Final Exam
When individual fire insurance rates are established for commercial insureds, the rate is published and the published rate is applied
"Per $100 of insurance."
Which one of the following statements is correct regarding the benefits of insurance?
Contractors must usually provide evidence of liability insurance before a construction contract is granted.
Which one of the following is an example of a supplementary payment under the liability coverage of the Personal Auto Policy (PAP)?
Cost of bail bonds
Which one of the following characteristics regarding kidnap and ransom are important for an international organization to consider in assessing personnel loss exposures?
Low frequency but high severity
Sports, Inc. is looking to obtain a commercial property policy on its building for $400,000. If their insurer decides to charge them a rate of $0.50 per $100 of building insurance, what premium must Sports, Inc. pay?
$2,000
The financial report for Apex Insurance contains the following information (all figures in '000s): Admitted assets $500,000 Nonadmitted assets $400,000 Liabilities $300,000 What is the amount of Apex Insurance's policyholders' surplus?
$200,000
Bill's three-year-old stereo was completely destroyed in a covered loss. Its expected useful life was ten years. Its replacement cost is $600. Its actual cash value (ACV) is
$420.
The financial report for Hometown Insurer contains the following information: Earned premiums$4,000,000Written premiums$5,000,000Net investment income$1,000,000Incurred losses$3,000,000Incurred underwriting expenses$2,000,000 What was the Hometown Insurer's combined ratio?
115%
Earned premium for ABC Insurance (ABC) for the year was $400 million and incurred losses were $500 million. Incurred underwriting expenses were $60 million. ABC had a net investment gain of $40 million for the year. Which one of the following is ABC's overall gain or loss from operations?
120 Million loss
On November 1, Peafowl Insurance Company issued a one-year business auto policy to Tri-State Painting Company with a premium of $24,000. What was the written premium for this policy as of December 31?
24,000
The financial report for Hometown Insurer contains the following information: Earned premiums$4,000,000Written premiums$5,000,000Net investment income$1,000,000Incurred losses$3,000,000Incurred underwriting expense$2,000,000 What is Hometown Insurer's investment income ratio?
25%
The financial report for Hometown Insurer contains the following information: Earned premiums $4,000,000 Written premiums $5,000,000 Net investment income $1,000,000 Incurred Losses $3,000,000 Incurred underwriting expense $2,000,000 What is Hometown Insurer's expense ratio?
40%
The financial report for LMN Insurance contains the following information: Earned premiums $8,000,000Written premiums $10,000,000Incurred losses $6,000,000Incurred underwriting expenses $4,000,000 What is LMN Insurance's expense ratio?
40%
The financial report for Hometown Insurer contains the following information: Earned premiums$4,000,000Written premiums$5,000,000Net investment income$1,000,000Incurred losses$3,000,000Incurred underwriting expenses$2,000,000 What is Hometown Insurer's loss ratio?
75%
Given the complexity of commercial insurance, which one of the following is best suited for its distribution?
Independent agencies
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?
83%
A type of insurance rate that applies to all insureds in the same rating category is known as
A class rate.
When implementing the selected risk management techniques, the risk management program must include
A communications plan.
A building contractor uses lower grade materials than called for in the specifications for an office building. A year after the building was completed, a balcony collapses, injuring several employees and customers and causing damage to the building and contents. For the building construction company, this is an example of
A completed operations liability exposure.
Which one of the following statements about policy parts is true?
A condition clarifies an insurer's promise or an insured's duty.
Which one of the following statements about policy sections is true?
A condition clarifies an insurer's promise or an insured's duty.
An insurer has decided to take an extremely narrow interpretation of a property insurance policy provision to limit the number of loss payments it will need to make. It realizes that its interpretation is probably wrong, but it knows that individual insured's loss amounts will be small, such that most insureds will not take the trouble to file lawsuits against it. The insurer may be violating the principle that an insurance policy is
A contract of utmost good faith.
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 coverage problem may exist
Which one of the following statements is true regarding traditional marketing systems for insurance?
A principal characteristic that distinguishes one traditional marketing system from another is the ownership of policy expirations.
Ling has noticed that her neighbor has recovered money for two homeowners property claims and an auto damage claim he has filed in recent years. Ling has been paying insurance premiums for many years and has never suffered a loss or made a claim. She feels that her insurance contracts over the years have been worthless to her. What Ling does not understand is that she has been paying premiums in exchange for
A promise of protection.
When an insurer appoints an agent to act on its behalf, the agent's scope of authority is spelled out in the
Agency contract.
Which one of the following best defines a hazard?
Anything that increases the frequency or the severity of a loss
Worthley Insurance Company uses claim audits to ensure compliance with best practices. These audits evaluate both quantitative and qualitative factors. Which one of the following factors that Worthley evaluates is a qualitative factor?
Accurate evaluation of insured's liability
Independent agent networks are known as
Agent clusters.
The requirements of a valid offer include
Agreement, capacity to contract, consideration, and legal purpose.
How does the law of large numbers assist insurers?
Allows reliable estimates of future loss amounts
An auto dealer's showroom is destroyed by fire, and the dealer has to temporarily rent an adjacent building to use as a showroom. This is an example of
An extra expense.
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
An independent adjuster.
One who offers claim handling services to insurance companies for a fee is
An independent adjuster.
Which one of the following is a common alternative dispute resolution (ADR) technique.
Arbitration
Buildings, investments, patents, and human resources are all examples of
Assets exposed to loss.
Most insurance policies exclude loss caused by war in order to
Avoid covering uninsurable losses.
Martha works in the city and drives to work each day. She is concerned about her auto exposures due to driving in the city. If Martha sells her vehicle and begins using public transportation, which one of the following risk management techniques will she be applying to her situation?
Avoidance
The risk management technique that eliminates a loss exposure and reduces the chance of loss to zero is
Avoidance
Judgment rates are used
Because there is no established premium-determination system
Though premiums are an obvious cost of insurance, many insureds believe they are too high because
Benefits are intangible until a loss occurs.
A homeowners insurance policy typically includes
Both property and liability coverage.
Which one of the following is an element of negligence?
Breach of duty owed
The possibility that a plumbing contractor might start a fire at a customer's house while soldering a pipe is what type of liability loss exposure for the plumber?
Business operations
A commercial building may contain furniture, machinery and equipment, raw materials, and finished products. Which one of the following is the term generally used in property insurance policies to refer to all these types of property?
Business personal property
How do underwriting guidelines help an insurer achieve its goals?
By providing rules that guide underwriters toward consistent decisions
Coverage for money, securities, and other property from various causes of loss such as burglary, robbery, theft, and employee dishonesty typically is provided by
Commercial crime insurance.
The type of insurance most likely to use individual rates is
Commercial property.
Rating agencies such as Dun & Bradstreet (D&B) provide
Data on credit ratings of businesses.
The commercial general liability (CGL) policy definition of bodily injury specifically includes bodily injury, sickness, disease, and
Death.
T. Roy Insurance Company is selecting a distribution system and channel for its products. Which one of the following best describes the type of consideration that T. Roy should give to its operations?
Does it have the necessary financial resources?
When a firm is selecting a distribution channel, which one of the following is an important consideration with regard to its operations?
Does the selected channel capitalize on its core capabilities?
Barton Industries keeps copies of key documents stored at a second location. The risk control technique Barton Industries is using is
Duplication.
Which one of the following is the best measure of the amount of insurance provided for a given period?
Earned premium
Racing exclusions appear in both personal and commercial auto policies primarily in an attempt to
Eliminate coverage that most insureds do not need.
Properties of Insurtech Companies include all of the following, EXCEPT:
Elimination for the need of underwriters given the technological advances in this space.
Which one of the following can be covered by a floater?
Jewelry
Which one of the following best describes how effective risk management benefits insurers?
Encourages insurers to create innovative products and offer competitive prices
Analyzing loss exposures requires
Estimating how large the losses may be and how often they may occur.
Which one of the following is the fundamental measure of loss exposure used in insurance rating?
Exposure unit
Produce, such as apples or grapes, may be priced by the unit or by the pound. In insurance, these measures are similar to
Exposure units.
The authority that the principal specifically grants the agent is called
Express authority.
When a newspaper's printing press is damaged, the company may spend extra money to have the newspaper printed on another company's press. The additional cost of printing the newspaper is an example of which one of the following?
Extra expense
Which one of the following statements concerning government insurance programs is true?
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 is correct regarding government involvement in insurance?
Federal and state government are involved in insurance to facilitate compulsory insurance purchases.
Prospective loss costs that have become adjusted for expenses, profits, and contingencies are
Final rates.
While developing goals for its book of business, an insurer's staff underwriter decides to increase its market share of workers compensation insurance in the construction industry. This type of underwriting activity is known as
Formulating underwriting policy.
Insurance deals primarily with loss exposures that are fortuitous. Which one of the following statements best characterizes fortuitous losses?
Fortuitous losses are beyond the insured's control.
Damages for pain and suffering are a form of
General damages
Damages for the loss of the ability to bear children are a form of
General damages
Damages for disfigurement are a form of
General damages.
In a liability claim, damages awarded for pain and suffering incurred by the claimant are referred to as
General damages.
The definitions section of the policy
Helps clarify real or perceived ambiguity.
Which one of the following statements is correct regarding characteristics of ideally insurable loss exposures?
Ideally, loss exposures should be spread across a large number of similar exposure units within the same period.
In order to monitor and modify the risk management program, the risk manager must periodically
Identify and analyze new and existing loss exposures.
Which one of the following lists the steps in the risk management process in the correct order?
Identify loss exposures, analyze loss exposures, examine techniques, select techniques, implement techniques, monitor, and revise the program
A physical inspection is a method used to
Identify loss exposures.
Loss exposure surveys, or checklists, are methods used to
Identify loss exposures.
The first step in the risk management process is to
Identify loss exposures.
Financial statement analysis, loss history analysis, and flowcharts are used in
Identifying loss exposures.
Don is an agent trying to find appropriate coverage for his customer, Wayne Industrial Supplies, which has large, unique, and hard-to-place commercial loss exposures. Fortunately, Wayne is in a state that has deregulated some insurance coverages, which will make Don's job a little easier. Based on this information, which one of the following statements is true?
If Wayne's loss exposures can be covered by inland or ocean marine coverages, these may be exempt from regulation.
Sound risk management benefits society in each of the following ways, EXCEPT:
Increasing opportunity costs
Which one of the following categories of loss expenses can an insurer use to compare its revenue and expenses?
Incurred losses
If an insurer's admitted assets stayed the same but its liabilities decreased significantly, its policyholders' surplus would
Increase.
Net income losses can be caused by which one of the following?
Increases in expenses
Sometimes the existence of insurance encourages losses. The result of this phenomenon is that it
Increases the total cost of insurance.
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?
Independent agents
Private insurers are reluctant to provide windstorm insurance on coastal properties. This is because the loss exposures fail to meet the criterion that ideally insurable exposures must be
Independent and not catastrophic.
For the law of large numbers to function properly, exposure units must be
Independent.
The largest expense category for most insurers is payment for
Losses arising from claims.
Which one of the following statements is true regarding insurance policies?
Insurance policies must meet the same requirements as any other valid contract.
Most of the income an insurer receives is either from underwriting or
Investments.
Chuck and Sally discovered they have flaking lead paint on the walls and trim inside their recently purchased house. They researched lead paint hazards and abatement techniques on the Internet and discovered the best action they can take is to remove loose paint chips and dust, replace the windows, and seal the walls with a paint designed for that purpose. Which one of the following risk management techniques does this activity involve?
Loss control
Which one of the following is true regarding a homeowners policy?
Most include coverage for theft of contents within the home.
Which one of the following statements is true?
Mutual insurance companies include some large national insurers.
A type of insurer that has a board of directors elected by policyholders and that may pay dividends to policyholders as a return of a portion of premiums paid is a
Mutual insurer.
Which one of the following types of insurers is the most likely to include its bylaws as part of its policies?
Mutual insurers
Property insurance policies not only protect the property owner but also generally protect a secured lender's interest in the financed property by
Naming the lender on the owner's policy.
Term life insurance
Provides protection for a specified period with no cash value.
The difference between an organization's total revenues and its total expenses is
Net Income
When property is lost or damaged, the value of the property is decreased. In addition to direct damage to the property, there could be indirect losses to the business. This latter type of loss is known as
Net income losses.
The primary duty of a principal to its agent is to
Pay the agent for services performed.
Liability coverage to individuals and families for bodily injury and property damage arising from the insured's personal premises or activities is typically provided by
Personal liability insurance.
All of the following are categories of liabilities found on an insurer's balance sheet, EXCEPT:
Policyholders' surplus
The two major sources of an insurer's investment funds are policyholders' surplus and
Premiums received but not yet used to pay claims.
The term "net income losses" is usually associated with
Property losses.
State government involvement in Workers Compensation Insurance involves all of the following, EXCEPT:
Providing coverage through insurance pools.
Underwriting guidelines help an insurer achieve its goals by
Providing rules that guide underwriters toward consistent decisions
Traditionally, the risk management professional's role has been associated with loss exposures related to
Pure risk
Subrogation is the insurer's right to
Recover its claim payment from the responsible party.
Actual cash value (ACV) is
Replacement cost minus depreciation.
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
Requiring risk control measures.
Which one of the following identifies the two broad categories of risk management techniques?
Risk control and risk financing
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)
Schedule rating plan.
An award of compensatory damages is the amount of money that has been judged to equal
Special and general damages.
While driving, Karl's foot slips off the brake and his car rolls into the back of Sunny's vehicle. No one is hurt, but the accident caused a large dent in the back bumper of Sunny's vehicle. For which one of the following types of damages is Sunny eligible?
Special damages
Laws made by formal enactments of legislative bodies are referred to as
Statutory law.
Legal liability imposed by a specific statute or law is called
Statutory liability.
An insurer that was formed for the purpose of earning a profit for its stockholders is a
Stock insurer.
Owners of reciprocal insurance exchanges are also known as
Subscribers.
Which one of the following is generally exempt from state insurance regulations pertaining to policy forms and rates?
Surplus line insurers
Paying close attention to hazards is an important consideration when reviewing an underwriting submission. An underwriter should recognize a moral hazard, which is a condition
That increases the likelihood that a person will intentionally cause or exaggerate a loss.
Which one of the following statements is true regarding the agency contract?
The agency contract states the scope of the agency's authority to conduct business for the insurer.
One of the main distinguishing features between independent agency systems and other marketing systems is the ownership of
The agency expiration list.
Which one of the following is the most common reason premium audits are conducted?
The amount of the loss exposure is unknown at the start of the policy period.
All of the following correctly describe reasons for the use of independent adjusters, EXCEPT:
The insured may retain an independent adjuster if settlement negotiations with the insurer are not progressing satisfactorily.
Under a liability policy in which defense costs are payable in addition to policy limits, what limitation does the policy typically provide on the insurer's obligation to provide defense costs?
The insurer is not obligated to provide further defense after the insurer has paid damages equal to the policy limit.
Which one of the following statements is correct with respect to selecting a distribution channel?
The types of insurance products and services to be delivered by the insurer must fit the marketing channel selected.
Anyone who is not a party to an insurance contract who submits a claim against an insured is known as the
Third party.
The foundation and primary focus of good faith is
Thorough, timely, and unbiased investigations.
Underwriting management monitors underwriting results
Through a process called an underwriting audit.
For a loss exposure to be ideally insurable it must be definite in
Time, cause, and location.
Risk management concepts in one form or another apply
To all companies and families
Acts that constitute invasion of the right of privacy include
Torts that involve use or disclosure of information.
All for-profit organizations are exposed to net income losses. Net income is defined as
Total revenue minus total expenses.
In managing loss exposures using the risk management process, the key to identifying loss exposures is
Understanding how the household or organization operates.
Adjuster Toni is evaluating damages in a bodily injury liability claim where she has determined that the insured is completely at fault for the accident. The claimant suffered a sprain and strain injury to his neck. His special damages total $1,500. He was out of work for a week, was disabled and prevented from performing some regular activities for a month, and attended physical therapy for six weeks. In assessing general damages, Toni should
Use past cases which are similar as a guide.
On January 1, 2005, the XYZ Insurance Company issued a policy with a one-year policy period. The premium for this policy was $1,200. What was the unearned premium for this policy as of May 1, 2005?
$ 800
To analyze the possible financial consequences of an income loss to his business, Joe estimates his normal revenue and expenses and compares them to his estimated revenue and expenses should a loss occur. Normal Operations Post-Loss Revenue $120,000 $0 Expenses $70,000 $40,000 Net Income $50,000 ($40,000) Based on Joe's estimates, which one of the following represents his projected net income loss?
$ 90,000
World Insurance Company has the following assets (all figures in '000s): Cash $50,000 Stocks $400,000 Bonds $200,000 Real estate $500,000 Furniture and office equipment $70,000 Premium balance due in less than ninety days $20,000 Premium overdue more than ninety days $10,000 What is the amount of World's total admitted assets?
$1,170,000
A liability loss has the following damages: Medical expenses:$10,000Damages for disfigurement:$50,000Damages for pain and suffering:$100,000 What is the amount of special damages?
$10,000
A liability loss has the following damages: Medical expenses: $10,000 Damages for disfigurement: $50,000 Damages for pain and suffering: $100,000 What is the amount of general damages?
$150,000
XYZ Manufacturing (XYZ) has a Commercial General Liability (CGL) Coverage Form with a $2,000,000 each occurrence limit, a $3,000,000 general aggregate limit, and a $3,000,000 aggregate limit for products and completed operations. If XYZ has products liability losses of $1,500,000, $1,200,000, and $500,000 during the policy period, how much would the CGL policy pay for the losses?
$3,000,000
Bob is shopping for auto insurance. Insurance Company A's rating system determines that Bob should be charge $800 per auto. If Bob is looking to insure four autos, what premium will he be charged by Insurance Company A?
$3,200
John had an unendorsed homeowners policy. John's two-year-old bicycle was stolen. The bicycle's purchase price was $700, its current replacement cost is $800, and depreciation was estimated at $450. What was the bicycle's actual cash value?
$350
The balance sheet for ABC Insurance (ABC), dated June 30, shows total admitted assets of $50 million. ABC's loss and loss adjustment expense reserve is $30 million, its unearned premium reserve is $10 million, and its "all other" liabilities are $5 million. ABC's policyholders' surplus as of June 30 was
$5 million.
If a manufacturer has $1 million in annual sales, its liability insurance is priced per 1,000 of sales, and the per-unit rate is $0.50, what is the manufacturer's liability insurance premium?
$500
Earned premium for XYZ Insurance (XYZ) for the year was $500 million and incurred losses were $400 million. Incurred underwriting expenses were $60 million. XYZ had a net investment gain of $40 million for the year. Which one of the following is XYZ's overall gain or loss from operations?
$80 million gain
To analyze the possible financial consequences of an income loss to his business, Joe estimates his normal revenue and expenses and compares them to his estimated revenue and expenses should a loss occur. Normal Operations Post-Loss Revenue $120,000 $0 Expenses $70,000 $40,000 Net Income $50,000 ($40,000) Based on Joe's estimates, which one of the following represents his projected reduction in net income that could be covered by business income insurance?
$90,000
An insurance company employee who investigates the scene of a loss; meets with insureds, claimants, lawyers, and others; and inspects damage is most accurately called
A field claim representative.
An Ohio insurer that is licensed to sell insurance in Michigan is known as what in Michigan?
A foreign insurer
Underwriting management arranges treaty reinsurance to reinsure
A group or group of insureds.
When a loss exposure is so unique that the insurer has no established system to determine a premium, an insurer will use
A judgment rate.
Dr. Donna Jenkins is a research chemist for PharmaCon, a large pharmaceutical company. Last year, she was responsible for 12 of the 14 patents awarded to PharmaCon. Clearly, the future prospects of the company would be damaged if Dr. Jenkins died or became severely disabled. In risk management parlance, Dr. Jenkins is considered
A key employee.
Which one of the following losses would be covered under a typical broad form property policy but not under a basic form policy?
A large limb from a decaying tree falls onto a building causing damage to the building.
An insurer's loss expense reserve is
A liability designated to pay the cost of settling the claims included in the loss reserve.
If a claim is complex or if settlement negotiations are not progressing with the insurer, the insured may hire
A public adjuster.
Which one of the following sells insurance by representing customers rather than insurers?
A regional broker
Most homeowners policies provide coverage for full-time students who were residents of the named insured's household before moving out to attend school and are also
A relative who is less than 24 years old.
An employee of an insurance company who performs some or all of the insurer's claim-handling activities is called
A staff claim representative.
A business manufactures a product that is harmful to the public if used improperly. More than three licensed insurance companies have refused to provide commercial general liability coverage for the business. The producer should contact which one of the following to attempt to arrange coverage?
A surplus lines broker
A reservation of rights letter
A. Advises the insured that the insurer is investigating the claim but retains the right to deny coverage later.
All of the following are factors in determining the replacement cost of real property, EXCEPT:
Actual cash value of the property
Compensatory damages represent
Actual harm suffered.
Significant windstorm damage to the Chang family's home leaves the dwelling uninhabitable. It takes four months to remove the debris and rebuild the home. During that period, the Changs rent an apartment as temporary accommodation and they incur the cost of moving undamaged property from the home to the apartment. Which one of the following would cover the Changs' moving costs and apartment rental?
Additional living expense coverage
Self-contained policies
Address complete coverage needs.
The possibility that a retailer might be sued because it used a customer's photo in a sales brochure without the customer's permission is what kind of liability exposure for the retailer?
Advertising
An agency in New Jersey has decided to market personal insurance to accountants. It is offering a 10 percent discount to all Certified Public Accountants in the state. This is an example of which one of the following types of group marketing?
Affinity marketing
Principals often authorize another party to act on their behalf. This relationship is called
Agency
Which one of the following is an example of material misrepresentation by Albert, a businessman applying for property insurance on a building he owns?
Albert tells the insurance agent the building is used to store steel, but it is actually used to store steel drums containing flammable liquids.
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
Amending policy terms and conditions.
A type of insurance rate that reflects the unique characteristics of an insured or the insured's property is known as
An individual rate.
A person or entity that would suffer a financial loss if property were damaged has
An insurable interest.
Harry has a new sports car that is insured with an Insurance Services Office, Inc. (ISO) Personal Auto Policy sold through his neighborhood agent. Because this is the first new car he's ever owned, Harry is interested in making sure he is fully covered and knowledgeable about his insurance policy. Which one of the following is true for Harry?
An insurance contract, like the ISO policy Harry purchased, has certain additional characteristics other than those of typical valid contracts.
A flex rating law is
An insurance rating law under which prior approval is required only if the new rates exceed a certain percentage above (and sometimes below) the rates previously file.
Which one of the following is an opportunity cost of insurance?
An insured's funds that could be invested elsewhere if purchasing insurance were not necessary
Which one of the following statements is correct regarding considerations involved in the selection of insurance marketing systems and distribution channels?
An insurer can exercise the greatest control over producers in the direct writer system.
Estimating how large the losses may be and how often they may occur is required under which one of the steps of the risk management process?
Analyzing loss exposures
Angela is having a dispute with her insurance company regarding a claim and the definition of an insured loss. The definition is subject to two reasonable interpretations, one that favors Angela and one that favors the insurer. A court of law is likely to find in favor of
Angela, because an insurance contract is a contract of adhesion.
Generally, how often must a foreign insurer's license be renewed?
Annually
A commercial general liability policy typically provides insured status to
Any organization newly acquired by the named insured for up to a certain number of days.
Northtown Agency has an agency contract with Withers Insurance Company for personal lines coverages only. Anita, one of Northtown's existing personal lines customers is starting a floral delivery business that will require commercial insurance. Horace, one of the agents, accepted Anita's application, bound coverage and said he would pass the paperwork on to Withers, as Withers had handled all her other needs. As soon as he remembered the agency contract with Withers, he planned to send the request to a different insurance company that could accept the new business. Before he could do this, Anita submitted a claim. The claim would be covered because the coverage is bound based on the concept of
Apparent authority.
An insurer's net underwriting gain or loss provides a better measure of the insurer's marketing, underwriting, and claims skills than its overall gain or loss from operations. This is true because the overall gain or loss from operations includes investment gains or losses that
Are not directly related to how well the insurer conducts its marketing, underwriting, and claims activities.
One aspect of good-faith claim handling is the fair evaluation of the claim. A fair approach to evaluating liability claims is for the claim representative to evaluate them
As if no coverage limit existed.
Someone contracting while under the influence of alcohol or drugs can avoid or ratify the contract upon becoming sober because there is no
Capacity to contract.
A company interested in improving cash flow should consider meeting its insurance needs through which one of the following types of insurance organizations?
Captive insurers
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
Case reserve.
Which one of the following is a required component of the commercial property coverage part that specifies the perils covered?
Causes of loss form
Which one of the following best describes how effective risk management benefits society?
Causing fewer disruptions in the economic and social environment
Fair evaluation of claims is an element of good-faith claim handling. All of the following are true regarding fair evaluation of a claim, EXCEPT:
Claim representatives are prohibited from discussing the evaluation of a claim with anyone not directly connected with that claim.
Insurers and their representatives are called upon to handle claims with utmost good faith. However, allegations of bad faith in insurance claims remain one of the most troublesome and controversial issues for insurers and claim representatives. Which one of the following statements related to bad-faith in the insurance arena is true?
Claim representatives must be familiar with the bad-faith laws in jurisdictions in which they handle claims.
Assuming the retroactive date is the same as the policy inception date of a claims-made liability policy, which one of the following is a true statement about how coverage will apply?
Claims must be first made during the policy period.
Many property insurance policies contain a provision that reduces the amount of recovery for loss if the property is underinsured. This provision is known as
Coinsurance.
Which one of the following types of auto physical damage coverage responds to damage to a motor vehicle that is caused by its impact with another vehicle or object?
Collision
Colson makes knives and swords as a hobby selling his products on a non-advertised basis. He does not package his products but does provide a warranty against defects. If a parent whose child is injured by one of Colson's ever-sharp knives sues Colson under strict liability, which one of the following statements may be true?
Colson would be strictly liable only if the knife was unreasonably dangerous in normal use.
Which one of the following is the correct formula for an insurer's overall operating ratio?
Combined ratio − Investment income ratio
Liability coverage for loss exposures arising from a business organization's premises and operations, its products, or its completed work is typically provided by
Commercial general liability insurance.
The law that consists of the body of principles and rules established over time by court decisions on a case-by-case basis is called
Common law.
Which one of the following is an example of general damages?
Compensation for disfigurement
Telephone Company installs fiber-optic cable using a trenching machine that digs a trench, buries the cable, fills in the trench, and reseeds, all in one pass. The trenching machine can install cable in a fifty-home neighborhood in one day. Soon after the trenching machine passes by, a member of the community steps on the trenched area, sinks in, and breaks his leg. This is an example of a liability loss exposure arising out of
Completed operations.
An animal damaged the interior of an insured's automobile while it was parked with the windows down. Which one of the following types of physical damage coverage under the Business Auto Coverage Form (BACF) would cover this loss?
Comprehensive
The law that specifies the structure and powers of the three branches of the federal government is
Constitutional law.
A producer is usually paid a fee for performing which one of the following functions?
Consulting
Which one of the following is a typical adjuster activity during the claim handling process?
Contacting the insured.
Individuals and families benefit from effective risk management in which one of the following ways?
Continuing activities following an accident or other loss, and thus reducing inconvenience.
Because the insurance company usually determines policy wording and the insured has little choice but to "take it or leave it," an insurance contract is a
Contract of adhesion.
Because insurance contracts impose an obligation of complete honesty on the parties, an insurance contract is called a
Contract of utmost good faith.
Which one of the following statements is true regarding the distinguishing characteristics of insurance contracts?
Contracts of adhesion significantly influence the enforcement of insurance policies.
Juan received a phone call from an angry policyholder. The insured received a bill as a result of a workers compensation premium audit. The individual does not understand why premium has increased when his total payroll is lower than originally projected. Juan advises the insured that he will contact the auditor, review the audit, and call back with an explanation. Which one of the following producer functions is Juan performing?
Customer service
Insurance policy limits, deductibles, and policy premium are found in which one of the following categories of insurance policy provisions?
Declarations
Which one of the following categories of insurance policy provisions outlines what is covered and where and when coverage applies?
Declarations
Joshua is a claim representative who has been assigned an auto liability claim. To determine whether his company's Personal Auto Policy (PAP) provides coverage for the claim, Joshua should first review the policy's
Declarations.
The policy numbers, inception, and expiration dates of all attached forms and endorsements are found in the policy
Declarations.
The property casualty insurance policy provisions that indicate who or what is covered, and where and when coverage applies, are found in the
Declarations.
A neighbor has sued Andy for property damage that is potentially covered under Andy's homeowners liability coverage. Even if this lawsuit is found to be groundless, Andy's insurer will still probably be obligated to pay
Defense costs.
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
Definite.
The investment income ratio indicates the
Degree of success achieved by the insurer in its investment activities.
If a claim representative's investigation determines that no coverage applies for a liability claim, the insurer will
Deny the claim.
If an insured submits a claim for a seven-year-old refrigerator that was damaged due to lightning, the adjuster will probably factor in an allowance for wear and tear. This is called
Depreciation.
The two objectives of insurance policy form regulation are to ensure that policies are clear and readable and to
Detect and address any policy provisions that are unfair.
Besides using the law of large numbers to predict the amount of future losses, insurers also rely on it to
Determine average loss costs.
If an insured's house burns to the ground due to faulty wiring, the most difficult part of the claim handling process will probably be
Determining the amount of damages.
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?
Developing underwriting alternatives
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?
Direct bill basis
Which one of the following premium collection methods is used in the majority of personal insurance sales?
Direct bill process
If a consumer or policyholder had a preference for dealing with sales representatives who are employees of the insurer, which one of the following marketing systems would they choose?
Direct writer
Insurance Company D (ICD) has traditionally used regional brokers to market and produce its insurance products. The management team at ICD has decided it wants to launch a new specialized product. The marketing plan includes ICD's desire to control the targeted number of monthly applications as well as the methods that will be used to advertise and campaign to achieve the desired results. Which one of the following distribution systems will best allow ICD the desired control?
Direct writer
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?
Direct writer Internet search
The type of insurance that provides periodic income payments to an insured who is unable to work because of sickness or injury is
Disability income insurance.
The state advisory organization has developed a new homeowners form, which increases the personal property limits for guns, silverware, jewelry, and boats. Jancy Insurance Company is considering modifying this form for its own use. Which one of the following of Jancy's staff would be involved in this research and development of this new form?
Emma, the staff underwriter
Which one of the following is the correct term for documents that are used to modify commercial property coverage to meet the specialized needs of particular insureds?
Endorsements
One way for claim managers to help maintain an insurer's underwriting profit is to
Establish appropriate spending policies.
During which one of the following steps in the underwriting process would an underwriter request a risk control visit to a prospective policyholder's location?
Evaluating the submission
All of the following are examples of insurance distribution channels, EXCEPT:
Exclusive agency
A decrease in incurred losses will generally cause a decrease in all of the following, EXCEPT:
Expense ratio
An increase in earned premiums with no change in written premiums or any other financial figures will generally cause a decrease in all of the following, EXCEPT:
Expense ratio
For a one-year policy covering losses that take several years to develop, all of the following ratios are likely to be revised for several years following the policy period, EXCEPT:
Expense ratio
When an independent agency is bought or sold, the agency's most valuable asset is its
Expiration lists.
Which one of the following would be a critical strength required for a personal lines insurer planning to expand geographically through web-based distribution?
Financial resources
In commercial insurance, the person who is responsible for paying premiums and who also has the right to receive any return premiums is the
First named insured.
In an insurance transaction, the insured is designated the
First party.
As part of the risk management process, determining how to allocate the costs of the risk management program is important. All of the following are risk management costs that should be allocated, EXCEPT:
General overhead expenses
Which one of the following correctly describes a reason for government involvement in property-casualty insurance?
Government programs can meet legitimate public demands unmet by private insurers.
Which one of the following statements is correct with regard to the submission evaluation step in the underwriting process?
Government records that provide underwriting information include motor vehicle reports, criminal records, and civil court records.
Gauging the severity of property losses is easier than gauging the severity of liability losses because property losses
Have a calculable value.
An important question for an insurer to ask when examining customers' needs and characteristics to select a distribution channel is
How quickly can inquiries and transactions be processed?
Under certain circumstances, an insurer may authorize the adjustment of claims by producers. One of the benefits of providing producers with draft authority is that
If an agent can issue a draft directly to the insured, it reduces the time an insured waits for payment
Insurers carefully evaluate the interaction between premiums and loss ratio and how changes in each affect profit. Which one of the following statements concerning the relationship between premium and loss ratio is true?
If premiums increase by a greater percentage than incurred losses increase, the loss ratio will decrease.
Which one of the following is true regarding the administration of the Insurance Regulatory Information System (IRIS)?
If regulators determine that an insurer is insolvent, the state insurance department places it in receivership.
Which one of the following statements is correct with respect to the condition Duties in the Event of Loss or Damage of the Building and Personal Property Coverage Form (BPP)?
If the insured fails to perform any of them, the insurer may not have to pay for the loss.
Larger organizations often have a written risk management statement outlining procedures and authority for
Implementing risk management techniques.
Risk management departments of large organizations generally rely on a manual to inform others of how to identify new exposures, what risk management techniques are currently in place, how to report insurance claims, and other important information. This communication of risk management information is part of which one of the following steps in the risk management process?
Implementing the selected risk management techniques
The scope of an agent's authority can go beyond the terms of the agency contract and may include authority to perform other tasks customary to the agency relationship. This authority is referred to as
Implied authority.
ABC Company manufactures hot beverage containers and distributes them to various retail outlets. A customer who purchased one of these containers at a retail store is burned by hot coffee after the lid on a container falls off. Which one of the following principles of law would be the basis for a suit brought by the injured party?
Implied warranty
Defense costs in a liability policy are usually payable
In addition to the policy limits.
Businesses, individuals, and families that practice sound risk management can benefit society in all of the following ways, EXCEPT:
Increasing interest in leisure activities
In the selection of appropriate risk management techniques, financial management decisions are often made with the objective of
Increasing operating efficiency.
The primary role of insurance is to
Indemnify individuals and organizations for covered losses.
Facultative reinsurance is arranged by underwriting for
Individual policies.
Coverage for miscellaneous types of property such as movable property, goods in domestic transit, and property used in transportation and communication, typically is provided by
Inland marine insurance.
Which one of the following lines of business is most likely to be rated using judgment rates?
Inland marine insurance.
Most insurers give some producers the authority to pay claims up to a certain amount. In this role, producers function much like an
Inside claim representative.
Frank and Jan recently married and purchased their first home together. What is an effective way for Frank and Jan to begin identifying the liability loss exposures associated with their new home?
Inspect the home for loss exposures
Jeff recently started a consulting business. One of his concerns is that he will be sued for giving erroneous advice to a client. Which one of the following would most likely be the best risk management technique for Jeff's use in this situation?
Insurance
Which one of the following statements is correct regarding the benefits provided by insurance?
Insurance helps reduce the financial burden to society by compensating accident victims.
Which one of the following statements is true?
Insurance regulators review policies to determine if they benefit consumers.
Destructive competition in the insurance industry could result in
Insurance shortages.
Which one of the following is a key focus of states' insurance regulation?
Insurer licensing.
In an insurance agency relationship, the agent's fundamental responsibility is to act for the benefit of the
Insurer.
Which one of the following describes the effect underwriting standards can have on premium?
Insurers can lower premiums for better-than-average risks.
The next step in the rate development process, after insurance advisory organizations and/or insurers gather historical loss costs, is
Insurers establish prospective loss costs.
Why are insurance regulators concerned about the effects of large catastrophes?
Insurers may become insolvent.
Which one of the following statements is correct regarding insurance as a source of investment funds?
Insurers' investment income helps keep premiums at a reasonable level.
Which one of the following is the correct formula for net investment income?
Investment income - investment expenses
The last step in the risk management process, monitoring results and revising the risk management program,
Is a return to the first step and begins the risk management process once again.
Insurance Services Office, Inc.
Is an insurance advisory organization.
A reciprocal insurance exchange
Is an unincorporated association providing insurance coverage to its subscribers.
Risk control is intended to prevent or reduce losses. When practicing sound risk control, an organization
Is likely to use insurance to treat those loss exposures.
Mira raised chickens in a coop that she constructed in her backyard. Due to her careless smoking, the coop was destroyed by fire. She submitted a claim to her homeowners insurer, which assigned an adjuster. This is the adjuster's first claim involving a building detached from a dwelling. Assuming the adjuster has established Mira's insurable interest in the property, which one of the following should the adjuster be asking next?
Is the damaged property covered by the policy?
All of the following are true with regard to policyholders' surplus, EXCEPT
It equals nonadmitted assets.
All of the following are true with regard to the unearned premium reserve, EXCEPT:
It equals the admitted portion of unearned premium minus the nonadmitted portion of unearned premium.
Which one of the following is true concerning the direct response distribution channel to market insurance?
It relies heavily on advertising.
Because the agent represents the insurer, the law presumes that
Knowledge acquired by the agent is knowledge acquired by the insurer.
Grocers' Warehouse is a newly created business that will open next month. It will include a retail operation as well as 500,000 square feet of warehouse space with loading docks. Which one of the following methods of identifying loss exposures would be least applicable in this situation?
Loss histories
When a policy provides coverage for personal property in which a lender has a secured interest, the secured lender will be listed on the policy as a
Loss payee.
Dudley drives to work in the city each day and until recently, parked on a street near his office. Dudley began parking in a lot that has an attendant to reduce the chance of his vehicle being damaged while it is parked. Which one of the following risk management techniques is Dudley applying?
Loss prevention
Katie and Kevin have a small stream in their back yard. Last year was exceptionally rainy and they were concerned about flood exposures to their home. They recently had a contractor regrade the back yard, building a large berm, which provides a raised barrier to divert the flow of water away from the house. In this situation, Katie and Kevin are using which one of the following risk management techniques?
Loss prevention
Which one of the following is the correct formula for calculating an insurer's combined ratio?
Loss ratio + expense ratio
The use of a seatbelt while driving a car is an example of
Loss reduction.
The monetary amount of damage that results from a loss is known as
Loss severity.
The best description of a third-party claim is a claim
Made against the policyholder by someone to whom the policyholder may be liable.
Rachel is an insurance broker. She has received a sales referral from another broker concerning an airport management company, Airport Ltd. The company plans to operate a large, national airport in a major city and has requested a quote for airport liability coverage. Rachel will probably recommend the use of which one of the following types of policy forms?
Manuscript
Which one of the following statements is correct regarding consulting services?
Many producers offer consulting services for which they are paid on a fee basis.
Which one of the following statements is correct?
Many producers offer consulting services for which they are paid on a fee basis.
Which one of the following best explains why underwriting expenses are divided by written premiums rather than earned premiums in order to calculate an insurer's expense ratio?
Many underwriting expenses are incurred at the beginning of the policy period.
Which one of the following is the goal of enterprise-wide risk management (ERM)?
Maximize the organization's value
Loss exposure surveys or checklists are comprehensive and apply to almost any organization. The survey's major weakness is that they
May omit an important exposure.
Which one of the following is true about the participation of the head of the underwriting department in the insurer's management?
May participate in selecting the type of marketing system to be used
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?
Mediation
The most common violations of the concept of utmost good faith in insurance policies involve buildup in insurance claims filed by insureds and/or
Misrepresentation of material facts.
Which one of the following would have an insurable interest in real property?
Mortgagee that has provided a mortgage loan on the property
Which one of the following is generally paid a negotiated fee, rather than a fixed commission rate?
National Broker
Insurance is not the only risk management transfer technique. When circumstances are appropriate, transfer can be accomplished through
Noninsurance transfer techniques.
Sally went downhill skiing on vacation. On the back of her lift ticket was printed an agreement that the skier would not hold the ski resort responsible for any injury incurred. From the ski resort's perspective, this is an example of
Noninsurance transfer.
A northeastern state in the US has a mandatory rate law in effect. A southeastern state has established a file-and-use law. A Pacific coast state requires insurers to follow a prior-approval law, and a midwest state has enacted a flex rating law. Which one of the states and its regulators asserts the greatest extent of control over insurer rates?
Northeastern
Loss histories can offer great insight into an organization's loss exposures. The problem with depending too heavily on this one source is that some past events might
Not have been recorded.
A combined ratio of 1.05 indicates that an insurer is
Not profitable on an underwriting basis.
Neighbors Jack and Jerry were visiting and discussing the cost of new vehicles. Jack told Jerry he wanted to buy a $26,000 car but to do so he would have to sell his current auto for $8,000. Jerry said, "I accept your offer." The contract between Jack and Jerry is
Not valid because Jack did not give the offer consideration.
If a line of insurance is class rated, with all insureds possessing similar characteristics and paying the same rate, which one of the following determines the difference in premiums insureds pay?
Number of exposure units
Insurers using direct response marketing
Often advertise heavily, which can be costly.
Within the Personal Auto Policy (PAP), the name of a lender, loss payee, or lienholder is usually shown
On the Declarations page.
Monitoring a risk management program is an
Ongoing activity.
Fictitious Consultants Inc. (FCI) has been hired by a local insurance company located in Claremont, CA to introduce The Omnichannel Marketing System (OMS) as a sales tool. Knowing that Claremont is a college town with five undergraduate colleges alone, FCI believes that targeting the young demographic in the city will pay dividends in sales traffic for the insurance company. Given the young demographic, what three channels of the OMS would FCI expect to bring in the most hits for the insurance company?
Online, Mobile App, Social Media
Staff underwriters share research of the market responsibilities with actuarial and marketing departments. Research includes an ongoing evaluation of which one of the following?
Optimal product mix in the book of business
It is sometimes said that an insurer's duty to defend insureds against liability claims is even more important than its duty to
Pay damages.
Property insurance policies usually exclude coverage for damage from water seepage, insects, or rodents because these types of damages are
Preventable through proper care and maintenance.
People who handle claims may be staff claim representatives, independent adjusters, employees of third-party administrators, or
Producers who sell policies to insureds.
Pravalt Construction Company pays less than its competitors for workers compensation insurance because Pravalt has had substantially fewer employee injuries than other firms in its class. This illustrates which one of the following benefits of insurance?
Promote risk control
The functions that insurance producers perform vary widely from one marketing system to another. Which one of the following functions do all producers perform?
Prospecting
Todd is a producer selling commercial insurance to small to medium sized businesses. Because some of them are struggling to pay the premiums, and because Todd gets more commissions the more policies he sells, he has started giving a portion of the policy premium back to his customers that place multiple coverages with him. In doing so, Todd is specifically engaging in the unfair trade practice of
Rebating.
Which one of the following methods of prospecting is more likely to be used by an experienced producer than a new insurance producer?
Referrals from present clients
The most difficult time for an insurer to change distribution systems is when
Renewing an existing book of business.
If an insured wants to receive "new for old" in the event of a property loss, he or she would purchase
Replacement cost.
Recruiting, interviewing, and training a new employee who replaces a worker who has just resigned are examples of which one of the following types of financial consequences flowing from personnel losses?
Replacement costs
An independent agency
Represents customers rather than insurers and shops insurers to find the best coverage and value for its customers.
Alan Peachtree owns a hobby shop, which he runs from a detached garage on his property. Alan has set aside funds to pay for possible property losses rather than purchasing insurance. Which one of the following risk management techniques is Alan using?
Retention
Market conduct regulation focuses on insurers' treatment of applicants for insurance, insureds, and others who present claims for coverage. Market conduct regulation affects all of the following areas of operations of an insurer, EXCEPT:
Risk control
For loss exposures with high frequency and low severity, the two best risk management alternatives are retention and
Risk control.
The technique that is used to decrease the frequency and/or severity of losses is
Risk control.
A producer will generally review a company's loss run report while performing which one of the following functions?
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
Risk management review.
Sally is a recent college graduate who lives in the suburbs and drives to work daily in the city. She recognizes that owning a car creates both property damage and liability exposures for her and at the same time she has the burden of student loans. For someone in Sally's circumstances the most practical risk management technique for dealing with her auto-related loss exposures is
Risk transfer.
The capital of a stock insurance company comes primarily from
Sale of company stock.
Which one of the following is considered to be an acquisition expense for an insurance company?
Sales commissions
The insurer's rights to recover and sell or otherwise dispose of insured property on which the insurer has paid a total loss are called
Salvage rights.
Malvern Imports has several retail stores in a three-state area. They receive and store imports in a large central warehouse. The risk manager is considering ways to lower the severity exposure due to a fire loss to the warehouse. Which one of the following would most effectively decrease the severity exposure of fire loss to the warehouse?
Separation
Outdoor Designs Company (ODC) makes cedar patio furniture. ODC's lumber supplier, L&L Wood Products, is the largest and most competitive supplier of lumber in the area. ODC's risk manager is concerned that a disruption in the supply of lumber from L&L due to a large fire loss would adversely affect its production. Which one of the following would best minimize the adverse effect to ODC of a large loss experienced by L&L?
Separation
The dollar amount of damage that results from a loss is the loss
Severity.
Personnel loss exposures can be comprised of all of the following categories of key personnel, EXCEPT:
Shareholders
One of the costs of insurance is said to be opportunity costs. This means that if capital and labor were not being used in the insurance business, they could be used elsewhere and making other productive contributions to
Society
What term refers to the ability of an insurer to meet its obligations as they become due?
Solvency
A liability adjuster must be concerned with specific, out-of-pocket expenses when evaluating the damages being claimed. The technical term for such expenses is
Special damages.
In the claim evaluation process, specific, out-of-pocket expenses are called
Special damages.
If you were a property owner and wanted the broadest coverage available to protect your building, you would purchase
Special form coverage.
Underwriting management develops underwriting guidelines, which
Specify the insurer's attitude toward applicants exhibiting certain characteristics.
Insurers are required to submit annual financial statements to
State insurance departments.
Excella Insurance is a private insurer operating in the state of Arkansas. It primarily sells personal auto and homeowners policies and complies with all the necessary licensing and regulations required. Which one of the following is true for Excella in regard to this?
State insurance regulators are only one of many stakeholders that are interested in an insurer's financial health.
When deciding to approve or disapprove an insurer's request for a rate, a state insurance commissioner must determine if the rates are adequate. Adequate means that the rates should be
Sufficient to pay all claims and the expenses related to those claims.
A typical homeowners policy covers the "residence premises," which is defined as the location shown in the policy declarations. Usually, the policy definition of residence premises also includes which one of the following?
Supplies located on or next to the premises used to construct, alter, or repair the premises
Which one of the following is true regarding loss exposure surveys?
Surveys usually group questions on similar exposures together.
Life insurance that provides coverage for a specified period with no cash value is called
Term life insurance.
Which one of the following statements is true regarding aircraft liability coverage under a Commercial General Liability (CGL) policy?
The CGL policy specifically excludes aircraft liability coverage.
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?
The agents own the expirations for the existing book
The selection of a distribution channel for an insurer's products and services depends, partly, on customer preferences. Which one of the following statements is true regarding customer preferences that should be considered when selecting a distribution channel?
The channel should be consistent with the customer's expectations for service.
Prompt and professional loss adjustment services are a responsibility of which one of the following parts of an insurer's organization?
The claims function
When selecting a distribution channel, which one of the following is an important consideration with regard to customers' needs and characteristics?
The ease of accessibility within the channel
Which one of the following is true regarding the delegation of underwriting authority by underwriting management?
The extent of underwriting authority granted to an agent generally depends on premium volume and loss experience.
Which one of the following statements is true regarding the financial consequences of loss?
The financial consequences depend on the type of loss exposure, the cause of loss, and the loss frequency and severity.
Manufacturing Company experienced a loss on its premises when expensive equipment was destroyed by fire. A provision in its insurance contract maintains that the insurer has a right to enter the premises in the event of a reported loss to inspect the damaged property. Manufacturing Company has refused to grant entry to the insurer's claim representative. Consequently, the insurer is considering whether it can deny coverage for the claim. Which one of the following best explains why Manufacturing Company's insurer may be able to deny coverage under the principle that an insurance policy is a conditional contract?
The insured must fulfill its duty to allow an inspection before a claim is paid.
A financial analyst determines that the combined ratio for the DEF Insurance Company was 112 percent for the prior year. Which one of the following statements best describes how the analyst can interpret this information for the year?
The insurer had an underwriting loss.
If Katie purchases auto insurance from an out-of-state insurer without a license to sell insurance in Katie's state, the policy may be an invalid contract because
The insurer was not legally competent to make the agreement.
The insuring agreement of a homeowners policy specifies that
The insurer will provide policy coverage in return for the premium and compliance with policy provisions.
Tobias, a successful producer with Barnley's Insurance Company, is struggling with an intricate quote on homeowners coverage for his insured, Hanna. Hanna not only has substantial collections of guns and silverware, but also has a small farm located at her premises. Which one of the following individuals from Barnley Insurance Company could provide assistance and support to Tobias?
The line underwriter
Prospective loss costs indicate
The money the insurer can expect to need to pay for future claims for each exposure unit.
Alfred has an unendorsed HO-3 policy. After a severe fire loss to Alfred's house, an investigation proved that Alfred intentionally set the fire. Alfred was jailed for arson, and his property claim was denied. Which one of the following describes the rights granted by Alfred's HO-3 to the mortgagee?
The mortgagee will collect the amount of its insurable interest in the property.
Which one of the following best describes the coverage usually provided under a commercial property insurance policy?
The policy's definition of building includes additions that are either completed or under construction, as well as materials and supplies used for constructing the additions.
Retention is often used in combination with insurance as a way of treating loss exposures. One of the major downsides of individuals using retention alone is
The potential for financial ruin.
An accurate measure of loss frequency is important because
The proper treatment of the loss exposure often depends on how frequently the loss is expected to occur.
One of the roles of underwriting management is arranging reinsurance. Which one of the following statements explains how treaty reinsurance helps an insurer meet its obligations?
The reinsurer automatically assumes a portion of all of the primary insurer's insurance that is eligible under the treaty.
What purpose do insurance-to-value provisions serve in property insurance policies?
They encourage insureds to purchase an amount of insurance that is equal to, or close to, the value of the covered property.
Which one of the following is true with regard to nonadmitted assets?
They help prevent an insurer from overstating its true financial condition.
In liability claims, the claimant is referred to as the
Third party.
Some loss exposures are not easy to retain, avoid, or control. Which one of the following risk management techniques is frequently used to treat such exposures?
Transfer
From a risk management viewpoint, insurance is used to
Transfer the cost of losses.
One of the responsibilities of underwriting management is to arrange reinsurance. One type of reinsurance is arranged to automatically reinsure a portion of all eligible risks of the primary insurer. This arrangement is called
Treaty reinsurance.
When an agency relationship is created between a principal and the agent, it requires a high degree of
Trust.
Unity Insurance Company (UIC) has an operating ratio of 0.98, a combined ratio of 1.02, and a loss ratio of 0.77. Considering these ratios, which one of the following statements is true for UIC?
UIC's investment income is offsetting losses and expenses from its underwriting operation, allowing an operating profit.
Unfair trade practices acts involve which one of the following insurance company operations?
Underwriting
All of the following are principal sources of underwriting information, EXCEPT:
Underwriting authority reports
Which one of the following measures the amount an insurer would owe its policyholders in premium refunds if it were to immediately cease operations?
Unearned premium reserve
Which one of the following is part of written premiums?
Unearned premiums
Some insurance rating laws allow rates to be put into use immediately but require insurers to files the rates with the state within a specific period of time. These types of laws are known as
Use-and-file laws.
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?
Wanlett is mostly concerned with pure, as opposed to speculative risks.
War is generally excluded from property insurance policies because
War affects many people at the same time with widespread losses.
While basic form policies cover certain perils, other property insurance policies cover additional causes of loss that are commonly referred to as broad form coverage or broad form perils. Which one of the following is one of these additional broad form perils?
Weight of ice, snow, or sleet
For an insurer to be considered solvent, states require it to have financial reserves
Well in excess of its ordinary expenses.
Extra expenses are a common financial consequence of property losses. Which one of the following is an example of an extra expense?
When a family's house is damaged, the family must pay rent to live in a hotel temporarily.
Other than some type of merger, layoff, or organizational change, which one of the following is an example of a situation where an entire group of employees might leave an organization?
When employees follow a manager to a new organization
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?
When her car's windshield breaks, Ciara has to pay only $100 of the $600 cost of replacing it.
All of the following are correct with respect to the elements of good-faith claim handling, EXCEPT:
When resolving a coverage question, insurers should avoid the appearance of bad faith by dealing only with those lawyers hired to defend the insured.
Which one of the following best describes what is determined by the insurer's staff review of applications from prospective insureds?
Whether the characteristics of the customer match the insurer's underwriting criteria.
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?
Workers compensation
When an employee is injured on the job, coverage for his or her medical care and lost wages will be provided by the insured's
Workers compensation policy.
Omicron Manufacturing has approached Delta Insurance Brokerage to develop and implement a voluntary insurance program for life, health, and disability insurance for Omicron's employees. Delta puts together a program in which employees receive the coverage at discounted rates, and premiums are deducted from the employees' paychecks. Omicron and Delta are using which one of the following types of group marketing to offer this program?
Worksite marketing
Joe and Kitty have a Personal Auto Policy (PAP). Their granddaughter, Katherine, lives with them. Does Katherine qualify as a "family member?"
Yes, Katherine is a resident of the household.
Marc and Kathi have a Personal Auto Policy (PAP). Their foster child Marie lives with them. Does Marie qualify as a "family member"?
Yes, because Marie lives in the household.
Amy has decided to apply a retention risk management technique to reduce her automobile insurance premium. She is deleting the physical damage coverage (collision and other-than-collision) on her car. Her car is currently worth $3,000. She will be able to save $250 every six months. Based on informal guidelines for selecting risk management techniques, is this a good decision?
Yes, if Amy can afford to lose $3,000.