. Reducing cash flow variability

C. Allocated loss adjustment expense amount

Which one of the following is an amount field included in Insurance Services Office (ISO) statistical plans? A. Reinsurance premiums B. IBNR losses C. Allocated loss adjustment expense amount D. Advisory prospective loss costs

B. Driver selection

Which one of the following is an essential element of a fleet safety program? A. Driver logs B. Driver selection C. Proper vehicle classification D. Radius of vehicle operation

C. Inadequate housekeeping

Which one of the following is an example of a common hazard relating to premises and operations liability loss exposures? A. Forklift trucks with no warning lights B. Poorly maintained underground storage tanks C. Inadequate housekeeping D. Improperly stored explosives

C. A mutual insurer

Which one of the following is an example of a cooperative insurer? A. An insurance exchange B. A stock insurer C. A mutual insurer D. A government insurer

D. An unknown vandal spray-paints graffiti on the insured's garage.

Which one of the following is an example of a fortuitous loss? A. Insureds intentionally set a fire and burn their house down. B. The value of an insured's home decreases due to a lack of maintenance. C. An insured demolishes a deck that has been allowed to rot. D. An unknown vandal spray-paints graffiti on the insured's garage.

C. Terrorism Risk Insurance Program (TRIP)

Which one of the following is an example of a partnership under which the government operates a reinsurance plan, providing reinsurance on specific loss exposures for which private insurers retain only part of the loss? A. Beach and Windstorm Plan B. National Flood Insurance Program (NFIP) C. Terrorism Risk Insurance Program (TRIP) D. Residual Auto Plan

D. Allowing only managers to review certain data

Which one of the following is an example of the use of access security? A. Allowing only managers to request payments B. Allowing users to change information C. Allowing users to maintain passwords D. Allowing only managers to review certain data

B. The insurer's competition

Which one of the following is an external constraint that may prevent insurers from meeting their established goals? A. The insurer's expertise B. The insurer's competition C. The insurer's financial resources D. The insurer's size

D. Specialized products

Which one of the following is an insurer response to a soft market? A. Staff increases B. Restrictive underwriting C. Price increases D. Specialized products

A. Multidivisional structure

Which one of the following is an organizational structure in which groups are organized into separate profit centers? A. Multidivisional structure B. Functional structure C. Conglomerate structure D. Diversified structure

B. Telematics

Which one of the following is an underwriting evaluation tool that uses Global Positioning System (GPS) tracking to collect and analyze data regarding driver behavior and vehicle use? A. Predictive analytics B. Telematics C. Catastrophe modeling D. Predictive modeling

D. Social responsibility

Which one of the following is both a pre-loss and a post-loss risk management goal for many organizations? A. Tolerable uncertainty B. Survival C. Legality D. Social responsibility

B. A purpose of Basel II is to ensure that capital allocation is more risk sensitive.

Which one of the following is correct regarding major risk management frameworks and standards? A. Solvency II was established as an international standard for the banking industry. B. A purpose of Basel II is to ensure that capital allocation is more risk sensitive. C. A purpose of Basel II is to promote confidence in the financial stability of the insurance sector. D. COSO II applies only to U.S. public companies subject to securities laws.

A. It relies heavily on advertising.

Which one of the following is true concerning the direct response distribution channel to market insurance? A. It relies heavily on advertising. B. There is less contact between the insurer and the customer with its use. C. It relies heavily on producer interaction. D. Commission costs are generally increased.

A. Business income coverage under the BOP is written on an actual loss sustained basis.

Which one of the following is true regarding business income coverage under the BOP? A. Business income coverage under the BOP is written on an actual loss sustained basis. B. Hurricane Katrina demonstrated that the BOP business income coverage dollar limits were often inadequate. C. Business income coverage under the BOP is identical to that of the separate ISO policy. D. The dollar limit of business income coverage under the BOP is relatively high.

B. Data on the applicant's financial status.

Rating agencies such as Dun & Bradstreet (D&B) provide: A. Data on motor vehicle reports. B. Data on the applicant's financial status. C. Aggregate loss experience data. D. Information about business operations' safety records.

A. Separation.

Ren is a cattle owner who also owns land in a variety of counties. He relies on the proceeds from the sale of his cattle as his primary source of income. Ren makes the decision to disperse his herd over several locations as a means to limit the potential impact from a loss at a single location. The risk control technique Ren is employing is: A. Separation. B. Diversification. C. Avoidance. D. Duplication.

D. Return on equity ratio.

Specific measures of an insurer's operational performance are the investment income ratio, overall operating ratio, and the: A. Retention ratio. B. Incurred loss ratio. C. Combined ratio. D. Return on equity ratio.

C. Undesirable

Speedy Cleaners is a dry cleaning company that operates out of the first floor of a thirty-year-old, two-story, masonry noncombustible building in a small village. The ISO rates the fire protection in the village as Class 9. The second floor of the building has been converted into two apartments, which Speedy's owner rents out. Both the current tenants are smokers. The company has been in business for twenty years and has not had a single fire loss during that time. However, the previous owner retired two months ago and the new owner is just learning about the dry cleaning business. The premises are tidy and well-maintained. The building is equipped with smoke detectors but does not have an automatic sprinkler system. The adjoining building to the north houses a convenience store. A take-out restaurant is located in the adjoining building to the south. There are no fire walls or parapets between the buildings. Which one of the following ratings would a property underwriter for a standard insurer most probably give this risk? A. Highly desirable B. Desirable C. Undesirable D. Highly undesirable

predictive analytics

Statistical and analytical techniques used to develop models that predict future events or behaviors

B. Demand for mandatory insurance is more inelastic than for many other products.

The fact that price changes have little or no influence on decisions to purchase insurance required by statute indicates that: A. Demand for mandatory insurance is more elastic than for many other products. B. Demand for mandatory insurance is more inelastic than for many other products. C. Supply for mandatory insurance is more inelastic than for many other products. D. Supply for mandatory insurance is more elastic than for many other products.

negligence

The failure to exercise the degree of care that a reasonable person in a similar situation would exercise to avoid harming others

breach of warranty

The failure to meet the terms of a promise or an agreement associated with a product

D. Drivers of specific large vehicles hold a commercial driver's license (CDL).

The federal Commercial Motor Vehicle Safety Act (CMVSA) of 1986 requires that: A. Vehicles be rated according to the individual weight and size of each unit. B. Commercial vehicles be classified according to the ISO Commercial Lines Manual (CLM) rules. C. Truckers develop and implement a fleet safety program. D. Drivers of specific large vehicles hold a commercial driver's license (CDL).

A. The underwriter is tasked with monitoring both individual policies and books of business to ensure that satisfactory results are achieved.

The final, and ongoing, step in the underwriting process is monitoring underwriting decisions. Which one of the following statements is correct with respect to this process? A. The underwriter is tasked with monitoring both individual policies and books of business to ensure that satisfactory results are achieved. B. Underwriters will generally not concern themselves with changes in the nature of the insured's business when monitoring the insured's policy. C. Because underwriters do not have the resources necessary for constant monitoring of all individual policies, existing policies are reviewed only upon renewal. D. Renewal underwriting is typically more time-consuming than new business underwriting as claim reports and risk control reports must be reviewed.

C. Satisfy the insurer's obligations to the policyholder.

The first goal of the claim function is to: A. Pay as little as possible when settling covered losses. B. Be sensitive and empathetic to those who have suffered a loss. C. Satisfy the insurer's obligations to the policyholder. D. Look for reasons to avoid paying reported claims.

primary layer

The first level of insurance coverage above any deductible

A. Underwriters must understand the activities, operations, and character of each applicant.

The first step in the underwriting process is evaluating the submission. Which one of the following statements is correct with respect to that evaluation? A. Underwriters must understand the activities, operations, and character of each applicant. B. The application is the only principal source of underwriting information for most submissions. C. Expert underwriting systems allow for automated decision making for all commercial lines submissions. D. The goal is for underwriters to obtain as much information as possible about each submission they review.

C. Increased management accountability

The improved decision making that results in an organization that adopts an enterprise-wide risk management (ERM) approach provides which one of the following additional advantages over traditional risk management? A. Improved employee retention B. Reduced insurance costs C. Increased management accountability D. Enhanced customer satisfaction

loss development

The increase or decrease of incurred losses over time

C. Managing general agents.

The independent agency and brokerage marketing system uses: A. Captive agents. B. Exclusive agents. C. Managing general agents. D. Direct writer producers.

D. Meeting customers' needs.

The insurance industry is highly regulated, and the expense associated with compliance can be substantial. To the extent that these expenses increase the cost of insurance, they create a conflict between the insurer's profit goal and the insurer's goal of: A. Fulfilling its duty to society. B. Dealing with the insured in utmost good faith. C. Diversifying risk. D. Meeting customers' needs.

reinsurer

The insurer that assumes some or all of the potential costs of insured loss exposures of the primary insurer in a reinsurance contractual agreement

probable maximum loss

The largest loss that an insured is likely to sustain

loss limit

The level at which a loss occurrence is limited for the purpose of calculating a retrospectively rated premium

C. Is affected by the risk appetite of its stakeholders.

The level of cash flow variability that an organization is willing to accept: A. Is highest for organizations with low risk tolerance. B. Is typically quite easy to determine. C. Is affected by the risk appetite of its stakeholders. D. Is independent of the organization's risk tolerance.

probability

The likelihood that an outcome or event will occur

line

The maximum amount of insurance or limit of liability that an insurer will accept on a single loss exposure

reinsurance limit

The maximum amount that the reinsurer will pay for a claim and that is commonly stated in the reinsurance agreement

objective risk

The measurable variation in uncertain outcomes based on facts and data

C. Reduce exposure to large losses.

The principal advantage of risk transfer measures is that they: A. Provide the organization with incentive for risk control. B. Allow the organization to maintain control of the claims process. C. Reduce exposure to large losses. D. Provide ancillary services.

A. Develop and maintain a profitable book of business for the insurer.

The principal purpose of underwriting is to: A. Develop and maintain a profitable book of business for the insurer. B. Insure only those applicants with minimal or no loss exposure. C. Educate producers regarding the insurer's underwriting guidelines. D. Decline to insure those applicants with a risk of incurring a severe loss.

strategic management process

The process an organization uses to formulate and implement its business strategies

subrogation

The process by which an insurer can, after it has paid a loss under the policy, recover the amount paid from any party (other than the insured) who caused the loss or is otherwise legally liable for the loss

reunderwriting

The process of analyzing the characteristics of policies within a portfolio and the trends of those characteristics

insurance securitization

The process of creating a marketable insurance-linked security based on the cash flows that arise from the transfer of insurable risks

securitization

The process of creating a marketable investment security based on a financial transaction's expected cash flows

market segmentation

The process of identifying and dividing the groups within a market that share needs and characteristics and that will respond similarly to a marketing action

A. Indemnification.

The process of restoring an individual or organization to a pre-loss financial condition is the process of: A. Indemnification. B. Loss mitigation. C. Premium rebating. D. Subrogation.

underwriting

The process of selecting insureds, pricing coverage, determining insurance policy terms and conditions, and then monitoring the underwriting decisions made

B. Reimburse the primary insurer for policy acquisition expenses.

The purpose of ceding commissions in pro rata reinsurance is to: A. Provide funds for a catastrophe fund in case of disaster. B. Reimburse the primary insurer for policy acquisition expenses. C. Increase the primary insurer's loss reserves for unexpected losses. D. Compensate the original producer for developing the business.

C. To make data available to users in the necessary format.

The purpose of the transformation aggregations step in the insurance data life cycle is: A. To extract useful information from raw data. B. To satisfy statistical reporting requirements. C. To make data available to users in the necessary format. D. To help management make right decisions.

A. Puerto Rico

The question "Is the location of the loss covered?" is a part of the framework for coverage analysis because the location where the loss occurred must be within the policy's territorial limits. The PAP includes which one of the following locations in the definition of policy territory? A. Puerto Rico B. Europe C. Mexico D. Bermuda

D. Failed to exercise the standard of care accepted in the profession of nasal surgeon.

Thomas is a surgeon who routinely performs surgery on patients with nasal problems. People suffering from sinus headaches often consult with him to see if he can provide them with relief from symptoms. Thomas arranges a consultative appointment with each of his patients before scheduling treatment to discuss treatment options, chances of success, and risks associated with surgery. If one of Thomas' patients should experience a negative outcome from surgery, Thomas is likely to be found at fault in a malpractice suit if it is determined that he: A. Failed to provide an exhaustive written explanation of the risks of treatment and the treatment options. B. Failed to provide leading-edge expertise in nasal surgery to the patient. C. Failed to provide the patient with full relief from his/her symptoms. D. Failed to exercise the standard of care accepted in the profession of nasal surgeon.

D. Staying within capacity constraints and helping to ensure their solvency.

Through reinsurance, primary insurers pool or transfer risks, thereby: A. Expanding the insurer's capacity to write surplus lines of coverage. B. Controlling and monitoring current loss exposures. C. Increasing net written premium while maintaining or decreasing policyholder surplus. D. Staying within capacity constraints and helping to ensure their solvency.

C. Offset underwriting losses

What has been the primary influence of investment income on the underwriting cycle in the period from 1978 to 2004? A. Rounded out peaks and valleys B. Exceeded stock market performance C. Offset underwriting losses D. Increased interest rate income

C. The insurer's Annual Statement

What is the primary source regulators use to collect data to determine the financial solvency of an insurer? A. The Insurance Services Office, Inc. (ISO) B. A Statistical Plan C. The insurer's Annual Statement D. A statistical agent

D. Investment income

What may allow an insurer to lose money on underwriting operations for several years yet remain in business? A. Service charges B. Loss reserves C. Unearned premiums D. Investment income

C. Special form coverage.

When adjusting a property loss, a claim representative must determine whether or not the loss was caused by a covered peril. Insurance that covers every cause of direct physical loss or damage that is not specifically excluded is referred to as: A. Exclusion-limited coverage. B. Specified perils coverage. C. Special form coverage. D. The coverage description.

C. The data must have been subject to some measure of quality control.

When an actuary selects reasonable and comprehensive data for evaluating auto rates by territory, which one of these criteria must be met? A. The data must be consistent with internal sources, but need not be consistent with external sources. B. Territory codes for losses must be included, but territory codes for exposures are not required. C. The data must have been subject to some measure of quality control. D. Territory codes for exposures must be included, but territory codes for losses are not required.

C. The premium-to-surplus ratio is eroded.

When an insurer continues to write new insurance without addition to capital in order to compete in a soft market, A. Capacity is created. B. It is using reunderwriting. C. The premium-to-surplus ratio is eroded. D. Fewer dollars are available for investment.

B. Amount subject.

When calculating measures of potential loss severity involving property exposed within a single fire division, underwriters often use the expression "within four walls" to explain the concept of: A. Normal loss expectancy. B. Amount subject. C. Maximum foreseeable loss. D. Policy amount.

target marketing

Focusing marketing efforts on a specific group of consumers

underwriting audit

A review of underwriting files to ensure that individual underwriters are adhering to underwriting guidelines

released bill of lading

A bill of lading that limits the carrier's liability for cargo loss in return for charging a lower freight rate than would be charged for carrying the cargo subject to full valuation

syndicate

A group of insurers or reinsurers involved in joint underwriting to insure major risks that are beyond the capacity of a single insurer or reinsurer; each syndicate member accepts predetermined shares of premiums, losses, expenses, and profits

pool

A group of organizations that band together to insure each other's loss exposures

certificate of insurance

A brief description of insurance coverage prepared by an insurer or its agent and commonly used by policyholders to provide evidence of insurance

mission statement

A broad expression of an entity's goals

differentiation strategy

A business-level strategy through which a company develops products or services that are distinct and for which customers will pay a higher price than that of the competition

focused cost leadership strategy

A business-level strategy through which a company focuses on one group of customers and offers a low-price product or service

focused differentiation strategy

A business-level strategy through which a company focuses on one group of customers and offers unique or customized products that permit it to charge a higher price than that of the competition

cost leadership

A business-level strategy through which a company seeks cost efficiencies in all operational areas

Premium-to-surplus ratio (capacity ratio)

A capacity ratio that indicates an insurer's financial strength by relating net written premiums to policyholders' surplus

premium to surplus ratio (capacity ratio)

A capacity ratio that indicates an insurer's financial strength by relating net written premiums to policyholders' surplus

proximate cause

A cause that, in a natural and continuous sequence unbroken by any new and independent cause, produces an event and without which the event would not have happened

sliding scale commission

A ceding commission based on a formula that adjusts the commission according to the profitability of the reinsurance agreement

flat commission

A ceding commission that is a fixed percentage of the ceded premiums

profit-sharing commission

A ceding commission that is contingent on the reinsurer realizing a predetermined percentage of excess profit on ceded loss exposures

pure risk

A chance of loss or no loss, but no chance of gain

speculative risk

A chance of loss, no loss, or gain

special hazards of the class

A characteristic typical of all occupancies in a given class that can cause or aggravate a loss. An example is the hazard of cooking, common to the restaurant class

bad-faith claim

A claim that implies or involves actual or constructive fraud, a design to mislead or deceive another, or a neglect or refusal to fulfill some good-faith duty or some contractual good-faith obligation

fire-resistive construction

A class of construction that has exterior walls, floors, and roofs of masonry or other fire-resistive material with a fire-resistance rating of at least two hours

modified fire-resistive construction

A class of construction that has exterior walls, floors, and roofs of masonry or other fire-resistive materials with a fire-resistance rating of one to two hours

frame construction

A class of construction that has load-bearing components made of wood or other combustible materials such as brick or stone veneer

joisted masonry construction

A class of construction that has load-bearing exterior walls made of brick, adobe, concrete, gypsum, stone, tile, or similar materials; that has floors and roofs of combustible materials; and that has a fire-resistance rating of at least one hour

coinsurance clause

A clause that requires the insured to carry insurance equal to at least a specified percentage of the insured property's value

D. Retail use involves delivery vehicles that may travel on unfamiliar routes and have tight schedules.

A commercial automobile classified for retail use may be rated higher than a similar commercial automobile classified for service use because: A. Vehicles classified as retail use are subject to the requirements of the Commercial Motor Vehicle Safety Act (CMVSA). B. Service vehicles are generally regarded as traveling in a smaller radius of operation. C. Service vehicles require the operator to hold a commercial driver's license (CDL). D. Retail use involves delivery vehicles that may travel on unfamiliar routes and have tight schedules.

contributory negligence

A common-law principle that prevents a person who has been harmed from recovering damages if that person's own negligence contributed in any way to the harm

comparative negligence

A common-law principle that requires both parties to a loss to share the financial burden of the bodily injury or property damage according to their respective degrees of fault

C. Inelastic demand.

A company may be required to carry certain coverages such as workers compensation or automobile insurance. This requirement results in: A. Elastic demand. B. A soft market. C. Inelastic demand. D. An efficient market.

hedging

A financial transaction in which one asset is held to offset the risk associated with another asset

D. Validity

A computerized policy entry system that verifies that the zip code entered exists in the United States helps actuaries ensure which one of these data quality characteristics? A. Comprehensiveness B. Independence C. Accuracy D. Validity

morale hazard (attitudinal hazard)

A condition of carelessness or indifference that increases the frequency or severity of loss

legal hazard

A condition of the legal environment that increases loss frequency or severity

special hazards of the risk

A condition that can cause a loss but that is not typical of an occupancy. An example is the use of a welding torch in an auto repair shop

hazard

A condition that increases the frequency or severity of a loss

moral hazard

A condition that increases the likelihood that a person will intentionally cause or exaggerate a loss

personnel loss exposure

A condition that presents the possibility of loss caused by a person's death, disability, retirement, or resignation that deprives an organization of the person's special skill or knowledge that the organization cannot readily replace

net income loss exposure

A condition that presents the possibility of loss caused by a reduction in net income

property loss exposure

A condition that presents the possibility that a person or an organization will sustain a loss resulting from damage (including destruction, taking, or loss of use) to property in which that person or organization has a financial interest

risk control

A conscious act or decision not to act that reduces the frequency and/or severity of losses or makes losses more predictable

hold-harmless agreement (indemnity agreement)

A contractual provision that obligates one of the parties to assume the legal liability of another party

protected cell company (PCC)

A corporate entity separated into cells so that each participating company owns an entire cell but only a portion of the overall company

vertical integration strategy

A corporate-level strategy through which a company either produces its own inputs or disposes of its own outputs

related diversification strategy

A corporate-level strategy through which a company expands its operations into areas that are similar to its existing operations

unrelated diversification strategy

A corporate-level strategy through which a company expands its operations into areas that have no relation to its existing operations

broad evidence rule

A court ruling explicitly requiring that all relevant factors be considered in determining actual cash value

underwriting cycle

A cyclical pattern of insurance pricing in which a soft market (low rates, relaxed underwriting, and underwriting losses) is eventually followed by a hard market (high rates, restrictive underwriting, and underwriting gains) before the pattern again repeats itself

B. Displayed as a 5-point summary of a single variable's distribution.

A data analysis tool called a box and whisker plot is: A. A summary of key statistics for the variable(s) using cross-tabulations. B. Displayed as a 5-point summary of a single variable's distribution. C. Designed for tabulating data to identify missing variables where blank values are invalid. D. A numeric table of a range of variables using the mean, median, minimum, and maximum.

credit scoring

A decision-making tool that uses credit report information to develop a predictive score on the creditworthiness of an applicant for additional credit

assumption of risk

A defense to negligence that bars a plaintiff's recovery for harm caused by the defendant's negligence if the plaintiff voluntarily incurred the risk of harm

authority level

A designated dollar amount assigned to claims personnel to limit the reserve amounts they can set and the payment amounts they can make

local fire alarm system

A detection system, triggered by smoke or heat, that sounds a bell, siren, or another alert at the premises only

B. Obsolescence

A direct marketing company sells its merchandise on the Internet and relies on a large number of owned computers to process its orders. One evening, a fire destroys the office and all of its personal property. The marketing company insures the office personal property on an actual cash value basis. Given this information, which one of the following is the major factor in determining depreciation with this loss? A. Overhead B. Obsolescence C. Physical wear and tear D. Appreciation

book of business

A group of policies with a common characteristic, such as territory or type of coverage, or all policies written by a particular insurer or agency

bill of lading

A document acknowledging receipt of goods from the shipper, given by the carrier, which includes the terms of the contract of carriage for the goods

special purpose vehicle (SPV)

A facility established for the purpose of purchasing income-producing assets from an organization, holding title to them, and then using those assets to collateralize securities that will be sold to investors

experience modification factor

A factor that tailors manual rates to an insured's experience based on the insured's payroll and loss record of certain prior years

C. And cannot be cancelled by either party unless contractual obligations, such as payment of premiums, are not met.

A facultative reinsurance agreement is written for a specified time period: A. But can be cancelled at any point during that period by the reinsurer for any reason, provided adequate notice is provided to the primary insurer. B. And cannot be cancelled without the express written permission of the insured whose coverage is the subject of the agreement. C. And cannot be cancelled by either party unless contractual obligations, such as payment of premiums, are not met. D. But can be cancelled at any time by the primary insurer.

United States Longshore and Harbor Workers' Compensation Act (LHWCA)

A federal statute that eliminates the right of most maritime workers (other than crew members of vessels) to sue their employers and, in return, requires such employers to provide injured or ill workers with benefits like those provided by state workers compensation statutes

Jones Act (United States Merchant Marine Act of 1920)

A federal statute that permits injured members of a vessel's crew (or survivors of a deceased crew member) to sue their employer for damages due to the employer's negligence

derivative

A financial contract that derives its value from the value of another asset

insurance-linked security

A financial instrument whose value is primarily driven by insurance and/or reinsurance loss events

capital market

A financial market in which long-term securities are traded

fire wall

A floor-to-roof wall made of noncombustible materials and having no open doors, windows, or other spaces through which fire can pass

special damages

A form of compensatory damages that awards a sum of money for specific, identifiable expenses associated with the injured person's loss, such as medical expenses or lost wages

self-insurance

A form of retention under which an organization records its losses and maintains a formal system to pay for them

statistical plan

A formal set of directions for recording and reporting insurance premiums, exposures, losses, and sometimes loss expenses to a statistical agent

exposure unit

A fundamental measure of the loss exposure assumed by an insurer

risk retention group

A group captive formed under the requirements of the Liability Risk Retention Act of 1986 to insure the parent organizations

underwriting policy (underwriting philosophy)

A guide to individual and aggregate policy selection that supports an insurer's mission statement

B. Transfers a limited amount of risk to the reinsurer.

A key characteristic that distinguishes finite risk reinsurance from other types of reinsurance is that finite risk reinsurance: A. Applies above a finite dollar amount or line. B. Transfers a limited amount of risk to the reinsurer. C. Places a finite limit on each occurrence. D. Includes a profit-sharing commission in addition to a flat ceding commission.

application

A legal document that provides information obtained directly from an applicant requesting insurance and that an insurer can use for underwriting and claims handling purposes

vicarious liability

A legal responsibility that occurs when one party is held liable for the actions of a subordinate or an associate because of the relationship between the two parties

buffer layer

A level of excess insurance coverage between a primary layer and an umbrella policy

excess layer

A level of insurance coverage above the primary layer

umbrella policy

A liability policy that provides excess coverage above underlying policies and may also provide coverage not available in the underlying policies, subject to a self-insured retention

D. Identifies missing data.

A log created by statistical software that records the history of calculations completed and their results is a tool that: A. Produces cross-tabulations. B. Describes statistics. C. Displays a distribution summary. D. Identifies missing data.

external exposure

A loss exposure outside the area owned or controlled by the insured

C. Case reserve.

A loss reserve that is assigned to an individual claim is called a: A. Deferred reserve. B. Third-party reserve. C. Case reserve. D. Bulk reserve.

indirect loss

A loss that arises as a result of damage to property, other than the direct loss to the property

fortuitous loss

A loss that is accidental and unexpected

constructive total loss

A loss that occurs when the cost to repair damaged property plus its remaining salvage value equals or exceeds the property's pre-loss value

co-participation provision

A provision in a reinsurance agreement that requires the primary insurer to retain a specified percentage of the losses that exceed its attachment point

A. Avoidance

A manufacturer that elects to discontinue a particular product due to potential liability loss exposures is practicing which one of the following risk control techniques? A. Avoidance B. Loss prevention C. Loss reduction D. Separation

C. A situational (SWOT) analysis of the current marketplace.

A marketing plan for a typical insurance product includes: A. State agency law requirements. B. Duties insurance producers owe to customers. C. A situational (SWOT) analysis of the current marketplace. D. Apparent authority guidelines of producers.

medical management

A medical expense control measure that involves directing and coordinating efforts of healthcare providers to meet patient and insurer needs

actual cash value

A method in valuing property that is calculated as the cost to replace or repair property minus depreciation, the fair market value, or a valuation determined by the broad evidence rule

five forces model

A method of evaluating the external environment in which a company operates. Involves assessing five forces that drive competition: threat of new entrants, threat of substitute products or services, bargaining power of buyers, bargaining power of suppliers, and rivalry among existing firms

SWOT analysis

A method of evaluating the internal and external environments by assessing an organization's internal strengths and weaknesses and its external opportunities and threats

accident-year method

A method of organizing ratemaking statistics that uses incurred losses for an accident year, which consist of all losses related to claims arising from accidents that occur during the year, and that estimates earned premiums by formulas from accounting records

appraisal

A method of resolving disputes between insurers and insureds over the amount owed on a covered loss

account underwriting

A method of underwriting in which all of the business from a particular applicant is evaluated as a whole

agreed amount

A method of valuing property in which the insurer and the insured agree on the property's value at the time the policy is written and that states the amount in the policy declarations as the amount the insurer will pay in the event of a total loss to the property

general damages

A monetary award to compensate a victim for losses, such as pain and suffering, that does not involve specific, measurable expenses

Spearman's rho

A non-parametric indication of statistical dependence between two variable data elements

finite risk reinsurance

A nontraditional type of reinsurance in which the reinsurer's liability is limited and anticipated investment income is expressly acknowledged as an underwriting component

A. Unanticipated catastrophic losses

A number of unique factors shape the insurance marketplace. Which one of the following factors is most likely to lead to insurer insolvency, withdrawal from certain geographic markets, and reinsurance shortages? A. Unanticipated catastrophic losses B. Regulatory controls C. Shifts in the underwriting cycle D. Economic inflation

punitive damages (exemplary damages)

A payment awarded by a court to punish a defendant for a reckless, malicious, or deceitful act to deter similar conduct; the award need not bear any relation to a party's actual damages

compensatory damages

A payment awarded by a court to reimburse a victim for actual harm

advance payment

A payment made to a claimant following a loss to cover the immediate expenses resulting from that loss

premium pay (shift differential)

A payroll system that increases the regular hourly wage rate for the night shift or other special conditions

D. Reviewing data

A purpose of Actuarial Standard of Practice No. 23 (ASOP 23) is to give guidance to the actuary in which one of the following tasks? A. Relying on the data supplied by the actuary B. Avoiding disclosures with regard to data quality C. Determining which data the actuary must audit D. Reviewing data

external claims audit

A review of claim files conducted by organizations other than the insurer that involves reviewing overall claims handling practices; reviewing reserves and other technical details of claim settlements; investigating consumer complaints; ensuring that claims procedures were followed; and verifying that appropriate, thorough documentation was included

surplus lines broker

A person or firm that places business with insurers not licensed (nonadmitted) in the state in which the transaction occurs but that is permitted to write insurance because coverage is not available through standard market insurers

claims representative

A person responsible for investigating, evaluating, and settling claims

disaster recovery plan

A plan for backup procedures, emergency response, and post-disaster recovery to ensure that critical resources are available to facilitate the continuity of operations in an emergency situation

sublimit

A policy provision that imposes smaller limits for certain kinds of property or lines of insurance

B. Advises the insured that the insurer is investigating the claim but retains the right to deny coverage later.

A reservation of rights letter: A. Lists all of the rights that an insured has under an insurance policy. B. Advises the insured that the insurer is investigating the claim but retains the right to deny coverage later. C. Lists all of the rights that an insurer has under an insurance policy. D. Advises the insurer that the insured has made a claim, but retains the right to withdraw the claim later.

internal claims audit

A review of claim files conducted by an insurer's staff to examine the technical details of claim settlements; ensure that claims procedures are followed; and verify that appropriate, thorough documentation is included

C. 75%

A primary insurer has a five-line surplus share treaty with a $50 million limit. For a specific loss exposure with coverage limit needs of $20 million, the primary insurer's line guide permits a $5 million line. Which one of the following percentages will be used to cede premiums and losses to the reinsurer? A. 20% B. 25% C. 75% D. 80%

B. Receiving ceding commissions to offset policy acquisition expenses.

A primary insurer is able to obtain surplus relief through reinsurance by: A. Obtaining underwriting advice from a reinsurer to increase underwriting profit. B. Receiving ceding commissions to offset policy acquisition expenses. C. Minimizing fluctuations in retained losses from year to year. D. Reducing large line capacity to minimize the ratio of net written premium to policyholders' surplus.

central station system

A private detection service that monitors the systems of multiple businesses and/or residences and that calls appropriate authorities or dispatches its own personnel when an alarm is activated

fire brigade

A private or temporary organization of individuals equipped to fight fires; typically used in businesses that are located far from municipal fire services

predictive modeling

A process in which historical data based on behaviors and events is blended with multiple variables and used to construct models of anticipated future outcomes

B. Consulting

A producer is usually paid a fee for performing which one of the following functions? A. Prospecting B. Consulting C. Premium collection D. Policy issuance

B. Risk management review

A producer will generally review a company's loss run report while performing which one of the following functions? A. Customer service B. Risk management review C. Sales D. Claims handling

Return on equity (ROE)

A profitability ratio expressed as a percentage by dividing a company's net income by its net worth (book value). Depending on the context, net worth is sometimes called shareholders' equity, owners' equity, or policyholders' surplus

return on equity (ROE)

A profitability ratio expressed as a percentage by dividing a company's net income by its net worth (book value). Depending on the context, net worth is sometimes called shareholders' equity, owners' equity, or policyholders' surplus

combined ratio

A profitability ratio that indicates whether an insurer has made an underwriting loss or gain

counteroffer

A proposal an offeree makes to an offeror that varies in some material way from the original offer, resulting in rejection of the original offer and constituting a new offer

variable quota share treaty

A quota share reinsurance treaty in which the cession percentage retention varies based on specified predetermined criteria such as the amount of insurance needed

D. Agreed amount

A rare antique French desk in the foyer of a commercial office building is destroyed when the automatic sprinkler system deploys during a minor fire. Under a commercial property policy, which one of the following property valuations was best suited for this antique? A. Replacement cost B. Stated value C. Actual cash value D. Agreed amount

experience modification

A rate multiplier derived from the experience rating computation

retrospective rating

A ratemaking technique that adjusts the insured's premium for the current policy period based on the insured's loss experience during the current period; paid losses or incurred losses may be used to determine loss experience

extension of exposure

A ratemaking technique that uses rating-related data elements in order to individually recalculate past coverages using current rates

D. Schedule rating plan.

A rating plan available to commercial insurance applicants that awards debits and credits to a submission based on specific categories is known as a(n): A. Retrospective rating plan. B. Financial rating plan. C. Experience rating plan. D. Schedule rating plan.

retrospective rating plan

A rating plan that adjusts the insured's premium for the current policy period based on the insured's loss experience during the current period; paid losses or incurred losses may be used to determine loss experience

experience rating

A rating plan that adjusts the premium for the current policy period to recognize the loss experience of the insured organization during past policy periods

schedule rating

A rating plan that awards debits and credits based on specific categories, such as the care and condition of the premises or the training and selection of employees, to modify the final premium to reflect factors that the class rate does not include

operating ratio

A ratio that measures an insurer's overall pretax operational profitability from underwriting and investment activities and is calculated by subtracting the investment income ratio from the combined ratio

loss ratio

A ratio that measures losses and loss adjustment expenses against earned premiums and that reflects the percentage of premiums being consumed by losses

activity log

A record of all the activities and analyses that occur while handling a claim

profit cycle

A recurring increase and decrease in profits, usually regarding a single organization or industry

direct loss

A reduction in the value of property that results directly and often immediately from damage to that property

treaty reinsurance

A reinsurance agreement that covers an entire class or portfolio of loss exposures and provides that the primary insurer's individual loss exposures that fall within the treaty are automatically reinsured

retrocession

A reinsurance agreement whereby one reinsurer (the retrocedent) transfers all or part of the reinsurance risk it has assumed or will assume to another reinsurer (the retrocessionaire)

reinsurance pool

A reinsurance association that consists of several unrelated insurers or reinsurers that have joined to insure risks the individual members are unwilling to individually insure

surplus relief

A replenishment of policyholders' surplus provided by the ceding commission paid to the primary insurer by the reinsurer

claims audit

A review of claim files to examine the technical details of claim settlements; ensure that claims procedures are followed; and verify that appropriate, thorough documentation is included

B. Evaluating management's approach to accident prevention

A risk control representative can obtain important insight into the possibility and extent of moral hazards and morale hazards by doing which one of the following? A. Interviewing injured workers B. Evaluating management's approach to accident prevention C. Obtaining a professional building appraisal valuation D. Reviewing the written safety program

avoidance

A risk control technique that involves ceasing or never undertaking an activity so that the possibility of a future loss occurring from that activity is eliminated

separation

A risk control technique that isolates loss exposures from one another to minimize the adverse effect of a single loss

loss prevention

A risk control technique that reduces the frequency of a particular loss

loss reduction

A risk control technique that reduces the severity of a particular loss

diversification

A risk control technique that spreads loss exposures over numerous projects, products, markets, or regions

duplication

A risk control technique that uses backups, spares, or copies of critical property, information, or capabilities and keeps them in reserve

finite risk insurance plan

A risk financing plan that transfers a limited (finite) amount of risk to an insurer

retention

A risk financing technique by which losses are retained by generating funds within the organization to pay for the losses

B. Compare actual results with the established performance standards.

A risk management program must be monitored and periodically revised, and that revision involves four steps. Which one of the following is one of those four steps? A. Establish results-based rather than activity-based standards of acceptable performance. B. Compare actual results with the established performance standards. C. Reduce any performance standards that have not been achieved by the actual results. D. Return to the first step in the risk management process to identify new loss exposures.

nondiversifiable risk

A risk that affects a large segment of society at the same time

diversifiable risk

A risk that affects only some individuals, businesses, or small groups

fire division

A section of a structure so well protected that fire cannot spread from that section to another, or vice versa

access security

A security setting that controls an individual computer user's ability to review, enter, and change information in a claims information system

rating plan

A set of directions that specify criteria of the exposure base, the exposure unit, and rate per exposure unit to determine premiums for a particular line of insurance

claims guidelines

A set of guidelines and instructions that specify how certain claims handling tasks should be performed by setting policies and procedures for claim handling

exploratory data analysis (EDA)

A set of techniques that use graphs and descriptive statistics to explore the structure of a dataset and identify outliers

walk-away settlement

A settlement that involves lump-sum payments made by insurers to settle claims and that does not require a release from the claimant

nonwaiver agreement

A signed agreement indicating that during the course of investigation, neither the insurer nor the insured waives rights under the policy

Kendall's tau

A statistic that evaluates the association of two measured quantities

C. Reports data submitted by insurers to state insurance departments.

A statistical agent: A. Regulates insurance company rates. B. Evaluates the financial solvency of insurers by utilizing metadata-based analysis. C. Reports data submitted by insurers to state insurance departments. D. Performs market conduct examinations.

policy year

A statistical measurement consisting of all of the policies issued in a given twelve-month period

trending

A statistical technique for analyzing environmental changes and projecting such changes into the future

chi-square goodness of fit

A statistical test on the frequency distribution of events found in a sample compared to a particular theoretical distribution

physical hazard

A tangible characteristic of property, persons, or operations that tends to increase the frequency or severity of loss

binder

A temporary written or oral agreement to provide insurance coverage until a formal written policy is issued

per occurrence excess of loss reinsurance

A type of excess of loss reinsurance that applies the attachment point and reinsurance limit to the total losses arising from a single event affecting one or more of the primary insurer's policies

per policy excess of loss reinsurance

A type of excess of loss reinsurance that applies the attachment point and the reinsurance limit separately to each insurance policy issued by the primary insurer regardless of the number of losses occurring under each policy

aggregate excess of loss reinsurance

A type of excess of loss reinsurance that covers aggregated losses that exceed the attachment point, stated as a dollar amount of loss or as a loss ratio, and that occur over a specified period, usually one year

per risk excess of loss reinsurance

A type of excess of loss reinsurance that covers property insurance and that applies separately to each loss occurring to each risk

catastrophe excess of loss reinsurance

A type of excess of loss reinsurance that protects the primary insurer from an accumulation of retained losses that arise from a single catastrophic event

affinity marketing

A type of group marketing that targets various groups based on profession, association, interests, hobbies, and attitudes

class rate

A type of insurance rate that applies to all insureds in the same rating category or rating class

niche marketing

A type of marketing that focuses on specific types of buyers who are a subset of a larger market

surplus share reinsurance

A type of pro rata reinsurance in which the policies covered are those whose amount of insurance exceeds a stipulated dollar amount, or line

quota share reinsurance

A type of pro rata reinsurance in which the primary insurer and the reinsurer share the amounts of insurance, policy premiums, and losses (including loss adjustment expenses) using a fixed percentage

pro rata reinsurance

A type of reinsurance in which the primary insurer and reinsurer proportionately share the amounts of insurance, policy premiums, and losses (including loss adjustment expenses)

excess of loss reinsurance (nonproportional reinsurance)

A type of reinsurance in which the primary insurer is indemnified for losses that exceed a specified dollar amount

deluge sprinkler system

A type of sprinkler system in which all the heads remain permanently open; when activated by a detection system, a deluge valve allows water into the system

surplus note

A type of unsecured debt instrument, issued only by insurers, that has characteristics of both conventional equity and debt securities and is classified as policyholders' surplus rather than as a liability on the insurer's statutory balance sheet

parapet

A vertical extension of a fire wall that extends above a roofline

C. An excess of loss reinsurance agreement with a low attachment point.

A working cover is: A. A pro rata treaty with a variable attachment point. B. A quota share treaty with a high percent of ceding. C. An excess of loss reinsurance agreement with a low attachment point. D. A surplus share facultative reinsurance contract with a small line.

underwriting guidelines (underwriting guide)

A written manual that communicates an insurer's underwriting policy and that specifies the attributes of an account that an insurer is willing to insure

warranty

A written or an oral statement in a contract that certain facts are true

A. Test output controls.

According to ISO's Strength in Numbers pamphlet, what step should follow testing program controls in the data quality audit process? A. Test output controls. B. Test preparedness of data. C. Test error procedures. D. Test data entry transfers.

C. The agents own the expirations for the existing book

After investing significant resources to develop a Web-based system, a personal lines insurer has decided to expand its territory by assuming the role of a direct writer and using the Internet as a distribution channel. What is the insurer's greatest concern with the existing book which used independent agents as the distribution system? A. The quality of the existing book compared to the new book B. The service needs of the existing book C. The agents own the expirations for the existing book D. Clear communication with existing customers

B. Desirable

Ace Appliance is a retail store that sells large household appliances such as refrigerators, stoves, washers, dryers, and dishwashers. The company does no appliance repair work. The store is located in the end unit of a single-storey strip mall of modified fire-resistive construction. The strip mall was constructed five years ago and has fire breaks and parapets between each of the units. The mall is 2,000 feet from a fire hydrant and 7 miles from the responding fire station. It is rated Public Protection Class 3. Ace Appliance is a neat, well-maintained store and trash and waste are stored in metal containers away from the building at the back of the parking lot. The store's owner, "Ace" Atherley is a heavy smoker, as are several of his staff, but the store has a strict policy that allows smoking only outside the back door of the store. The unit next door to Ace Appliance is currently vacant. Which one of the following ratings would a property underwriter for a standard insurer most probably give this risk? A. Highly desirable B. Desirable C. Undesirable D. Highly undesirable

D. Ensuring that organizational standards are met and the procedures are followed.

Activities of the legal and compliance function may include: A. Deciding under what conditions the insurer is willing to provide insurance products and services to customers. B. Collecting evidence of possible fraud. C. Providing the infrastructure that supports all of an insurer's internal and external communications. D. Ensuring that organizational standards are met and the procedures are followed.

C. Providing an inventory of the damaged property.

After a property claim is submitted, the insured is required to assist the adjuster with the loss adjustment process by: A. Explaining the circumstances in an examination under oath promptly after the loss. B. Repairing or replacing the damaged property before the adjuster arrives. C. Providing an inventory of the damaged property. D. Maintaining coverage during the claim settlement process.

C. To determine whether a change in course is required to achieve its goals.

After an organization's internal and external environments and its business strategies have been examined, the next step to take is: A. To implement changes across the organization. B. To determine any best practices for the industry. C. To determine whether a change in course is required to achieve its goals. D. To evaluate strengths and weaknesses of the organization.

C. Soft market

After being approached by several different insurance companies, Charles Construction decided to market its program at renewal time. The contractor was offered competitive proposals from four different insurers. The proposals included options with lower premiums than the expiring, and also options offering higher limits of insurance. Which one of the following types of underwriting cycles is Charles Construction experiencing? A. Inflationary cycle B. Hard market C. Soft market D. Catastrophic cycle

A. Special investigation unit

Alex, a premium auditor for Keithly Insurance Company, has received a workers compensation audit form which his insured completed for the prior year. He notes the payroll has been greatly decreased since the last audit. Which one of the following functional areas of Keithly can assist Alex with this audit's irregularity? A. Special investigation unit B. Accounting and finance C. Human resources D. Risk control

D. Set preliminary loss reserves

Alexis has inherited a family cottage that she has insured with Millstone Insurance for $100,000. One weekend while Alexis is at the cottage, a fire starts in the night. The cottage is a total loss. Alexis calls her insurance agent who reports the claim to Millstone. The claim is assigned to Victor, a property claim representative. After entering the information from the notice of loss into Millstone's claim-processing system, which one of the following will Victor most likely do? A. Verify whether any exclusions apply B. Advise the agent that the policy is in force C. Verify that Alexis owns the cottage D. Set preliminary loss reserves

B. Underwriting authority reports

All of the following are principal sources of underwriting information, EXCEPT: A. Producers B. Underwriting authority reports C. Applications D. Financial rating services

A. Low volume

All of the following are qualities of the data storage and sharing medium known as the blockchain, EXCEPT: A. Low volume B. Independently verified C. Trusted source D. Encrypted

A. Support producers and insureds

All of the following are underwriting activities typically performed by staff underwriters, EXCEPT: A. Support producers and insureds B. Research the market C. Formulate underwriting policy D. Conduct underwriting audits

A. It can eliminate risks to its business model.

All of the following are ways an organization that incorporates enterprise-wide risk management (ERM) with its strategic planning process improves its decision making, EXCEPT: A. It can eliminate risks to its business model. B. It can use ERM as a process to manage unwanted variations from expectations. C. It can exploit opportunities by incorporating them into its current business model. D. It can address potentially devastating threats.

C. Arson

All of the following causes of loss to an individual's property would be considered fortuitous, EXCEPT: A. Lightning B. Flood C. Arson D. Windstorm

C. The insured may retain an independent adjuster if settlement negotiations with the insurer are not progressing satisfactorily.

All of the following correctly describe reasons for the use of independent adjusters, EXCEPT: A. In some areas it is not economically feasible to set up claim offices, and insurers may contract with independent adjusters to handle claims in these remote areas. B. Insurers may use independent adjusters when special skills and expertise are needed, for example to investigate aircraft accidents. C. The insured may retain an independent adjuster if settlement negotiations with the insurer are not progressing satisfactorily. D. In the case of a catastrophic loss such as a hurricane, an insurer may not have sufficient staff to manage the large number of claims, and may use independent adjusters.

A. Employee gender and marital status

All of the following factors are considered when underwriting workers compensation insurance, EXCEPT: A. Employee gender and marital status B. Cumulative trauma disorders C. Subcontractors D. Management attitude and capability

large-line capacity

An insurer's ability to provide larger amounts of insurance for property loss exposures, or higher limits of liability for liability loss exposures, than it is otherwise willing to provide

A. The higher an insurer's premium-to-surplus ratio, the greater its ability to expand premium writings.

All of the following statements are true regarding the factors affecting the formation of an insurer's underwriting policy, EXCEPT: A. The higher an insurer's premium-to-surplus ratio, the greater its ability to expand premium writings. B. The availability and cost of adequate reinsurance can influence underwriting policy. C. Return-on-equity thresholds guide insurers in deciding where to allocate capital. D. Insurers are subject to penalties from the states if they deviate from filed forms or rates.

personal property

All tangible or intangible property that is not real property

B. Such review is not necessary or not practical.

An actuary should review the data for reasonableness and consistency, unless, in the actuary's professional judgment, which one of the following is true? A. Such review is against the corporate interests of the company. B. Such review is not necessary or not practical. C. Such review is in violation of a regulatory request. D. Such review is contraindicated based on what will be done on subsequent reviews.

National Association of Insurance Commissioners (NAIC)

An association of insurance commissioners from the fifty U.S. states, the District of Columbia, and the five U.S. territories and possessions, whose purpose is to coordinate insurance regulation activities among the various state insurance departments

preferred provider organization (PPO)

An administrative organization that meets the common needs of healthcare providers and clients and that identifies networks of providers and contracts for their medical services at discounted rates

A. Incentive for risk control.

An advantage that retention offers an individual or organization is: A. Incentive for risk control. B. Reduction in exposure to large loss. C. Reduction in cash flow variability. D. Transference of responsibility for claims administration.

B. Affinity marketing

An agency in New Jersey has decided to market personal insurance to accountants. It is offering a 10% discount to all Certified Public Accountants in the state. This is an example of which one of the following types of group marketing? A. Sponsorship marketing B. Affinity marketing C. Franchise marketing D. Worksite marketing

structured settlement

An agreement in settlement of a claim involving specific payments made over a period of time

facultative certificate of reinsurance

An agreement that defines the terms of the facultative reinsurance coverage on a specific loss exposure

novation

An agreement under which one insurer or reinsurer is substituted for another

contingent capital arrangement

An agreement, entered into before any losses occur, that enables an organization to raise cash by selling stock or issuing debt at prearranged terms after a loss occurs that exceeds a certain threshold

mediation

An alternative dispute resolution (ADR) method by which disputing parties use a neutral outside party to examine the issues and develop a mutually agreeable settlement

arbitration

An alternative dispute resolution (ADR) method by which disputing parties use a neutral outside party to examine the issues and develop a settlement, which can be final and binding

mini-trial

An alternative dispute resolution method by which a case undergoes an abbreviated version of a trial before a panel or an adviser who poses questions and offers opinions on the outcome of a trial, based on the evidence presented

summary jury trial

An alternative dispute resolution method by which disputing parties participate in an abbreviated trial, presenting the evidence of a few witnesses to a panel of mock jurors who decide the case

ceding commission

An amount paid by the reinsurer to the primary insurer to cover part or all of the primary insurer's policy acquisition expenses

C. $2,800,000

An amusement park ride malfunctioned, injuring four individuals. ABC Insurer, the general liability insurer for the both the amusement park and the ride manufacturer, paid each of the four individuals $500,000 under the amusement park's policy and paid each of the four individuals $250,000 under the ride manufacturer's policy. ABC has a $5 million xs $200,000 per occurrence excess of loss treaty with XYZ Reinsurer. How much would XYZ pay for these losses? A. $1,400,000 B. $1,500,000 C. $2,800,000 D. $3,000,000

Market conduct examination

An analysis of an insurer's practices in four operational areas: sales and advertising, underwriting, ratemaking, and claim handling

trend analysis

An analysis that identifies patterns in past data and then projects these patterns into the future

D. Requiring risk control measures.

An applicant for commercial property insurance is found unacceptable by an underwriter due to the nature of its operations and the construction of the building it occupies. If the applicant installs an automatic fire-extinguishing sprinkler system, the underwriter will approve the application. This type of underwriting modification is known as: A. Changing insurance rates, rating plans, or policy limits. B. Using facultative reinsurance. C. Amending the policy terms and conditions. D. Requiring risk control measures.

rent-a-captive

An arrangement under which an organization rents capital from a captive, to which it pays premiums and receives reimbursement for its losses

Test Audit

An audit conducted by an insurance advisory organization or bureau to check the accuracy of insurers' premium audits

managing general agent (MGA)

An authorized agent of the primary insurer that manages all or part of the primary insurer's insurance activities, usually in a specific geographic area

preaction sprinkler system

An automatic fire sprinkler system with automatic and closed-type sprinkler heads connected to a piping system that contains air or nitrogen, with an additional fire detection system that serves the same area as the sprinklers

advisory organization

An independent organization that works with and on behalf of insurers that purchase or subscribe to its services

B. Assumption of risk

An individual is injured while downhill skiing and shortly after the incident engages the ski lodge owners in a lawsuit. Which one of the following defenses might the ski lodge successfully use against the claimant, the injured skier? A. Strict liability B. Assumption of risk C. Vicarious liability D. Failure to warn

express warranty

An explicit statement about a product by the seller that the buyer or other user may rely on and that provides a remedy in the event the product does not perform as claimed

implied warranty of fitness for a particular purpose

An implied warranty that a product is fit for a particular purpose; applies if the seller knows about the buyer's purpose for the product

implied warranty of merchantability

An implied warranty that a product is fit for the ordinary purpose for which it is used

C. Policy amount

An important consideration in evaluating property loss exposures is their potential severity. Underwriters use several measures to determine the potential severity of a loss and each measure is the sum of separate values for every type of coverage the policy provides. Which one of the following measures of potential loss severity is the easiest to calculate and is the only measure of potential severity on which underwriters tend to agree? A. Probable maximum loss B. Maximum foreseeable loss C. Policy amount D. Amount subject

A. How quickly can inquiries and transactions be processed?

An important question for an insurer to ask when examining customers' needs and characteristics to select a distribution channel is: A. How quickly can inquiries and transactions be processed? B. Who is the target market? C. Does cost outweigh the benefit? D. Is the expertise of the current staff adequate?

independent adjuster

An independent claims representative who handles claims for insurers for a fee

B. Maintain prices and increase underwriting standards.

An insurance company has a track record of strong investment returns, has a ratio of premiums written to policyholders' surplus of one-to-one, and return on equity greater than its return-on-equity threshold. In a soft market, the insurance company most likely would: A. Make no changes because investment income doesn't affect profitability. B. Maintain prices and increase underwriting standards. C. Make no changes because ROE doesn't affect profitability. D. Increase prices and increase underwriting standards.

D. Increase its written premium volume.

An insurance company must have adequate policyholders' surplus if it wishes to: A. Avoid adverse selection. B. Purchase reinsurance. C. Diversify its book of business. D. Increase its written premium volume.

direct writer marketing system

An insurance marketing system that uses sales agents (or sales representatives) who are direct employees of the insurer

exclusive agency marketing system

An insurance marketing system under which agents contract to sell insurance exclusively for one insurer (or for an associated group of insurers)

independent agency and brokerage marketing system

An insurance marketing system under which producers (agents or brokers), who are independent contractors, sell insurance, usually as representatives of several unrelated insurers

manuscript policy

An insurance policy that is specifically drafted according to terms negotiated between a specific insured (or group of insureds) and an insurer

large deductible plan

An insurance policy with a per occurrence or per accident deductible of $100,000 or more

Fair Access to Insurance Requirements (FAIR) plans

An insurance pool through which private insurers collectively address an unmet need for property insurance on urban properties, especially those susceptible to loss by riot or civil commotion

A. $1,500

An insured is patronizing a drive-through restaurant when the vehicle scrapes along a barrier, damaging the paint on the side of the vehicle. The adjuster declares the vehicle a constructive total loss. The vehicle's actual cash value (ACV) before the accident was $2,500, and the cost to repair it is $2,000. The salvage value, or ACV after the loss, is $1,000. Assuming the insured wants to keep the vehicle, how much will the insurer pay ignoring deductibles? A. $1,500 B. $2,000 C. $2,500 D. $3,000

underwriter

An insurer employee who evaluates applicants for insurance, selects those that are acceptable to the insurer, prices coverage, and determines policy terms and conditions

A. Initial capital from investors.

An insurer has additional financial resources that enable it to provide a stronger guarantee that sufficient funds will be available in the event of a loss. Such additional financial resources are primarily derived from retained earnings and: A. Initial capital from investors. B. Claim reserves. C. Policyholder surplus. D. Net earned premium.

D. No, because the expected return is less than 20 percent.

An insurer has determined that expansion into a new territory has expected returns of 8.5 percent. The insurer has a return-on-equity threshold of 20 percent. Will the insurer likely undertake this expansion? A. Yes, because the threshold is not exceeded. B. Yes, because policyholder surplus will grow by 8.5 percent. C. No, because the ratio is less than 3-1. D. No, because the expected return is less than 20 percent.

nonadmitted insurer

An insurer not authorized by the state insurance department to do business within that state

mutual insurer

An insurer that is owned by its policyholders and formed as a corporation for the purpose of providing insurance to them

A. Broker

An insurer that targets large middle-market and national accounts would most likely use which one of the following distribution systems? A. Broker B. Internet C. Exclusive agent D. Direct

professional reinsurer

An insurer whose primary business purpose is serving other insurers' reinsurance needs

public adjuster

An outside organization or person hired by an insured to represent the insured in a claim in exchange for a fee

B. The potential for many injuries or deaths resulting from a single incident.

An underwriter is comparing workers compensation submissions on two accounting firms, Firm A and Firm B. Each firm employs roughly 350 employees. Firm A occupies two floors in a prominent high rise building in a major metropolitan area. Employees are not required to travel. Firm B, located in the same metropolitan area, has multiple offices spread throughout the city to facilitate client visits. Housekeeping and maintenance hazards are similar among the firms. Firm A poses a greater single loss exposure due to: A. The special hazards associated with the accounting firm classification. B. The potential for many injuries or deaths resulting from a single incident. C. The fact that loss experience is typically higher for single location firms. D. Higher employee turnover rates for single location firms.

B. Using a different rating plan can provide pricing flexibility so that the underwriter can properly price a submission based on its loss exposures.

An underwriter may accept a submission as is, reject the submission, or make a counteroffer to accept the submission subject to modifications. Which one of the following statements is correct with respect to these modifications? A. Amendments to policy terms and conditions are prohibited by state regulation as a means for an insurer to make a counteroffer. B. Using a different rating plan can provide pricing flexibility so that the underwriter can properly price a submission based on its loss exposures. C. Because insurers are unable to verify whether or not an applicant has implemented risk control measures, counteroffers cannot require them. D. Treaty reinsurance is used by underwriters to reinsure classes of business with atypical loss exposures.

B. Developing underwriting alternatives

An underwriter receives a renewal application for a property quote from his producer. The applicant has had a series of small losses in the recent past. The underwriter is debating whether to reject the submission or quote it with a property deductible of $5,000. During which one of the following steps in the underwriting process is the underwriter involved? A. Evaluating the submission B. Developing underwriting alternatives C. Monitoring underwriting decisions D. Implementing the underwriting decision

D. Probable maximum loss.

An underwriter's estimate of the largest loss that is likely to occur is called the: A. Normal loss expectancy. B. Maximum possible loss. C. Maximum foreseeable loss. D. Probable maximum loss.

A. Acknowledge receipt of the claim to Chad and enter the claim information into ABC's computer system.

Anil has his automobile insured with ABC Insurance through his agent, Chad. Returning to his car in a shopping mall parking lot, Anil sees that vandals have spray painted graffiti on his vehicle. He calls Chad to report the damage and ask what he should do. Chad tells him to report the vandalism to the police, follow their instructions, and then take the vehicle home and wait for a call from a claim representative. Chad then reports the loss to ABC. Melissa is the claim representative assigned Anil's loss. Which one of the following will be the first step Melissa takes? A. Acknowledge receipt of the claim to Chad and enter the claim information into ABC's computer system. B. Call Anil and take a statement regarding the details of the claim. C. Verify that Anil's automobile policy covers vandalism damage. D. Verify that Anil reported the loss to the police.

B. Wholesale bakery

Anna is doing market research on the food industry. She has segmented the market into wholesale and retail operations, and further segmented the wholesale market into meats, fruit and vegetables, dairy, bakery, and non-perishables. Which one of the following would be considered the best example of a niche market? A. Wholesale grocery supplier B. Wholesale bakery C. Food warehousing D. Retail grocery store

D. Determine whether lightning and windstorm are covered causes of loss and whether any exclusions apply

Antonia and Philip have their house insured with Durham Insurance under an HO-3 homeowner's policy. Philip is the named insured and there is no mortgagee shown on the policy. During a storm, a lightning strike results in a kitchen fire and high winds causes a tree to fall on the roof, leaving a large hole. The homeowners make emergency repairs to protect against further damage and report the loss to the insurer. The claim is assigned to Miguel who identifies the policy and performs an initial review. After discussing the loss with Antonia and Philip, which one of the following will Miguel most likely do? A. Verify that Antonia meets the policy definition of "insured" and is entitled to receive payment for her portion of the loss B. Take detailed statements from firefighters and neighbors to establish what the actual cause of loss was C. Verify whether there is a mortgagee on the property that may need to be included in the loss settlement D. Determine whether lightning and windstorm are covered causes of loss and whether any exclusions apply

loss exposure

Any condition or situation that presents a possibility of loss, whether or not an actual loss occurs

liability loss exposure

Any condition or situation that presents the possibility of a claim alleging legal responsibility of a person or business for injury or damage suffered by another party

personal loss exposure

Any condition or situation that presents the possibility of a financial loss to an individual or a family by such causes as death, sickness, injury, or unemployment

C. Loss exposure.

Any condition that presents a possibility of loss, whether or not an actual loss occurs is known is a: A. Deterrence effect. B. Speculative risk. C. Loss exposure. D. Hazard risk.

producer

Any of several kinds of insurance personnel who place insurance and surety business with insurers and who represent either insurers or insureds, or both

C. Corporate bonds with long maturity

Argot Insurance Company (Argot) writes both property and casualty policies which include general liability. Valteri, the investment manager for Argot, should select which one of the following investments to support Argot's general liability lines of business? A. Liquid investments B. Short-term investments C. Corporate bonds with long maturity D. Investments with short maturity

D. Opportunities

Argot Insurance Company, which specializes in professional liability insurance, has discovered that competitors in some areas have not updated their products or services for nearly 10 years. Under which one of the following areas of Argot's SWOT (strengths, weaknesses, opportunities, and threats) analysis would this fact be identified? A. Weaknesses B. Strengths C. Threats D. Opportunities

B. 6%

Argot Stock Insurance Company's (Argot) net income is $1,000,000 and its average owners' equity is $16,500,000. Argot's average policyholders' surplus is $20,000,000. Using the GAAP approach, which one of the following is Argot's return on equity? A. 5% B. 6% C. 18% D. 20%

B. 5.56%

Argot Stock Insurance Company's (Argot) net income is $1,000,000 and its average owners' equity is $18,000,000. Argot's average policyholders' surplus is $20,000,000. Using the GAAP formula, which one of the following is Argot's return on equity? A. 5% B. 5.56% C. 18% D. 20%

B. 83%

At year-end, SBC Insurance Company posted the following results: Incurred losses - $18 million Loss adjustment expenses - $2 million Underwriting expenses - $5 million Written premiums - $26 million Earned premiums - $24 million Based upon the company's year-end results, which one of the following represents SBC's loss ratio? A. 75% B. 83% C. 96% D. 104%

A. Undesirable

Art Décor is an interior decorating business located in a renovated two-story brick century home. The roof is asphalt shingles and the exterior walls have been insulated with fiberglass insulation. The ground floor of the building is a display area for fabric and wall covering samples, and flooring and carpeting samples. The second floor contains offices and client consulting rooms. The building is heated by a standard oil furnace. It is well-maintained and is located on the outskirts of town 1,500 feet from a fire hydrant and 8 miles from the responding fire hall, which ISO rates as Public Protection Class 7. The building is equipped with smoke detectors and has an automatic sprinkler system. Immediately north of the building is a lumber yard located in relatively new, one-story frame building. To the south is open farm land. Which one of the following ratings would a property underwriter for a standard insurer most probably give this risk? A. Undesirable B. Desirable C. Highly desirable D. Highly undesirable

C. When her car's windshield breaks, Ciara has to pay only $100 of the $600 cost of replacing it.

As a single mother on a very tight budget, Ciara is tempted to skimp on her insurance. However, her friend Mehmet tells her not to skimp on insurance, because it will help manage her cash flows. Which one of the following examples best illustrates Mehmet's point? A. Ciara finds it difficult to come up with a $787 auto insurance premium every six months. B. When her car's transmission goes out a month after the warranty expires, Ciara is faced with a $1,100 repair bill. C. When her car's windshield breaks, Ciara has to pay only $100 of the $600 cost of replacing it. D. Ciara needs her car to get to her job, and she needs her job to make car payments and pay for her car insurance.

C. Expected value of losses remains unchanged.

As the number of members in a pool increases, on a per member basis the: A. Uncertainty regarding losses increases. B. Probability of making a payment increases. C. Expected value of losses remains unchanged. D. The standard deviation remains unchanged.

B. 5

At a minimum, in the enterprise-wide risk management (ERM) process, an organization should identify how many of its top risks for consideration of their likelihood, to target them for treatment and monitoring? A. 3 B. 5 C. 6 D. 7

B. A listing of all elements in a database.

At a minimum, metadata includes: A. Version tracking. B. A listing of all elements in a database. C. Process documentation. D. Documentation regarding data quality.

A. A premium auditor.

Barbara visited a commercial insured's premises, met with the management, reviewed business records, and observed the employees and the operations of the business. Her activities provide valuable information to many insurer functions. Barbara is most likely: A. A premium auditor. B. A producer. C. A claim representative. D. An underwriter.

A. Residual market plan.

Because Janine has had many driving accidents due to her own carelessness, she has been unable to find private insurers willing to provide her with automobile insurance. In most states, Janine would be able to purchase auto liability insurance through a: A. Residual market plan. B. Cooperative. C. Reciprocal exchange. D. Fraternal organization.

C. Loss reduction.

Because an insured's warehouse has no attendant on duty most of the time, a fire might not be detected until it has caused extensive damage. With this in mind, an insurer's risk control representative recommends that the insured install a fire alarm system for the purpose of: A. Loss prevention. B. Providing an additional revenue source. C. Loss reduction. D. Both loss prevention and loss reduction.

B. Trade secrets.

Because underwriting guidelines usually specify the attributes of accounts that insurers are willing to insure, insurers consider them: A. The level of authority. B. Trade secrets. C. The key to profitability. D. The tool for training underwriters.

B. Whether Maria's, Daniel's, and Cian's property would be covered

Benjamin has his home insured with Westfork Mutual under an HO-3 policy for $100,000. He is the named insured on the policy. There are three other residents of the home: Maria, Benjamin's mother; Daniel, his nephew; and Cian, a family friend. An accidental fire causes damage to the home and to personal property of all four occupants. Benjamin reports the loss to Westfork and Fatima, a claim representative, is assigned the claim. Which one of the following will most likely be Fatima's principal concern when analyzing coverage for the loss? A. Whether fire is a covered cause of loss under the H0-3 policy B. Whether Maria's, Daniel's, and Cian's property would be covered C. Whether the limit of insurance is sufficient to cover the damage D. Whether any policy exclusions preclude coverage for the loss

C. Any material judgment adjustments that the actuary applied to the data to allow the actuary to perform the analysis.

Besides referring to the standard itself, which one of the following facts should an actuary also disclose when issuing communications under Actuarial Standard of Practice No. 41 (ASOP No. 41)? A. The extent material judgment adjustments to the actuary's work product were not considered. B. Any limitations on unresolved concerns the actuary may have on material judgment adjustments. C. Any material judgment adjustments that the actuary applied to the data to allow the actuary to perform the analysis. D. Whether the actuary reviewed the limitations on the use of material judgment adjustments.

B. Assets exposed to loss.

Buildings, investments, patents, and human resources are all examples of: A. Tangible and intangible hazards. B. Assets exposed to loss. C. Financial consequences of loss. D. Causes of loss or perils.

B. Post-loss goal of survival.

Business continuity is designed to meet both the primary risk management program post-loss goal of continuity of operation and the: A. Pre-loss goal of social responsibility. B. Post-loss goal of survival. C. Post-loss goal of growth. D. Pre-loss goal of economy of operations.

A. Survival

Business continuity management is primarily designed to meet which one of the following risk management goals? A. Survival B. Tolerable uncertainty C. Social responsibility D. Growth

C. Information technology concerns.

Business continuity management was initially developed with a focus on: A. Life safety concerns. B. Terrorism concerns. C. Information technology concerns. D. Ethical concerns.

C. Used to insure property loss exposures that are difficult to insure in the primary market.

Captive insurers are: A. Prohibited from underwriting loss exposures not directly related to the captive's parent or affiliates. B. Typically domiciled in the same jurisdiction as the parent company. C. Used to insure property loss exposures that are difficult to insure in the primary market. D. Not permitted to transfer the financial consequences of insured loss exposures to other insurers.

C. Both a hazard risk and an operational risk.

Carol has worked as a payroll clerk for a small organization for 20 years. Over the years she received only two small salary increases and began to embezzle funds from the company since she felt she was not adequately compensated for her job efforts. In terms of the quadrants of risk, Carol's theft risk can be classified as: A. Both a hazard risk and a financial risk. B. A financial risk. C. Both a hazard risk and an operational risk. D. A strategic risk.

cash flow

Cash inflow minus cash outflow

D. Securitize insurance risk through a marketable security.

Catastrophe bonds are used to: A. Hedge the price of commodities. B. Retain the risk of catastrophe losses. C. Raise cash at prearranged terms after a loss occurs. D. Securitize insurance risk through a marketable security.

D. Can be conducted by an individual other than an insurer's internal personnel.

Claim audits are a review of claim files to ensure that claims are being handled properly, and: A. May be reviewed by an actuary to see what coverages are purchased the most. B. Are only used for electronic claim files because of the ease of accessing data. C. Are used by most insurers as a type of cost-savings measure. D. Can be conducted by an individual other than an insurer's internal personnel.

C. Identify and prevent fraud.

Claims departments use techniques such as network analysis and clustering to help them: A. Acknowledge and assign claims. B. Set fair and adequate reserves. C. Identify and prevent fraud. D. Resolve claims through alternative dispute resolution.

A. 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: A. Classification codes assigned to an insured's claims. B. Amount of claim reserves. C. Territorial rating factors. D. Credibility factors used in rate calculations.

A. Code those data elements that are variables in rating the coverage.

Code-as-rated means that the insurer should: A. Code those data elements that are variables in rating the coverage. B. Code all data elements for all policies. C. Code the data elements for policies in a separate process from the rating process. D. Code a policy only after it has been rated.

B. Definite.

Commercial general liability insurance policies written on an occurrence basis apply to bodily injury and property damage that occurs during the policy period. This provision supports the principle that insurable loss exposures must ideally be: A. Independent. B. Definite. C. Pure risks. D. Fortuitous.

pain and suffering

Compensable injuries that are difficult to measure, such as physical and mental distress and inconvenience associated with a physical injury

D. Changes in the demand for their product

Considering profit cycles and the operating environment of various insureds can be useful to insurance professionals. Which one of the following best describes the force that dominates the profit cycle of manufacturing and retailing businesses? A. Geographical spread of the market B. Supply of raw materials to the market C. Competition in the market for sales D. Changes in the demand for their product

cold canvass

Contacting a prospect without an appointment

reinsurance agreement

Contract between the primary insurer and reinsurer that stipulates the form of reinsurance and the type of accounts to be reinsured

C. Direct and indirect.

Coverage analysis is the process of examining a policy by reviewing all its component parts and applying them to the facts of a claim. Within this analysis, the question "Is the Type of Loss Covered?" helps the claim representative to classify losses as: A. Named peril and direct physical. B. Named peril and open peril. C. Direct and indirect. D. Specified and named peril.

specified causes of loss coverage

Coverage for direct and accidental loss caused by fire, lightning, explosion, theft, windstorm, hail, earthquake, flood, mischief, vandalism, or loss resulting from the sinking, burning, collision, or derailment of a conveyance transporting the covered auto

drop-down coverage

Coverage provided by many umbrella liability policies for (1) claims not covered at all by the underlying policies and (2) claims that are not covered by an underlying policy only because the underlying policy's aggregate limits have been depleted

B. Allows comparison of one audit period to the next.

Defining accuracy ratios: A. Adds rigor to the statistical analysis. B. Allows comparison of one audit period to the next. C. Allow comparison of record counts and dollar counts. D. Sets the frequency of correct values for a data element.

D. Definite and measurable

Delmond Corporation wishes to purchase key person life insurance to provide a financial cushion against the loss of its chief executive officer. This personnel loss exposure for Delmond meets all of the following characteristics of an ideally insurable loss exposure, EXCEPT: A. Premiums are economically feasible B. Independent and not catastrophic C. Fortuitous D. Definite and measurable

A. Weaknesses

Delmond Insurance Company's executive staff has identified problems stemming from some of the company's key divisions such as human resources and administration. A SWOT (strengths, weaknesses, opportunities, and threats) analysis reveals that the situation is a result of lack of managerial depth and talent. Under which one of the following parts of the SWOT analysis would this situation be identified? A. Weaknesses B. Strengths C. Opportunities D. Threats

A. Encode underwriting guidelines.

Depending on the type of insurance, insurers use automated underwriting systems to: A. Encode underwriting guidelines. B. Evaluate producers. C. Decide accounts with subjective factors. D. Price commercial accounts.

A. Extra expense

Due to a total fire loss, a retailer moves its business to a temporary location to avoid closing the business. Reimbursement to the retailer for this additional rental expense is covered under which one of the following? A. Extra expense B. Fire legal liability C. Business income D. Legal liability

B. Verify the estimated premium base.

During advance audits or pre-audit surveys, the premium auditor can classify and observe the operations as well as: A. Recommend additional insurance products. B. Verify the estimated premium base. C. Initiate a risk control strategy. D. Estimate individual claim reserves.

A. Evaluating the submission

During which one of the following steps in the underwriting process would an underwriter request a loss control visit to a prospective policyholder's location? A. Evaluating the submission B. Monitoring the loss exposures C. Implementing the underwriting decision D. Determining underwriting alternatives

A. Upside risk.

ERM optimizes risk taking in relation to strategic goals. ERM also considers the risk that the organization will outperform its strategic goals, which is referred to as: A. Upside risk. B. Situational risk. C. Pure risk. D. Resultant risk.

D. Safety training and emergency evacuation procedures.

Examples of risk control loss reduction techniques that primarily apply to occupancy are: A. Construction design and internal fire protection. B. Fire detection and suppression. C. Relocation away from hazards and removing combustible materials from the space that separates buildings. D. Safety training and emergency evacuation procedures.

D. Resources, events, and impacts

Enterprise-wide risk management (ERM) considers a global array of risks affecting an organization, which can be represented in the exposure spaces model. Which one of the following describes the three attributes depicted by this model? A. Process flows, safety training, and loss mitigation strategies B. Elements, events, and circumstances C. Metrics, data, and communication matrix D. Resources, events, and impacts

D. Impacts.

Enterprise-wide risk management (ERM) considers the global array of risks that affect an organization, which can be represented by a three-dimensional depiction of attributes. These attributes are resources, events, and: A. Strategies. B. Hazards. C. Metrics. D. Impacts.

B. Management by consensus

Enterprise-wide risk management (ERM) will generally result in which one of the following? A. Top-down decision making B. Management by consensus C. Bottom-up decision making D. Hierarchal management

B. Direct writer Internet search

Erin has recently graduated from college and relocated to Chicago. She has purchased a car and rented an apartment and now needs to purchase insurance. Erin is looking for minimum coverages and the lowest price available. Which one of the following is likely the best distribution system to meet Erin's needs? A. Financial institution B. Direct writer Internet search C. Regional broker D. Independent agent

B. Asset exposed to loss

Every loss exposure has which one of the following elements? A. Hazardous conditions B. Asset exposed to loss C. Emotional consequences of the loss D. Physical consequences of the loss

D. An after-the fact, back-end process.

Exploratory data analysis (EDA) is: A. A before-the-fact, front-end process. B. A before-the-fact, back-end process. C. An after-the-fact, front-end process. D. An after-the fact, back-end process.

B. Reason for audit.

Files chosen by managers or technical support staff for internal claim audits are selected on the basis of the: A. Total reserve value. B. Reason for audit. C. Total incurred value. D. Criteria mandated by the insurance commissioner.

A. Loss prevention

Filip manages a small ski resort. He notes upon reviewing the injury claims he has received that many of them occurred on the same slope. To manage this exposure, Filip widens the slope and reduces the steepness. He believes these changes will reduce the number of injuries. Which one of the following risk control techniques is Filip using? A. Loss prevention B. Diversification C. Separation D. Avoidance

insurance derivative

Financial contract whose value is based on the level of insurable losses that occur during a specific time period

D. Investment income

Finite risk reinsurance is considered to be a nontraditional type of reinsurance. Which one of the following factors is expressly acknowledged as an underwriting component under a finite risk agreement? A. Bond rating B. Commission C. Investment expenses D. Investment income

B. Time, cause, and location.

For a loss exposure to be ideally insurable it must be definite in: A. Value, extent, and consequences. B. Time, cause, and location. C. Duration, damage, and cost. D. Scope, origin, and coverage.

B. Property, liability, personnel, and net income

For insurance and traditional risk management purposes, loss exposures are typically divided into four types. Which one of the following lists those four types? A. Property, workers compensation, personnel, and net income B. Property, liability, personnel, and net income C. Environmental, professional, property, and liability D. Property, employers liability, net income, and environmental

on-level earned premium

For ratemaking purposes, a calculation of the earned premium that would result if current rates had been in place for the entire experience period

A. Determines the assignment of the paid and/or outstanding loss or allocated loss adjustment expense (LAE) to the proper accident year.

For statistics analyzed using the accident-year method, the date of loss in an Insurance Services Office (ISO) statistical plan A. Determines the assignment of the paid and/or outstanding loss or allocated loss adjustment expense (LAE) to the proper accident year. B. Indicates which set of statistical plan codes were valid at the inception of the coverage. C. Is used to allocate the earned premium to the proper calendar-accident years. D. Is used to assign written premiums and loss payments and outstanding loss reserve and expense adjustments to the proper policy year.

C. Determination of how reserves were established

For which one of the reasons below might actuaries review claim files? A. Preparation for performance reviews B. Compliance with claim policy and procedures C. Determination of how reserves were established D. Adherence to reinsurance requirements

COPE

Four interdependent elements that are analyzed by commercial property underwriters when evaluating submissions for property insurance; construction, occupancy, protection, and external exposures

D. Undesirable

Frank is a commercial underwriter. He is evaluating a business income coverage application for Harvest Estate Winery. The winery is located in a large masonry building in a remote area. The applicant and producer have requested $1 million coverage limits and a 125 percent coinsurance clause because they anticipate the location may lengthen the time required to rebuild after a loss. The winery's production equipment and storage facilities are computer-controlled as are the temperature and humidity levels throughout the facility. The winery's vineyards are well-established with mature vines. Harvest occurs during a three to four-week period in September. Frank has been advised by the producer that the winery has neither a disaster recovery plan nor a business continuity plan in place. Which one of the following ratings would Frank likely give this risk? A. Highly desirable B. Desirable C. Average D. Undesirable

C. To make information as transparent as possible

From an actuarial standpoint, which one of the following statements best describes the purpose of metadata? A. To make information as accurate as possible B. To make information as complex as possible C. To make information as transparent as possible D. To make information as accessible as possible

B. Attracting children to the play area may require a higher than normal duty of care.

Gavin is a commercial liability underwriter. He is reviewing a CGL application for Toy World, a retail toy store located in a busy, suburban strip mall. The store recently opened and specializes in selling educational toys. The owners previously ran a retail clothing business and had few premises liability losses associated with that former business. In addition to its regular retail operation, Toy World has a play area in which children can try out "demonstrator" toys before purchase. Management has posted a sign that all children in the play area must be supervised by a parent. Which one of the following would probably be Gavin's primary concern in underwriting the premises liability loss exposures for this risk? A. The owners are new in business and not experienced in retail toy sales. B. Attracting children to the play area may require a higher than normal duty of care. C. The mall location may make it harder for customers to exit in case of a fire. D. The mall location may result in high customer traffic.

D. Reinsurance pools (syndicates) can offer reinsurance to insurers that are not members of the pool.

Gemini Insurance Company would like to purchase reinsurance for the professional liability insurance it will sell in the coming year. Which one of the following statements is true concerning the various sources of reinsurance? A. Gemini must pay a ceding commission to a reinsurance broker that places Gemini's business with a reinsurer. B. Gemini must use a reinsurance broker to place business with a direct writing reinsurer. C. Primary insurers that offer reinsurance usually run both of these operations from the same unit for administrative ease. D. Reinsurance pools (syndicates) can offer reinsurance to insurers that are not members of the pool.

C. Independent agencies

Given the complexity of commercial insurance, which one of the following is best suited for its distribution? A. Group marketing B. Direct response C. Independent agencies D. Internet

pre-loss goals

Goals to be accomplished before a loss, involving social responsibility, externally imposed goals, reduction of anxiety, and economy

C. Focused differentiation strategy

Goshen Insurance has decided to develop a package policy to meet the needs of the rapidly growing home health care industry. In addition to property and general liability, the package will also include professional liability coverage and auto liability coverage for care givers when they are transporting patients. Which one of the following types of business-level strategies has Goshen Insurance decided to follow? A. Vertical integration strategy B. Unrelated diversification strategy C. Focused differentiation strategy D. Cost leadership strategy

structural change

Gradual, long-term, and fundamental change involving institutional arrangements, products, services, roles, and regulation

A. Operational-level strategy

Greatview Insurance is trying to improve the property claim handling process. The claims department has decided to review the various steps in the property claim handling process, from the time it is first reported until the final step when the payment is made. Which one of the following types of organizational strategies does this represent? A. Operational-level strategy B. Corporate-level strategy C. Business-level strategy D. Functional-level strategy

reinsurance pools, syndicates, and associations

Groups of insurers that share the loss exposures of the group, usually through reinsurance

C. Independent agents

Gulford Insurance Company (Gulford) is a direct writer of commercial insurance in Pennsylvania. The management team is frustrated by the continued lack of success in the more rural western part of the state. It is difficult to penetrate the market without a local presence, but the cost of assigning agents to this territory is not justified by the returns. Which one of the following distribution systems would best allow Gulford the local presence in a cost-effective manner? A. Exclusive agents B. Surplus lines brokers C. Independent agents D. National brokers

A. Mitigate

Halbinger Insurance Company (HIC) is a regional provider of homeowners insurance products. The management team at HIC has identified the risk that a competitor could emerge in the market offering a similar product at reduced rates. To deal with this threat, the team has developed plans to launch a marketing campaign that would highlight the superior coverage and service features that the HIC product offers in the event that the competitor does emerge. The technique HIC is using to treat this risk to strategy falls into which one of the following categories? A. Mitigate B. Transfer C. Avoid D. Accept

A. Unavailability of reinsurance.

Hard markets may have many different causes. A hard insurance market characterized by decreasing supplier capacity and increasing prices is most likely attributable to: A. Unavailability of reinsurance. B. Decreased profit expectations. C. Lack of capital mobility. D. Relaxation of state insurance laws.

A. Supply will decrease.

How is a capital market with high demands for profits likely to affect the supply of insurance? A. Supply will decrease. B. Supply will increase. C. Supply is unaffected. D. Supply becomes fungible.

A. Supply will decrease.

How would the supply of insurance most likely be affected by lowered expectations of profits? A. Supply will decrease. B. Supply will increase. C. Supply is unaffected. D. Supply becomes fungible.

B. $1,700,000

IIA Insurance has a 95% of $20 million xs $1 million catastrophe excess of loss reinsurance treaty with Mega Reinsurer. Assuming IIA sustains a $15 million catastrophe loss subject to the treaty, how much will IIA retain? A. $1,000,000 B. $1,700,000 C. $5,500,000 D. $6,000,000

A. Are definite in time, cause, and location.

Ideally insurable loss exposures are subject to losses that: A. Are definite in time, cause, and location. B. Result from unidentifiable causes. C. Occur gradually over long periods of time. D. Are immeasurable in terms of frequency or severity.

C. Structural changes in society and business.

If a company purchases higher limits on a liability policy because of growth in litigation, it is likely a response to: A. Structural changes in the insurance industry. B. The underwriting cycle entering a soft market. C. Structural changes in society and business. D. The underwriting cycle entering a hard market.

A. Producers lose some of the insurers they represent.

In a hard insurance market: A. Producers lose some of the insurers they represent. B. Producers have more price competition. C. Producers limit the insurers they will represent. D. Producer success ratios decline.

C. Reinsurance pool.

In a record hard insurance market, four reinsurance intermediaries (brokers) joined forces to offer reinsurance to clients that were having difficulty obtaining reinsurance for several troublesome liability lines. The source of the reinsurance made available to the clients is attributable to a: A. Guaranty association. B. Reinsurance department of a primary insurer. C. Reinsurance pool. D. Professional reinsurer.

B. Functional structure

In a single-business company, which one of the following organizational structures might be the most suitable? A. Divisional structure B. Functional structure C. Centralized structure D. Profit-center structure

A. Reductions in investment income.

In a soft market, insurers that loosen underwriting standards to increase insurance sales could be highly susceptible to harm from: A. Reductions in investment income. B. Increased producer representation. C. Investment obligation maturities. D. Cycle phases.

A. A description of material defects the actuary believes are in the data.

In addition to complying with the requirements in Actuarial Standard of Practice No. 41 (ASOP No. 41), Actuarial Communications, an actuary's documentation should also include which one of the following? A. A description of material defects the actuary believes are in the data. B. The procedure the actuary considered but did not follow when evaluating the data. C. A description of immaterial inconsistencies the actuary has been told from a questionable source are in the data. D. A description of material attributes the actuary has been told from a questionable source are in the data.

C. To minimize or eliminate significant business interruptions, whatever their cause

In addition to implementing effective and efficient measures, complying with legal requirements, and promoting safety, which one of the following is a goal of risk control efforts? A. To ensure that preventable losses do not adversely affect ongoing operations B. To avoid or prevent all hazard risks to which the organization may be exposed C. To minimize or eliminate significant business interruptions, whatever their cause D. To transfer as much of the organization's hazard and business risks as possible to third parties

A. Indicate which set of statistical plan codes were valid at the inception of the coverage.

In an Insurance Services Office (ISO) statistical plan, the inception dates on both premium and loss records: A. Indicate which set of statistical plan codes were valid at the inception of the coverage. B. Provide assurance that the intended premium and loss data were reported, and reported once only. C. Reflect the period of time for which coverage is provided and any losses were paid. D. Are used to calculate earned premium from the reported written premium over the policy term.

D. On a direct basis.

In an Insurance Services Office (ISO) statistical plan, the loss amount is reported: A. On an IBNR basis. B. On an on-level earned premium basis. C. On a net of reinsurance basis. D. On a direct basis.

adverse selection

In general, the tendency for people with the greatest probability of loss to be the ones most likely to purchase insurance

B. Determine if the cause of loss is excluded in the Special Form Coverage.

In handling a property claim under Special Form Coverage, a claim representative should gather facts about the cause of loss and then: A. Determine if the cause of loss is a listed covered peril in the Special Form Coverage. B. Determine if the cause of loss is excluded in the Special Form Coverage. C. Determine if the cause of loss applies to the Declarations Page. D. Determine if the cause of loss is defined in the Definitions Section of the policy.

supply

In insurance, the aggregate willingness of all insurers to assume risk at a given time

C. A coverage problem may exist.

In property insurance claims, there is sometimes a question of whether coverage exists or not. In these situations the insurer will send a reservation of rights letter. The purpose of this letter is to advise the insured that: A. The claim is in excess of the deductible. B. The policy may not be renewed due to loss frequency. C. A coverage problem may exist. D. The claim will be handled by an independent adjuster.

A. The nature of the product.

In reference to products liability claims investigation, the issue of interest when strict liability is involved is: A. The nature of the product. B. The behavior of the defendant. C. An unsafe condition on the premises. D. An unsafe act on the premises.

primary insurer

In reinsurance, the insurer that transfers or cedes all or part of the insurance risk it has assumed to another insurer in a contractual arrangement

C. Hazard risks

In remodeling the primary office location, Phil, who is a partner in his family's construction business, found asbestos in the attic of the building. He is concerned not only about the current tear-out exposure but is also aware that asbestos may have resulted in unidentified harm. In the "quadrants of risk," Phil's concern about the asbestos most likely falls into which one of the following quadrants of risk? A. Operational risks B. Financial risks C. Hazard risks D. Strategic risks

A. Controlling expenses.

In the claim function, supporting the insurer's profit goal is accomplished through: A. Controlling expenses. B. Resisting meritorious claims. C. Underpaying claims. D. Providing prompt, equitable service to policyholders.

transfer

In the context of risk management, a risk financing technique by which the financial responsibility for losses and variability in cash flows is shifted to another party

D. Fixed exposure based rating element.

In the context of the ISO general liability statistical plan, square footage of a retail store is an example of a: A. Variable exposure based rating element. B. Subline code based rating element. C. Limit code based rating element. D. Fixed exposure based rating element.

A. Decreased competition.

In the insurance industry, a hard market is characterized by: A. Decreased competition. B. Decreased insurers' profitability. C. Abundant marketplace capital. D. Lower premiums.

B. Bargaining power of suppliers

In the insurance industry, reinsurers are in a position to control the price and amount of capacity they provide, limiting insurers' ability to provide certain types of insurance. According to the Five Forces Model for analyzing the competitive environment, which one of the following forces that drive competition does this demonstrate? A. Bargaining power of buyers B. Bargaining power of suppliers C. Rivalry among existing firms D. Threat of substitute products or services

C. Regulatory environment

In the operating environment of property-casualty insurers, what is one factor that affects the supply of insurance? A. Competition B. Income taxes C. Regulatory environment D. Overreserving

C. Providing information about unsafe procedures or working conditions

In which one of the following ways can the premium auditor contribute to the risk control function? A. Convincing an insured of the accuracy of the audit B. Noting any discrepancies between classifications on the policy and those proper for the operation C. Providing information about unsafe procedures or working conditions D. Confirming values of inventories, vehicles, and contractors' equipment lists

underwriting profit

Income an insurer earns from premiums paid by policyholders minus incurred losses and underwriting expenses

C. More errors.

Increasing amounts of data provided to actuaries has led to: A. Increased data storage costs. B. Decreased regulatory requirements. C. More errors. D. Less inconsistency.

A. Insurance rates

It is important that premium audits be accurate for the sake of which one of the following? A. Insurance rates B. New marketing opportunities C. Producer commissions D. Hazard analysis

B. Prevents any later collection problems.

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: A. Reduces the need for reinsurance. B. Prevents any later collection problems. C. Stabilizes policyholder surplus. D. Improves underwriting capacity significantly.

B. Accurate evaluation of insured's liability

Juanita is the senior claim officer for Worthy Insurance Company, which uses the claim audit as a performance measure for its claim operations. Claim audits usually evaluate both quantitative and qualitative factors. Which one of the following factors is qualitative for Juanita and her staff? A. Percentage of recovery from subrogation B. Accurate evaluation of insured's liability C. Average claim settlement value by claim type D. Accuracy and completeness of data entry

excess liability insurance

Insurance coverage for losses that exceed the limits of underlying insurance coverage or a retention amount

C. Pure risks

Insurance deals primarily with: A. Subjective risks B. Strategic risks C. Pure risks D. Speculative risks

B. Reinsurance.

Insurance pools operate either as a syndicate or through: A. Cooperative exchanges. B. Reinsurance. C. Reciprocal insurers. D. Surplus lines insurers.

D. Reinsurance.

Insurance pools operate either as a syndicate or through: A. Surplus lines insurers. B. Stock insurers. C. Reciprocal insurers. D. Reinsurance.

excess coverage

Insurance that covers losses above an attachment point, below which there is usually another insurance policy or a self-insured retention

A. A cost leadership strategy

Insurer A writes standard personal lines insurance products. The insurer is adopting a new strategy for distributing products that emphasizes direct and Internet sales over the traditional agency network. It is also successfully experimenting with adjusting straightforward claims over the Internet. Underwriting and policy issuance are being automated through the use of expert systems, and all areas of operation are expected to be more efficient as a result. Which one of the following strategies is Insurer A most likely pursuing? A. A cost leadership strategy B. A backward integration strategy C. A decline made strategy D. A differentiation strategy

D. A cost leadership strategy

Insurer A writes standard personal lines insurance products. The insurer is adopting a new strategy for distributing products that emphasizes direct and Internet sales over the traditional agency network. It is also successfully experimenting with adjusting straightforward claims over the Internet. Underwriting and policy issuance are being automated through the use of expert systems, and all areas of operation are expected to be more efficient as a result. Which one of the following strategies is Insurer A most likely pursuing? A. A decline made strategy B. A backward integration strategy C. A differentiation strategy D. A cost leadership strategy

D. Written too few of the accounts it quoted for the agency.

Insurer B (IB) notifies one of its independent agents that its agency contract will be terminated unless the agency improves its hit (or success) ratio during the next 90 days. This indicates that IB has: A. Less restrictive underwriting selection criteria than other insurers the agency represents. B. Renewed too few of the accounts the agency wrote with IB in the past year. C. A higher-than-expected loss ratio with the agency. D. Written too few of the accounts it quoted for the agency.

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

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: A. Decreased underwriting capacity overall. B. A significant distortion of profits for the insurer. C. Inequitable rates for all insureds in the state for those two classes. D. Increased claim activity due to rating errors.

proprietary insurer

Insurer formed for the purpose of earning a profit for its owners

A. Competition

Insurers face external constraints that might prevent them from meeting their goals. Which one of the following is an external constraint? A. Competition B. Expertise C. Size D. Financial resources

B. Annually.

Insurers must typically file statistics with state insurance departments: A. Semi-annually. B. Annually. C. Biannually. D. Every three years.

cooperative insurers

Insurers owned by their policyholders and usually formed to provide insurance protection to their policyholders at minimum cost. Mutual insurance companies, reciprocal exchanges, and fraternal organizations are examples of cooperative insurers

A. Location

Insurers sometimes grant underwriting authority to producers. This authority is usually granted based on all of the following, EXCEPT: A. Location B. Experience C. Profitability D. Contractual arrangements

A. 10%.

Juan, sales and marketing manager for Millwright Insurance Company (Millwright), measures his sales department and customer satisfaction by the cancellation ratio and the retention ratio. Millwright renewed 5,000 auto policies which were due to expire at the beginning of 20X1. The total number of auto policies written at the beginning of 20X1 was 10,000. The number of policies lapsed during 20X1 was 1,000. Millwright's cancellation ratio is: A. 10%. B. 20%. C. 40%. D. 50%.

A. The PPC of 2 indicates that the public fire service should provide at least adequate public protection from fire loss.

JSP Insurance Agency (JSP) is an exclusive agency for a large writer of personal insurance products. JSP occupies the end unit of a strip shopping center, and a restaurant occupies the adjoining unit. JSP's office is separated by adequate clear space from an adjacent strip of stores. The strip mall is classified as ISO construction class 3 and is made of noncombustible materials. JSP's office is separated from the restaurant by a movable wall to allow the units to be easily resized to meet occupants' needs. The ISO public protection classification (PPC) for the strip mall is 2. Given this information, which one of the following statements is true regarding the physical hazards presented by JSP from a fire underwriting standpoint? A. The PPC of 2 indicates that the public fire service should provide at least adequate public protection from fire loss. B. The nature of JSP's business makes it a relatively high-hazard risk from an occupancy standpoint. C. The noncombustible construction of this property means that this building is fire resistive and much safer than joisted masonry or frame construction. D. The external loss exposures presented to JSP require no special consideration due to the construction type and the end unit location within the mall.

D. Undesirable

Jake is a single twenty-year-old. He drives an older sports car that he fixed up himself. He works as a outside sales representative and uses his car to visit current and prospective customers. Jake has had two at-fault auto accidents in the past three years. He also has five speeding tickets. He lives and works in a large city. Which one of the following ratings would an automobile underwriter in a standard market likely give to this risk? A. Highly Desirable B. Desirable C. Average D. Undesirable

C. Competitors are offering more pricing options and website quotes.

Jancy Insurance Company is a direct writer of workers compensation insurance, operating in two states. Jancy enjoys strong financial ratings and customer loyalty. Jancy consistently meets retention goals and employs an experienced, knowledgeable staff. In recent months, the loss ratio has been deteriorating and new business written is lagging the goal. The management team at Jancy is concerned and has decided to do a SWOT analysis. Which one of the following facts discovered during the SWOT analysis represents a threat to Jancy? A. Jancy's brand is not recognized. B. Jancy relies on products with few unique features. C. Competitors are offering more pricing options and website quotes. D. Technology has not kept pace with customer demands for Web site quotes.

A. Ability to expand into additional states

Jancy Insurance Company is a direct writer of workers compensation insurance, operating in two states. Jancy enjoys strong financial ratings and customer loyalty. Jancy consistently meets retention goals and employs an experienced, knowledgeable staff. In recent months, the loss ratio has been deteriorating and new business written is lagging the goal. The management team at Jancy is concerned and has decided to do a SWOT analysis. Which one of the following represents an opportunity for Jancy to increase new business writings, likely to be identified through the SWOT analysis? A. Ability to expand into additional states B. Experienced employees C. Competitors offer more pricing options D. Strong financial ratings

B. Subjective risk

Jane always drives to visit her children who live one thousand miles away. She enjoys driving and feels safer in a vehicle than on an airplane because she feels she has more control of her fate. This driving versus flying decision is an example of: A. Nondiversifiable risk B. Subjective risk C. Objective risk D. Speculative risk

B. Intangible property.

Jane wrote a book and copyrighted the material. The copyright on Jane's book is: A. Real property. B. Intangible property. C. Tangible property. D. Physical property.

A. Parapet.

Janine is an underwriter with XYZ Insurance Company. She decided to inspect a building that is included in the application for coverage. Janine noticed that there was a vertical extension of the firewall through the roofline of an adjoining building. This construction feature, which helps to prevent the spread of fire from one division to another, is called a: A. Parapet. B. Flying buttress. C. Fire door. D. Joist.

D. An independent adjuster.

Jerry is an experienced claim adjuster who handles claims for Jackson Insurance Company during hurricane season when Jackson's staff adjusters need assistance. Jerry is: A. A public adjuster. B. A third-party adjuster. C. A hurricane adjuster. D. An independent adjuster.

C. Juan should arrange defense for Bert because protection against false claims is an important element of liability coverage.

Juan is a claim representative for ABC Insurance Company. He has been assigned a homeowner's liability claim submitted by Bert. Bert has received notice of a lawsuit filed by a coworker named Anita. In the document, Anita claims that, while visiting Bert, she tripped over a loose board on his porch and fell, badly injuring her right shoulder. She alleges that she has missed several months of work, has incurred significant medical costs, and suffers from a permanent partial disability. While Bert acknowledges that Anita fell, he states that she did not complain of any injury at the time and that she was at work the entire week after her fall. While investigating the claim, Juan discovers that Anita is participating in activities inconsistent with her alleged injuries. In fact, Juan personally observes Anita pitch nine innings of softball pitching right-handed. Which one of the following would be Juan's best course of action? A. Juan should advise Bert to retain a private attorney and to counter-sue Anita for launching a groundless and fraudulent suit. B. Juan should immediately inform Bert in writing that there is no coverage under his policy because Anita's allegations are false. C. Juan should arrange defense for Bert because protection against false claims is an important element of liability coverage. D. Juan should pay Anita the damages that she is seeking rather than allow the case to go to court, which would involve significant costs.

countersignature laws

Laws that require all policies covering subjects of insurance within a state to be signed by a resident producer licensed in that state

strict liability (absolute liability)

Liability imposed by a court or by a statute in the absence of fault when harm results from activities or conditions that are extremely dangerous, unnatural, ultrahazardous, extraordinary, abnormal, or inappropriate

umbrella liability poicy

Liability insurance that provides excess coverage above underlying policies and may also provide coverage not available in the underlying policies, subject to a self-insured retention

D. Subject to moral and morale hazard problems.

Life, health, and retirement causes of loss are: A. Examples of speculative risks. B. Insurable through private insurers. C. Typically not definite or measurable. D. Subject to moral and morale hazard problems.

building codes

Local ordinances or state statutes that regulate the construction of buildings within a municipality, county, or state

prospective loss costs

Loss data that are modified by loss development, trending, and credibility processes, but without considerations for profit and expenses

A. Financial controls

Loss ratios, expense ratios, and combined ratios are all examples of which one of the following? A. Financial controls B. Management controls C. Process controls D. Operational controls

C. Case reserve.

Loss reserves are funds held by an insurer to pay claims for losses that have occurred but have not yet been settled. Such funds assigned to an individual claim create a: A. Suit reserve. B. Claim reserve. C. Case reserve. D. Damage reserve.

B. Luke's neighbor's auto liability coverage

Luke borrowed his neighbor's car with permission. While driving his neighbor's car, Luke caused an accident and a passenger in the other car was injured. Which one of the following auto coverages would be most likely to respond first? A. The injured passenger's auto liability policy B. Luke's neighbor's auto liability coverage C. Luke's uninsured motorists coverage D. Luke's auto liability coverage

C. Risk financing expenses

Managing an organization's cost of risk involves various categories of expenses. Commissions paid to an insurance broker would be considered which one of the following types of expense? A. Risk control expenses B. Administrative expenses C. Risk financing expenses D. Statutory expenses

B. The cost of adhering to these legal requirements becomes part of the cost of risk.

Many laws and regulations require organizations to implement specific risk control measures. Which one of the following statements is true in this regard? A. These measures are a means of implementing the risk control techniques of separation, duplication, and diversification. B. The cost of adhering to these legal requirements becomes part of the cost of risk. C. These laws and regulations are amended infrequently and do not require ongoing monitoring. D. Failure to comply with legal requirements can expose an organization to sanction, but not to liability.

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

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? A. The quality of Fredine's risk control services helps retain policyholders. B. The underwriting information provided by Fredine's risk control representatives leads to better underwriting decisions. C. Fredine sells unbundled risk control services to self-insured companies. D. Fredine risk control representatives identify unsafe conditions that policyholders can correct.

C. Marketing

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? A. Accounting B. Risk Control C. Marketing D. Claims

D. Marvin may follow the appraisal provision in the policy to settle the dispute over the value of the damaged property.

Marvin suffered a fire loss at his residence. The claim representative valued several antiques at a very low price. Marvin refuses to settle his claim with his insurer. Which one of the following is Marvin's recourse? A. Marvin's only recourse is to sue the insurer for coverage and damages to the property. B. Marvin may choose to arbitrate the value of the antiques before a judge. C. Marvin may obtain a quote from a certified antique dealer to determine the value the insurer must pay. D. Marvin may follow the appraisal provision in the policy to settle the dispute over the value of the damaged property.

masonry noncombustible construction

Masonry construction or construction that includes exterior walls of fire-resistive construction with a fire-resistance rating of not less than one hour

A. Highly Desirable

Matheson Construction is a residential construction company that specializes in building subdivisions. The company owns four late-model private passenger vans that it uses to transport workers to and from job sites each day. The distance one-way is generally less than 30 miles. During the day, the vans generally sit idle at the job site, unless there are supplies to pick up or other errands to run. Only the job superintendents are allowed to drive the vans, and only if they keep their driving records clean. The company carefully monitors the job superintendents' driving records and requires them to participate in driver safety training programs annually. The company has a stringent inspection and maintenance program for the vehicles as well. In the seven years since the company began transporting workers in this way, there have been no automobile accidents. Which one of the following ratings would an automobile underwriter in a standard market likely give to this risk? A. Highly Desirable B. Desirable C. Average D. Undesirable

protection

Measures taken to prevent or reduce the damage done by fire

B. The alterations made to the original building may have left unprotected openings in Mellfor Hall's firestops.

Mellfor Hall, constructed in the 1930's as a summer residence in a rural area, is currently occupied by the offices of an accounting firm. There is just one building on the multi-acre property, and the area immediately surrounding the structure is free of shrubs. The area in front of the building is a parking lot for employees and visitors. The structure was altered from its original design to be suitable as an office building. The building is fire-resistive, and the public protection class (PPC) is 3. Given this information, which one of the following statements is true concerning the physical hazards presented by Mellfor Hall from a fire underwriting standpoint? A. Mellfor Hall is located too far from an adequate water supply for the purposes of fire suppression. B. The alterations made to the original building may have left unprotected openings in Mellfor Hall's firestops. C. Because Mellfor Hall is an office, it is considered a relatively high-hazard occupancy. D. From an external loss exposure standpoint, Mellfor Hall presents a significant hazard.

D. The adjuster should take the reduced listed retail price into consideration.

Merchandise is subject to significant depreciation due to fashion changes, seasonal selling patterns and technological changes. A retail clothing store experiences a fire in September, when all bathing suits are being sold at 50 percent of the original price. In valuing the inventory at actual cash value, A. Only the actual cost to manufacture bathing suits of like kind and quality would be considered. B. The adjuster would take the insured's original costs, less physical depreciation. C. The reduced price is irrelevant because claim settlement is based on cost less depreciation. D. The adjuster should take the reduced listed retail price into consideration.

C. The value of the inventory at the time of the last report.

Merchandiser Inc., (MI) insures its inventory on a value reporting form. MI promptly submits reports to its insurer when due showing the value of its merchandise. In the event that MI suffers a loss to its merchandise, the inventory value that the claim adjuster will use for purposes of adjusting the loss is: A. The value of the inventory at the time of the loss. B. 75 percent of the value of the inventory shown on the policy. C. The value of the inventory at the time of the last report. D. The value of the inventory when the policy was written.

premium audit

Methodical examination of a policyholder's operations, records, and books of account to determine the actual exposure units and premium for insurance coverages already provided

D. Inside claim representative.

Most insurers give some producers the authority to pay claims up to a certain amount. In this role, producers function much like an: A. Outside claim representative. B. Insurance appraiser. C. Independent adjuster. D. Inside claim representative.

D. Loss of use

Most property insurance policies provide coverage for direct physical loss only. Which one of the following types of indirect loss is covered by some property policies but only when triggered by a direct physical loss to the property? A. Investment loss B. Diminished value C. Loss of market D. Loss of use

A. To ensure that rates are not inadequate, excessive, or unfairly discriminatory.

Most state rating laws require insurers to report statistical information on losses and premiums to help regulators do which one of the following? A. To ensure that rates are not inadequate, excessive, or unfairly discriminatory. B. To ensure that insurers are fulfilling the terms and conditions of their policies. C. To determine insurers' solvency. D. To determine the financial performance of insurers.

A. A new venture.

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. A new venture. B. Unreported claim activity. C. Implementation of risk control measures. D. Physical hazards.

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

Of all the characteristics of an ideally insurable loss exposure, probably the most important is that: A. The insurer is able to charge a premium that the insured can afford to pay. B. The losses associated with it typically involve small amounts. C. The insurer can charge a high premium for the coverage. D. The insurer is able to predict the amount and timing of each future loss.

A. Communicate the decision to the producer.

Once an underwriter has evaluated a submission, selected and applied any appropriate modifications, and determined the premium, the next step is to implement the underwriting decision. To implement the decision, the underwriter should first: A. Communicate the decision to the producer. B. Issue a binder and prepare certificates of insurance. C. Record data about the applicant and the policy. D. Prepare and issue an invoice to the insured.

C. Underwriting

Once the marketing department has developed a relationship with potential customers, which one of the following departments determines if and under what conditions the insurer is willing to provide insurance products and services to these potential customers? A. Premium auditing B. Actuarial C. Underwriting D. Risk control

C. An unsafe act.

Operations liability claims normally focus on: A. A clear right-of-way rule. B. An unsafe condition. C. An unsafe act. D. A constructive total loss.

B. Cost of residual uncertainty.

Organizations find it difficult to establish a benchmark against which the performance of their risk management program can be assessed because it is difficult to assign a specific value to the: A. Cost of implementing and administering risk management. B. Cost of residual uncertainty. C. Cost of losses not reimbursed by insurance. D. Cost of measures to prevent or reduce the size of potential losses.

D. Data cube

Outliers found using which one of these data analysis tools should be compared to the metadata to determine valid data elements? A. Descriptive statistics B. Method to identify missing data C. Box and whisker plot D. Data cube

D. Models that describe statistical noise rather than a relationship in the data.

Overfitting errors occur in the analysis step of the insurance data life cycle due to which one of the following? A. Errors in specification requirements. B. Missing values, duplicate records, and mapping errors. C. Misinterpretation of data and wrong conclusions. D. Models that describe statistical noise rather than a relationship in the data.

B. Property insurance and applies separately to each loss occurring to each risk.

Per risk excess of loss reinsurance covers: A. Liability insurance and applies to each loss occurring from each occurrence. B. Property insurance and applies separately to each loss occurring to each risk. C. Workers compensation insurance and applies to the total of all losses occurring from one risk. D. Property insurance and applies to the total of all losses occurring from one risk.

A. Property insurance and applies separately to each loss occurring to each risk.

Per risk excess of loss reinsurance covers: A. Property insurance and applies separately to each loss occurring to each risk. B. Workers compensation insurance and applies to the total of all losses occurring from one risk. C. Property insurance and applies to the total of all losses occurring from one risk. D. Liability insurance and applies to each loss occurring from each occurrence.

production underwriting

Performing underwriting functions in an insurer's office as well as traveling to visit and maintain rapport with agents and sometimes clients

A. Data cubes

Pivot tables are an example of which one of these data quality tools or techniques? A. Data cubes B. Method to identify missing data C. Descriptive statistics D. Box and whisker plots

A. Fraction

Probabilities are stated as a decimal figure, a percentage, or a: A. Fraction B. Credibility factor C. Dollar amount D. Stated constant

D. Highly undesirable

Precision Performance is a company that specializes in customizing vintage and current model automobiles and trucks. The company has three mechanics bays, a body shop, a paint shop, and a custom welding and metal fabricating shop all housed in a single-story, noncombustible metal building. The building is 25 years old, in poor repair, and has no fire suppression equipment other than one hand-held fire extinguisher. Its location is rated as Public Protection Class 9. Paint is stored in an attached wooden addition, and there are collection tanks for used oil, radiator fluid, and other similar waste located at the back of the building. The tanks are emptied monthly. Behind the building is a lot where the owner keeps salvaged autos that he uses for parts. To the north is a tire shop in a fire-resistive building, and to the south, separated by a narrow laneway, is a diner in a single-story frame building. The laneway is congested with empty cardboard boxes and other waste from both the diner and Precision Performance. Which one of the following ratings would a property underwriter for a standard insurer most probably give this risk? A. Highly desirable B. Desirable C. Undesirable D. Highly undesirable

C. Underwriting.

Premium auditing contributes most directly to: A. Claims. B. Risk control. C. Underwriting. D. Marketing and sales.

D. Fully earned.

Premium that has been developed by audit is: A. Unearned. B. Partially earned. C. Not taxable to the insurer. D. Fully earned.

C. Marketing and distribution department.

Producer Tina has recently received many requests for cell phone coverage from auto insurance customers. She feels that this type of coverage could be inexpensive for the insurer to develop but could possibly attract youthful policyholders. Tina should discuss her product innovation ideas with the insurer's A. Investments and financial department. B. Customer service. C. Marketing and distribution department. D. Human resources department.

C. Is likely to increase.

Producer staff in a hard market: A. Find coverage more readily. B. Is more likely to be replaced by technology. C. Is likely to increase. D. Has a lower success ratio.

D. Are supply driven.

Profit cycles in insurance and in agriculture: A. Move in the same direction. B. Are primarily weather-driven. C. Are similar because demand is not constant. D. Are supply driven.

A. Demand driven.

Profit cycles in manufacturing and retailing tend to be: A. Demand driven. B. Inelastic. C. Like the insurance cycle. D. Shielded from supply shock.

B. Applying detailed policy provisions to specific situations.

Property claim adjusters are primarily concerned with: A. Subjective claims. B. Applying detailed policy provisions to specific situations. C. The insured's legal responsibility to others in specific situations. D. Third party claims.

special form coverage

Property insurance coverage covering all causes of loss not specifically excluded

tangible property

Property that has a physical form

intangible property

Property that has no physical form

A. Desirable

Ranji is a commercial underwriter. She is evaluating an application for employee dishonesty coverage submitted on behalf of a grocery store. The company carefully screens new hires and checks references. Seasoned employees are thoroughly evaluated prior to any promotion. A substance-abuse screening program is in place. Termination procedures are well defined. Bank reconciliations are done to ensure that company and bank records agree. Periodic audits are conducted and employees monitor one another via a division of authority. Annual vacations are required. Duties are rotated and dual control systems are in place on the vault, cash, and other items susceptible to theft. Bank deposits are always made by two employees, and management selects two different employees each day. Which one of the following ratings would Ranji most probably give to this risk? A. Desirable B. Average C. Undesirable D. Highly undesirable

C. 87.5%

Red Insurance Company has a surplus share treaty with Black Reinsurer and retains a line of $25,000. The treaty contains nine lines and provides for a maximum cession of $225,000. Red Insurance issues a policy insuring a building for $200,000 for a premium of $1,900 with one loss of $60,000. What percentage of insurance, premiums, and losses is ceded to Black Reinsurer? A. 12.5% B. 75% C. 87.5% D. 100%

A. Systemic risks are generally nondiversifiable

Regarding diversifiable and nondiversifiable risk, which one of the following statements is accurate? A. Systemic risks are generally nondiversifiable B. An example of a nondiversifiable risk is a fire C. An example of a diversifiable risk is inflation D. Risks must be either diversifiable or nondiversifiable

C. An agreement by a reinsurer to indemnify a primary insurer for losses.

Reinsurance is best described as: A. A transfer of claim-payment responsibilities from a primary insurer to a reinsurer. B. An agreement between a primary insurer and a ceding company. C. An agreement by a reinsurer to indemnify a primary insurer for losses. D. A transfer of a primary insurer's retention to a reinsurer.

facultative reinsurance

Reinsurance of individual loss exposures in which the primary insurer chooses which loss exposures to submit to the reinsurer, and the reinsurer can accept or reject any loss exposures submitted

portfolio reinsurance

Reinsurance that transfers to the reinsurer liability for an entire type of insurance, territory, or book of business after the primary insurer has issued the policies

C. Residual uncertainty can be minimized, but doing so is costly because more has to be spent on attempts to control or finance the risks involved

Residual uncertainty is the level of risk that remains after organizations implement their risk management plans. Which one of the following statements is correct with respect to residual uncertainty? A. Residual uncertainty is an objective measure, independent of an organization's subjective view of the risks to which it is exposed B. The cost of residual uncertainty is relatively easy to calculate and comprises an important part of any cost of risk study C. Residual uncertainty can be minimized, but doing so is costly because more has to be spent on attempts to control or finance the risks involved D. Cost of residual uncertainty is a factor only in the case of speculative risk; it is not a consideration where pure risk is concerned

C. Resell the product in the same condition and packaging in which it left the manufacturer.

Retailers often sell products that are manufactured elsewhere but carry their store label. Which one of the following is the best way for a retailer to make sure that it will be indemnified by the product's manufacturer? A. Make sure that the manufacturer has quality-control checks built in to the manufacturing process. B. Keep accurate records of the sole date of purchase for all products. C. Resell the product in the same condition and packaging in which it left the manufacturer. D. Include warnings and instructions with all products.

A. Fortuitous

Retirement loss exposures generally fail to meet which one of the following characteristics of an ideally insurable loss exposure? A. Fortuitous B. Definite and measurable C. Independent and not catastrophic D. Pure risk

A. When the majority of insurers raise rates to generate higher returns, the cycle turns.

Return on equity influences the underwriting cycle because: A. When the majority of insurers raise rates to generate higher returns, the cycle turns. B. Mutual insurers are a significant segment of the industry. C. Capacity is increased when return on equity decreases. D. Expansion increases return on equity.

D. Direct bill basis

Rhonda is a personal lines insurance producer. Under the terms of her agency contracts, the insurers forward policies promptly to Rhonda's customers and send a premium invoice with the policy. Insureds are instructed to remit premium payments to their insurer. The insurers calculate Rhonda's commissions and forward those commission payments to her monthly. Rhonda is operating under which one of the following payment procedures? A. Account current basis B. Statement basis C. Item basis D. Direct bill basis

B. Loss prevention

Richley Auto is a chain of auto parts stores. It is experiencing a high frequency of auto accidents involving the delivery drivers, who are Richley employees. The management team has decided to require all drivers to attend a two day safety seminar offered by its franchiser. The safety seminar is an example of which one of the following risk control techniques? A. Diversification B. Loss prevention C. Avoidance D. Separation

C. Is Carla covered as a driver of the damaged vehicle?

Riko is an automobile claim representative who has been assigned a claim submitted by John. John owns a Honda Civic, which is insured in his name for liability, collision, and comprehensive coverage on a Personal Auto Policy (PAP). He is the only named insured on the policy. John lives with his parents and his sister, Carla. One Saturday, while John is asleep, Carla borrows his car to run errands. Unfortunately she backs into the concrete base of a sign at the mall, damaging the vehicle. Riko confirms that the Honda is the covered vehicle, that it is insured against collision, and that the loss occurred during the policy period. Which one of the following will she most likely determine next? A. Does any other insurance apply to this loss? B. Is the mall parking lot a covered location? C. Is Carla covered as a driver of the damaged vehicle? D. Does the loss meet the policy definition of "collision"?

A. Reporting the existence of new operations.

Risk control can assist premium auditing by: A. Reporting the existence of new operations. B. Providing laboratory analyses. C. Designing product recall procedures. D. Developing safety management programs.

A. Thorough recordkeeping and documentation

Risk control representatives can help the insurer's auditing and claims staff by discussing the importance of which one of the following when they meet with the insured at the beginning of the policy period? A. Thorough recordkeeping and documentation B. Supervision and training C. Controlling loss frequency and severity D. Safe techniques and equipment

D. That an outcome may or may not occur

Risk involves the possibility of a negative outcome. Possibility means: A. The likelihood of an event occurring B. That an outcome is unavoidable C. An identified and predictable outcome D. That an outcome may or may not occur

B. To all companies and families

Risk management concepts in one form or another apply: A. Only to international companies B. To all companies and families C. To all companies but not families D. Only to large companies

A. Describe an organization's need to meet responsibilities as an ongoing operation.

Risk management program goals are typically divided into pre-loss goals and post-loss goals. Pre-loss goals: A. Describe an organization's need to meet responsibilities as an ongoing operation. B. Broadly describe the degree of recovery that an organization will strive to reach in the event of a loss. C. Typically include survival, earnings stability, and continuity of operations. D. Should be in place in the event of a significant loss.

C. Post-loss goals broadly describe the degree of recovery that an organization will strive to reach following a loss.

Risk management program goals are typically divided into two categories: pre-loss goals and post-loss goals. Which one of the following describes one of these categories of goals? A. Pre-loss goals are risk management goals that allow the organization to prepare for future losses. B. Pre-loss goals include profitability, earnings stability, and loss prevention. C. Post-loss goals broadly describe the degree of recovery that an organization will strive to reach following a loss. D. Post-loss goals include immediate restoration of operations, tolerable uncertainty, and loss mitigation.

post-loss goals

Risk management program goals that should be in place in the event of a significant loss

C. Mitigate

Risk professional Alex has assigned a high likelihood to the risk that a competitor will cut prices in the market in which his organization operates. In analyzing this potential risk, Alex decides that if this threat materializes, his organization's strategy will be to launch a marketing campaign that emphasizes his firm's superior product features, so as to reduce the risk to an acceptable level. This is an example of which one of the following techniques for treating risks to strategy? A. Optimize/exploit B. Avoid C. Mitigate D. Transfer

B. Low frequency and high severity

Risk transfer is the appropriate risk financing measure for loss exposures with which one of the following combinations of characteristics? A. Low frequency and low severity B. Low frequency and high severity C. High frequency and high severity D. High frequency and low severity

A. Analyze, evaluate, and prioritize critical risks

Sarah is a risk professional involved in her organization's enterprise-wide risk management (ERM) program. She is currently involved in a study to determine the impact on consumer demand resulting from the organization's effect on the environment. Sarah is involved in which one of the following steps of the ERM process? A. Analyze, evaluate, and prioritize critical risks B. Develop ERM goals C. Determine whether it is necessary to communicate with external stakeholders D. Treat critical risks, considering priority

retrospective settlements

Settlements made after property has been repaired and the policyholder has resumed operations

prospective settlements

Settlements made before property has been repaired

C. Vertical integration

Smith's Bakery is a mid-sized regional company that specializes in producing bread from a variety of organic grains. It sells its products through grocery stores as well as through its own chain of retail outlets. As a result of experiencing problems with the quality and quantity of organic grains available, the corporate management team decides to purchase a number of farms locally, convert them to organic operations, and manage them directly. Smith's is able to eliminate suppliers in the process and deliver quality products for sale. Which one of the following methods has Smith's employed in producing its own grains? A. Harvest strategy B. Turnaround strategy C. Vertical integration D. Related diversification

D. Classifying and pricing accounts

Sofie, a property underwriter for Cintriell Insurance Company is reviewing a new homeowners application. Sofie has changed the protection class to unprotected, as the fire protection class listed by the producer is an eight and is incorrect. Which one of the following line underwriter activities is Sofie performing? A. Coordinating with producer efforts B. Selecting insureds C. Recommending correct coverage D. Classifying and pricing accounts

C. Centralize underwriting authority.

Specialty insurers such as those offering surety bonds, aviation insurance, and livestock mortality insurance usually: A. Refer those lines to senior underwriters. B. Extend underwriting authority to producers. C. Centralize underwriting authority. D. Use automated underwriting systems.

A. Workers compensation

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. Workers compensation B. Crop C. Flood D. General liability

D. Reminder systems to review claim files.

Supervisors and managers often use a diary or suspense when handling claims as: A. Records of all activities and analyses that occur regarding a particular claim. B. Guidelines for how certain claim handling tasks should be performed. C. Monitors for possible errors in claim practices. D. Reminder systems to review claim files.

real property (realty)

Tangible property consisting of land, all structures permanently attached to the land, and whatever is growing on the land

business income

Sum of (1) net profit or loss that would have been earned or incurred if the suspension had not occurred and (2) normal operating expenses, including payroll, that continue during the suspension

B. Regulatory reporting.

Summary-based statistical plans are primarily used for: A. Actuarial pricing. B. Regulatory reporting. C. Loss reserve determinations. D. Extension of exposure adjustments.

D. TBSS could suffer a severe business income loss from a relatively short shutdown.

Tania's Boardwalk Soda Shop (TBSS) is open year round, but the majority of its sales occur during the summer months. The shop is staffed primarily by college students. TBSS operates out of a 2,000 square foot frame building that could be rebuilt in three months. Which one of the following statements concerning TBSS's business income exposure is true? A. The use of college students to staff the shop creates a bottleneck exposure. B. The amount of time required to rebuild the shop does not affect the business income loss exposure. C. The size of any business income loss that TBSS could suffer is directly related to the size of the direct damage loss. D. TBSS could suffer a severe business income loss from a relatively short shutdown.

B. Unless CP has workers compensation insurance, TGC's workers compensation premium should include a charge for CP's employees because TGC's policy will automatically provide coverage for them.

Taunton General Contractor (TGC) is covered by a workers compensation insurance policy. As the general contractor for a construction project, TGC hires Cintriell Plumbing (CP) as a subcontractor. Which statement about this relationship is true? A. Because subcontractors are ineligible for coverage under the general contractor's workers compensation policy, TGC must purchase separate workers compensation insurance to cover CP's employees. B. Unless CP has workers compensation insurance, TGC's workers compensation premium should include a charge for CP's employees because TGC's policy will automatically provide coverage for them. C. Under most states' workers compensation statutes, TGC will not be held responsible for workers compensation benefits to employees of CP. D. TGC must request an endorsement to its workers compensation policy to provide workers compensation coverage to CP's employees.

A. Highly desirable

Taylor, Wiggett, and Long is a law firm located in a single-occupancy, owned building. The building is three stories high, fire-resistive construction, and was built for the firm four years ago. It is located in a complex of new commercial buildings most of which house professional offices such as doctor offices, law firms, engineering firms, and architectural firms. Each building is separated from its neighbors by an area of lawn and an open parking lot. The complex is less than 1,000 feet from a fire hydrant, and is 3 miles from the responding fire hall, which ISO rates as Public Protection Class 2. The law firm's building has a central station fire and burglar alarm and an automatic sprinkler system. In addition, the complex employs a private service to patrol the area during non-business hours. Which one of the following ratings would a property underwriter for a standard insurer most probably give this risk? A. Highly desirable B. Undesirable C. Desirable D. Highly undesirable

C. Amending policy terms and conditions.

The Bakery, an applicant for commercial property insurance, has experienced a series of property losses over the past three years. In order to find this applicant viable, the underwriter agrees to increase the property deductible. This type of underwriting modification is known as: A. Using schedule rating modifications. B. Using facultative reinsurance. C. Amending policy terms and conditions. D. Requiring risk control measures.

B. Focuses on threats to the organization and application of controls.

The Committee of Sponsoring Organizations of the Treadway Commission (COSO) published what is referred to as COSO II. COSO II, a risk management framework, A. Is intended for smaller organizations that do not have a board of directors. B. Focuses on threats to the organization and application of controls. C. Creates specific enterprise-wide risk management (ERM) strategies and treatment techniques. D. Delves into the details of risk management approaches and processes.

C. Risk prevention.

The abilities of devices connected to the Internet of Things lie at the heart of the ongoing shift in the insurance industry from risk transfer to: A. Risk financing. B. Risk regulation. C. Risk prevention. D. Risk diversification.

C. Provides assurance that the intended premium and loss data were reported, and reported once only.

The accounting date in an Insurance Services Office (ISO) statistical plan: A. Is used to assign premium and loss records to the proper policy year. B. Indicates which set of statistical plan codes were valid at the inception of the coverage. C. Provides assurance that the intended premium and loss data were reported, and reported once only. D. Reflects the period of time for which coverage is provided.

Statutory accounting principles (SAP)

The accounting principles and practices that are prescribed or permitted by an insurer's domiciliary state and that insurers must follow

capital

The accumulated assets of a business or an owner's equity in a business

B. Advocating improvements in data management and data quality practices.

The actuary can best help ensure quality in source databases by: A. Correctly coding data. B. Advocating improvements in data management and data quality practices. C. Properly processing data inputs. D. Designing software for databases to detect and repair data quality issues.

capacity

The amount of business an insurer is able to write, usually based on a comparison of the insurer's written premiums to its policyholders' surplus

deposit premium

The amount the primary insurer pays the reinsurer pending the determination of the actual reinsurance premium owed

information efficiency

The balance that underwriters must maintain between the hazards presented by the account and the information needed to underwrite it

distribution channel

The channel used by the producer of a product or service to transfer that product or service to the ultimate customer

D. Risk owners.

The chief risk officer helps the enterprise create a risk culture in which individual department heads and project managers are identified as: A. Strategists. B. Stakeholders. C. Coaches. D. Risk owners.

A. Implement the steps in the underwriting process. Staff underwriters assist underwriting management with formulating underwriting policy.

The common distinction between line underwriters and staff underwriters is that line underwriters: A. Implement the steps in the underwriting process. Staff underwriters assist underwriting management with formulating underwriting policy. B. Conduct underwriting audits. Staff underwriters prepare files for the data entry department. C. Research the market. Staff underwriters verify that policies are issued with the appropriate forms and endorsements. D. Develop underwriting guides. Staff underwriters provide service to policyholders.

B. Access security

The control of a computer user's ability to review, enter, and change information in a claim information system is an example of which one of the following types of claim department control? A. Tracking system B. Access security C. Authority level D. Manager review

business model

The core aspects of an organization, including its vision, mission, strategies, infrastructure, policies, offerings, and processes

loss adjustment expense (LAE)

The expense that an insurer incurs to investigate, defend, and settle claims according to the terms specified in the insurance policy

B. Individuals and organizations vary greatly as to how much residual uncertainty they are willing to accept, and this benefits society and the economy

The cost of residual uncertainty can have a significant effect on an individual or organization. Which one of the following statements is correct with respect to residual uncertainty? A. For organizations, the cost of residual uncertainty is limited to the effect that uncertainty has on members of the organization B. Individuals and organizations vary greatly as to how much residual uncertainty they are willing to accept, and this benefits society and the economy C. The cost of residual uncertainty includes the cost of any insurance policies purchased to cover losses not treated by other risk management techniques D. The cost of residual uncertainty can be calculated by subtracting the expected cost of losses or gains from an organization's cost of risk

replacement cost

The cost to repair or replace property using new materials of like kind and quality with no deduction for depreciation

metadata

The data about data that provides context for analyzing transaction facts with efficient structures for grouping hierarchical information

C. Ease of use

The demand for technology is a powerful factor in the insurance marketplace. For insurance producers and customers, which one of the following is the primary demand for technology in marketing applications? A. Regulatory controls B. Low cost C. Ease of use D. Sustainability

B. Marketing plan

The development of sales goals and projected outcomes is part of which one of the following marketing activities? A. Advertising and promotion B. Marketing plan C. Market development D. Sales fulfillment

C. Investment income.

The difference between underwriting gain or loss and operating gain or loss is that operating gain or loss includes: A. Catastrophic losses. B. Expenses. C. Investment income. D. Premium volume.

mix of business

The distribution of individual policies that compose the book of business of a producer, territory, state, or region among the various lines and classifications

attachment point

The dollar amount above which the reinsurer responds to losses

A. Related diversification

The executive team of a primary insurer decides to become a third-party administrator of claims. This is an example of which one of the following types of corporate-level strategy? A. Related diversification B. Vertical integration C. Single business D. Harvest

fuel load (fire load)

The expected maximum amount of combustible material in a given area of a building, including both structural elements and contents, commonly expressed in terms of weight of combustibles per square foot

D. Risk financing by purchasing insurance

The most widely-known risk management technique used by individuals is: A. Retention, that is, paying for the losses they incur B. Risk control C. Maintenance D. Risk financing by purchasing insurance

distribution system

The necessary people and physical facilities to support the sale of insurance products and services

B. All else being equal, the more risk control an organization undertakes, the more likely its ability to fund the retention of the affected exposures.

The optimal balance between retention and transfer varies for each organization, depending on specific characteristics. Which one of the following statements is true with regard to these characteristics? A. All else being equal, the more diversified an organization's loss exposures, the greater its need to transfer loss exposures. B. All else being equal, the more risk control an organization undertakes, the more likely its ability to fund the retention of the affected exposures. C. An organization is seldom better able to retain, rather than transfer, the loss exposures related to its core operations. D. Financially secure organizations do not face the risk of short-term liquidity problems by retaining significant losses.

C. Because she handles all financial transactions, Erin is well positioned to steal from OFO.

The owners of Olivia Fuel Oil, Inc., (OFO) see no need to purchase crime insurance. Because most customers pay by credit card or check, OFO's bookkeeper, Erin, handles very little cash. Erin, a conscientious, detail-oriented employee who has missed only one day of work during the past 10 years, personally handles all bank deposits and disbursements. Which one of the following statements concerning OFO's crime exposures is true? A. The bulk and weight of OFO's product make it especially susceptible to a robbery. B. Because Erin handles very little cash, controls to minimizing employee dishonesty losses are not warranted. C. Because she handles all financial transactions, Erin is well positioned to steal from OFO. D. In the event that Erin did steal from OFO, the theft would be visible and detected very quickly.

subjective risk

The perceived amount of risk based on an individual's or organization's opinion

D. Retention ratio.

The percentage of insurance policies that an insurer has renewed is referred to as its: A. Preservation ratio. B. Hit ratio. C. Success ratio. D. Retention ratio.

period of restoration

The period during which business income loss is covered under the BIC forms; it begins seventy-two hours after the physical loss occurs and ends when the property is (or should have been) restored to use with reasonable speed. (With regard to extra expense coverage, it begins immediately after the physical loss occurs.)

life safety

The portion of fire safety that focuses on the minimum building design, construction, operation, and maintenance requirements necessary to assure occupants of a safe exit from the burning portion of the building

loss costs

The portion of the rate that covers projected claim payments and loss adjusting expenses

systemic risk

The potential for a major disruption in the function of an entire market or financial system

subject premium

The premium the primary insurer charges on its underlying policies and to which a rate is applied to determine the reinsurance premium

statistical data

The premium transactions or records that flow from the issuance of insurance policies, including mid-term changes to those policies, and the loss transactions, representing the individual payment of claims or the amount of case-based reserves

strike price

The price at which the stock or commodity underlying a call option (such as a warrant) or a put option can be purchased (called) or sold (put) during a specified period

A. Fulfill the insurer's promise.

The primary purpose of the claims function is to: A. Fulfill the insurer's promise. B. Support the underwriting function. C. Provide legal counsel, support, and services to claimants. D. Assist in selecting and rating risks.

B. Indemnify individuals and organizations for covered losses.

The primary role of insurance is to: A. Make a profit for the insurance company's shareholders. B. Indemnify individuals and organizations for covered losses. C. Sell insurance policies to individuals and organizations. D. Educate individuals and organizations about loss prevention.

B. Courts have interpreted the date of occurrence differently.

The question, "Did the Loss Occur During the Policy Period?" is part of the framework for coverage analysis. Which one of the following statements is true with respect to policy periods? A. The policy period typically begins and ends at midnight. B. Courts have interpreted the date of occurrence differently. C. Losses that occur outside of the policy period are covered if the broad form policy is used. D. If the date of occurrence is outside the policy period, the claim is not covered.

hit ratio

The ratio of insurance policies written to those that have been quoted to applicants for insurance

agency expiration list

The record of an insurance agency's present policyholders and the dates their policies expire

depreciation

The reduction in value caused by the physical wear and tear or technological or economic obsolescence of property

retrocessionaire

The reinsurer that assumes all or part of the reinsurance risk accepted by another reinsurer

retrocedent

The reinsurer that transfers or cedes all or part of the insurance risk it has assumed to another reinsurer

A. Insurance policies renewed.

The retention ratio as an underwriting performance measure is the percentage of: A. Insurance policies renewed. B. Policies written to policies quoted. C. Underwriting expenses to written premiums. D. Premium held for losses.

D. Collecting underwriting information on a customer's loss exposures.

The risk control service of conducting a physical survey consists of: A. Implementing a service contract with the business owner or manager. B. Implementing a safety management program designed by senior risk control consultants. C. Submitting written recommendations to a business owner or manager. D. Collecting underwriting information on a customer's loss exposures.

liquidity risk

The risk that an asset cannot be sold on short notice without incurring a loss

credit risk

The risk that customers or other creditors will fail to make promised payments as they come due

underwriting authority

The scope of decisions that an underwriter can make without receiving approval from someone at a higher level

A. Loss exposures are analyzed based on loss frequency, loss severity, total dollar losses, and timing in this step.

The second step in the risk management process is analyzing loss exposures. Which one of the following is true regarding this step? A. Loss exposures are analyzed based on loss frequency, loss severity, total dollar losses, and timing in this step. B. Loss exposures that could interfere with the achievement of the organization's goals are identified in this step. C. A weakness of loss exposure analysis is that it is useful only for those types of losses that an organization has suffered in the past. D. A major strength of loss exposure analysis is that the process is generally inexpensive.

reinsurance

The transfer of insurance risk from one insurer to another through a contractual agreement under which one insurer (the reinsurer) agrees, in return for a reinsurance premium, to indemnify another insurer (the primary insurer) for some or all of the financial consequences of certain loss exposures covered by the primary's insurance policies

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

The state of Maryland operates a residual auto 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? A. Auto insurance is compulsory, and the program makes it possible for all drivers to have reasonably priced insurance. B. Auto insurance for high-risk drivers is profitable, and the program enables the state to share in the profits. C. Private insurers overcharge for auto insurance, and the state provides a low-cost alternative. D. Private insurers face limited competition, and the state increases competitive pressures by operating this type of plan.

A. Quantifying risk

The statement, "There is a five percent chance that John will be injured in an automobile accident while driving to work tomorrow," is an example of: A. Quantifying risk B. Verifying risk C. Quantifying loss exposures D. Identifying hazards

D. Analyzing the external and internal environments.

The strategy formulation phase of the strategic management process involves: A. Establishing standards for measuring results. B. Implementing management control processes. C. Designing an effective organizational structure. D. Analyzing the external and internal environments.

residual market

The term referring collectively to insurers and other organizations that make insurance available through a shared risk mechanism to those who cannot obtain coverage in the admitted market

D. A technique to prevent or mitigate losses.

The term risk control refers to: A. A risk management technique to expand policy coverages. B. An activity to improve insurer premium volume. C. A technique to assist in the claim adjustment of losses. D. A technique to prevent or mitigate losses.

B. Metadata.

The term used to denote the data that describe data is: A. Data documentation. B. Metadata. C. Database. D. Data element.

cost of risk

The total cost incurred by an organization because of the possibility of accidental loss

A. Is the date on which coverage begins or changes.

The transaction effective date in an Insurance Services Office (ISO) statistical plan: A. Is the date on which coverage begins or changes. B. Is the date on which the record representing the transaction is generated or coded. C. Is the date on which the transaction was entered in the insurer's financial books. D. Is the date on which coverage ends.

D. Reduces the residual uncertainty associated with risk.

The two benefits of risk management affecting individuals, organizations, and society are: it preserves financial resources by reducing expected losses and it: A. Increases productivity within the economy and improves overall standard of living. B. Increases the attractiveness to investors. C. Improves the allocation of productive resources. D. Reduces the residual uncertainty associated with risk.

occupancy

The type or character of use of the property in question

C. Intense competition in the market and decreased profitability

The underwriting cycle is made up of two phases. Which one of the following best describes the soft market phase? A. Diminished competition in the market and increased profitability B. Expansion and contraction of general business activity C. Intense competition in the market and decreased profitability D. Gradual and fundamental change in the market involving profits

A. The Internet of Things.

The universal connectivity that allows people to interact with devices and for those devices to meaningfully interact with each other without human interaction is known as: A. The Internet of Things. B. Cloud computing. C. Telematics. D. The blockchain.

securitization of risk

The use of securities or financial instruments (for example, stocks, bonds, commodities, financial futures) to finance an insurer's exposure to catastrophic loss

C. Financial

There are many types of controls used by organizations to gauge their progress toward meeting their goals. In the insurance industry, expense ratios and loss ratios are examples of which one of the following types of controls? A. Behavioral B. Operational C. Financial D. Process

A. Accurately determine customers' preferences to develop products perceived as distinctive.

To be successful, the differentiation business-level strategy must: A. Accurately determine customers' preferences to develop products perceived as distinctive. B. Focus on one group of customers and offer a low-price product or service. C. Produce short-term profits while phasing out a product line or existing market. D. Seek efficiency in all areas of operation to build a competitive advantage.

underwriting submission

Underwriting information for an initial application, or a substantive policy midterm or renewal change

B. The Declarations section and Definitions section.

To determine if a person is a named "insured" under a policy, the claims representative would generally need to review: A. The Declarations section and the Exclusions section. B. The Declarations section and Definitions section. C. The Condition section and the Exclusions section. D. The Definitions section and the Insuring Agreement.

B. That covers an entire class or portfolio of loss exposures, and all loss exposures that fall within the treaty are automatically reinsured.

Treaty reinsurance is best described as a reinsurance agreement: A. In which the primary insurer chooses which loss exposures to submit to the reinsurer, and the reinsurer must accept all loss exposures submitted. B. That covers an entire class or portfolio of loss exposures, and all loss exposures that fall within the treaty are automatically reinsured. C. That covers an entire class or portfolio of loss exposures, and the reinsurer can typically accept or reject any loss exposures submitted. D. In which the primary insurer chooses which loss exposures to submit to the reinsurer, and the reinsurer can accept or reject any loss exposures submitted.

A. That include current information and older historical information.

To select appropriate data for long-tailed lines of business, an actuary may need to select data: A. That include current information and older historical information. B. That include only older historical information. C. That include only the most current information. D. That include future projected information.

B. Pure risk.

Traditional risk management is concerned primarily with: A. Strategic risk. B. Pure risk. C. Speculative risk. D. Financial risk.

B. Pure risk

Traditionally, the risk management professional's role has been associated with loss exposures related to: A. Operational risk B. Pure risk C. Business risk D. Speculative risk

A. .000025, or .0025%

Two individuals each have a 0.005 (or .5%) 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? A. .000025, or .0025% B. .00005, or .005% C. .0025, or .25% D. .01, or 1%

B. .56

Two individuals each have a 75 percent probability of not suffering a homeowners loss in a given year. Assuming that losses involving these two homes are independent of one another, and that the two individuals enter into a pooling arrangement, which one of the following represents the probability of neither individual suffering a loss? A. .00 B. .56 C. .75 D. 1.5

A. Ensure uniformity and consistency in risk selection

Underwriting guidelines include acceptable approaches to evaluating applicants and the overall desirability of a particular type of risk or class of business. Which one of the following purposes of underwriting guidelines is best served by inclusion of these acceptable approaches? A. Ensure uniformity and consistency in risk selection B. Synthesize insights and experience C. Avoid duplication of effort D. Ensure proper policy issuance

market risk

Uncertainty about an investment's future value because of potential changes in the market for that type of investment

B. Subline code.

Under ISO's personal automobile statistical plan, the coverage being reported is recorded in which one of the following data elements? A. Symbol code. B. Subline code. C. Type of policy. D. Type of business.

A. Profits.

Under certain circumstances, a cooperative insurer can obtain additional capital by borrowing funds using surplus notes. These notes can usually be repaid only from: A. Profits. B. Unearned premium. C. Earned premium. D. Policyholder dividends.

policyholders' surplus

Under statutory accounting principles (SAP), an insurer's total admitted assets minus its total liabilities

line underwriter

Underwriter who is primarily responsible for implementing the steps in the underwriting process

staff underwriter

Underwriter who is usually located in the home office and who assists underwriting management with making and implementing underwriting policy

B. Carefully selecting the applicants whose loss exposures they are willing to insure.

Underwriters can best minimize the effects of adverse selection by: A. Choosing to insure only those risks with a high probability of loss. B. Carefully selecting the applicants whose loss exposures they are willing to insure. C. Accepting all applicants that are submitted by the producer. D. Rejecting applicants who have had any prior losses.

C. Generate premiums that properly reflect loss exposures.

Underwriters may encourage insurance to value to provide better policyholder protection against total loss, and to: A. Reflect the market value of the property. B. Recognize the effects of depreciation on the property's value. C. Generate premiums that properly reflect loss exposures. D. Eliminate the coinsurance classes.

D. The underwriting guidelines.

Underwriting authority requirements are usually communicated to an underwriter through: A. Their underwriting management. B. Their agent's manual. C. Their underwriting supervisor. D. The underwriting guidelines.

D. Underwriting authority.

Underwriting guidelines reflect the levels of: A. Rate modification. B. Written premium by type of insurance. C. Responsibility by job title. D. Underwriting authority.

A. Personal and advertising injury for potential libel, slander, or copyright infringement

Vanessa, an underwriter, is evaluating a CGL application for Taunton Publishing. Taunton publishes a weekly tabloid newspaper with articles about popular entertainment and political figures. It has a large readership. The newspaper owns and operates out of a new, single-story building in a complex of commercial buildings. The publishing equipment is computerized, state-of-the-art. The publisher sells through variety stores, grocery stores, and newsstands and it has no on-premises retail operation. Taunton does have outside sales staff that promote the publisher's newspaper among potential sales outlets and that solicit advertising. Which one of the following liability loss exposures would Vanessa probably consider to be Taunton's greatest? A. Personal and advertising injury for potential libel, slander, or copyright infringement B. Products liability for the newspapers that the organization sells C. Premises liability for the publishing facility D. Operations liability for sales staff activities at vendors and advertisers

A. Highly Desirable

Vera is a forty-five year old, married dental hygienist who lives and works in a small town. She owns a late-model, compact car, which she drives three miles to work each day. Her husband drives a new pick-up truck that he has insured elsewhere. Neither Vera nor her husband has ever had a traffic accident, and both have clean driving records. The couple has no children, and there are no other residents in the household. Which one of the following ratings would an automobile underwriter in a standard market likely give to this risk? A. Highly Desirable B. Desirable C. Average D. Undesirable

D. Undesirable

Vince is an independent owner-operator of a tractor-trailer rig. His truck is brand new and he has large monthly payments to make, so he hauls as many loads as he can get. He prefers long-distance driving to short trips and is willing to haul anything from livestock to toxic waste. Vince has had two accidents in the past five years. In one, he badly damaged a receiver's loading bay while backing in. In the second, his trailer rolled while going around a highway off-ramp, dumping a load of fruit. He currently has five speeding violations. Which one of the following ratings would an automobile underwriter in a standard market likely give to this risk? A. Highly Desirable B. Desirable C. Average D. Undesirable

C. 66.67%

Violet Insurance Company has a surplus share treaty with White Reinsurer and retains a line of $50,000. The treaty contains five lines and provides for a maximum cession of $250,000. Violet Insurance issues a policy insuring a building for $150,000 for a premium of $1,900 with one loss of $60,000. What percentage of insurance, premiums, and losses is ceded to White Reinsurer? A. 33.33% B. 50% C. 66.67% D. 100%

A. Completed operations liability loss exposure

Walter, a commercial underwriter, is evaluating a CGL application for MedConstruct, a construction company. MedConstruct specializes in building hospitals, nursing homes, senior citizen residences, medical clinics, and related types of buildings. The company has been in business for 15 years and has a very good reputation. The company has grown rapidly and has had some difficulty in hiring sufficient qualified employees to keep up with its heavy schedule. Management is concerned about on-the-job safety and, so far, the company has a reasonably good record when it comes to employee injuries. To which one of the following loss exposures will Walter devote more attention when evaluating this risk? A. Completed operations liability loss exposure B. Products liability loss exposure C. Premises liability loss exposure D. Premises medical payments liability loss exposure

D. Wanlett is mostly concerned with pure, as opposed to speculative risks

Wanlett Enterprises has a risk manager who is charged with making sure the organization has the necessary property and liability insurance policies in place to respond to hazard risks that were identified over twenty years ago. Wanlett still creates and manufactures the same products it did decades ago. Which one of the following is true given this scenario? A. Wanlett's risk management efforts are intended to maximize the organization's value B. Wanlett is managing all its loss exposures that arise from speculative risk C. Wanlett shows it wants the risk management process to occur at the enterprise level D. Wanlett is mostly concerned with pure, as opposed to speculative risks

C. Separation

Warehousing a company's inventory at different locations in different cities is an example of which one of the following risk control techniques? A. Diversification B. Duplication C. Separation D. Loss prevention

D. Statutory provisions

When the policy does not define a cause of loss or another term, which one of the following can the claim representative use to determine the meaning? A. Best practices B. Underwriting guidelines C. Miscellaneous provisions D. Statutory provisions

B. Record consistency

Which dimension of stored data quality is represented when an actuary selects data in which the area code of the home phone number is consistent with the area code of the city's location? A. Representational consistency B. Record consistency C. Granularity D. Precision

A. Such tests compare volumes for premiums, exposures, losses, or claim counts by the highest order data variables (such as state, coverage, or year) to each other or to reported volumes from prior years.

Which one of the following best describes a consistency test that should be considered in a review of reasonableness of data? A. Such tests compare volumes for premiums, exposures, losses, or claim counts by the highest order data variables (such as state, coverage, or year) to each other or to reported volumes from prior years. B. Such tests compare volumes for premiums and losses by the highest order data variables (such as country-wide, exposures per book of business, and year) to each other. C. Such tests compare volumes for premiums and losses by the data variables (such as region, book of business, and year) to each other. D. Such tests compare volumes for premiums and losses by lower order data variables (such as zip code, exposures per zip code, and month) to each other and to reported volumes from prior months.

A. The nature of the risks that it assumes

Which one of the following best describes a factor in determining the types of investments that an insurer acquires? A. The nature of the risks that it assumes B. The number of claims it pays C. The level of operating expenses it incurs D. The volume of insurance it writes

A. Measure the data's accuracy, completeness and timeliness

Which one of the following best describes a major step in a data quality audit of "test the preparation of the data" that is based on the Insurance Services Office's (ISO) Strength in Numbers pamphlet? A. Measure the data's accuracy, completeness and timeliness B. Measure the accuracy, timeliness, and correct distribution of reports C. Measure the extent to which the system detects and corrects errors in a timely manner D. Measure the extent that "only authorized data are entered for processing and the data are processed completely, accurately, and is a controlled environment."

B. Data are appropriate if they are suitable for the intended purpose of an analysis and relevant to the system or process being analyzed.

Which one of the following best describes appropriate data according to Actuarial Standard of Practice (ASOP) No. 23? A. The concept of appropriate data is an absolute concept applicable in all situations. B. Data are appropriate if they are suitable for the intended purpose of an analysis and relevant to the system or process being analyzed. C. Appropriate data should be suitable for any type of analysis in an organization. D. Actuaries are the only professionals in an organization who can determine if data are appropriate for the given situation under review.

B. It is a proactive technique that influences data collection.

Which one of the following best describes auditing? A. It is a reactive technique that ignores data collection. B. It is a proactive technique that influences data collection. C. It is a reactive technique that supplements data collection. D. It is an after-the-fact, back-end process.

C. They are the least expensive measures of all possible effective that achieve an organization's risk management goals.

Which one of the following best describes effective and efficient risk control measures? A. They are those measures that increase employee satisfaction while reducing the level of risk. B. They reduce risk to a level that is acceptable to the organization's management. C. They are the least expensive measures of all possible effective that achieve an organization's risk management goals. D. They eliminate risk without requiring the organization to make outlays of cash.

A. Car-years or car-months

Which one of the following best describes how ISO measures personal automobile exposure? A. Car-years or car-months B. Policy-years or policy-months C. Calendar-years or calendar-months D. Accident-years or accident-months

B. Identify the risks to the organization's critical functions

Which one of the following best describes one of the steps in the business continuity process? A. Identify the organization's important resources B. Identify the risks to the organization's critical functions C. Develop an emergency response plan to deal with life and safety issues D. Arrange appropriate insurance coverage

B. It is a top-down approach that checks that totals from one source match the totals from another, usually more reliable source.

Which one of the following best describes reconciliation as used in data auditing? A. It is a bottom-up approach that checks that totals from one source match the totals from another, usually more reliable source. B. It is a top-down approach that checks that totals from one source match the totals from another, usually more reliable source. C. It is a top-down approach that takes a sample of input records and follows them through processing to the final report. D. It is a bottom-up approach that takes a sample of input records and follows them through processing to the final report.

B. Metatdata are information about data, business rules, and data processing.

Which one of the following best describes the concept of metadata? A. Metadata are large quantities of data. B. Metatdata are information about data, business rules, and data processing. C. Metadata are databases. D. Metadata are the field names of each data field in a given database.

A. Insurers should dedicate increased resources toward the reliability and completeness of data.

Which one of the following best describes the conclusion of the General Insurance Research Organization (GIRO) Data Quality Working Party study? A. Insurers should dedicate increased resources toward the reliability and completeness of data. B. Insurers currently dedicate sufficient resources toward the reliability and completeness of data. C. Because of regulatory oversight, data quality is sufficiently addressed by insurers at the present time. D. Data quality issues do not need to be a focus of senior insurance company management.

D. Some data elements are common to most lines of business and some are unique to a particular line.

Which one of the following best describes the data elements collected by Insurance Services Office, Inc. (ISO) and other property-casualty advisory organizations for rating or classifying risks? A. Data elements are the same for all lines of business. B. Data elements for personal lines are different than those for commercial lines. C. Data elements are different for each line of business. D. Some data elements are common to most lines of business and some are unique to a particular line.

B. Net income divided by owners' equity

Which one of the following formulas calculates the return on equity? A. Net investment income divided by earned premiums B. Net income divided by owners' equity C. Net investment income divided by unearned premiums D. Incurred losses divided by written premiums

D. The insurance business is unique in its need for data because the final cost of insurance coverage is not known until many years after policies expire.

Which one of the following best describes the need for data in the insurance business? A. The insurance business has the same data needs as other businesses. B. Regulatory and business needs for insurance data rarely change. C. One insurer's experience typically provides sufficient data to determine the cost of future coverage for a policy type for that specific insurer. D. The insurance business is unique in its need for data because the final cost of insurance coverage is not known until many years after policies expire.

C. To provide uniform instructions that facilitate the aggregation of historical insurance statistics into a database of homogeneous experience

Which one of the following best describes the primary purpose of Statistical Plans? A. To ensure the financial solvency of insurers B. To provide an analysis of insurers' results C. To provide uniform instructions that facilitate the aggregation of historical insurance statistics into a database of homogeneous experience D. To ensure that insurers do not engage in unfair or deceptive practices and that they fulfill the terms and conditions of the policies they issue

C. 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 representative? A. To provide complete evaluation of the policyholder's operations B. To raise policyholders' awareness of discounts available for following safety programs C. To raise workers' awareness of loss exposures and appropriate safety behaviors D. To provide written analysis of the policyholder's loss history

C. Limiting reserve and payment amounts

Which one of the following best describes the purpose of authority levels for claim personnel? A. Centralizing decision making B. Avoiding stair stepping C. Limiting reserve and payment amounts D. Minimizing inaccuracies and duplicate entries

B. Summary-based and transaction-based

Which one of the following best describes the two basic types of statistical plans? A. Exposure-based and premium-based B. Summary-based and transaction-based C. Individual and aggregate D. Personal lines and commercial lines

C. What data should be used in setting rates going forward?

Which one of the following best describes the typical questions an actuary may address regarding the selection of data? A. What data should be disregarded in setting rates going backward? B. How are the rates assembled going backward? C. What data should be used in setting rates going forward? D. What rates should be used in selecting data going forward?

A. Data managers and actuaries at the source and the destination for the data

Which one of the following best describes who is responsible for Step 0: Data requirements, in the insurance data life cycle? A. Data managers and actuaries at the source and the destination for the data B. Actuaries C. Senior management D. Data managers at the destination for the data

C. So that the members can share the loss exposures of the group, usually through reinsurance

Which one of the following best describes why a group of insurers would choose to form a reinsurance pool, syndicate, or association? A. To eliminate the need for any of the members to maintain a dedicated reinsurance department B. To avoid purchasing treaty reinsurance C. So that the members can share the loss exposures of the group, usually through reinsurance D. So that the members can deal with a direct writing reinsurer

A. It is the level of risk that remains after implementing risk management plans

Which one of the following best explains the concept of residual uncertainty, as relates to estimation of the financial consequences of risk? A. It is the level of risk that remains after implementing risk management plans B. It is the difference between estimated subjective risk and calculated objective risk C. It is the amount invested in risk management in order to eliminate concern D. It is uncertainty regarding the value of any residual salvage that would remain after a loss

D. Unless everyone in the insurance process is required or motivated to diligently ensure that data are accurate, future pricing and other decisions can be affected.

Which one of the following best illustrates the concept of data quality? A. The start of the data collection process is where data can be compromised and thus that is where all data quality attention should be focused. B. Even on a policy with no losses, a missing deductible code will affect a claim representative's ability to do his or her job. C. Insurers have identified the specific requirements for data quality that can be applied to insurance transactions and all users of that data. D. Unless everyone in the insurance process is required or motivated to diligently ensure that data are accurate, future pricing and other decisions can be affected.

D. Intranets

Which one of the following best represents a way collaboration technology can be used to share metadata within an organization? A. Spreadsheets B. Printed documents C. Word processing D. Intranets

C. Mellfor Insurance Company has lost investment income making it difficult to pay increased workers compensation losses.

Which one of the following cases illustrates an external constraint for meeting insurer goals? A. Delmond Insurance Company's claims systems is antiquated and does not process payments within a day of submission like their competition. B. Haltbinger Insurance Company receives a national award for quality customer service. C. Mellfor Insurance Company has lost investment income making it difficult to pay increased workers compensation losses. D. Jancy Insurance Company's CEO, Antonia was arrested for embezzling company funds.

C. The Federation of European Risk Management Associations (FERMA)

Which one of the following entities consists of national risk management associations, individual risk managers from Central European countries, and representatives from health organizations, educational sectors and public sectors? A. The Committee of Sponsoring Organizations of the Treadway Commission (COSO) B. The British Standards Institution (BSI) C. The Federation of European Risk Management Associations (FERMA) D. The Basel Committee on Banking Supervision

A. Reinsurance

Which one of the following factors affects the supply of insurance? A. Reinsurance B. Sarbanes-Oxley Act C. Policy interpretation D. National Association of Insurance Commissioners

C. Cromley is training new underwriters and is using a work sample for a homeowner risk which has a unacceptable roof and an overgrown yard. New underwriters Erin and Filip check the guidelines and make the same underwriting decision to decline the risk.

Which one of the following cases illustrates how underwriting guidelines ensure that selection decisions provide uniformity and consistency by all the insurer's underwriters? A. Ella, an experienced staff underwriter provides insight for Cromley's Insurance on amusement parks by authoring a section on amusement parks in the underwriting guidelines. B. Cromley's underwriter, Ciara uses predictive modeling to analyze her risks. She is underwriting Chloe's homeowner application and it falls within the acceptable scores the company has created. C. Cromley is training new underwriters and is using a work sample for a homeowner risk which has a unacceptable roof and an overgrown yard. New underwriters Erin and Filip check the guidelines and make the same underwriting decision to decline the risk. D. Cromley's underwriting guidelines provide a section on insuring swimming pools, illustrating the principal considerations for such risks. New underwriter Pedro refers to this section of the guidelines.

C. Claim status reports are vital to an insurer because the reports advise the insurer how the claim is progressing on a periodic basis.

Which one of the following concerning claim status reports is true? A. Claim status reports are vital to an insurer because the reports provide work for the claim representatives, rounding out their written and verbal skills. B. Claim status reports are not vital to an insurer because the reports are used only as a method of illustrating work that needs to be done by the claims adjuster. C. Claim status reports are vital to an insurer because the reports advise the insurer how the claim is progressing on a periodic basis. D. Claim status reports are not vital to an insurer because the reports are usually read only by insurance department employees.

B. Diminished insurer competition

Which one of the following conditions is characteristic of a hard market? A. Lower insurance premium B. Diminished insurer competition C. Widely available coverage D. Decreased insurer profit

B. The state compensation laws

Which one of the following controls the coverage provided by a workers compensation policy? A. The policy provisions B. The state compensation laws C. The Occupational Safety and Health Administration (OSHA) D. Professional employer organizations (PEOs)

C. Claims

Which one of the following core functions of an insurer can be transformed through the Internet of Things' ability to facilitate instantaneous communication? A. Marketing B. Actuarial C. Claims D. Underwriting

A. An industry loss warranty is an insurance-linked security that covers the primary insurer in the event that the industry-wide loss from a particular catastrophe exceeds a predetermined threshold.

Which one of the following correctly describes a capital market instrument used by insurers to finance risk? A. An industry loss warranty is an insurance-linked security that covers the primary insurer in the event that the industry-wide loss from a particular catastrophe exceeds a predetermined threshold. B. Finite risk reinsurance is a type of reinsurance in which the reinsurer's liability is limited and anticipated investment income is expressly acknowledged as an underwriting component. C. Under a catastrophe risk exchange, a bond is issued with the condition that if the issuer suffers a catastrophe greater than a specified amount, the obligation to pay interest and/or repay principal is deferred or forgiven. D. A catastrophe risk exchange is an agreement that gives the primary insurer the right to a cash payment from investors if a specified index of catastrophe losses by geographic area reaches a specified level.

B. Government programs can meet legitimate public demands unmet by private insurers.

Which one of the following correctly describes a reason for government involvement in property-casualty insurance? A. Selling insurance provides the government with a non-tax source of revenues and profits. B. Government programs can meet legitimate public demands unmet by private insurers. C. Competition from government plans keeps private insurer's premiums competitive. D. Preventing high-risk individuals or activities from being insured is in the public interest.

B. Marketing goals outline the proposed target market including detailed sales projections and how success will be measured.

Which one of the following correctly describes a typical element of an insurance product marketing plan? A. The product proposal and sales goals focus on detailed sales projections and estimated annual profits from the new product. B. Marketing goals outline the proposed target market including detailed sales projections and how success will be measured. C. Situational analysis focuses on the company's internal environment and how it will affect the proposed new product. D. Production planning determines the procedures involved in actually producing the proposed new product.

D. The cost of the value lost due to events that caused a loss

Which one of the following costs is part of the overall financial consequences of risk? A. The cost of losses reimbursed by insurance B. The cost of benchmarking surveys C. The cost of purchasing an asset D. The cost of the value lost due to events that caused a loss

C. It should help ensure that the organization's legal obligations are satisfied.

Which one of the following describes how an effective risk management program should support an organization's pre-loss operational goals? A. It should ensure that risk management costs are kept to a minimum. B. It should eliminate uncertainty by identifying and managing loss exposures. C. It should help ensure that the organization's legal obligations are satisfied. D. It should ensure that no conflicts exist among the pre-loss goals.

C. To extract useful information from raw data

Which one of the following describes the purpose of the analysis step in the insurance data life cycle? A. To make data available to users in the necessary format B. To help management make right decisions C. To extract useful information from raw data D. To collect data and satisfy statistical reporting

C. Stewardship

Which one of the following dimensions of organizational data quality is represented when responsibility for managing data has been assigned? A. Timeliness B. Sharing C. Stewardship D. Interpretation

D. Life safety

Which one of the following focuses on the minimum building design, construction, operation, and maintenance requirements necessary to assure occupants of a safe exit from the burning portion of a building? A. Building code B. Environmental security C. Workers compensation D. Life safety

B. A strong ERM program encourages the buy-in of an organization's stakeholders by establishing management strategies that protect the organization's reputation and assets.

Which one of the following is correct regarding traditional risk management (RM) versus enterprise-wide risk management (ERM) in approaching business uncertainties? A. The focus in a strong ERM program is on monitoring systemic risks inherent in the organization that can adversely affect quarterly profits and losses. B. A strong ERM program encourages the buy-in of an organization's stakeholders by establishing management strategies that protect the organization's reputation and assets. C. The RM approach requires an organization to systematically explore new opportunities for economic efficiencies while managing internal and external threats. D. The RM approach establishes a method to gather information organization-wide about obstacles to achieving goals, and develops a framework for analyzing and communicating that information.

C. A captive collects premium, issues policies, purchases reinsurance, invests assets and pays losses, just like any other insurer.

Which one of the following is correct regarding various types of captive programs? A. In a protected cell company, each organization keeps its own premium and loss account, but a member may access the assets of another member in the event the member becomes insolvent. B. Under a rent-a-captive arrangement, no risk transfer occurs among the members, and the capital rented by one insured cannot be diminished by the losses of another insured in the structure. C. A captive collects premium, issues policies, purchases reinsurance, invests assets and pays losses, just like any other insurer. D. Risk retention groups were originally formed in direct response to the lack of workers compensation coverage available in insurance markets.

C. An insurer's line is influenced by the maximum amount of insurance or limit of liability allowed by insurance regulations.

Which one of the following is correct with regard to an insurer's line and large-line capacity? A. The specific characteristics of a loss exposure do not influence an insurer's line. B. Large-line capacity is an insurer's ability to reinsure a larger proportion of its book of business. C. An insurer's line is influenced by the maximum amount of insurance or limit of liability allowed by insurance regulations. D. Reinsurance is generally not used to increase insurers' large-line capacity.

A. Composition of the insurer's book of business

Which one of the following is determined by a company's underwriting policy? A. Composition of the insurer's book of business B. The market pursued by the insurer C. The underwriting authority the insurer grants its producers D. The rating organization to which the insurer will belong

C. Probability

Which one of the following is measurable and quantifies risk? A. Feasibility B. Uncertainty C. Probability D. Possibility

C. Required coverage

Which one of the following is most likely to cause insurance demand to be inelastic? A. Hard markets B. Economic prosperity C. Required coverage D. Increased competition

C. Lloyd's

Which one of the following is not a type of insurance but a marketplace such as a stock exchange? A. Mutuals B. Cooperatives C. Lloyd's D. Reciprocals

A. ISO 31000:2009

Which one of the following is not compulsary unless contractually required by a client or customer? A. ISO 31000:2009 B. Sarbanes-Oxley Act of 2002 C. Basel II D. Solvency II

C. Rating basis

Which one of the following is recorded in the exposure data element of an ISO general liability statistical plan? A. Policy limits B. Coverage C. Rating basis D. Type of risk

D. 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? A. A risk control representative works with a policyholder to identify safety improvements. B. A risk control representative provides an underwriter with an inspection report. C. An insurer helps a policyholder prevent occupational injuries. D. An insurer provides industrial hygiene services to a self-insured firm for a fee.

B. Realtor rental values

Which one of the following is the best source for an adjuster to use to gauge depreciation for a commercial structure? A. Building materials suppliers B. Realtor rental values C. Architects and contractors D. Policyholder financial records

D. Maximize the organization's value

Which one of the following is the goal of enterprise-wide risk management (ERM)? A. Decentralize control of business decisions B. Reduce risk management costs C. Coordinate loss reduction efforts D. Maximize the organization's value

C. Underwriting audits

Which one of the following is the insurer's quality control check for uniform application of the underwriting guidelines and for continuous improvement? A. Predictive models B. Reinsurance treaty C. Underwriting audits D. Market conduct examinations

C. Managing the cost of risk

Which one of the following is the primary advantage of using retention as a risk financing measure to help an organization meet its risk financing goals? A. Paying for losses B. Complying with legal requirements C. Managing the cost of risk D. Managing cash flow variability

D. To serve insurers' reinsurance needs

Which one of the following is the primary business purpose of a professional reinsurer? A. To offer reinsurance to affiliated insurers B. To create pools so that groups of insurers can share the loss exposures of the group C. To create a syndication of reinsurance intermediaries D. To serve insurers' reinsurance needs

C. Helping the insurer avoid the problem of adverse selection

Which one of the following is the responsibility of the underwriting department of an insurer? A. Reviewing commercial insureds' records to obtain accurate information on rating variables B. Working with insureds to help prevent losses and reduce the effects of those losses that cannot be prevented C. Helping the insurer avoid the problem of adverse selection D. Calculating insurance rates and developing rating plans

C. The most common interest in property comes from outright ownership.

Which one of the following is true about insurable interest in property insurance? A. No more than one entity may have an insurable interest in a given property at a given point in time. B. An insured's recovery is limited to the amount of its insurable interest at the time the insurance is purchased. C. The most common interest in property comes from outright ownership. D. Insurable interest is the primary policy provision that determines the amount paid.

C. With a post-loss goal of profitability, senior management may establish a minimum amount of profit that no loss can be allowed to reduce.

Which one of the following is true regarding organizational post-loss goals? A. The most basic post-loss goal is survival, which means returning the organization to the condition that existed before the loss. B. Social responsibility is a post-loss goal that is unique to not-for-profit and public entities. C. With a post-loss goal of profitability, senior management may establish a minimum amount of profit that no loss can be allowed to reduce. D. With a post lost goal of earnings stability, the risk management professional will seek to raise retention levels to minimize the amount spent on risk transfer mechanisms.

A. Pre-action sprinkler system

Which one of the following is used where property is highly susceptible to water damage from damaged sprinklers or piping and consists of a sprinkler system with closed valves until smoke or heat detectors open them in response to a fire? A. Pre-action sprinkler system B. Deluge sprinkler system C. Dry pipe sprinkler system D. Wet pipe sprinkler system

B. Computer system

Which one of the following items' property value would be most dramatically and suddenly affected by depreciation? A. Heating system B. Computer system C. Furniture D. Refrigerator

C. Identify loss exposures, analyze loss exposures, examine techniques, select techniques, implement techniques, monitor, and revise the program

Which one of the following lists the steps in the risk management process in the correct order? A. Implement techniques, monitor and revise the program, identify loss exposures, analyze loss exposures, examine techniques, and select techniques B. Identify loss exposures, analyze loss exposures, select techniques, examine techniques, implement techniques, monitor, and revise the program C. Identify loss exposures, analyze loss exposures, examine techniques, select techniques, implement techniques, monitor, and revise the program D. Select techniques, examine techniques, identify loss exposures, analyze loss exposures, implement techniques, monitor, and revise the program

C. The organization builds supply chain resilience into its operational model.

Which one of the following methods employed by an organization demonstrates the use of an enterprise-wide risk management (ERM) approach improving decisions and promoting economic efficiency? A. The organization retains loss associated with its core operations. B. The organization avoids operating in states that are prone to natural disasters. C. The organization builds supply chain resilience into its operational model. D. The organization employs loss reduction techniques in its diversified operations.

A. Referrals from present clients

Which one of the following methods of prospecting is more likely to be used by an experienced producer than a new insurance producer? A. Referrals from present clients B. Direct mail C. Interactive web sites D. Cold canvass

C. A funded reserve

Which one of the following planned retention funding measures recognizes in advance the potential for loss and supports that potential by allocating cash, securities, or other liquid assets to meet obligations? A. Current expensing of losses B. An unfunded reserve C. A funded reserve D. Borrowed funds

C. It's often difficult to determine that the property existed and was lost.

Which one of the following presents a challenge in adjusting a residential personal property claim? A. Scheduled coverage requires the adjuster to replace rather than repair the property. B. Scheduled coverage is usually more restrictive in terms of causes of loss covered. C. It's often difficult to determine that the property existed and was lost. D. The insured is not required to prepare an inventory for property that was stolen.

B. A primary insurer with a geographic concentration of loss exposures

Which one of the following primary insurers would most likely use a catastrophe risk exchange as an alternative to traditional reinsurance? A. A primary insurer in need of additional capital to expand into a new market B. A primary insurer with a geographic concentration of loss exposures C. A primary insurer looking for coverage in the event of an industry-wide loss D. A primary insurer seeking access to a prearranged line of credit

D. COSO II

Which one of the following provides an effective mechanism for initiating dialogue with an organization's board and senior executives about establishing enterprise-wide risk management (ERM) goals as part of the strategic management process? A. ISO 31000:2009 B. Basel II C. Solvency II D. COSO II

D. Combined ratio

Which one of the following ratios is considered the accepted financial measure of an insurer's underwriting performance? A. Success ratio B. Retention ratio C. Expense ratio D. Combined ratio

A. Use of version tracking

Which one of the following represents a way that metadata may be improved? A. Use of version tracking B. Compilation and extraction C. Exclusion of business rules D. Use of statistical plans

C. Bargaining power of suppliers

Which one of the following represents one of the five competitive forces Michael E. Porter describes in the Five Forces Model? A. Skill levels of staff B. Financial resources of purchasers C. Bargaining power of suppliers D. Age of the industry

D. Retention ratio and hit ratio

Which one of the following represents two nonfinancial measures that are used to evaluate underwriting performance by focusing on underwriting actions? A. Combined ratio and success ratio B. Loss ratio and quote ratio C. New business ratio and retention ratio D. Retention ratio and hit ratio

C. Diversification

Which one of the following risk control techniques is more commonly applied to managing business risk rather than hazard risk? A. Avoidance B. Separation C. Diversification D. Duplication

C. Duplication

Which one of the following risk control techniques will reduce loss severity and make losses more predictable, without increasing loss frequency significantly? A. Diversification B. Loss prevention C. Duplication D. Separation

C. Insurance premiums rise during a hard market.

Which one of the following statements about a hard market is true? A. During a hard market, insurer competition is intense. B. A hard market involves diminishing insurer profitability. C. Insurance premiums rise during a hard market. D. Insurance coverage is easy to find during a hard market.

D. Surplus lines brokers can place coverage that is not available through standard market insurers.

Which one of the following statements about insurance distribution systems and channels is true? A. Managing general agents (MGAs) serve as employees of direct writer companies. B. Direct writer marketing systems use sales persons who are independent contractors. C. Exclusive agents are usually free to represent as many or as few insurers as they want. D. Surplus lines brokers can place coverage that is not available through standard market insurers.

C. Premium auditors determine whether a given policy uses the correct rating classification(s).

Which one of the following statements about premium auditing is true? A. Premium audits are conducted at the beginning of each policy period. B. Premium auditors exclude from the audit report any payroll that has been improperly classified. C. Premium auditors determine whether a given policy uses the correct rating classification(s). D. Premium audits determine the estimated premium an insured must pay.

D. Alternative methods of risk financing reduce the demand for insurance.

Which one of the following statements about the supply and demand for insurance is true? A. A change in the supply of insurance has an effect only in softening markets. B. High profit expectations tend to decrease the supply of insurance. C. The demand for mandatory insurance is more elastic than for many other products. D. Alternative methods of risk financing reduce the demand for insurance.

B. Fair Access to Insurance Requirements (FAIR) plans make basic property insurance available to property owners who can't get it otherwise.

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

D. Finite risk reinsurance agreements typically have a three to five year term.

Which one of the following statements is correct regarding finite risk reinsurance? A. Finite risk reinsurance agreements generally allow the reinsurer to assess additional premium if losses exceed premium. B. Finite risk reinsurance is less expensive than most traditional types of reinsurance. C. Finite risk reinsurance is designed to cover high frequency and low severity loss exposures. D. Finite risk reinsurance agreements typically have a three to five year term.

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

Which one of the following statements is correct regarding how a prompt and accurate premium audit can affect the insurer's financial position? A. Accurate classification of losses produces little impact on insurance rates. B. Timely premium audits directly affect the insurer's cash flow management. C. Premium audits reduce the balance sheet totals. D. Premium developed by audit is earned overtime and has little effect on income.

C. From a regulator's perspective, if an insurer's ratio of written premium to policyholders' surplus exceeds 3 to 1, the insurer is selling more insurance than is prudent relative to the size of its net worth.

Which one of the following statements is correct regarding insurance regulatory constraints on growth? A. When an insurer's policyholders' surplus increases, that insurer's ability to grow its premium is diminished. B. State insurance regulation mandates that, for accounting purposes, premiums be recognized as revenue at the time a new policy is sold and expenses be recognized as they are earned over the policy's life. C. From a regulator's perspective, if an insurer's ratio of written premium to policyholders' surplus exceeds 3 to 1, the insurer is selling more insurance than is prudent relative to the size of its net worth. D. State regulators prohibit reinsurers from providing primary insurers with payment for policy acquisition.

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

Which one of the following statements is correct regarding net income loss exposures? A. Net income losses caused by the business environment represent pure risk. B. Net income losses resulting from liability losses are measurable because the timing and duration of the loss are definite. C. Net income losses resulting from liability losses are insured by a variety of business income coverages. D. Net income loss exposures associated with property losses exhibit almost all the characteristics of ideally insurable risks.

D. To determine profitability, an insurer should consider how its premium growth is being achieved.

Which one of the following statements is correct regarding premium growth and an insurer's success? A. An insurer should achieve premium growth by increasing rates rather than writing new policies. B. Rapid premium growth is a reliable indicator of an insurer's financial success. C. Establishing reasonable rules to measure the adequacy of premium growth is a relatively simple matter. D. To determine profitability, an insurer should consider how its premium growth is being achieved.

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

Which one of the following statements is correct regarding retirement as a personnel loss exposures? A. Retirement insurance is generally available to compensate organizations for the resulting loss when key employees retire. B. Because retirement is usually planned, most resulting personnel losses can be handled with proper planning. C. Generally a personnel loss resulting from a key employee's retirement is fortuitous from the organization's perspective. D. The personnel loss associated with retirement is the value of any pension or other benefits paid, which is easily measured.

A. A risk control evaluation can make the difference between the applicant's being rejected or accepted by the underwriter.

Which one of the following statements is correct regarding the interaction between risk control and other insurer functions? A. A risk control evaluation can make the difference between the applicant's being rejected or accepted by the underwriter. B. Risk control personnel are responsible for answering any complex questions that insureds have about premium audits. C. Risk control representatives compile detailed data for the actuarial department to use in establishing rates. D. Risk control representatives are responsible for compiling all the information required for a premium audit.

A. Risk control personnel can assist underwriters in modifying a new applicant's loss exposures to meet eligibility requirements.

Which one of the following statements is correct regarding the interaction between risk control and other insurer functions? A. Risk control personnel can assist underwriters in modifying a new applicant's loss exposures to meet eligibility requirements. B. Risk control representatives are responsible for compiling all the information required for a premium audit. C. Risk control personnel are responsible for answering any complex questions that insureds have about premium audits. D. Risk control representatives compile detailed data for the actuarial department to use in establishing rates.

B. Investment income enables an insurer to reduce the premium that it must charge for the underwriting risks it assumes.

Which one of the following statements is correct regarding the investment function within an insurer? A. An insurer that assumes high underwriting risks must assume greater investment risks than one that assumes only moderate underwriting risks. B. Investment income enables an insurer to reduce the premium that it must charge for the underwriting risks it assumes. C. An insurer's decision to use short-term versus long-term investments generally does not vary by type of loss exposure. D. Because liability losses tend to be larger than property losses, liability policies do not support investments.

D. The loss potential of a particular occupancy can be evaluated by examining the contents' ignition sources, combustibility, and susceptibility.

Which one of the following statements is correct regarding the occupancy hazard in property underwriting? A. An insured's practices in controlling its hazards does not make a significant difference in the acceptability of an account with combustible contents. B. Office occupancy is considered relatively high-hazard when compared to other types of occupancy. C. Mercantile occupancies are generally low-hazard occupancies with limited risk of significant loss. D. The loss potential of a particular occupancy can be evaluated by examining the contents' ignition sources, combustibility, and susceptibility.

D. 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 the relationship between risk control and claims? A. While the details of individual losses are useful to risk control representatives, frequency and severity data by line of business are rarely used. B. While risk control representatives carefully review property claims, they rarely examine liability or workers' compensation losses. C. The claim department has its own technical resources and rarely relies on the risk control department for expertise. D. The risk control department needs claim experience information to direct loss-control resources and efforts to crucial areas.

D. Most treaties require that all loss exposures within the treaty's terms be reinsured.

Which one of the following statements is correct regarding the use of treaty and facultative reinsurance? A. Primary insurers generally use facultative reinsurance as the foundation of their reinsurance program. B. Usually, primary insurers have only one reinsurance treaty with a single reinsurer. C. A primary insurer's underwriting policy and underwriting guidelines are usually developed by its treaty reinsurer. D. Most treaties require that all loss exposures within the treaty's terms be reinsured.

C. If treaty reinsurance agreements permitted primary insurers to choose which loss exposures they ceded, the reinsurer would be exposed to adverse selection.

Which one of the following statements is correct regarding treaty reinsurance? A. If reinsurers are comfortable with a primary insurer's published underwriting guidelines, they are generally not concerned with the degree to which those guidelines represent the insurer's actual practices. B. The integrity and experience of the primary insurer's management are generally not factors that treaty reinsurers consider. C. If treaty reinsurance agreements permitted primary insurers to choose which loss exposures they ceded, the reinsurer would be exposed to adverse selection. D. Primary insurers usually make treaty reinsurance agreements so their underwriters have discretion in using that reinsurance.

C. A long-term relationship with a reinsurer usually enables primary insurers to consistently fulfill producers' requests to place insurance with them.

Which one of the following statements is correct regarding treaty reinsurance? A. Treaty reinsurance agreements are designed to address a primary insurer's need to insure atypical loss exposures. B. Treaty reinsurance agreements are usually designed to allow underwriters to exercise discretion in determining which loss exposures to cede to the treaty reinsurers. C. A long-term relationship with a reinsurer usually enables primary insurers to consistently fulfill producers' requests to place insurance with them. D. The price and terms of reinsurance agreements are standard with little negotiation between the parties.

A. If an insurer cannot provide the insurance product at a reasonable premium, there will be no demand.

Which one of the following statements is correct when considering the economic feasibility of insurance premium? A. If an insurer cannot provide the insurance product at a reasonable premium, there will be no demand. B. Generally, the characteristics of ideally insurable loss exposures are unrelated to the premium that must be charged. C. The expense of providing insurance decreases with the frequency of claims because of economies of scale. D. Loss exposures involving only small losses are generally considered to be insurable.

B. The reinsurance agreement identifies the policy, group of policies, or other categories of insurance that are included in the agreement.

Which one of the following statements is correct with regard to reinsurance agreements and their functions? A. The retention under a reinsurance agreement is always expressed as a percentage of the original amount of insurance. B. The reinsurance agreement identifies the policy, group of policies, or other categories of insurance that are included in the agreement. C. Reinsurers are prohibited from transferring part of the liability they have accepted under reinsurance agreements to other reinsurers. D. The reinsurance agreement alters the terms of the underlying insurance policies.

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

Which one of the following statements is correct with regard to the risk control function of insurers? A. Insurance regulation in all states prohibits insurers from selling unbundled risk control to firms that self-insure. B. Providing risk control services increases the chance of policyholders making errors and omissions claims based on insurer negligence. C. Insurance regulation in all states requires insurers to provide a minimal level of risk control services to commercial policyholders. D. Risk control helps insurers meet profit goals by improving the quality of underwriting decisions.

A. The treaty reinsurer is usually willing to allow the primary insurer to remove high-hazard loss exposures from the treaty by using facultative reinsurance.

Which one of the following statements is correct with regard to the use of facultative reinsurance? A. The treaty reinsurer is usually willing to allow the primary insurer to remove high-hazard loss exposures from the treaty by using facultative reinsurance. B. Facultative reinsurance is generally not an option for insuring loss exposures that are inconsistent with the primary insurer's typical portfolio. C. Facultative reinsurance is generally not an option for insuring classes of loss exposures that are excluded under treaty reinsurance. D. The administrative costs associated with placing facultative reinsurance are relatively low.

C. Compliance with underwriting guidelines ensures selection of loss exposures commensurate with planned rate levels.

Which one of the following statements is correct with regard to underwriting guidelines? A. The purpose of developing underwriting guidelines is to ensure that an insurer writes only above average accounts. B. Once effective underwriting guidelines are established, they need not be evaluated or modified. C. Compliance with underwriting guidelines ensures selection of loss exposures commensurate with planned rate levels. D. One purpose underwriting guidelines serve is to provide for flexible and unstructured decisions.

B. The acceptable cash flow variability level for an organization depends on factors such as its size and financial strength.

Which one of the following statements is correct with respect to an organization's risk financing goals? A. To be effective as part of a risk management program, the cost of risk must be managed to minimize administrative, risk control, and risk financing expenses. B. The acceptable cash flow variability level for an organization depends on factors such as its size and financial strength. C. For most organizations, borrowing is the only available method of increasing liquidity to pay for retained losses. D. The level of cash flow variability that an organization is willing to accept is highest for organizations that prefer to avoid risk.

D. Any measure that controls property, liability, or personnel loss exposures also indirectly controls associated net income loss exposures.

Which one of the following statements is correct with respect to applying risk control techniques to the various types of loss exposures? A. Separation, duplication, and diversification are the most effective risk control techniques for treating liability loss exposures. B. Risk control techniques to reduce a liability loss once it occurs are generally not available. C. The most cost-effective risk control techniques for personnel loss exposures are those aimed at causes of loss that occur outside the workplace. D. Any measure that controls property, liability, or personnel loss exposures also indirectly controls associated net income loss exposures.

C. A seasonal business could suffer a severe business income loss from a relatively short shutdown.

Which one of the following statements is correct with respect to business income coverage? A. Business income coverage written on an actual loss sustained basis is usually subject to a dollar limit. B. When establishing the PML for business income losses, the dollar amount of the direct loss is important. C. A seasonal business could suffer a severe business income loss from a relatively short shutdown. D. A covered business income loss can occur without direct damage to property at the insured premises.

C. Claims for interference with use of property that seek only injunctive relief may be covered under liability insurance policies because loss of use is considered to be "property damage."

Which one of the following statements is correct with respect to claim handling under liability insurance policies? A. Lawsuits alleging financial harm due to breach of contract are clearly covered under liability insurance policies. B. In liability insurance policies, the terms "bodily injury" and "personal injury" hold the same meaning. C. Claims for interference with use of property that seek only injunctive relief may be covered under liability insurance policies because loss of use is considered to be "property damage." D. In jurisdictions that allow tort claims based on emotional injury only, the emotional injury generally does not constitute bodily injury for coverage purposes under liability insurance policies.

C. For some types of claims and in certain areas of the U.S., claimants are more likely to hire lawyers.

Which one of the following statements is correct with respect to claimants' representation by lawyers? A. Legal representation generally results in higher insurance settlements for claimants. B. When claimants hire lawyers, the insurer must pay the claimants' lawyer fees in addition to the settlement amount. C. For some types of claims and in certain areas of the U.S., claimants are more likely to hire lawyers. D. Legal representation of claimants generally guarantees a faster claim settlement.

B. 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? A. Less experienced risk control representatives are often assigned to developing safety management programs. B. Developing a safety management program begins with a complete evaluation of the policyholder's operations. C. Examples of safety management programs include fire safety, driver safety, and machine operation safety. D. Safety management program development can often be done remotely without the need to visit the policyholder's premises.

A. Losses can be hidden from discovery and large losses are common.

Which one of the following statements is correct with respect to employee dishonesty? A. Losses can be hidden from discovery and large losses are common. B. Most mercantile establishments purchase employee dishonesty insurance. C. Most employers are eager to have dishonest employees prosecuted. D. Employee dishonesty insurance is generally unprofitable for insurers.

A. Given a loss exposure and the effective alternative risk control measures, the risk manager can determine which is most efficient by using cash flow analysis.

Which one of the following statements is correct with respect to evaluating the efficiency of alternative risk control measures? A. Given a loss exposure and the effective alternative risk control measures, the risk manager can determine which is most efficient by using cash flow analysis. B. The efficiency of various risk control measures is usually determined based on both quantitative and qualitative standards. C. An advantage of using cash flow analysis to evaluate the efficiency of alternative risk control measures is that it considers nonfinancial goals and selection criteria. D. A disadvantage of using cash flow analysis to evaluate the efficiency of alternative risk control measures is that the basis of comparison varies for each value-maximizing decision.

B. The reinsurer responds to a loss only when the loss exceeds the primary insurer's retention.

Which one of the following statements is correct with respect to excess of loss reinsurance? A. Reinsurers usually pay ceding commissions under excess of loss agreements. B. The reinsurer responds to a loss only when the loss exceeds the primary insurer's retention. C. The excess of loss reinsurer receives a proportional share of the subject premium. D. Under a working cover type, the attachment point is set at a level where expected claims are retained.

D. Underwriters often use consumer investigation reports to determine the personal characteristics of drivers.

Which one of the following statements is correct with respect to factors considered in underwriting personal automobile insurance? A. Insurers typically do not allow rate discounts for vehicles with safety features such as antilock braking or side air bags. B. All insurers' underwriting guides distinguish drivers on the basis of their occupations. C. Auto modifications made to accommodate a driver with physical impairments usually make a risk undesirable. D. Underwriters often use consumer investigation reports to determine the personal characteristics of drivers.

B. The premium for a finite risk insurance plan is a very high percentage of the policy limits.

Which one of the following statements is correct with respect to finite risk insurance plans? A. A finite risk insurance plan typically offers the most risk transfer of all the risk financing measures. B. The premium for a finite risk insurance plan is a very high percentage of the policy limits. C. A finite risk insurance plan typically provides lower limits than guaranteed cost insurance. D. A disadvantage is that a finite risk plan does not address the goal of complying with legal requirements.

A. Insurers can raise barriers to entry by offering unique or customized products or services.

Which one of the following statements is correct with respect to forces that drive competition according to the Five Forces Model? A. Insurers can raise barriers to entry by offering unique or customized products or services. B. The threat of substitute products or services refers mainly to substitutes offered by an insurer's direct competitors. C. Buyers in the insurance industry generally have very limited bargaining power, particularly in personal lines. D. The insurance industry is not exposed to the threat of suppliers exerting bargaining power.

C. When evaluating loss exposures, underwriters consider the property's susceptibility to being stolen and its marketability.

Which one of the following statements is correct with respect to insurance for crimes committed by others? A. Because crime can occur anywhere, the location of property is not a consideration when underwriting this coverage. B. The policy limit purchased is usually close to the value of the exposed property. C. When evaluating loss exposures, underwriters consider the property's susceptibility to being stolen and its marketability. D. The use of deductibles is not important with this type of insurance because the crime is committed by someone other than the insured.

A. Line underwriters can offer valuable technical assistance to an insured's risk manager and to the producer responsible for the account.

Which one of the following statements is correct with respect to line underwriters? A. Line underwriters can offer valuable technical assistance to an insured's risk manager and to the producer responsible for the account. B. Line underwriters formulate underwriting policy and develop underwriting guides. C. Line underwriters focus on risk characteristics and need not be knowledgeable about policy forms and provisions. D. Line underwriters select and rate new business. They are not generally involved in the proposal or renewal process.

C. They identify target customers and the resources and strategies to be used to create, price, promote, and sell the product.

Which one of the following statements is correct with respect to marketing plans? A. Their principal use is with new products; they are not effective for marketing existing products. B. Their purpose is to analyze customer spending habits and determine how much consumers might be willing to pay for a product. C. They identify target customers and the resources and strategies to be used to create, price, promote, and sell the product. D. They focus primarily on how a product will be advertised and delivered to potential customers.

B. Personal injury loss exposures include such things as legal liability arising out of libel, slander, and copyright infringement.

Which one of the following statements is correct with respect to personal and advertising injury coverage? A. The ISO CGL coverage form must be endorsed to provide personal and advertising injury coverage. B. Personal injury loss exposures include such things as legal liability arising out of libel, slander, and copyright infringement. C. Underwriters usually evaluate this loss exposure closely for all risks. D. The advertising injury coverage provided under the ISO CGL coverage form is intended for advertising, telecasting, and broadcasting firms.

B. Underwriters evaluate a driver's prior accidents and prior moving violations.

Which one of the following statements is correct with respect to personal automobile underwriting considerations? A. Auto theft and vandalism occur more frequently in remote areas. B. Underwriters evaluate a driver's prior accidents and prior moving violations. C. Drivers are more likely to be involved in fatal auto accidents in urban areas. D. All states prohibit the use of gender or marital status as underwriting or rating factors.

D. The coverage can be excluded by endorsement, but this is rarely done.

Which one of the following statements is correct with respect to premises medical payments coverage? A. It requires that the policyholder be legally liable for the injured party's injury. B. It pays medical expenses for insureds injured by the policyholder's premises or operations. C. The limits for medical payments coverage are typically $25,000 to $50,000. D. The coverage can be excluded by endorsement, but this is rarely done.

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

Which one of the following statements is correct with respect to premium auditing? A. Insureds are usually able to assemble the necessary audit information and determine the actual earned premium. B. The need for a premium audit arises because some insurance policies have adjustable premiums. C. Voluntary audits do little to deter or detect fraud on the part of the insured. D. Insurance regulation requires premium audits on any commercial account for which the premium is based on payroll or sales.

D. 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 with respect to premium audits? A. Workers compensation insurance is the one line of commercial insurance that is rarely subject to premium audit requirements. B. Policyholders are required to present accounting information and other data to the auditor in the specified form required by the manual rules. C. There is no strictly defined procedure for premium audits, and individual auditors may consider different factors during an audit. D. When a policy is written subject to audit, the exact exposure and premium bases cannot be known until the end of the policy period.

A. The reinsurer usually pays a ceding commission to reimburse the primary insurer for acquisition costs associated with the underlying policies.

Which one of the following statements is correct with respect to pro rata reinsurance? A. The reinsurer usually pays a ceding commission to reimburse the primary insurer for acquisition costs associated with the underlying policies. B. The primary insurer and the reinsurer do not typically use a fixed percentage in sharing the amounts of insurance, premiums, and losses. C. These agreements generally share only loss amounts under covered policies and exclude loss adjustment expenses related to the policies. D. Pro rata reinsurance is available in five forms including per risk, catastrophe, per policy, per occurrence, and aggregate excess.

C. Commercial property underwriters commonly assess fire loss exposures based on each building's construction, occupancy, protection, and external exposure.

Which one of the following statements is correct with respect to property loss exposures? A. Avoidance, loss prevention, loss reduction, separation, and diversification are risk control techniques that can be applied to property loss exposures. B. The risk control techniques commonly selected for property loss exposures are the same regardless of the type of property. C. Commercial property underwriters commonly assess fire loss exposures based on each building's construction, occupancy, protection, and external exposure. D. Risk control techniques commonly selected to reduce one property cause of loss, such as fire, are equally effective with other causes of loss.

D. Premiums for flood insurance may not be economically feasible, depending on location.

Which one of the following statements is correct with respect to property loss exposures? A. Many organizations do not have property loss exposures related to their business operations. B. All property fire losses are fortuitous and involve pure risk. C. Windstorm losses are ideally insurable because they are independent and not catastrophic. D. Premiums for flood insurance may not be economically feasible, depending on location.

B. Retention enables an organization to manage its cost of risk.

Which one of the following statements is correct with respect to retention's ability to meet risk financing goals? A. Retention exposes an organization to less variability in cash flows than transfer. B. Retention enables an organization to manage its cost of risk. C. Retention is the most effective way to meet the risk financing goal of paying losses. D. Retention generally reduces the level of liquidity needed.

C. Two risk control techniques that are directly aimed at reducing the severity of net income losses are separation and duplication.

Which one of the following statements is correct with respect to risk control techniques for net income loss exposures? A. All techniques that control property, liability, or personnel loss exposures are ineffective in controlling net income loss exposures. B. Risk control efforts focused on reducing the immediate effect of losses on net income are not needed to control long-term effects. C. Two risk control techniques that are directly aimed at reducing the severity of net income losses are separation and duplication. D. Diversification is not a viable risk control measure for controlling net income losses.

D. Most risk transfer measures limit the potential loss amounts being transferred.

Which one of the following statements is correct with respect to risk transfer measures? A. The majority of risk transfer measures are pure transfers. B. Risk transfer measures shift the transferor's legal responsibility for paying a loss to the transferee. C. The timing of cash flows is usually improved with the use of risk transfer measures. D. Most risk transfer measures limit the potential loss amounts being transferred.

D. The types of insurance products and services to be delivered by the insurer must fit the marketing channel selected.

Which one of the following statements is correct with respect to selecting a distribution channel? A. The primary consideration is what approach will allow the insurer to operate efficiently. B. The majority of customers prefer to speak with a producer or service representative rather than access their account information online. C. Customers are prepared to spend a reasonable amount of time and effort interacting with a distribution channel if that channel saves them money. D. The types of insurance products and services to be delivered by the insurer must fit the marketing channel selected.

B. It is often used to cover workers compensation and other loss exposures that have claim payouts that extend over time.

Which one of the following statements is correct with respect to self-insurance as a risk financing measure? A. It is an informal retention plan in which an organization pays losses using cash flows or current liquid assets with no method of recording losses. B. It is often used to cover workers compensation and other loss exposures that have claim payouts that extend over time. C. Cost of risk with self-insurance is typically higher than with other risk financing measures. D. It is usually used for low-frequency loss exposures.

C. It is cyclical.

Which one of the following statements is correct with respect to the U.S. property-casualty insurance market? A. It is immature. B. It functions perfectly. C. It is cyclical. D. It meets all consumer needs.

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

Which one of the following statements is correct with respect to the characteristics of premises and operations liability loss exposures? A. Because organizations profit from their operations, premises and operations liability loss exposures involve speculative risk. B. Premises and operations liability losses typically arise from an insured's negligence, so they cannot be considered to be fortuitous. C. Given the large number of retail stores in the U.S., the premises and operations liability loss exposure is potentially catastrophic. D. Premises and operations liability losses are definite in time, cause, and location, and are measurable.

B. 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 the products liability loss exposure? A. Typically, premiums for products liability insurance are economically feasible, regardless of the product. B. If a product has been widely distributed, a loss could be catastrophic in terms of number of claims. C. Because products liability losses arise out of defective or inherently dangerous products, they are not considered to be fortuitous. D. Products liability losses are typically definite in cause and relatively easy to measure in monetary terms.

C. Industrial accidents can illustrate the various costs that need to be accounted for in determining cost of losses

Which one of the following statements is correct with respect to the expected cost of losses or gains? A. The expected cost of gains or losses includes only the direct costs associated with a particular risk B. Calculating the expected cost of losses or gains for pure risks is more complex than for speculative risks C. Industrial accidents can illustrate the various costs that need to be accounted for in determining cost of losses D. The expected cost of losses is equal to the uninsured portion of any bodily injury or property damage

B. Knowing the value of a building or its contents is critical in measuring the amount of a fire loss.

Which one of the following statements is correct with respect to the fire cause of loss in commercial property insurance? A. Pinpointing the time at which a fire began is usually difficult and loss timing is critical. B. Knowing the value of a building or its contents is critical in measuring the amount of a fire loss. C. An insurer can do little to ensure that fire loss exposures are independent and not catastrophic. D. Because fires are high-severity events, this cause of loss is generally expensive to insure.

B. A premium audit can uncover classification changes necessary to revise coverage.

Which one of the following statements is correct with respect to the premium auditing process? A. Advisory organizations specify which records a premium auditor is allowed to examine. B. A premium audit can uncover classification changes necessary to revise coverage. C. Claims and expenses typically decrease when a policyholder is classified incorrectly. D. Rating manuals contain rules, which make classifying an account a simple matter.

A. Once premium auditors have obtained the data necessary for calculating the premium, they must decide whether the data are reasonable.

Which one of the following statements is correct with respect to the premium auditing process? A. Once premium auditors have obtained the data necessary for calculating the premium, they must decide whether the data are reasonable. B. Premium auditors use rules, rather than judgment, when analyzing and verifying premium data to ensure audit validity. C. The written audit report summarizes the results of the audit, but does not document the process or the sources of the data used. D. Advisory organizations specify the amount of evidence required to ascertain loss exposures and classifications with reasonable certainty.

D. Before they look at the books, premium auditors observe the operation, compare it to similar businesses, and assess management.

Which one of the following statements is correct with respect to the premium auditing process? A. Premium auditors should be involved in setting up a policyholder's bookkeeping records or procedures. B. It is a simple matter to determine who the policyholder's employees are for coverages in which premiums are payroll-based. C. Vacation pay, tool allowances, bonuses, commissions, and sick pay cannot be included in payroll for premium calculation purposes. D. Before they look at the books, premium auditors observe the operation, compare it to similar businesses, and assess management.

C. Identifying internal strengths and weaknesses involves considering financial, physical, human, and organizational assets.

Which one of the following statements is correct with respect to the use of SWOT analysis to analyze the competitive environment? A. Managers use SWOT analysis to predict the future state of their companies. B. Customers are generally not considered in a SWOT analysis because the focus is on the assets an organization owns. C. Identifying internal strengths and weaknesses involves considering financial, physical, human, and organizational assets. D. Managers consider factors in the general environment rather than the task environment when conducting a SWOT analysis.

A. The primary benefit of transfer is certainty regarding the ability to pay losses.

Which one of the following statements is correct with respect to transfer's ability to meet risk financing goals? A. The primary benefit of transfer is certainty regarding the ability to pay losses. B. Transfer is less effective than retention in managing cash flow variability. C. Transfer increases the level of liquidity that an organization requires. D. The primary benefit of transfer is that it allows an organization to manage its cost of risk.

A. The self-insured retention for a commercial umbrella liability policy is usually $10,000.

Which one of the following statements is correct with respect to umbrella and excess liability insurance? A. The self-insured retention for a commercial umbrella liability policy is usually $10,000. B. While umbrella policies are typically layered, a single excess policy will provide all the increased limits an insured requires. C. Excess liability insurance policies typically offer much broader coverage than do the underlying policies. D. Umbrella liability insurance is designed to cover an aggregation of smaller, high-frequency losses.

D. If an insured fails to maintain underlying insurance with agreed limits, the umbrella policy will respond as though the required underlying coverage is in place.

Which one of the following statements is correct with respect to umbrella liability insurance? A. Umbrella liability polices provide coverage for gaps in underlying policies, but will not provide coverage when the aggregate limits of the underlying policies have been exhausted. B. Policy language and underwriting rules are standardized among umbrella liability insurers. C. Most umbrella liability policies do not contain a deductible or self-insured retention. D. If an insured fails to maintain underlying insurance with agreed limits, the umbrella policy will respond as though the required underlying coverage is in place.

A. Risk control can assist marketing by providing advice on improving safety.

Which one of the following statements is true concerning risk control? A. Risk control can assist marketing by providing advice on improving safety. B. Risk control can sell additional lines of coverage. C. Risk control departments are purely a function of insurers. D. Risk control can use claim information to pave the way for the premium audit.

D. It requires careful analysis of the loss exposures covered by the underlying policies, plus those exposures covered only by the umbrella policy.

Which one of the following statements is correct with respect to underwriting umbrella liability insurance? A. Umbrella liability insurance policies are generally written with relatively low limits because they are excess of underlying coverage. B. Umbrella policy underwriters need not concern themselves with the specific coverage provided under the underlying policies or endorsements. C. If the insurer providing the underlying coverage is unable to defend a claim, the umbrella insurer is relieved of its duty to do so. D. It requires careful analysis of the loss exposures covered by the underlying policies, plus those exposures covered only by the umbrella policy.

C. From an underwriting standpoint, housekeeping refers to cleanliness and operating efficiency.

Which one of the following statements is correct with respect to underwriting workers compensation insurance? A. An insured's providing healthcare benefits is not related to its workers compensation exposure. B. All firms in the same industry generally have the same hazards and level of risk. C. From an underwriting standpoint, housekeeping refers to cleanliness and operating efficiency. D. On-premises hazards relating to housekeeping and maintenance are rare.

B. The off-premises hazard has three elements: the duration of travel, the mode of transportation, and the hazards at remote job sites.

Which one of the following statements is correct with respect to workers compensation underwriting? A. Seasonal employees tend to be better trained and more attentive to work safety than full-time employees. B. The off-premises hazard has three elements: the duration of travel, the mode of transportation, and the hazards at remote job sites. C. Employee morale is generally not a factor considered when underwriting workers compensation insurance. D. The standard workers compensation policy for a contractor specifically excludes coverage for employees of any uninsured subcontractors.

A. In the exclusive agent and direct writer marketing systems, insurers might assist producers with prospecting.

Which one of the following statements is correct? A. In the exclusive agent and direct writer marketing systems, insurers might assist producers with prospecting. B. Cold calling, or cold canvas, is generally not used by insurance producers because it is an ineffective method of prospecting. C. All insurance producers perform the same functions, which are specified in state insurance regulations. D. Insurance producers are prohibited from accepting referrals from strategic partners, such as banks or real estate brokers.

C. It is preferable to insure to value with rates that reflect the loss exposure than to underinsure property at inflated rates.

Which one of the following statements is correct? A. Insisting on insurance to value can damage an insurer's competitive position in the market. B. Most property losses are total losses so insurance to value is needed to cover most losses. C. It is preferable to insure to value with rates that reflect the loss exposure than to underinsure property at inflated rates. D. Having adequate limits of insurance on new business ensures ongoing insurance to value.

C. Insurers' investment income helps keep premiums at a reasonable level.

Which one of the following statements is correct? A. Insurers cannot invest premium income because it must be available to pay claims. B. Insurers are prohibited from investing in social projects. C. Insurers' investment income helps keep premiums at a reasonable level. D. Insurance provides a source of investment funds for insurers but not for policyholders.

A. Many producers offer consulting services for which they are paid on a fee basis.

Which one of the following statements is correct? A. Many producers offer consulting services for which they are paid on a fee basis. B. It is illegal for producers to reduce their consulting fees in recognition of commissions received. C. When consulting services are provided, insurance premiums, commissions, and fees are billed together. D. Producers are restricted to only providing services to their current insureds.

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

Which one of the following statements is correct? A. One disadvantage of insurance is that it promotes inefficient use of policyholders' funds. B. Contractors must usually provide evidence of liability insurance before a construction contract is granted. C. Insurance policies typically cannot be used to provide evidence of financial resources. D. Insurers generally do not provide incentives to organizations to implement risk control measures.

D. Proper settlement of business income claims requires detailed analysis of financial records.

Which one of the following statements is true concerning adjustment of property claims? A. Claims for extra expense are settled only prospectively. B. Residential personal property is the only significant source of salvage for the insurance industry. C. Most claim representatives with experience in residential losses can estimate commercial losses. D. Proper settlement of business income claims requires detailed analysis of financial records.

D. State regulators monitor insurers' activities in the claim settlement process.

Which one of the following statements is true concerning claim department contacts? A. Expense management for defense is a nonessential component of the overall claim function. B. Technological improvements have weakened the quality of claim service. C. All states require claim adjusters to be licensed. D. State regulators monitor insurers' activities in the claim settlement process.

D. When the value of a claim approaches or exceeds the insured's policy limit, settlement becomes a legal obligation.

Which one of the following statements is true concerning negotiating and settling claims? A. The insured, rather than the insurer, controls the defense and claim settlement, and therefore is expected to make the first demand. B. The majority of liability claims that are settled use structured settlements. C. Negotiating claims is seen as a weakness to both adjusters and attorneys. D. When the value of a claim approaches or exceeds the insured's policy limit, settlement becomes a legal obligation.

D. Fixtures are personal property that have become attached to and part of real property.

Which one of the following statements is true concerning personal property? A. Personal property is considered part of the building and is easy to describe and identify. B. The owner's intent is not a factor in distinguishing real and personal property. C. Personal property is land and everything attached to it; all else is real property. D. Fixtures are personal property that have become attached to and part of real property.

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

Which one of the following statements is true concerning the premium auditing process? A. The process the premium auditor uses is known as auditing the policy because the focus is on the exposures identified on the policy. B. An examination of the insured's books and records at the insured's premises is referred to as a voluntary audit. C. The definition of "employee" is the same for both workers compensation and general liability policies when the premium base is payroll. D. A premium auditor's job involves not only counting loss exposures, but also classifying them correctly.

A. Transaction-based plans better support the business need for data.

Which one of the following statements is true regarding Statistical Plans? A. Transaction-based plans better support the business need for data. B. Summary-based plans provide the most accurate data for actuarial-related purposes. C. Transaction-based plans collect loss data only when a claim is closed. D. Summary-based plans do not provide enough detail for regulatory reporting purposes.

A. Underwriters often use the expression "within four walls" to explain the concept of amount subject.

Which one of the following statements is true regarding amount subject and probable maximum loss (PML) in evaluating property loss exposures? A. Underwriters often use the expression "within four walls" to explain the concept of amount subject. B. The PML is the underwriter's estimate of the largest loss likely to occur with all fire protection services working. C. Insurer underwriting guidelines are fairly consistent on how to calculate PML for a location. D. The amount subject is determined through a precise calculation of the boundaries of a fire division.

C. In insurance, supply may be less than capacity.

Which one of the following statements is true regarding capacity? A. In insurance, supply equals capacity. B. In insurance, risk is affected by capacity. C. In insurance, supply may be less than capacity. D. In insurance, supply and capacity equals risk.

A. The amount subject for a location, as estimated by any two underwriters with a common employer, should be consistent.A. The amount subject for a location, as estimated by any two underwriters with a common employer, should be consistent.

Which one of the following statements is true regarding measures of potential loss severity for property loss exposures? A. The amount subject for a location, as estimated by any two underwriters with a common employer, should be consistent. B. The amount subject should be determined separately for each policy an insurer writes within a single fire division. C. The amount of insurance carried on a property location is the most useful figure for determining potential loss severity. D. The amount subject to a single loss at a location is consistent for all causes of loss to which the location is exposed.

A. Mercantile occupancies such as clothing stores and grocery stores are subject to large loss to stock from relatively small fires.

Which one of the following statements is true regarding occupancy hazards when underwriting fire insurance? A. Mercantile occupancies such as clothing stores and grocery stores are subject to large loss to stock from relatively small fires. B. The occupancy hazards presented by manufacturing risks tend to be similar regardless of the product being manufactured. C. The occupancy hazards presented by habitational risks are typically reduced when someone other than the owner of the building is responsible for building maintenance. D. Office occupancies usually contain materials that are highly susceptible to damage and present a relatively high-hazard occupancy exposure.

A. Risk management makes those who own or run an organization more willing to undertake risky activities.

Which one of the following statements is true regarding risk management efforts on the part of individuals, organizations, and society in general? A. Risk management makes those who own or run an organization more willing to undertake risky activities. B. The benefits that risk management efforts provide to individuals and organizations are not felt by society in general. C. Risk management tends to increase the deterrence effect of risk in organizations. D. Organizations tend to exhibit a greater degree of risk aversion than do individuals.

B. The goal of tolerable uncertainty is to allow managers to make and implement decisions without being unduly affected by uncertainty.

Which one of the following statements is true regarding risk management program goals? A. The goal of economy of operations is that the organization should incur only moderate costs in exchange for significant benefits. B. The goal of tolerable uncertainty is to allow managers to make and implement decisions without being unduly affected by uncertainty. C. The goal of earnings stability is that the organization should strive for the highest possible level of profit in the post-loss period. D. An organization with a post-loss goal requiring a minimum level of profit tends to spend less on risk financing than an organization that does not require minimum profit.

B. The risk management techniques selected by for-profit organizations should be both effective in meeting the organizations' goals and economical.

Which one of the following statements is true regarding risk management techniques? A. Data based on objective risk factors are usually the only criteria considered in determining appropriate risk management techniques. B. The risk management techniques selected by for-profit organizations should be both effective in meeting the organizations' goals and economical. C. In support of the goal of economy of operations, the risk management techniques selected by most for-profit organizations should be the least expensive ones. D. Nonfinancial considerations are usually disregarded in selecting risk management techniques because they cannot be factored into a cost/benefit analysis.

B. The financial consequences depend on the type of loss exposure, the cause of loss, and the loss frequency and severity.

Which one of the following statements is true regarding the financial consequences of loss? A. The financial consequences of any loss can be established immediately after the loss occurs. B. The financial consequences depend on the type of loss exposure, the cause of loss, and the loss frequency and severity. C. The financial consequences of future losses cannot be predicted with any degree of certainty. D. The financial consequences of a loss are independent of any hazards that may have contributed to the loss.

A. Excess supply of insurance leads to an extended soft market.

Which one of the following statements regarding characteristics of the underwriting cycle is true? A. Excess supply of insurance leads to an extended soft market. B. Policyholder surplus tends to grow during soft markets. C. As capacity begins to shrink, the transition to the soft market is under way. D. Excess capacity can be a major factor in extending a hard market.

B. The insurance cycle does not coincide with the general business cycle of most industries.

Which one of the following statements is true regarding the insurance cycle? A. The insurance cycle is closely tied to demand in the general economy. B. The insurance cycle does not coincide with the general business cycle of most industries. C. The insurance cycle is synchronized to the general business cycle. D. Like the insurance cycle, the general economic cycle is driven by the supply of goods and services.

D. ERM emphasizes the interrelationships between pure and speculative risk.

Which one of the following statements is true regarding traditional risk management (RM) verses enterprise-wide risk management (ERM)? A. ERM focuses only on pure risk, while RM does not. B. RM considers the risk that the organization will outperform its strategic goals. C. Both RM and ERM focus on pure risk. D. ERM emphasizes the interrelationships between pure and speculative risk.

B. Per policy excess of loss applies primarily to liability insurance, and per risk excess of loss applies primarily to property insurance.

Which one of the following statements is true with regard to excess of loss reinsurance? A. Per risk excess of loss always applies to both property and liability insurance. B. Per policy excess of loss applies primarily to liability insurance, and per risk excess of loss applies primarily to property insurance. C. Per policy excess of loss applies to both property and liability insurance. D. Per policy excess of loss applies primarily to property insurance, and per risk excess of loss applies primarily to liability insurance.

D. Electrical equipment is a source of common hazards that exists in almost all business occupancies.

Which one of the following statements is true with regard to occupancy analysis when underwriting property insurance? A. Severe loss to the contents of a building is an underwriting concern only for large fires that are difficult to extinguish. B. An insured's management practices can do little to improve the acceptability of an account with significant occupancy hazards. C. The office occupancy category is a high hazard category due to the extreme combustibility of contents. D. Electrical equipment is a source of common hazards that exists in almost all business occupancies.

A. A commercial structure is more likely than a personal residence to significantly depreciate due to factors other than wear and tear.

Which one of the following statements is true with regard to property claims for commercial structures? A. A commercial structure is more likely than a personal residence to significantly depreciate due to factors other than wear and tear. B. The depreciation amount recorded in a policyholder's financial records for a structure can be relied upon as being accurate. C. A claim adjuster is obligated to resolve disputes between mortgageholders and owners of commercial structures regarding whether to rebuild or not. D. One of a claim adjuster's primary duties when adjusting property claims for commercial structures is to engage a contractor to perform reconstruction.

A. It is typically more economical for an organization to retain rather than transfer loss exposures directly related to its core operations.

Which one of the following statements is true with regard to the selection of appropriate risk financing measures? A. It is typically more economical for an organization to retain rather than transfer loss exposures directly related to its core operations. B. Diversifying loss exposures tends to reduce the accuracy of loss estimates, and increases the uncertainty regarding future losses. C. An organization that undertakes extensive risk control measures is less likely to have the ability to fund retention of its loss exposures. D. The higher an organization's willingness to accept risk, the higher the likelihood that transfer will be used to cover its loss exposures.

C. State and federal governments provide insurance for exposures that are significant but not commercially insurable.

Which one of the following statements is true with regard to the various forms of ownership of property-casualty insurers? A. Stock insurance companies and mutual insurance companies are owned by the policyholders. B. The main reason that cooperative insurers are formed is to earn a profit for their owners. C. State and federal governments provide insurance for exposures that are significant but not commercially insurable. D. Most pools that are required by law are underwritten by state governments.

D. A marketing plan identifies the product or service to be promoted and the customers to be targeted.

Which one of the following statements is true? A. A comprehensive marketing plan is limited to marketing goals and marketing strategies. B. The product proposal and sales goals included in a marketing plan summarize the contractual relationship between producer and insurer. C. The situational analysis (SWOT) of a marketing plan includes strategies for determining the appropriate distribution channel for products and services. D. A marketing plan identifies the product or service to be promoted and the customers to be targeted.

A. An increase in supply will soften the market.

Which one of the following statements is true? A. An increase in supply will soften the market. B. Capacity is the total amount of risk that insurers are willing to assume. C. The demand for insurance has a much greater effect on the underwriting cycle than does the supply. D. The demand for insurance is similar to the demand for most other products in that it is very elastic.

B. As an organization's retention level increases, so does the level of liquidity required.

Which one of the following statements is true? A. Real property and machinery are examples of liquid assets. B. As an organization's retention level increases, so does the level of liquidity required. C. Liquid assets offer higher returns than other, longer-term investments. D. Liquidity can be increased by using cash flow to fund capital projects.

D. Insurers benefit from insurance to value because it promotes higher limits of property insurance.

Which one of the following statements is true? A. The coinsurance clause in a property policy encourages insurance to value through premium discounts. B. Adequate limits of insurance on new business ensure ongoing insurance to value. C. The insurable value of a building is the same as the building's book value. D. Insurers benefit from insurance to value because it promotes higher limits of property insurance.

A. Violations of certain laws, such as traffic laws, are deemed negligence per se.

Which one of the following statements is true? A. Violations of certain laws, such as traffic laws, are deemed negligence per se. B. A cause of action in negligence requires only that the tortfeasor's actions in some way cause harm to another party. C. Liability policies generally exclude coverage for assault, battery, false arrest, defamation, trespass and fraud. D. To be found liable for a tort, the wrongdoer must have behaved negligently.

C. Activities standards are necessary to obtain a complete picture of the success or failure of a risk management program.

Which one of the following statements regarding monitoring the results of a risk management program is true? A. Risk management professionals generally prefer performance standards that are solely dependent on the organization's loss record. B. When performance substantially exceeds the standard, the risk management professional knows that the standard has been appropriately set. C. Activities standards are necessary to obtain a complete picture of the success or failure of a risk management program. D. A results standard focuses on the quality and quantity of the risk management activities undertaken by the organization.

B. Staff underwriters typically share responsibility for researching fundamental insurance issues with the actuarial and marketing departments.

Which one of the following statements regarding underwriter responsibilities is correct? A. Line underwriters often serve on industry committees that study standard policy forms and recommend changes. B. Staff underwriters typically share responsibility for researching fundamental insurance issues with the actuarial and marketing departments. C. Staff underwriters offer valuable technical assistance to the insured's risk manager and the producer who is directly responsible for determining what coverage best meets the insured's needs. D. Line underwriters are generally responsible for completing underwriting audits of the branch or region in which they work.

B. Automobile

Which one of the following types of insurance has been particularly influenced by data analytics and telematics devices? A. Property B. Automobile C. Terrorism D. Workers compensation

C. Stock insurers

Which one of the following types of insurers are the most prevalent in the United States? A. Government insurers B. Captive insurers C. Stock insurers D. Mutual insurers

D. Automobile liability

Which one of the following types of loss exposures meets all of the characteristics of ideally insurable personal loss exposures? A. Net income B. Health C. Property windstorm D. Automobile liability

D. Retirement loss exposures

Which one of the following types of personal loss exposures is not usually fortuitous? A. Liability loss exposures B. Life loss exposures C. Health loss exposures D. Retirement loss exposures

B. Pro rata

Which one of the following types of reinsurance is generally chosen by newly incorporated insurers or insurers with limited capital because it is effective in providing surplus relief? A. Facultative B. Pro rata C. Aggregate excess D. Per risk

A. Financial resources

Which one of the following would be a critical strength required for a personal lines insurer planning to expand geographically through web-based distribution? A. Financial resources B. Coverage expertise C. Producer force D. Service capabilities

A. Missing data

Which one of these data quality problems impairs or prevents an analyst's ability to use the affected variables for analysis? A. Missing data B. Default values C. Duplicate transactions D. Data errors

D. Separation and duplication

Which two risk control measures are directly aimed at reducing the severity of net income losses? A. Diversification and loss reduction B. Avoidance and diversification C. Avoidance and loss prevention D. Separation and duplication

D. Structured settlement

Which type of settlement technique would be most appropriate when the claimant is expected to experience predictable regular damages into the future? A. Walk away settlement B. Lump sum settlement C. Fixed payment settlement D. Structured settlement

A. Operations.

While a contractor is repairing a sidewalk, a pedestrian trips over a bag of cement and is injured. The type of commercial general liability loss exposure that this example demonstrates is known as: A. Operations. B. Completed operations. C. Products. D. Premises.

C. Optimize

While identifying risks to strategy using the enterprise-wide risk management (ERM) process, an organization might ask the question, "What if an event occurs that decreases the product yield for one of our major competitors?" Assuming the likelihood of the event is high, which one of the following techniques for treating risks to strategy would be the most appropriate to treat this risk? A. Transfer B. Mitigate C. Optimize D. Avoid

D. Premises liability.

While inside a restaurant, a customer sprains his ankle after falling on a slippery floor. The commercial general liability loss exposure for the restaurant owner in this example is known as: A. Operations liability. B. Products liability. C. Contractual liability. D. Premises liability.

A. Premises liability.

While inside a restaurant, a customer sprains his ankle after falling on a slippery floor. The commercial general liability loss exposure for the restaurant owner in this example is known as: A. Premises liability. B. Products liability. C. Contractual liability. D. Operations liability.

D. Independent agent

William has decided to start a small architecture business. He has rented office space, purchased furnishings, and hired four employees. William knows that he needs to purchase insurance before he can open for business but is not sure what coverages and limits to purchase. Which one of the following insurance distribution systems is most appropriate for William? A. National broker B. Regional broker C. The Internet D. Independent agent

inelastic demand

Willingness to purchase a product that does not tend to respond to a change in price

elastic demand

Willingness to purchase a product that varies significantly with price

D. Residual impact is within risk tolerance/appetite.

Within the enterprise-wide risk management (ERM) framework is the Associate in Risk Management (ARM) six-step risk management process. One way the ERM process enhances the ARM process is by adding a decision step prior to risk treatment that asks the risk manager to determine whether: A. It is necessary to consult with all internal and external stakeholders. B. Affordable risk management techniques are available for all critical risks. C. It is necessary to establish internal and external contexts of the enterprise. D. Residual impact is within risk tolerance/appetite.

B. Coverage is hard to find.

Within the underwriting cycle, which one of the following occurs in a hard market? A. Competition is intense. B. Coverage is hard to find. C. Premiums decline. D. Insurers are less profitable.

B. Set a loss reserve.

Work on a new claim begins for the claim representative upon receipt of the notice of loss. The representative obtains initial information and verifies coverage. Next, the representative should: A. Assign the claim to defense counsel. B. Set a loss reserve. C. Make an offer to settle the claim. D. Retain causation experts.