Chapter 3
mutual company
owned by policy holders
risk retention group
protects against product liability exposures
Producer
which of the following is a general term used to describe anyone who sells insurance?
Broker
Garraway Construction wants insurance to cover its multi-million dollar foreign construction project. The company contacts a professional to represent Garraway in finding the best coverage for the money._________ excess lines agent, consultant, solicitor, or broker
B.B-
Good
private vs government (residual market)
Government becomes involved when not readily available through the private sector
Accounting
Handles transactions related to the company's financial condition
Excess or surplus lines
Highly specialized lines of insurance are referred to as
Foreign
If an insurance company is chartered in Ohio, it would be what kind of company in Kentucky?
Excessive
In order for insurance rates to be approved by a state, the rates must meet all of the following requirements except: -adequate for the company to meet its obligations -nondiscriminatory among classes of insureds -not excessive -excessive
A solicitor has more limited authority than an agent
In the insurance business, how does a solicitor differ from an agent?
File and use states
In which of the following states may a company begin using forms and rates as soon as they have been filed?
Loss Ratio =
Incurred Losses / Earned Premiums
countersigning
Insurance agent Inez signs each new policy prepared by her company before its delivery to an insured, which of the following best describes this action?
Residual Market Insurance
Insurance coverage that is not ordinarily available from private insurers is sometimes called:
Any duly licensed property & casualty insurance agent
A policy which requires a countersignature must be signed by
Lloyd's Association
A voluntary association "syndicate"
E&O Coverage
Agent Aaron wants to protect himself against legal liability arising from making unintentional errors or omissions in his practice. Which of the following should Aaron purchase?
Misrepresentation
Agent Allen tells an applicant that her new policy covers earthquake damage, although it does not. twisting (T), rebating (R), failure of fiduciary responsibility (F), misrepresentation (M), or unfair discrimination (U).
failure of fiduciary responsibility
Agent Ann receives a check from the insurance company that is a refund to one of her insureds. She cashes the check herself and pockets the money. twisting (T), rebating (R), failure of fiduciary responsibility (F), misrepresentation (M), or unfair discrimination (U).
Twisting
Agent George persuades a prospect to let her current policy lapse and buy insurance through him. He tells the prospect that his company's policy provides more coverage at a lower premium, even though this is not true. twisting (T), rebating (R), failure of fiduciary responsibility (F), misrepresentation (M), or unfair discrimination (U).
Rebating
Agent Joe agrees to split the commissions he earns with his clients. He's able to sell more insurance this way. twisting (T), rebating (R), failure of fiduciary responsibility (F), misrepresentation (M), or unfair discrimination (U).
Unfair Discrimination
Agent May agrees to offer an insured a lower premium if the insured will agree to direct other family members to Agent May. twisting (T), rebating (R), failure of fiduciary responsibility (F), misrepresentation (M), or unfair discrimination (U).
Shares of stock represent ownership in the company
All of the following are characteristics of mutual insurance companies except:
They are insurance companies
All of the following are correct statements about Lloyd's association expect:
A fraternal benefit society is organized for profit
All of the following are correct statements about fraternal societies as insuring organizations except:
States must provide workers compensation coverage
All of the following are correct statements about insurance provided at the state level expect:
Loss ratio is calculated by dividing earned premiums by incurred losses
All of the following are correct statements about loss ratio except: -loss ratio compares company operations from year to year. -loss ratio shows the percentage of losses incurred for every earned premium dollar. -loss ratio is calculated by dividing incurred losses by earned premiums. -loss ratio is calculated by dividing earned premiums by incurred losses.
the association regulates the business of insurance
All of the following are correct statements about the national association of insurance commissions expect: -the association is made up of the insurance commissioners of each state. -the association coordinated regulatory measures for the individual states. -the association regulates the business of insurance. -the association makes recommendations about insurance laws.
advising customers to obtain additional coverage
All of the following are duties of an insurance agent expect: Selling insurance policies collecting premiums advising customers to obtain additional coverage providing a link between the insurer and insured
Independent agent
An agent who represents more than one company is called
fiduciary
An individual who is responsible for the financial affairs of another individual is referred to as a(n)
Captive Agency
Another term for exclusive agency is
property
Bart Tomkins lives in the midwest and wants to insure his home against damage by a tornado or windstorm. This is an example of a (property/ casualty)__________________ risk.
Excess lines agent
Bill Williams is licensed to handle highly specialized insurance coverages. He is authorized to obtain these coverages from insurance companies not admitted to do business in the state where he works._________ excess lines agent, consultant, solicitor, or broker
casualty
Bonnie Saylor drives a school bus. She drives very carefully because she knows she's responsible for the lives of the children on board. This is an example of a (property/casualty) _____________________ risk.
writes more than one line of insurance
A multi-line insurance company:
A mutual company
An insurance company, which is run primarily for the benefit of the policyowners is referred to as
D
Below minimum standards
Underwriting
Decides whether to accept or reject applications based on company standards
Actuarial And Statistical
Determines the rates to be charged for various types of insurance
A,A-
Excellent
C++,C+
Fair
F
In liquidation
Consultant
Janice McKinley provides advice about various insurance policies for a fee. She does not sell insurance.____________ excess lines agent, consultant, solicitor, or broker
Solicitor
Jim Jordan, an employee of the Goodwill Agency, spends his days collecting premiums and finding prospective clients. He has no authority to issue or countersign policies._____________ excess lines agent, consultant, solicitor, or broker
Personal A.; Commercial B.; Personal C.; Commercial D.
Label each of the following as a personal line (P) or commercial line (C). ____ A. Mabel wants insurance protection for her home. ____ B. Willoby Industries would like to purchase property insurance for its new warehouse. ____ C. The Jensens have insurance coverage for their two family cars. ____ D. Toyland, Inc. has insurance that protects it against liability arising out of the toys it manufactures.
Claims
Makes sure insureds are properly indemnified for losses
C,C-
Marginal
Investment
Oversees the company's investments to ensure there are adequate funds to pay claims
Policy Issue & Administration
Performs a variety of functions such as checking applications for accuracy and completeness, rating policies and printing and assembling policies
to give and to take
Reciprocate, ad in a reciprocal insurance company means:
Property insurance
Risk that will suffer financial loss because something owned is damaged or destroyed is covered by:
A++,A+
Superior—strongest position
E
Under state supervision
Expense Ratio =
Underwriting Expenses / Written Premium
B++,B+
Very good
B+w
Very good, but watch
Personal lines protects an individual or family and commercial lines protects businesses
What is the primary difference between personal and commercial lines of property/ casualty coverage?
These acts are considered to be the acts of the principal
When an agent acts under the powers granted by the principal, which of the following is correct?
Agency
When an agent is authorized to act on behalf of his or her principal, which of the following relationships exists?
Self Insurance
When part or all of a risk is borne without the benefit of insurance coverage, which of the following has taken place?
The insurance agent
When seeking acceptable business for an insurer, who is responsible for field underwriting each risk?
Exclusive agency, direct writer, direct response, independent agency
Which are the four basic distribution systems used to market insurance
Risk of financial loss as a result of actions toward others
Which of the following best describes liability risk?
Direct response system
Which of the following insurance distribution systems has no agents?
It sells interest to stockholders in order to operate
Which of the following is always a correct statement about an insurance company organized as a stock company?
Travel
Which of the following is not on the the four broad categories or lines of insurance?
Homeowners Insurance
Which of the following is not provided by the federal government?
Attorney-in-fact
Which of the following manages an insurance company organized as a reciprocal?
Insurance consultants, for a fee, offer advice on the advantages and disadvantages of various insurance policies
Which of the following statements best describes the work performed by insurance consultants and the way in which they are compensated?
twisting
agent jones convinces a client to cancel a current policy and purchase another, and this purchase is to the insured's detriment. which of the following illegal practices has taken place?
reinsurance
an insurance company's purchase of insurance to cover its own exposure to loss is called:
Misrepresentation
falsely advertising the terms or benefits of a policy is termed:
reciprocals
give and take attorney in fact
the cost of compensating insureds in the event of insolvency
insurance rates must be adequate to pay all of the following expect: -the cost of losses -the cost of conducting business -the cost of compensating insureds in the event of insolvency -a profit
fraternal benefit society
members only not for profit or non profit lodge system
rebating
offering a benefit other than those specified in an insurance policy is the illegal act of:
stock company
owned by stockholders
ratification
state approval of policy forms, endorsements, and rates used by the insurers doing business in the state in known as:
rater
the person in the policy issue process who computes the premium to be charged to a new insurance applicant is called the:
earned premium
the premium that an insurance company actually earns by providing insurance protection for a designated period of time is termed:
only after obtaining a state license
when may a person begin to sell insurance?
authority assumed by a reasonable person
which of the following best describes apparent authority?
authority not formally expressed or communicated
which of the following best describes implied authority?
the admitted company is authorized to do business in the state, and the non-admitted company is not.
which of the following best describes the difference between admitted and non-admitted insurance companies?
selecting and rejecting certain risks, bases on personal judgment and company standards, so that the company can produce desired results.
which of the following best describes the insurance underwriting process?
As product manufacturers, they are formed to self-insure against liability exposures
which of the following best describes the purpose of risk retention groups?
actuarial and statistical department
which of the following departments in an insurance company determines the rates to be charged for various types of insurance?
claims department
which of the following departments is responsible for seeing that an insurance company's insureds are adequately indemnified for their losses?
state insurance departments watch and regulate insurers to preserve company solvency and to protect insureds
which of the following is a correct statement about the financial health of insurance companies?
states have limited authority over insurance business conducted in their states.
which of the following is not a correct statement about insurance department enforcement? -state insurance departments must investigate reported violations and assess appropriate penalties. -state insurance departments are responsible for seeing that business within their states is compliant with codes and standards. -license suspension or revocation, fine or imprisonment may be in order for violators of state law. -states have limited authority over insurance business conducted in their states.
domestic, foreign, alien
which of the following represents the three types of insurance companies formed as corporations?
ISO
which of the following service bureaus is used to set rates and policy forms of property and casualty insurance companies?
fiduciary
which of the following terms represents a person holding a special relationship of trust to another?
Express Authority
which of the following types of authority is specifically given to an agent, either orally or in writing, by the principal?