Chapter 1 exam

T/F. Regarding the fair credit act, if the report had corrections made, the insurer is required to issue the application.

False.

If an insurer is incorporated in Rhode Island but primarily does business in New York what type of insurer would it be considered in New York?

Foreign

_______ are primarily social organizations that engage in charitable and benevolent activities consisting of members of a given faith, lodge, or order, and are usually organized as non-profits.

Fraternal benefit societies

False statement in the application for insurance is called a:

Misrepresentation

The reinsurance agreement that automatically excepts all the new risks presented by the company seeking or requesting reinsurance from the reinsure is known as a _______ agreement.

Treaty

Determining acceptable risks is the primary responsibility of the:

Underwriter

Who has the primary responsibility of determining the acceptable risks?

Underwriter

Two parties enter into an insurance agreement, the applicant does not provide honest disclosure of the information required in the application or the insured does not describe the terms of the contract fully. Which of the following doctrine applies?

Utmost good faith

Which term is described as the relinquishment of legal right?

Waiver

Statements on insurance applications that must represent the absolute truth are:

Warranties

An applicant makes a statement on the insurance application, which becomes part of the contract, that she has an alarm system which qualifies her for a premium discount. The statement is considered a:

Warranty

T/F. A report can be changed by court action only dude to the fair credit reporting act.

False

What gives an insurer the authority to operate within this state?

A certificate of authority

An insurance contract is considered which type of contract because it restores the insured to the same financial state as before the loss?

A contract of indemnity

According to the law of agency, insurers are responsible for the actions of their producers, unless:

A producer acts outside the scope of their authority.

Paul is an agent for ABC insurance company, which has just issued a life insurance policy to Maria. Who is the principal in this transaction?

ABC Insurance company

What is the term for the idea that some risks are less desirable than average risks, and that these risks tend to seek coverage to a greater extent than more favorable risks?

Adverse selection

Policyholder A's insurer is providing coverage on too many homes subject to wind losses. As a result, the company decides to reinsure those policies to share the high risk of wind loss. The reinsurance contract can be described as what?

An agreement between the insurance company and the reinsurer.

The insurance contract is considered a contract of indemnity because:

An insured may collect no more than the amount required to restore him or her to the same financial condition that existed prior to the loss.

When a producer exceeds the authority expressed in the agency contract and the insurer does not take action, which of the following types of authority is created?

Apparent

A person who negotiates insurance contracts with insurers on behalf of an applicant is known as a:

Broker

When applicant P fails to disclose all of his motor vehicle violations in an application for automobile insurance, he may be guilty of:

Concealment

Those powers of an insurance agent included in the agreement between the agent and the company are known as:

Expressed powers

Which Federal entity administers the Terrorism Risk Insurance Program Created by TRIA?

Department of Treasury

Which principle states that in forming an insurance contract, both parties have a responsibility to each other?

Doctrine of utmost good faith

All of the following are risk management techniques, except: avoidance, retention, transfer, enhancement.

Enhancement.

The Gramm-Leach-Bailey Act was responsible for:

Establishment of privacy protection of consumers

What is estoppel?

Estoppel prevents the denial of a fact previously established to be true

Each participant of a Lloyds association:

Is individually liable for each risk they assume.

The _______ branch is responsible for interpreting and determining the constitutionality of the statutes.

Judicial

The principle of indemnity helps avoid

Overpayment of a claim

Uneven pavement in a sidewalk is which type of hazard

Physical hazard

A state requiring that the commissioner agree that a company's rates are appropriate before they are made effective uses which type of rating approval?

Prior approval

In a particular state, an insurance company must file policy forms and rates with the state insurance department and wait for official approval before using the new forms and rates. This is an example of:

Prior approval state

Who do producers represent?

Producers represent the insurer.

Which of the following is not a type of insurer: reciprocal insurer, stock insurer, mutual insurer, proprietary insurer

Proprietary insurer

Insurance is designed to provide protection against which kind of risk?

Pure risk

In underwriter will consider each of the following factors when evaluating a risk, except: rates, nature of the risk, hazards, claim history.

Rates

If an insured purchased an insurance Policy and suffered a claim and then found that the policy would not pay the claim as the insured thought it would, which of the following doctrines would apply?

Reasonable expectations

When an insurance company uses another company to cover part of the risk it is called:

Reinsurance

Self-insurance is which type of risk management?

Retaining the risk.

What is the correct risk management term for minimizing the chance of loss?

Risk reduction

The shifting of risk of loss to another party is known as:

Risk transfer

If you have a map to find the exact location of a treasure, what kinda of risk would this be?

Speculative risk

The insurance industry is primarily regulated at the__________ level

State

An insurer with capital that is divided into shares, and is owned by shareholders, is considered a:

Stock company

Which place insures with a non-admitted insurer when insurance cannot be placed with an admitted insurer?

Surplus lines producer

Lloyds of London is not an insurance company, but consists of groups of underwriters called __________ each of which specializes in ensuring a particular type of risk.

Syndicates

An insurance policy is considered a unilateral contract because:

The insurance company is the only party that is legally obligated to perform under the insurance contract.

The principle of indemnity

The insured is restored to the same financial condition as prior to the loss, with no loss or gain.

Who do producers represent when transacting business of insurance?

The insurer.

The relationship of a person who acts on behalf of a company whereby the person's actions can bind the company is known as:

The law of agency

The concept that the insured should not profit from an insurance transaction is called:

The principle of indemnity

The reasonable expectations doctrine states that:

The reasonable expectations of the policy owners will be honored even if strict terms of the policy don't support these expectations.

Property policies provide coverage only if there is insurable interest at the

Times of loss.

How would an insurance agent most likely use a financial rating service?

To evaluate the financial stability of an insurance company

What is the purpose of the fair credit reporting act?

To give the consumer recourse if insurance is denied on the basis of a credit report

An insurance contract __________

Transfers risk from the insured to the insurer.

What constitutes the acceptance of an offer?

When an insurer issues a binder

When a producer exceeds the authority expressed in the agency contract and the insurer does not take action, which of the following types of authority is created?

apparent

Because the insurance company must pay claims and the insured must comply with the policy terms, the insurance contract is considered which of the following types of contracts?

conditional contract

The principle that states that an insured should be restored to approximately the same financial position after a loss as before is known as:

indemnity

The _______ market is a private source of coverage of last resort for individuals or businesses that have been rejected by voluntary market insurers.

residual

Dividends issued by stock insurers are paid to:

stockholders

Risk is defined as

the uncertainty or chance of loss

A contract that binds one party but not the other is called

unilateral