insurance chap 1

Under the Fair Credit Reporting Act, if a consumer reports to a consumer reporting agency that they are a victim of fraud, the agency must put a fraud alert on the consumer's file for at least how long?

90 days

D was convicted of a felony involving breach of trust. Later, D transacts interstate commerce for an insurer, but D did not obtain a 1033 waiver that would them to do so. D is subject to criminal penalties, including:

A fine and imprisonment for up to 5 years

An agent is best described as which of the following? A producer who has a contract with an insurer to represent that insurer in the sale of its products A producer authorized by the Department of Insurance to adjust insurance claims A producer who represents persons who have contracted with the producer to obtain insurance for them A producer who represents members of the public wishing to purchase insurance

A producer who has a contract with an insurer to represent that insurer in the sale of its products

Which of the following best describes a surplus lines broker? A surplus lines broker deals with direct writing companies only A surplus lines broker deals with admitted carriers only A surplus lines broker accepts business only from non-resident agents A surplus lines broker places risks with non-admitted insurers when coverage cannot be placed with admitted carriers

A surplus lines broker places risks with non-admitted insurers when coverage cannot be placed with admitted carriers

Insurers often publish their standard rates in their manuals. These general rates are determined by:

Actuaries

Consumers tend to seek insurance for larger risks with a higher probability of loss, which are harder to insure, rather than average risks that have a lower probability of loss, which are more favorable for insurers. This describes which insurance principle?

Adverse selection

All of the following statements regarding financial rating services are correct, except: Rating codes are assigned to show financial strength or weakness of each company rated Independent rating services evaluate and rate the financial ability of insurance companies Agents and producers must place business through an insurer with the lowest rates The ratings are available to the public

Agents and producers must place business through an insurer with the lowest rates

In a reciprocal insurance company, the exchange of insurance is effected through:

An attorney-in-fact

An applicant could purchase an insurance policy to cover losses from all the following, except: An operation of drug smuggling Loss of property through burglary or theft Loss of assets through tort actions brought against the person Sudden and direct damage to property by natural causes

An operation of drug smuggling

The Law of Large Numbers provides that:

As the number of insured units increases, predictability of losses improves

Which insurer is both owned and controlled by its policyholder?

Captive insurers

Which of the following is not an element of an insurable risk? Accidental loss Large number of homogeneous units Catastrophic perils The ability to set a measurable value on it

Catastrophic perils

Which federal entity administers the Terrorism Insurance Program created by TRIA?

Department of the Treasury

When underwriters select risks, their goal is to:

Estimate a normal range of losses for the risk classification, and select risks that will meet those expectations

When done to jeopardize an insurer's security, which of the following is NOT a violation of federal fraud and false statements legislation? Exclusively approving catastrophic risks to drive down company profits Overvaluing property Sending threatening emails to impede the insurer's business Abstraction of funds

Exclusively approving catastrophic risks to drive down company profits

An underwriter is determining a rate for the next policy period of a policy that is being renewed. To calculate the rate, the underwriter looks at three previous policy periods and compares the insured's loss history to similar risks across the industry. Which rating method is the underwriter using?

Experience rating

An insurer that is organized in one state and authorized to do business in another state is known as which type of insurer?

Foreign

Social organizations that engage in charitable activities and provide insurance to its members are known as:

Fraternal insurers

An agent has a fiduciary responsibility, meaning the agent:

Handles the insurer's funds in a position of trust

Which type of producer authority is not spelled out in the contract, but is necessary for carrying out the producer's duties?

Implied

As per the agency contract, a producer has the authority to solicit insurance applications from applicants for the insurer. Though the contract does not directly say so, the agent is also able to collect premiums and use the insurer's logo on business cards. Collecting premiums and using the insurer's logo represent the producer's:

Implied authority

Which of the following is a type of authority producers have when they represent an insurer?

Implied authority

Which kind of agent enters into agreements with more than one insurer?

Independent

Each participant of a Lloyd's association:

Is individually liable for each risk they assume

Agents have all of the following responsibilities, except: Solicit and accept insurance applications, then forward them to the insurer Issue insurance policies Provide quotes and collect premiums Represent the insurer

Issue insurance policies

Which of the following is true of a hazard?

It increases the chance of loss

A peril is defined as which of the following?

It is the specific cause of loss

Captive insurers are typically allowed to be incorporated as any of the following, except: Limited liability company Stock insurer Nonprofit Lloyd's association

Lloyd's association

Purely by existing, a person may be injured or property may be damaged, even if the injury or damage does not occur. This condition is known as:

Loss exposure

Which of the following is a characteristic of a mutual insurance company? Dividends are considered a return of profit A policyholder is a voting member on the board of directors Stockholders own the company Members are provided insurance by the company

Members are provided insurance by the company

Dishonest tendencies that increase the probability of loss are known as:

Moral hazards

Insurer XYZ obtains a consumer report for G, a policyholder, and the insurer increases G's premium rate because of information contained in the report. After G obtains a copy of the report, they dispute the information that led to the rate increase, arguing that the report has incorrect information. The insurer:

Must keep the original rate until the investigation is complete

Several years ago, L intentionally concealed an insurer's financial records, and as a result, L was charged a fine. If L wants to transact interstate insurance commerce again, L would need to:

Obtain a consent waiver from the state regulator in L's jurisdiction

A potential cause of loss, such as fire, explosion, flood, or theft, is considered a(n):

Peril

L stores gas cans in the garage that are used to refill the law mower's tank. An electrical fire starts in the garage and ignites the nearby gas, which causes a partial loss to the garage. The fire is known as a:

Peril

Policyowner P has just finished painting the interior walls in their home, and stores leftover paint thinner in the basement near the furnace. What kind of hazard does the stored paint thinner present?

Physical

Wet leaves on a sidewalk are considered a:

Physical hazard

Rates that cannot be used until the Department or Division of Insurance approves them are referred to as:

Prior approval rates

All of the following are types of insurers, except: Proprietary insurers Mutual insurers Stock insurers Reciprocal insurers

Proprietary insurers

The most common means of managing risk is:

Purchasing insurance

The uncertainty of loss from fire, wind, or hail is a type of:

Pure risk

Which of the following risks may be protected against by insurance?

Pure risk

An alarm system installed in a home is considered which of the following ways to manage risk?

Reduction

The risk management technique of an insured who continues to have responsibility for a loss is known as:

Retention

Groups that want insurance coverage for their liability risks associated with theme parks and go-karts could obtain this coverage from which insurer?

Risk retention group

Incorporating a business is an example of which risk management technique?

Risk transfer

The shifting of risk of loss to another party is known as which of the following?

Risk transfer

A hazard is best defined as:

Something that increases the chance of a loss

Gambling is considered which of the following types of risk?

Speculative

Dividends issued by stock insurers are paid to:

Stockholders

Which of the following places insurance with a non-admitted insurer when insurance cannot be placed with an admitted insurer?

Surplus Lines producer

Lloyd's associations are composed of groups of underwriters and brokers, known as:

Syndicates

Which of the following is an example of risk reduction? Transferring risk to an insurance company Taking action to minimize the severity of a potential loss Insuring only those risks that threaten the financial stability of the insured Eliminating exposure to a specific risk

Taking action to minimize the severity of a potential loss

Which of the following statements is true concerning the National Association of Insurance Commissioners? The NAIC appoints Commissioners/Directors of Insurance for each state The NAIC enforces insurance regulations The NAIC provides research and recommendations The NAIC establishes insurance law at the federal level

The NAIC provides research and recommendations

Loss cost refers to:

The cost of claims, not including overhead costs or profits

The McCarran-Ferguson Act of 1945 set what standard for the insurance industry?

The federal government cannot regulate insurance when the states have authority to do so

Insurable risks include all of the following elements, except:

The loss may be catastrophic

Which of the following is an example of a physical hazard?

The storage of flammables near a furnace

Which of the following is not a function of insurance? To protect against uncertainty and reduce anxiety To act as an investment vehicle for the insured To transfer risk from the insured to the insurer To exchange a small certain expense for a large uncertain loss

To act as an investment vehicle for the insured

Insurance is an example of which type of risk management technique?

Transfer of risk

When done intentionally, all of the following are considered federal unfair and deceptive practices under fraud and false statements legislation, except: Undergoing interstate commerce in a jurisdiction in which the insurer is not admitted or licensed Embezzling premium funds False entries in an insurer's financial books Sending threatening letters to other insurance companies

Undergoing interstate commerce in a jurisdiction in which the insurer is not admitted or licensed

When done intentionally, all of the following are considered federal unfair and deceptive practices under fraud and false statements legislation, except: Undergoing interstate commerce in a jurisdiction in which the insurer is not admitted or licensed Sending threatening letters to other insurance companies False entries in an insurer's financial books Embezzling premium funds

Undergoing interstate commerce in a jurisdiction in which the insurer is not admitted or licensed

Customers of an insurer must be provided with a notice of the insurer's privacy policies and practices regarding customers' nonpublic personal information at least:

When the customer relationship is established and annually thereafter

Which of the following is considered a federal unfair and deceptive practice? Willful overvaluation of land, when material to insurance coverage Willfully depositing premium funds into a trust account Knowingly transacting insurance in a state in which the insurer is not admitted Accounting error made in a company's records

Willful overvaluation of land, when material to insurance coverage