OC 1

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

A

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

A

Loss adjustment expenses are one component in the calculation of an insurer's underwriting profit or loss. Loss adjustment expenses include all of the following, EXCEPT: A. The value of claim settlements paid to or on behalf of claimants B. Salaries and expenses for an insurer's claim staff C. The cost of hiring a lawyer to defend insureds in lawsuits D. The cost of obtaining medical, police, and other types of reports

A

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

A

Which one of the following offers a low-risk approach to quickly entering a new market? A. A strategic alliance B. Merger C. Acquisition of a subsidiary D. A joint venture

A

Which one of the following statements is correct? A. Many producers offer consulting services for which they are paid on a fee basis. B. Producers are restricted to only providing services to their current insureds. C. It is illegal for producers to reduce their consulting fees in recognition of commissions received. D. When consulting services are provided, insurance premiums, commissions, and fees are billed together.

A

Which type of settlement technique would be most appropriate when the claimant is expected to experience predictable regular damages into the future? A. Lump sum settlement B. Structured settlement C. Walk away settlement D. Fixed payment settlement

B

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

C

Another term for cause of loss is A. Negative outcome. B. Exposure. C. Peril. D. Hazard.

C

In a probability distribution, the standard deviation is a measure of which one of the following? A. Expected loss frequency B. Probable loss severity C. Uncertainty around expected value D. Estimated amount of actual losses

C

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? A. Comply with legal requirements B. Efficient use of insured's resources C. Promote loss control activity D. Reduce social burden

C

Which one of the following is measurable and quantifies risk? A. Uncertainty B. Possibility C. Probability D. Feasibility

C

Which one of the following is most likely to cause insurance demand to be inelastic? A. Hard markets B. Economic prosperity C. Financial responsibility laws D. Increased competition

C

Which one of the following statements is correct with respect to the U.S. property-casualty insurance market? A. It is immature. B. It functions perfectly. C. It is cyclical. D. It meets all consumer needs.

C

Which one of the following statements is correct? A. While insurer inefficiency is undesirable, it cannot lead to insolvency. B. Larger insurers can be more nimble and respond quickly to emerging trends. C. Financial constraints can affect insurers' ability to achieve profit goals. D. The insurance business is relatively simple and does not require specialized expertise.

C

Which one of the following statements is true? A. During a hard market, insurer competition is intense. B. A hard market involves diminishing insurer profitability. C. Insurance premiums rise during a hard market. D. Insurance coverage is difficult to find during a soft market.

C

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

D

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

D

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

D

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

D

Leah decides to purchase her personal automobile insurance through a program offered by her employer. Leah's employer offers her a discounted premium which is deducted from her paycheck. Leah's employer is using which type of distribution channel? A. Affinity marketing B. Direct response marketing C. Mass marketing D. Worksite marketing

D

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

D

Which one of the following types of agent is usually paid the same commission rate for new business and renewals? A. Exclusive agent B. Direct writer sales agent C. Managing agent D. Independent agent

D

All corporations are obligated to promote the well-being of society. At the minimum, this obligation demands that the insurer should A. Offer affordable and comprehensive coverage. B. Avoid causing any public harm. C. Provide basic risk control and loss mitigation measures. D. Be involved in philanthropic activities.

B

All of the following are sources of reinsurance, EXCEPT: A. Reinsurance pools, syndicates, and associations B. The Brokers & Reinsurance Markets Association (BRMA) C. Professional reinsurers D. Reinsurance departments of primary insurers

B

Errors in audits result in incorrect A. Operational efficiency. B. Experience modifications. C. Competitive errors. D. Financial decisions.

B

Independent agent networks are known as A. Direct writers. B. Agent clusters. C. Exclusive agents. D. Agent forces.

B

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

B

An example of an intangible asset that an individual may possess is A. An investment portfolio. B. A unique skill set. C. Money that is owed to them. D. A rental property.

B

Claim representatives should be aware of the restrictions imposed by the Fair Credit Reporting Act if they find it necessary to obtain or disclose an insured's financial information during A. A financial audit of a commercial insured's business. B. A claim investigation. C. Litigation involving alleged bad faith on the part of the insurer. D. The claim evaluation process.

B

One of the differences between traditional risk management (RM) and enterprise-wide risk management (ERM) is in the organizational structure. The chief risk officer in an ERM structure typically reports to the A. Finance department. B. Chief executive officer (CEO). C. Operations manager. D. Legal department.

B

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

B

Which one of these data quality problems impairs or prevents an analyst's ability to use the affected variables for analysis? A. Default values B. Missing data C. Duplicate transactions D. Data errors

B

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

C

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

C

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

C

Property policies for carriers in the business of transporting other people's property typically protect the interests of A. The owner of the property in transit only. B. The carrier only. C. Both the carrier and the property owner. D. The shipper only.

C

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

C

In reference to liability claim adjusting, which one of the following is a useful defense to liability claims? A. Breach of contract B. Criminal acts C. Proximate cause of loss D. Absence of negligence

D

In which one of the following ways are premium auditors most helpful to claim representatives? A. Convince the insured of the accurracy of claim payments. B. Calculate the amount payable for a workers compensation claim. C. Alert the claims representative for gaps in coverage and make recommendations. D. Verify the classification codes assigned to an insured's claims.

D

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

D

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

D

Which of the following combined ratios mean that losses and expenses have exceeded premium income? A. 5% B. 95% C. 100% D. 105%

D

Which one of the following is the most common type of intentionally caused loss? A. Negligent property destruction B. Water seepage C. Faulty design D. Fire

D

Which powerful adjustment tool is written, signed, and sworn to by the insured, yet not often used by property adjusters? A. Examination under oath B. Inventory report C. Books and records inspection D. Proof of loss

D

A formal set of directions for recording and reporting insurance premiums, exposures, losses, and sometimes loss expenses to a statistical agent is a A. Statistical plan. B. Statistical agent. C. Data element. D. Data definition.

A

Defending liability claims through litigation can be a very long and expensive process. Mediation and arbitration are two common forums for settling claims outside the traditional court system. What is the primary advantage of arbitration over mediation? A. In arbitration, a decision is made by a disinterested third party. B. In arbitration, the arbitrator's decision is always binding. C. In arbitration, only one insured and one insurer can be involved. D. In arbitration, alternative solutions are presented to both parties.

A

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

A

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

A

In operations liability claims, which one of the following would most likely be the policyholder? A. Contractor B. Retail operation C. Manufacturer D. Public institution

A

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

A

In testing for data reasonableness, a distributional edit review A. Compares key field data to a profile of data from prior experience. B. Measures the extent to which the system detects and corrects errors. C. Compares the premium and loss volumes by the highest order data variable to each other. D. Checks that the totals from one source match the totals from a reliable source.

A

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

A

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

A

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

A

On the following illustration of supply and demand, what is the point where the curves intersect, indicated by Point A? A. Price equilibrium B. Supply equilibrium C. Demand equilibrium D. Quantity equilibrium

A

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 A. As if no coverage limit existed. B. From the claimant's perspective. C. As they relate to similar claims with similar coverage and limits. D. By forming a claim committee for the purpose of achieving greater impartiality.

A

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

A

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

A

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

A

The functions that insurance producers perform vary widely from one marketing system to another. Which one of the following functions do all producers perform? A. Prospecting B. Premium collection C. Risk management review D. Consulting

A

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

A

Which one of the following insurer goals is most commonly associated with proprietary insurers? A. Earn a profit B. Meet customer needs C. Comply with legal requirements D. Diversify risk

A

Which one of the following methods of premium collection is generally used for personal insurance policies and small commercial accounts? A. Direct bill B. Account current basis bill C. Agency bill D. Item basis bill

A

Which one of the following planned retention funding measures is the least formal and the least expensive to administer? A. Current expensing of losses B. Using an unfunded reserve C. Using a funded reserve D. Borrowing funds

A

Which one of the following presents a challenge in adjusting a residential personal property claim? A. It's often difficult to determine that the property existed and was lost. B. Scheduled coverage requires the adjuster to replace rather than repair the property. C. Scheduled coverage is usually more restrictive in terms of causes of loss covered. D. The insured is not required to prepare an inventory for property that was stolen.

A

Which one of the following statements is correct regarding government involvement in insurance? A. Federal and state government are involved in insurance to facilitate compulsory insurance purchases. B. Most organizations obtain workers' compensation insurance through federal or state insurance programs. C. Government insurance plans typically incur significant costs in marketing and sales commissions. D. Legislators find it more straightforward to invite and analyze bids from private insurers than to establish government plans.

A

Which one of the following statements is true concerning premium audits? A. Insurers conduct premium audits to determine correct policy premiums. B. Insurers perform premium audits for only two coverages-workers compensation and commercial general liability. C. Insurance premium auditors follow arbitrary processes for each audit. D. Insurers perform premium audits because business owners do not submit payrolls to the insurers.

A

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

B

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. A third-party administrator. B. A field claim representative. C. An independent adjuster. D. An adjusting agent.

B

Bad faith lawsuits usually name which one of the following parties as the defendant? A. The insurance producer B. The insurer C. The claim representative D. The underwriter

B

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

B

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

B

Claim representatives should understand the subjective interpretation of negligence and gross misconduct. The difference between negligence and gross misconduct is determined by A. The actual intentions of the claim representative. B. The court's or jury's interpretation of the facts. C. Federal law. D. The claim representative's exercised standard of care.

B

Joe's Coffee Shop experiences a fire and the resulting damage will take several months to repair. In an effort to retain customers and retain sales, Joe leases a temporary location a few blocks away. The rent for this temporary location is an example of A. Extended business income expense. B. Extra expense. C. Continuing operating expense. D. Period of restoration expense.

B

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

B

Sofie and the members of her homeowner's association have homeowner's policies on their coastal dwellings. They have heard that there will be eleven named hurricane storms predicted for their coastal area this year. Sofie and the homeowner association members plan to increase their homeowner's property coverage limits to handle their concern about the possible hurricane damage. Their action is known as A. Property limits assessment. B. Adverse selection. C. Prevention of errors and omission claims. D. Prevention of inadequate property limits.

B

Sofie, a property underwriter for Cintriell Insurance Company is reviewing a new homeowner application for Yu. Sofie has changed the protection class to unprotected as the fire protection class listed by the producer is an eight and is incorrect. Which one of the following line underwriter activities is this? A. Select insureds B. Classify and price accounts C. Recommend correct coverage D. Coordinate with producer efforts

B

The primary role of insurance is to A. Make a profit for the insurance company's shareholders. B. Indemnify individuals and organizations for covered losses. C. Eliminate risk for insureds and society. D. Meet an insured's risk management requirements.

B

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

B

The state of Maryland operates a residual market plan (the Maryland Auto Insurance Fund—MAIF) that provides coverage for drivers who are unable to obtain coverage from private insurers. Which one of the following is the best rationale for the MAIF program? A. Auto insurance for high-risk drivers is profitable, and the program enables the state to share in the profits. B. Auto insurance is compulsory, and the program makes it possible for all drivers to have reasonably priced insurance. C. Private insurers face limited competition, and the state increases competitive pressures by operating this type of plan. D. Private insurers overcharge for auto insurance, and the state provides a low-cost alternative.

B

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

B

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 A. Draft authority gives agents the option of providing coverage for smaller claims that staff adjusters might deny. B. If an agent can issue a draft directly to the insured, it reduces the time required to settle a loss. C. Claim handling by producers is immune to regulatory scrutiny. D. Claim payments by producers are not included in loss ratio calculations.

B

Underwriting guidelines include acceptable approaches to evaluating applicants and the overall desirability of a particular type of risk or class of business. Which one of the following purposes of underwriting guidelines is served by these approaches? A. Proper issuance B. Uniformity of selection decisions C. Structured decision making D. Adherence to procedures

B

Which one of the following conditions is characteristic of a hard market? A. Lower insurance premium B. Diminished insurer competition C. Widely available coverage D. Decreased insurer profit

B

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

B

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

B

Which one of the following is a benefit to primary insurers of being allowed to take credit for reinsurance transactions? A. The credits allow the primary insurer to remove the primary insurance transaction from its books. B. Such credits reduce the drain on the primary insurer's surplus from writing new business. C. The primary insurer is allowed to increase its rates by an amount equal to the credit received. D. The acquisition costs associated with the reinsurance transaction are returned to the primary insurer through the credits.

B

Which one of the following morale hazards might a premium auditor uncover for underwriting? A. Poor safety practices B. Poor financial records C. Hazardous materials D. Questionable business practices

B

Which one of the following statements is correct with regard to reinsurance agreements and their functions? A. The reinsurance agreement alters the terms of the underlying insurance policies. B. The reinsurance agreement identifies the policy, group of policies, or other categories of insurance that are included in the agreement. C. The retention under a reinsurance agreement is always expressed as a percentage of the original amount of insurance. D. Reinsurers are prohibited from transferring part of the liability they have accepted under reinsurance agreements to other reinsurers.

B

Which one of the following statements is true concerning risk control? A. Risk control can use claim information to pave the way for the premium audit. B. Risk control can assist marketing by providing advice on improving safety. C. Risk control can sell additional lines of coverage. D. Risk control departments are purely a function of insurers.

B

Which one of the following statements is true? A. Individual account pricing is not impacted by the underwriting cycle. B. During a soft market, insurance pricing reflects the desire to hold market share. C. When investment returns are not covering underwriting losses, the soft market begins. D. During a hard market, many insurers practice cash flow underwriting.

B

ABC Insurance Company has written premiums of $3,000,000 and earned premiums of $2,750,000. The company's incurred losses are $1,700,000 and loss adjustment expenses are $225,000. ABC's incurred underwriting expenses total $750,000. Which one of the following represents ABC's trade basis combined ratio? A. 89% B. 91% C. 95% D. 97%

C

For public entities such as cities, counties and public utilities, which one of the following is normally the most important post-loss risk management goal? A. Growth B. Profitability C. Continuity of operations D. Earnings stability

C

In addition to implementing effective and efficient measures, complying with legal requirements, and promoting safety, risk control should aim to A. Ensure that preventable losses do not adversely affect ongoing operations. B. Avoid or prevent all hazard risks to which the organization may be exposed. C. Minimize or eliminate significant business interruptions, whatever their cause. D. Transfer as much of the organization's hazard and business risks as possible to third parties.

C

One of the primary functions of premium auditing is to determine correct premiums. It can also serve to support underwriting by A. Implementing accounting-related risk control measures. B. Processing cancellations due to nonpayment. C. Identifying new loss exposures or additional operations. D. Assessing overall tax liability.

C

Sub-frameworks exist that are not considered to be enterprise-wide risk management (ERM) frameworks, but that provide specific industries and sectors with guidance. Which one of the following is an example of one of these sub-frameworks? A. Application of Risk Management to Medical Procedures B. Nuclear Industry- Offshore Production Installations C. Space Systems Risk Management D. Social Security and Human Services Series

C

The combined ratio is the A. Ratio of an insurer's incurred losses to its earned premiums. B. Ratio of an insurer's expenses to its premiums. C. Sum of an insurer's loss ratio and its expense ratio. D. Sum of an insurer's loss adjustment ratio and its written premium ratio.

C

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

C

The enterprise risk manager, who is often called a chief risk officer, typically reports to the organization's A. Legal department. B. Finance department. C. Chief executive officer (CEO). D. Safety manager.

C

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

C

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

C

Which one of the following best describes the data elements collected by Insurance Services Office, Inc. (ISO) and other property-casualty advisory organizations for rating or classifying risks? A. Data elements are the same for all lines of business. B. Data elements are different for each line of business. C. Some data elements are common to most lines of business and some are unique to a particular line. D. Data elements for personal lines are different than those for commercial lines.

C

Which one of the following best describes the primary purpose of Statistical Plans? A. To ensure the financial solvency of insurers B. To provide an analysis of insurers' results C. To provide uniform instructions that facilitate the aggregation of historical insurance statistics into a database of homogeneous experience D. To ensure that insurers do not engage in unfair or deceptive practices and that they fulfill the terms and conditions of the policies they issue

C

Which one of the following describes the purpose of the intermediary clause that some states require to be included in reinsurance agreements? A. It requires the use of reinsurance intermediaries in all reinsurance transactions. B. It prohibits reinsurance intermediaries from earning investment income on premiums or claim payments while in their custody. C. It states that the reinsurance intermediary is the reinsurer's agent for collecting reinsurance premiums and paying reinsurance claims. D. It indicates that the primary insurer's bankruptcy does not affect the reinsurer's liability for losses under the agreement.

C

Which one of the following is not a type of insurance, but a marketplace such as a stock exchange? A. Mutuals B. Cooperatives C. Lloyd's D. Reciprocals

C

Which one of the following is recorded in the exposure data element of an ISO general liability statistical plan? A. Policy limits B. Coverage C. Rating basis D. Type of risk

C

Which one of the following is the responsibility of the underwriting department? A. Reviewing commercial insured's records to obtain accurate information on rating variables. B. Work with insureds to help prevent losses and reduce the effects of those losses that cannot be prevented. C. Helping the insurer avoid the problem of adverse selection. D. Calculating insurance rates and developing rating plans.

C

Which one of the following loss reserve methods may use subjective information such as the name of the treating physician in creating the reserve? A. Loss ratio method B. Loss analysis method C. Expert system method D. Individual case method

C

Which one of the following may give the only insurer opportunity to meet insureds, see their operation, and review their financial records? A. Claims representative B. Producer C. Premium auditor D. Risk control representative

C

Which one of the following statements is correct with respect to personal net income loss exposures? A. Net income losses for individuals result from a reduction in salary rather than an increase in expenses. B. Net income losses caused by the economic environment meet the characteristics of ideally insurable loss exposures. C. Net income losses resulting from unemployment may or may not be fortuitous, depending on the individual involved. D. Net income losses are typically not independent and can be catastrophic from the perspective of the insurer.

C

Which one of the following statements is correct with respect to the premium auditing process? A. Claims and expenses typically decrease when a policyholder is classified incorrectly. B. Advisory organizations specify which records a premium auditor is allowed to examine. C. A premium audit can uncover classification changes necessary to revise coverage. D. Rating manuals contain rules, which make classifying an account a simple matter.

C

Which one of the following statements is true regarding elements of good-faith claim handling and laws relating to claim handling? A. A claim file's medical bills, doctors' reports, and other information on each claimant should be in chronological order. B. When conducting a good-faith claim investigation claim representatives must comply only with state unfair claim practice acts rather than with federal statutes. C. Claim representatives should use policy provisions, such as arbitration clauses, when applicable, to resolve disputes over the settlement amount. D. The Fair Credit Reporting Act was created in 1970 in response to the financial and accounting scandals of the 1960s.

C

Which one of the following statements is true regarding property claim adjusting? A. When adjusting property claims on an actual cash value basis, the only deduction considered in determining the value of the damaged property is for physical wear and tear. B. Property claims are generally settled by repairing or replacing the damaged property rather than with money. C. When the application of a coinsurance penalty reduces the recoverable amount of a property loss, the insured benefits by having the deductible applied first. D. Adjusting building property claims on a replacement cost basis eliminates virtually all possibilities for disagreement.

C

With a property loss, the insured is required to A. Give written notice of the loss. B. Hire a public adjuster to assist with a claim. C. Notify the police in case of loss by theft. D. Give an examination under oath for every loss.

C

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

D

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

D

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

D

Julio and Emily are both equally good drivers with clean records, and they drive similar cars. When they marry, Emily adds Julio to her personal auto policy and cancels his old policy. Now that Julio has been added to Emily's policy, the potential loss severity of an accident involving Emily's car is A. Correlated. B. Decreased. C. Increased. D. Unchanged.

D

New exposures are another important area in which an auditor might provide information to underwriting. New exposures can result from a change in operations or from A. Unreported claim activity. B. Premium changes. C. Implementation of risk control measures. D. A new venture.

D

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

D

Some courts hold insurers liable only if their behavior is found to be intentional or to constitute gross misconduct. To prove intentional misconduct, a complainant must show that the claim representative A. Was guilty of material misrepresentation. B. Attempted to deceive the complainant. C. Intended both the misconduct and the consequences. D. Was wanton and willful in acts of gross misconduct.

D

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

D

Which one of the following is the best source for an adjuster to use to gauge depreciation for a commercial structure? A. Policyholder financial records B. Building materials suppliers C. Architects and contractors D. Realtor rental values

D

Which one of the following is the primary business purpose of a professional reinsurer? A. To offer reinsurance to affiliated insurers B. To create pools so that groups of insurers can share the loss exposures of the group C. To create a syndication of reinsurance intermediaries D. To serve insurers' reinsurance needs

D

Which one of the following statements is correct with regard to notice requirements under property policies? A. Policyholders are required to submit written notice of losses to insurers using the form specified in the policy wording. B. In the case of claims involving criminal acts, insurers must report the events to police within 24 hours of receiving notice. C. Courts generally allow insurers to deny coverage for losses if they are not reported to the insurer within 48 hours of their occurrence. D. Insurers require prompt notice of claims because adjusters can't properly investigate losses after too much time has passed.

D

Which one of the following statements is correct with respect to residential property loss exposures? A. Arson-for-profit losses are usually catastrophic. B. Losses caused by flood are usually neither definite nor measurable. C. Windstorm premiums are economically feasible anywhere in the continental U.S. D. Fire, windstorm, and flood involve a large number of similar exposure units.

D

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

A

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

A

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

A

The statement "There is a 5 percent chance that John will be injured in an automobile accident while driving to work tomorrow." is an example of A. Quantifying risk. B. Verifying risk. C. Quantifying loss exposures. D. Indentifying hazards.

A

Which one of the following factors makes it difficult to evaluate the financial underwriting performance measures in the short run? A. Major catastrophic losses B. Educational needs of personnel C. Underwriting audits D. Product mix

A

Which one of the following statements is true regarding data quality? A. Quality data is data fit for the intended purpose. B. Data quality is an absolute, not a relative, concept. C. Quality results depend solely on data quality. D. While crucial, data quality does not affect insurer profitability.

A

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

B

If a claim is complex or if settlement negotiations are not progressing with the insurer, the insured may hire A. An independent adjuster. B. A public adjuster. C. A senior claim representative. D. A public defender.

B

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

B

Risk management activities under the enterprise-wide risk management approach occur at the A. Business unit level. B. Corporate level. C. Departmental level. D. Regional level.

B

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

B

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

B

Within the insurance cycle, which one of the following occurs in a hard market? A. Competition is intense. B. Coverage is hard to find. C. Premiums decline. D. Insurers are less profitable.

B

A management control tool used to determine whether line underwriters are properly implementing underwriting policy is known as an underwriting A. Process. B. Regulation. C. Audit. D. Guide.

C

A net income loss exposure is a condition that presents the possibility of loss caused by a reduction in net income. In a given time period, net income equals revenue minus A. Costs of goods sold. B. Accounts payable and income taxes. C. Expenses and income taxes. D. Continuing expenses and outstanding liabilities.

C

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

C

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

C

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

C

Every loss exposure has which one of the following elements? A. Property exposed to loss B. Possibility of direct loss C. Financial consequences of loss D. Tangible asset exposed to loss

C

Which one of the following best describes why a group of insurers would choose to form a reinsurance pool, syndicate, or association? A. To eliminate the need for any of the members to maintain a dedicated reinsurance department B. To avoid purchasing treaty reinsurance C. So that the members can share the loss exposures of the group, usually through reinsurance D. So that the members can deal with a direct writing reinsurer

C

Which one of the following statements is correct? A. Accurate classification of actual claims is not especially important in ratemaking. B. Audit errors in determining the number of exposure units rarely distort the rate structure. C. Premium audits affect the equity and accuracy of class rates and individual policyholders' premiums. D. Errors in premium rarely affect an insurer's cash flow.

C

Which one of the following statements is true? A. Insurer claim departments perform market conduct investigations as part of their normal activities. B. Uniform legislation exists for licensing of insurance claim adjusters. C. Consumer complaints are investigated by the state insurance departments. D. Attorney representation guarantees a faster claim settlement.

C

While there are many causes of net income losses, net income losses are usually associated with A. Loss of goodwill. B. Liability losses. C. Property losses. D. Missed opportunities.

C

William has decided to start a small architecture business. He has rented office space, purchased furnishings, and hired four employees. William knows that he needs to purchase insurance before he can open for business, but is not sure what coverages and limits to purchase. Which one of the following insurance distribution systems is most appropriate for William? A. Internet B. Regional broker C. Independent agent D. National broker

C

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

D

A form of ownership in which two or more owners each have an identifiable fractional interest in property is known as A. Tenancy by entireties. B. Joint ownership. C. Landlords. D. Ownership in common.

D

ABC Insurance Company is organized by geographic regions and has departmental operations within each region. This best describes what type of organizational structure? A. Functional structure B. Operational structure C. Flat organizational structure D. Multidivisional structure

D

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

D

Which one of the following is a financial measure of underwriting performance? A. Selection B. Retention ratio C. Pricing D. Combined ratio

D

Which one of the following statements is true regarding reinsurance regulation? A. Reinsurers must comply with state regulations only with regard to their investments. B. Reinsurance rates are regulated in the same manner as insurance rates. C. Reinsurers must file reinsurance contract wording with state regulators.. D. Reinsurers are subject to periodic examinations by state authorities.

D

Which one of the following generates the most common type of liability claim? A. Automobile B. Premises C. Products D. Workers compensation

A

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

C

Which one of the following types of loss exposures lends itself to unfunded retention plans? A. Low-frequency, low-severity B. Low-frequency, high-severity C. High-frequency, low-severity D. High-frequency, high-severity

A

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

B

Incurred losses (including loss adjustment expenses)/Earned premium is the formula for A. Combined ratio. B. Loss ratio. C. Expense ratio. D. Underwriting profit ratio.

B

Which one of the following statements is true? A. To be found liable for a tort, the wrongdoer must have behaved negligently. B. Violations of certain laws, such as traffic laws, are deemed negligence per se. C. A cause of action in negligence requires only that the tortfeasor's actions in some way cause harm to another party. D. Liability policies generally exclude coverage for assault, battery, false arrest, defamation, trespass and fraud.

B

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

A

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

A

Risk is a term that is regularly used and that is generally understood in context. As used in this discussion, which one of the following is one of the two elements within the definition of risk? A. Uncertainty of outcome B. Likelihood of injury or damage to property C. Probability of financial loss D. Opportunity for profit

A

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

A

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

A

Which one of the following best explains the term "residual uncertainty"? A. It is the level of risk that remains after implementing risk management plans. B. It is the difference between estimated subjective risk and calculated objective risk. C. It is the amount invested in risk management in order to eliminate concern. D. It is uncertainty regarding the value of any residual salvage that would remain after a loss.

A

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

A

Which one of the following risk control techniques will reduce loss severity and make losses more predictable, without increasing loss frequency? A. Diversification B. Duplication C. Loss prevention D. Separation

B

Which one of the following statements is true? A. Real property and machinery are examples of liquid assets. B. As an organization's retention level increases, so does the level of liquidity required. C. Liquid assets offer higher returns than other, longer-term investments. D. Liquidity can be increased by using cash flow to fund capital projects.

B

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

C

While designing a display window, Adam, an employee of Mellfor Clothing Store, was injured when he fell from a ladder. Adam's accident was witnessed by several customers and employees. Adam suffered a broken leg and was unable to work for several weeks. Which one of the following represents a hidden cost to the clothing store resulting from Adam's accident? A. Wages paid to Adam while he is unable to work B. Medical costs paid to Adam C. Time lost by employees who witnessed the accident D. Time lost by customers who witnessed the accident

C

Sally and her husband Bill own a saddle shop that has been in Sally's family for generations. Because of the sentimental value of the shop, they have invested a great deal in loss-prevention devices and safety features to ensure the survival of the business. This tendency to over-invest in loss-prevention measures creates the risk that A. Too much emphasis is being placed on maximum earnings in any one period rather than stability of earnings over time. B. Risks that should be transferred are being retained. C. The risk management techniques selected are not the best ones for the saddle shop. D. The financial value of the saddle shop is not being maximized.

D

The focus of risk quadrants is different from the focus of risk classifications in general. While the classifications of risk focus on some aspect of the risk itself, the four quadrants of risk focus on A. Pure and speculative risks. B. Subjective and objective risks. C. The determination of whether the risk is diversifiable. D. The source of risk and who has traditionally managed it.

D

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

D

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

D

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

D

Which one of the following statements is true regarding the financial consequences of loss? A. The financial consequences of any loss can be established immediately after the loss occurs. B. The financial consequences of a loss are independent of any hazards that may have contributed to the loss. C. The financial consequences of future losses cannot be predicted with any degree of certainty. D. The financial consequences depend on the type of loss exposure, the cause of loss, and the loss frequency and severity.

D

Which one of the following planned retention funding measures recognizes in advance the potential for loss, and supports that potential by allocating cash, securities, or other liquid assets to meet obligations? A. Current expensing of losses B. An unfunded reserve C. A funded reserve D. Borrowed funds

C

Which one of the following rating plans adjusts the premium for the current policy period to recognize the insured's actual losses during the current policy period? A. Experience rating plan B. Guaranteed cost plan C. Retrospective rating plan D. Schedule rating plan

C

Which one of the following ratios is considered the accepted financial measure of an insurer's underwriting performance? A. Retention ratio B. Expense ratio C. Combined ratio D. Success ratio

C

Which one of the following represents one of the five competitive forces Michael E. Porter describes in the Five Forces Model? A. Type of product or service offered B. Financial resources of purchasers C. Bargaining power of suppliers D. Age of the industry

C

Which one of the following risk control techniques is more commonly applied to managing business risk rather than hazard risk? A. Avoidance B. Separation C. Diversification D. Duplication

C

Which one of the following settlement techniques do insurers use to discourage claimants from hiring attorneys? A. Structured settlements B. Annuities C. Advance payments D. Walk-away settlements

C

Which one of the following statements concerning government insurance programs is true? A. Businesses seeking flood insurance under the National Flood Insurance Program (NFIP) must purchase it at local federal government offices. B. Various state insurance programs provide crop insurance for perils such as drought, disease, excessive rain and hail. C. Fair Access to Insurance Requirements (FAIR) plans make basic property insurance available to property owners who can't get it otherwise. D. The federal government provides workers compensation insurance to employers who cannot get it from private insurers.

C

Which one of the following statements is correct regarding the occupancy hazard in property underwriting? A. Mercantile occupancies are generally low-hazard occupancies with limited risk of significant loss. B. An insured's practices in controlling its hazards does not make a significant difference in the acceptability of an account with combustible contents. C. The loss potential of a particular occupancy can be evaluated by examining the contents' ignition sources, combustibility, and susceptibility. D. Office occupancy is considered relatively high-hazard when compared to other types of occupancy.

C

Which one of the following statements is correct regarding treaty reinsurance? A. The relationship between a primary insurer and its treaty reinsurer is typically limited to the one-year term of the reinsurance agreement. B. The price and terms of reinsurance treaties are standard with little negotiation between the parties. C. A long-term relationship with a reinsurer enables a primary insurer to consistently fulfill producers' requests for insurance. D. Treaty reinsurance agreements are usually designed to address a primary insurer's need to insure atypical risks.

C

Which two risk control measures are directly aimed at reducing the severity of net income losses? A. Avoidance and loss prevention B. Diversification and loss reduction C. Separation and duplication D. Avoidance and diversification

C

While inside a restaurant, a customer sprains his ankle after falling on a slippery floor. The commercial general liability loss exposure for the restaurant owner in this example is known as A. Products liability. B. Operations liability. C. Premises liability. D. Contractual liability.

C

With regard to liability claim adjusting, which one of the following is the most important aspect of any liability claim investigation? A. Obtaining the insured's account of the accident B. Determining the insured's contractual obligations C. Obtaining all of the relevant evidence D. Determining the insured's role in the loss

C

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

D

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

D

ABC Insurance Company specializes in meeting the insurance needs of municipalities. The company's business-level strategy is focused differentiation. Senior management has asked the managers of each functional area to propose one objective for the coming year that will actively support the business-level strategy. Which one of the following best does so? A. The underwriting manager proposes to underwrite all applications within one week of receipt. B. The claims manager proposes to hire six new claims adjusters so as to reduce individual case loads. C. The marketing manager proposes to reduce the premiums charged to policyholders by fifteen percent. D. The loss control manager proposes to offer loss control and risk management seminars for policyholders' staff.

D

ABC Insurance Company's written premiums are $2,000,000 and its earned premiums are $1,800,000. Losses total $1,000,000, and loss adjustment expenses are $350,000. Which one of the following represents ABC's loss ratio? A. 50% B. 55% C. 67.5% D. 75%

D

Bill is an insurance producer for ABC Insurance Company (ABC). He represents only ABC when marketing insurance products. ABC compensates Bill primarily through salary, and he has no ownership rights to policy expirations. Bill is a producer in the A. Independent agency marketing system. B. Exclusive agency marketing system. C. Captive agency marketing system. D. Direct writer marketing system.

D

Chloe is a claim representative with Fredine Insurance Company. She has been assigned a personal lines automobile claim for insureds, Oscar and Sara. Oscar and Sara were involved in an accident with another vehicle, and there is damage to both vehicles. In addition, the driver of the other vehicle and Sara each suffered minor injuries in the accident and were treated in the emergency room. Chloe follows the usual steps in the claim handling process. She identifies the policy and sets her initial reserves. She also confirms the details of the accident in a conversation with Oscar and Sara. Using the framework for the claim handling process, which one of the following will most likely be Chloe's next step? A. Confirm the loss reserves with Oscar and Sara. B. Conclude the claim. C. Determine the loss amount. D. Investigate the claim.

D

Claim management involves many duties crucial to good-faith claim handling such as consistent supervision, thorough training and A. Expense management. B. Organizational skills. C. Customer service soft skills. D. Manageable caseloads.

D

Competent legal advice is considered evidence that the insurer acted in good faith. Which one of the following statements about a defense lawyer is correct? A. Defense lawyers are responsible for meeting good-faith claim handling standards. B. Defense lawyers are required to periodically communicate with claim representatives. C. Defense lawyers should resolve coverage questions that arise in the case. D. Defense lawyers should be selected based in part on their ability to achieve good results in the courtroom.

D

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

D

During the past year, International Toys has undertaken four capital projects. The company has renovated and refurbished one of its aging warehouse buildings. It has purchased the most recent version of its current order processing computer software. It has added two trucks to its fleet of delivery vehicles. Lastly, it has purchased a new production machine that will allow it to launch a new product line. Which one of the following company projects is the most speculative risk? A. The warehouse refurbishment B. The software upgrade C. The two new trucks D. The new production machine

D

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

D

Generally anyone has an insurable interest in property who A. Has expressed an intent in writing of using the property. B. Has purchased and maintained insurance coverage on that property. C. Makes regular use of that property. D. Would be financially harmed by the destruction of that property.

D

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

D

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

D

In a bad-faith lawsuit, claimant Jerry alleges improper conduct on the part of claim representative Twila who works for a large insurance company. As is generally the case in such bad-faith allegations, which one of the following parties would be the defendant? A. Jerry B. The insurance producer C. Twila D. The insurer

D

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

D

In which one of the following ways do advance audits or the pre-audit survey have significant public relations value? A. Verify the earnings records of employees for use in workers compensation disability claims B. Advise insureds of hazards to eliminate C. Meet upcoming regulatory requirements D. Help insured with recordkeeping to take advantage of manual rules for discounts.

D

Insurer P considered an insured's industrial class to be in classification A while premium auditors in the same state classified it differently. This discrepancy in rating the industrial class differently results in A. Increased claim activity due to rating errors. B. A significant distortion of profits for the insurer. C. Decreased underwriting capacity overall. D. Inequitable rates for all insureds in the state for those two classes.

D

It is important to increase the deposit premium for a renewal policy based on the premium audit results. Keeping the deposit premium at a realistic level provides additional cash at policy inception and A. Improves underwriting capacity significantly. B. Stabilizes policyholder surplus. C. Reduces the need for reinsurance. D. Prevents any later collection problems.

D

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

D

Joe has been suffering from chest pains for several weeks when he visits his cardiologist. The cardiologist explains to Joe that he is going to send him for a stress test to check his heart function. The cardiologist does not explain to Joe that the stress test could actually bring on a heart attack and does not ask Joe to sign a consent form. Joe goes for the stress test and suffers a mild heart attack as a result. Joe initiates a medical malpractice suit against his cardiologist. Which one of the following statements is correct with respect to this case? A. The cardiologist cannot be found liable for failing to obtain Joe's informed consent for the test. B. The cardiologist will be held to the standard of care of the leading expert in his field if the case goes to court. C. The cardiologist cannot be found liable for failing to explain the risk of heart attack from the stress test, because the heart attack was an unavoidable risk. D. The cardiologist is likely to be found at fault if it is determined that he failed to exercise the standard of care accepted in his field.

D

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

D

Maja, who has twenty-nine years of experience as a professional liability underwriter, works in the home office of Richley Insurance Company. Her primary responsibilities involve formulating underwriting policy and developing underwriting guides for various lines of professional liability insurance that will be used by personnel in the company's field offices. Maja is functioning as a A. Chartered underwriter. B. Field underwriter. C. Line underwriter. D. Staff underwriter.

D

Most bad-faith claims arising out of contracts are insurance-related. All of the following explains why this is the case, EXCEPT: A. Insurance contracts involve the public interest and unequal bargaining power. B. Insurers have an implied duty of good faith based on the special relationship they have with their insureds. C. Insurers generally control claim investigation, evaluation, negotiation and settlement. D. In comparison to other contracts, insurance contracts require a low standard of conduct.

D

Obtaining agreement on repair prices and accurately calculating constructive total losses are key tasks for an auto property damage adjuster. When is a vehicle considered a constructive total loss? A. When the cost to repair the vehicle exceeds 80 percent of the vehicle's actual cash value before the loss B. When the cost to repair the vehicle minus the deductible equals or exceeds the vehicle's pre-loss value C. When the cost to repair the vehicle exceeds the vehicle's actual cash value before the loss D. When the cost to repair the vehicle plus its remaining salvage value equals or exceeds the vehicle's pre-loss value

D

Of all of the characteristics of an ideally insurable loss exposure, which one of the following is probably the most important? A. It involves pure risk. B. It is subject to losses that are definite and measurable. C. It involves a large number of similar exposure units. D. It can be insured at an economically feasible premium.

D

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

D

The most typical third-party bad-faith claim alleges A. Breach of contract. B. Bad-faith claims made against the first-party policyholder relating to coverage issues. C. Failure of a claim representative to divulge details of a loss investigation that would lead to an increased claim payment to the insured. D. An improper failure to settle a third party's bodily injury claim within policy limits followed by a verdict that exceeds the policy limits.

D

The state advisory organization has developed a new homeowner's form which increases the limits of liability for personal property in 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? A. Merve, the claims manager B. Antonia, the accounting manager C. Clara, the underwriting manager D. Emma, the staff underwriter

D

The two major types of pro rata reinsurance are A. Clash cover and catastrophe reinsurance. B. Proportional reinsurance and non-proportional reinsurance. C. Per risk excess of loss reinsurance and catastrophe reinsurance. D. Quota share and surplus share reinsurance.

D

To avoid bad faith allegations, claim representatives must understand the law of bad faith claims, who can make such claims, the bases of bad faith claims, and the A. Extent of injuries or harm to the claimant. B. Amount of reserves established by the insurer for bad faith claims. C. Impact of bad faith claims upon the insurer's goodwill and reputation. D. Types of damages that courts can award.

D

When a firm is selecting a distribution channel, which one of the following is an important consideration with regard to its operations? A. How quickly can inquiries and transactions be processed in the channel? B. Are customers willing to pay a premium for personalized products and services through the channel? C. What are customers' expectations regarding accessibility to the channel? D. Does the selected channel capitalize on its core capabilities?

D

When a loss at one loss exposure has no effect on the probability of a loss at another loss exposure, those exposures are said to be A. Correlated. B. Unique. C. Separate. D. Independent.

D

When selecting a distribution channel, which one of the following is an important consideration with regard to customers' needs and characteristics? A. The target market B. The compatibility of the channel with established channels C. The expertise of current staff D. The ease of accessibility within the channel

D

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

D

Which one of the following best describes the need for data in the insurance business? A. The insurance business has the same data needs as other businesses. B. Regulatory and business needs for insurance data rarely change. C. One insurer's experience typically provides sufficient data to determine the cost of future coverage for a policy type for that specific insurer. D. The insurance business is unique in its need for data because the final cost of insurance coverage is not known until many years after policies expire.

D

Which one of the following best describes the usefulness of comparing company data to industry-wide data when reviewing the reasonableness of the data? A. It is only useful if distributions in a company's coverages and the industry coverages are expected to be identical. B. It is only useful if distributions in a company's losses and the industry losses are expected to parallel each other. C. It is only useful if distributions in a company's exposures and the industry exposures are expected to be identical. D. It is only useful if distributions in a company's book of business and the industry average are expected to be similar

D

Which one of the following best describes who is responsible for Step 0: Data requirements, in the insurance data life cycle? A. Senior management B. Data managers at the destination for the data C. Actuaries D. Data managers and actuaries at the source and the destination for the data

D

Which one of the following best represents a way collaboration technology can be used to share metadata within an organization? A. Spreadsheets B. Word processing C. Printed documents D. Intranets

D

Which one of the following describes the purpose of the analysis step in the insurance data life cycle? A. To collect data and satisfy statistical reporting B. To make data available to users in the necessary format C. To help management make right decisions D. To extract useful information from raw data

D

Which one of the following dimensions of organizational data quality is represented when responsibility for managing data has been assigned? A. Sharing B. Interpretation C. Timeliness D. Stewardship

D

Which one of the following financial ratios is a key ratio to identifying insurers who should receive solvency surveillance from regulators? A. Retention ratio B. Return on investments ratio C. Catastrophe ratio D. Premium to surplus ratio

D

Which one of the following focuses on the minimum building design, construction, operation, and maintenance requirements necessary to assure occupants of a safe exit from the burning portion of a building? A. Building code B. Environmental security C. Workers compensation D. Life safety

D

Which one of the following is a federal insurance plan in which the government acts as a partner with a private insurer that sells insurance and pays the claims, and then reimburses the insurer for the portion of losses that exceeds premiums and investment income? A. Beach and Windstorm Plan B. National Flood Insurance Program (NFIP) C. Terrorism Risk Insurance Program (TRIP) D. Residual Auto Plan

D

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

D

Which one of the following is a property gradual cause of loss? A. Collapse B. Water damage C. Ordinance or law D. Latent defect

D

Which one of the following is a reason insurers conduct premium audits? A. To teach policyholders insurance manual rules B. To establish current rates C. To detect any excess liability limits D. To reinforce policyholder confidence

D

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

D

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

D

Which one of the following is correct regarding traditional risk management (RM) verses Enterprise-wide risk management (ERM)? A. The RM approach establishes a method to gather information organization-wide and develop a framework for analyzing and communicating that information. B. An ERM approach monitors systemic risks inherent in the organization that can adversely affect its quarterly profits and losses. C. The RM approach allows an organization to systematically explore new opportunities for econonmic efficiencies while managing internal and external threats. D. A strong ERM program encourages the buy-in of an organization's stakeholders by establishing management strategies that protect the organization's reputation and assets.

D

Which one of the following is the goal of enterprise-wide risk management (ERM)? A. Coordinate loss reduction efforts B. Reduce risk management costs C. Decentralize control of business decisions D. Maximize the organization's value

D

Which one of the following is the most important reason that the transferor in a risk transfer agreement assess the financial strength of the transferee? A. Most risk transfer measures involve some type of limitation on the potential loss amount being transferred. B. There are often disputes about whether a loss falls within the transfer agreement's scope. C. Risk transfer measures are usually a combination of retention and transfer. D. The ultimate responsibility for paying for loss remains with the transferor in a risk transfer agreement.

D

Which one of the following is the term used to refer to the percentage of insurance policies that an insurer has renewed? A. Success ratio B. Hit ratio C. Preservation ratio D. Retention ratio

D

Which one of the following is true regarding enterprise-wide risk management (ERM)? A. ERM is an approach to risk management that focuses primarily on loss exposures associated with pure risk. B. In practice, implementation of ERM occurs at the departmental or business unit level. C. Implementation of ERM is fairly consistent among organizations, regardless of their size, nature, or complexity. D. ERM is an approach to managing all of an organization's key risks and opportunities.

D

Which one of the following lists the financial components used to calculate a combined ratio? A. Loss and loss adjustment expenses incurred, investment earnings, and earned and written premiums B. Loss and loss adjustment expenses incurred, IBNR losses, and earned and written premiums C. Unearned premium reserves, earned and written premiums, and loss and loss adjustment expenses incurred D. Loss and loss adjustment expenses incurred, earned and written premiums, and underwriting expenses incurred

D

Which one of the following methods of prospecting is more likely to be used by an experienced producer than a new insurance producer? A. Interactive Web sites B. Direct mail C. Cold convass D. Referrals from present clients

D

Which one of the following premium collection methods is used in the majority of personal insurance sales? A. Item basis B. Statement basis C. Account current basis D. Direct bill process

D

Which one of the following represents two nonfinancial measures that are used to evaluate underwriting performance by focusing on underwriting actions? A. Loss ratio and quote ratio B. Combined ratio and success ratio C. New business ratio and retention ratio D. Retention ratio and hit ratio

D

Which one of the following risk control techniques is primarily used to reduce the frequency of losses, although it may also mitigate loss severity? A. Separation B. Duplication C. Diversification D. Loss prevention

D

Which one of the following sells insurance by representing customers rather than insurers? A. An exclusive agent B. A direct writer sales representative C. An independent agent D. A regional broker

D

Which one of the following statements about the supply and demand for insurance is true? A. A change in the supply of insurance has an effect only in softening markets. B. Low profit expectations tend to increase the supply of insurance. C. The demand for mandatory insurance is more elastic than for many other products. D. Alternative methods of risk financing reduce the demand for insurance.

D

Which one of the following statements is correct regarding net income loss exposures? A. Net income losses caused by the business environment represent pure risk. B. Net income losses resulting from liability losses are measurable because the timing and duration of the loss are definite. C. Net income losses resulting from liability losses are insured by a variety of business income coverages. D. Net income loss exposures associated with property losses exhibit almost all the characteristics of ideally insurable risks.

D

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

A

For regulatory purposes, Statistical Plans collect A. Historical insurer experience by state, by class, and by coverage. B. Insurers' Annual Statements. C. Market conduct examination results. D. Snapshots of insurers' financial condition.

A

If an error in a premium audit is detected, the rating bureau cannot calculate the correct experience modification until A. It receives the correct audit data. B. A re-audit is approved by the state insurance commissioner. C. The auditor satisfies a 30 day waiting period. D. The insured is notified of the nature and extent of the error.

A

If an insurance market has hardened because of capacity restrictions, A. New competitors will ease capacity. B. New competitors will be unable to enter the market. C. New competitors will further erode capacity. D. New competitors will cause premiums to rise.

A

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

A

In the context of risk, the chance of being injured while driving to and from work, loading a truck at work, moving furniture at home, or falling in an icy parking lot at the mall are all examples of A. Possibilities. B. Uncertainties. C. Probabilities. D. Losses.

A

Incorrect or incomplete audits affect the insurer by A. Impacting customer retention. B. Stimulating cash flow. C. Inhibiting fraud. D. Increasing insurer efficiency.

A

Which one of the following best explains a constructive total loss in auto property damage claims? A. The cost to repair or replace the damaged auto is equal to the policy's coverage limit applicable to that auto. B. The cost to repair the damaged auto plus its salvage value equals or exceeds the auto's pre-loss value. C. The cost to repair the damaged auto is equal to or greater than 50 percent of the auto's value before the loss. D. The cost to repair or replace the damaged auto is more than the salvage value of the auto.

B

Which one of the following best illustrates the concept of data quality? A. Even on a policy with no losses, a missing deductible code will affect a claim representative's ability to do his or her job. B. Unless everyone in the insurance process is required or motivated to diligently ensure that data are accurate, future pricing and other decisions can be affected. C. Insurers have identified the specific requirements for data quality that can be applied to insurance transactions and all users of that data. D. The start of the data collection process is where data can be compromised and thus that is where all data quality attention should be focused.

B

Which one of the following controls the coverage provided by a workers compensation policy? A. The policy provisions B. The state compensation laws C. The Occupational Safety and Health Administration (OSHA) D. Professional employer organizations (PEOs)

B

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

B

Which one of the following best describes the purpose of a safety program developed by an insurer's risk control representative? A. To provide complete evaluation of the policyholder's operations B. To raise workers' awareness of loss exposures and appropriate safety behaviors C. To provide written analysis of the policyholder's loss history D. To raise policyholders' awareness of discounts available for following safety programs

B

Which one of the following best describes the two basic types of statistical plans? A. Exposure-based and premium-based B. Summary-based and transaction-based C. Individual and aggregate D. Personal lines and commercial lines

B

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

C

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

B

Automatic sprinklers are a classic example of which one of the following risk control techniques? A. Avoidance B. Loss reduction C. Disaster planning D. Separation

B

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

B

Classifying risk appropriately can help in managing risk. Which one of the following statements is correct with respect to the classifications of risk? A. Risk classifications are mutually exclusive, and only one can be applied to any given risk. B. A pure risk is a chance of loss or no loss, but no chance of gain. C. Insurance deals primarily with speculative risk, rather than with pure risk. D. Usually, pure risks and speculative risks can be managed using the same techniques.

B

Despite being frequently reminded otherwise, Laura was in the habit of leaving her car door unlocked, often with her purse inside. As a result, Laura's car was stolen, along with her purse. Laura's behavior is an example of a A. Moral hazard. B. Morale hazard. C. Physical hazard. D. Legal hazard.

B

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

B

Restricting the number of key employees who can travel on the same aircraft is an example of which one of the following risk control techniques? A. Loss reduction B. Duplication C. Separation D. Diversification

C

After identifying and analyzing loss exposures and evaluating and selecting the appropriate risk management techniques, the next step in the risk management process is to A. Monitor the results. B. Revise the risk management program. C. Implement the selected techniques. D. Decide on risk financing techniques.

C

George has received an inheritance and is deciding what to do with the money. He has limited his options to four choices: donate all the money to his favorite charity, use the entire inheritance to buy a yacht, invest the inheritance in a small rental property, or use the entire amount to purchase T-bills. Which one of the following statements is true regarding the risk involved in George's options? A. Donating his inheritance to charity is a pure risk; there is no uncertainty that the money will be gone and George will have no chance of profit. B. Buying a boat is a nondiversifiable risk because George can only afford to purchase a single yacht. C. The rental property presents both pure and speculative risk; property values may increase, but the building could burn down. D. Purchasing T-bills is a pure risk because the interest rate payable is known, and the chance of loss is minimal.

C

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

C

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

C

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

C

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

C

Company G is a manufacturer of high profile golf equipment. The risk management professional for Company G is concerned about loss of business related to product design. Failing to respond to changing customer demand and preferences in the design of golf clubs could cost Company G significant market share. Categorized according to the quadrants of risk, this exposure to loss is classified as A. A hazard risk. B. An operational risk. C. A financial risk. D. A strategic risk.

D

A manufacturer relies on supplies of a key raw material which it obtains from a particular supplier. The manufacturer makes arrangements with a second supplier to provide the raw material if the primary supplier is unable to do so. The manufacturer is practicing which one of the following risk control techniques? A. Diversification B. Recovery planning C. Separation D. Duplication

D

A claim adjuster is handling a bodily injury liability claim. The claimant was injured in a fall for which the insured is responsible. The fall resulted in permanent injuries that will require a number of surgeries over the next five or six years, and the claimant's earning capacity has been greatly diminished. Which one of the following settlement techniques is especially useful in this type of circumstance? A. A structured settlement B. Advance payment C. A survival settlement D. A walk-away settlement

A

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

A

A commercial insurer has historically targeted small businesses. It is considering expanding its market to middle market organizations. To succeed, the insurer will need to develop a level of expertise in which one of the following areas? A. Risk financing alternatives B. Auditing C. Regulatory controls D. Claims handling

A

A customer in a department store slips and falls on a newly mopped floor, despite observing a sign indicating not to walk on it. The customer, who suffers back pain after falling, tells the store manager he saw the sign but walked on the floor anyway. Two days after the fall, the customer hires an attorney and files a lawsuit against the store for his injury. Given this information, which one of the following defenses is the department store's insurer likely to use for this premises liability claim? A. Comparative negligence B. Absence of duty C. An express warranty D. Statute of limitations

A

A group of policies with a common characteristic, such as a territory or type of coverage, or all policies written by a particular insurer, producer, or agency is referred to as A. A book of business. B. A coverage pool. C. A line of business. D. A policy group.

A

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

A

A prerequisite to asserting a claim under a property insurance policy is which one of the following types of interest in the policy? A. Insurable B. Loss payee C. Tenant's D. Contractual

A

A prompt and accurate premium audit can benefit the insurer's financial position in which one of the following ways? A. Premium developed by an audit has immediate effect on policyholder surplus. B. Companies notify the rating bureau of any changes in premium. C. Timely premium audits affect insurer's claims paid. D. Premium audits reduce insurer's production requirements.

A

A property location's probable maximum loss (PML) is A. The underwriter's estimate of the largest loss likely to occur. B. The loss expected under normal operating conditions with all fire protection services working. C. Calculated excluding the effects of building features that impede the vertical spread of fire. D. The amount of insurance carried on the location.

A

Aaron, a senior producer for Blithe Insurance Company (Blithe) has over fifteen years experience in the field. He knows Blithe's underwriting guidelines and is familiar with the type of business Blithe wants. He takes pride in the loss ratio produced by his office and also produced by Blithe as a company. He often trains new agents in his office because of his low rejection ratio of applications he writes. He is known as a front-line underwriter for Blithe. Which one of the following is a result of Aaron's field underwriting? A. Saves Blithe from having to evaluate accounts that they will ultimately reject B. Save Blithe training time spent on new producers C. Serves as a resource for Blithe on marketing climate D. Provides feedback to Blithe on underwriting procedures

A

Accuracy in a premium audit is important to the insured for which one of the following reasons? A. Errors in audits may result in incorrect experience modifications. B. Misclassification of exposures always results in higher premiums. C. Audit errors impair the efficiency of an insured's operations. D. An audit error made in the determination of rating factors generally results in a breach of contract by the insurer.

A

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

A

After a property loss, the insured is required to protect the property from further loss by making emergency repairs and by implementing emergency safeguards. Such measures are a reimbursable part of the loss as long as they are A. Reasonable and necessary. B. Performed within 24 hours of the loss. C. Pre-approved by the adjuster. D. Performed by the insured or its representative.

A

All of the following are examples of insurance distribution channels, EXCEPT: A. Exclusive agency B. Call centers C. Direct response D. Group marketing

A

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

A

All of the following are questions adjusters ask to determine whether fixtures are real property, EXCEPT: A. How long has the fixture been on the property? B. How permanently attached to the real property is the fixture? C. Is the fixture well adapted to the real property? D. What was the intent of the owner?

A

An insurance company needs to hire an employee with knowledge of insurance policy forms and the ability to relate policy provisions to the loss exposures of individual policyholders. The person will also prepare premium quotes and process cancellations.Which one of the following employees would best suit the company's needs? A. Line underwriter B. Staff underwriter C. Producer D. Premium auditor

A

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

A

Antonia and Philip have their home insured with ABC Insurance under a standard homeowners policy. During a storm, a lightning strike resulted in a fire in the home's kitchen, and the high winds caused a tree to fall on the roof leaving a large hole. Quite a few shingles were blown off the remainder of the roof. The homeowners report the claim to ABC and make emergency repairs to protect the property from further damage. The claim is assigned to Trevor at ABC. Because the home is uninhabitable, Antonia and Philip incur additional living expenses for meals and lodging while the home is being repaired. In investigating the loss, Trevor determines that the roof tiles are worn and deteriorated and that the entire roof should be replaced. In addition, the wiring in the house in not in compliance with the local ordinance and should be upgraded when any significant repair or renovation is done. Using the framework for coverage analysis and activities in the claim handling process, which one of the following best describes how Trevor will determine the dollar amount of this loss? A. He will include the cost to repair damage caused by fire in the kitchen and the hole in the roof, and will offer to reimburse the cost of emergency repairs and additional living expenses. B. He will include the cost to repair damage caused by fire in the kitchen and the hole in the roof, and will offer to reimburse the additional living expenses as well as upgrades to the wiring due to local ordinance. C. He will include the cost to repair damage caused by fire in the kitchen and the hole in the roof, but will not reimburse the emergency repairs or additional living expenses because these expenses are generally not covered. D. He will include the cost to repair damage caused by fire in the kitchen, to replace the roof on the entire home, and will reimburse the cost of emergency repairs and additional living expenses.

A

At times of underwriting losses, an insurer may do which one of the following in order to maintain the surplus needed to support its level of business? A. Restrict the availability of coverage B. Reduce premium rates C. Restrict premium growth D. Reduce underwriting profits

A

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

A

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

A

Beta Insurance Company (BIC) is a small, regional personal lines insurer. Four years ago, BIC hired a new Vice President of Marketing to grow the business. A combination of factors led to BIC growing by 30 percent in each of the past two years. The senior management team anticipates continued growth at this rate for another five years. Which one of the following types of reinsurance will be most effective in providing the surplus relief BIC will need to support its growth plans? A. Quota share B. Per policy excess of loss C. Per occurrence excess of loss D. Aggregate excess of loss

A

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

A

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

A

Concerning liability claim adjusting, which one of the following determines coverage? A. The claimant's allegations B. The insured's contractual obligations C. The proximate cause of loss D. The insured's intentional acts

A

Concerning liability claim adjusting, which one of the following intangible factors of bodily injury is usually the largest component of damages? A. Pain and suffering B. Loss of consortium C. Permanency and disfigurement D. Survival and wrongful death

A

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

A

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

A

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

A

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

A

Insurers in the United States can be classified by licensing status. Which one of the following is correct in distinguishing between a licensed insurer and an unlicensed insurer? A. A licensed insurer is authorized by the state insurance department to transact business in a given state. An unlicensed insurer is not given this authorization. B. A licensed insurer is known as a nonadmitted insurer. An unlicensed insurer is an admitted insurer. C. A licensed insurer markets its products thorough independent agencies. An unlicensed insurer markets its products through exclusive agents. D. A licensed insurer is known as a domestic insurer. An unlicensed insurer is known as a foreign insurer.

A

JNL Construction is a general contractor. As the risk management professional for JNL, Marie should be aware of the company's contractual obligations, as well as the contractual obligations that others owe JNL. This knowledge is necessary for Marie to meet which one of the following pre-loss risk management goals? A. Legality B. Social responsibility C. Tolerable uncertainty D. Continuity of operations

A

Jancy Insurance Company (Jancy) has been very successful at writing homeowners insurance for over ten years. In an effort to grow its personal auto book, Jancy is offering all current homeowners policyholders a 15 percent discount on their personal auto premium. This is an example of which one of the following applications for predictive analytics? A. Cross-selling B. Geographic segmentation C. Predictive analytics D. Individualized customer support

A

Many courts have rejected negligence as a grounds for bad faith, instead using gross misconduct as the standard. All of the following are true, EXCEPT: A. Insurers that are merely negligent in their claim handling face no consequences, regardless of jurisdiction. B. Bad faith might fall somewhere between simple error and outright fraud. C. Some courts look for behavior on the part of the insurer which is arbitrary, reckless or indifferent or involved intentional disregard. D. Courts attempt to determine the insurer's state of mind when establishing gross misconduct.

A

Many homeowners policies include an appraisal provision that describes a dispute resolution process involving two appraisers and an umpire. Which one of the following statements concerning this appraisal process is true? A. The amount of a loss in dispute is established if both appraisers agree on the amount. B. Only the insured can demand an appraisal in the event of a disagreement. C. The appraisal process determines whether coverage applies to a loss. D. The insurer pays all expenses associated with the appraisal process.

A

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

A

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

A

One enterprise risk management (ERM) approach to categorizing risks involves dividing risks into four risk quadrants. The risks categorized as hazard risks are A. Traditionally managed by risk management professionals. B. Speculative risks that fall outside the operational risk category. C. Traditionally handled by the treasury function. D. Fundamental to an organization's existence and business plans.

A

Premises liability refers to liability created by A. Having visitors to an organization's premises. B. State statutes to cover employees for work-related injuries on premises. C. Work completed on another organization's premises. D. Products manufactured on an organization's premises.

A

Rating agencies such as Dun & Bradstreet (D&B) provide A. Data on credit ratings of businesses. B. Information about business operations' safety records. C. Data on motor vehicle reports. D. Aggregate loss experience data.

A

Reinsurance pools, syndicates, and associations are A. Groups of insurers that share the loss exposures of the group, usually through reinsurance. B. Professional development organizations for reinsurance intermediaries. C. Advisory organizations that provide information about primary insurers to reinsurers. D. Membership organizations in which reinsurers share statistical data.

A

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

A

Sugartown Insurance has had several highly profitable years recently and accumulated a sizable surplus. Sugartown is now initiating a market plan to increase market share by competing on price. If enough of Sugartown's competition follows this strategy, what will be the likely immediate effect? A. The market will soften. B. Industry loss ratios will decline. C. The underwriting cycle will stabilize. D. New competition will enter the market.

A

Which one of the following distribution channels is also an efficient way to handle claim reporting and billing inquiries? A. Call centers B. Financial institutions C. Direct response D. Affinity marketing

A

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

A

The Five Forces Model is a commonly used method of A. Analyzing the competitive environment. B. Matching market forces with products offered. C. Comparing mission statements of similar competing firms. D. Benchmarking strengths of management team against competition.

A

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

A

The first step in integrating enterprise-wide risk management (ERM) with strategic planning is to A. Consider goals for ERM as part of the organization's business model. B. Identify threats to achieving organizational goals. C. Determine the criticality of the risks to the organization in order to prioritize risks for treatment. D. Direct an examination of internal and external threats to the organization's mission, strategies, and goals.

A

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

A

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

A

The underwriting authority granted typically varies by A. Grade level. B. Risk amount. C. Account amount. D. Underwriting guidelines.

A

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

A

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

A

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

A

Two individuals each have a 0.5 percent probability of suffering a total homeowners loss in a given year, and those two people pool their loss exposures. Assuming the loss exposures are independent of one another, which one of the following represents the probability of both individuals suffering a total loss with the pooling arrangement in place? A. .000025, or .0025% B. .00005, or .005% C. .0025, or .25% D. .01, or 1%

A

When an insurer is making a market segmentation selection, which one of the following is an important factor of the external environment to consider? A. Laws and regulations B. Distribution channels C. Technical resources D. Product mix

A

When two or more individuals who are not spouses have a complete, indivisible interest in property, that type of ownership is referred to as A. Joint ownership. B. Exclusive ownership. C. Tenancy by entireties. D. Ownership in common.

A

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

A

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

A

Which one of the following correctly describes a capital market instruments used by insurers to finance risk? A. An industry loss warranty is an insurance-linked security that covers the primary insurer in the event that the industry-wide loss from a particular catastrophe exceeds a predetermined threshold. B. Finite risk reinsurance is a type of reinsurance in which the reinsurer's liability is limited and anticipated investment income is expressly acknowledged as an underwriting component. C. Under a catastrophe risk exchange, a bond is issued with the condition that if the issuer suffers a catastrophe greater than a specified amount, the obligation to pay interest and/or repay principle is deferred or forgiven. D. A catastrophe risk exchange is an agreement that gives the primary insurer the right to a cash payment from investors if a specified index of catastrophe losses by geographic area reaches a specified level.

A

Which one of the following entities consists of national risk management associations, individual risk managers from Central European countries, and representatives from health organizations, educational sectors and public sectors? A. The Federation of European Risk Management Associations (FERMA) B. The Committee of Sponsoring Organizations of the Treadway Commission (COSO) C. The Basel Committee on Banking Supervision D. The British Standards Institution (BSI)

A

Which one of the following functions is performed by virtually all insurance producers? A. Prospecting B. Policy issuance C. Underwriting D. Fee basis consulting

A

Which one of the following is a common type of error in the data collection step of the insurance data life cycle? A. Input errors B. Wrong model choice C. Inconsistencies D. Interpretation errors

A

Which one of the following is a main cause of depreciation? A. Obsolescence B. Age C. Appreciation D. Latent defect

A

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

A

Which one of the following is considered an advantage of the use of retention as a risk financing technique? A. Less cash flow variability B. Timing of cash flows C. Less exposure to large loss D. Avoiding adverse public relations

A

Which one of the following is considered the primary advantage of using retention as a risk financing technique? A. Cost savings B. Control of claims process C. Timing of cash flows D. Incentives for risk control

A

Which one of the following is correct regarding captive programs? A. A captive collects premium, issues policies, purchases reinsurance, invests assets and pays losses, just like any other insurer. B. Under a rent-a-captive arrangement, no risk transfer occurs among the members, and the capital rented by one insured cannot be diminished by the losses of another insured in the structure. C. Risk retention groups were originally formed in direct response to the lack of workers compensation coverage available in insurance markets. D. In a protected cell company, each organization keeps its own premium and loss account, but a member may access the assets of another member in the event the member becomes insolvent.

A

Which one of the following is correct with regard to large-line capacity? A. An insurer's line is influenced by the maximum amount of insurance or limit of liability allowed by insurance regulations. B. Large line capacity is an insurer's ability to reinsure a larger proportion of its book of business. C. An insurer's line is unaffected by the characteristics of a particular loss exposure. D. Reinsurers provide primary insurers with large line capacity by doubling the policy limits on the primary insurer's policies.

A

Which one of the following is generally paid a negotiated fee, rather than a fixed commission rate? A. National broker B. Exclusive agent C. Direct writer sales representative D. Independent agent

A

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

A

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

A

Which one of the following is typically a post-loss risk management goal? A. Continuity of operations B. Legality C. Economy of operations D. Tolerable uncertainty

A

Which one of the following most accurately describes the legal environment as it relates to bad faith claims? A. Most bad-faith law is case law. B. Few lawyers are prepared to handle bad-faith claims, since so many lawyers derive a large portion of their incomes directly from insurance companies. C. Insurance regulators continue to expand the bases on which bad-faith claims can be brought and search for new grounds for bad-faith claims. D. The legislatures in both California and Wyoming have passed laws which allow claimants to sue insurers for unfairly or fraudulently delaying or rejecting claim payments.

A

Which one of the following provides an effective mechanism for initiating dialogue with an organization's board and senior executives about establishing enterprise-wide risk management (ERM) goals as part of the strategic management process? A. COSO II B. Basel II C. ISO 31000:2009 D. Solvency II

A

Which one of the following represents a way that metadata may be improved? A. Use of version tracking B. Exclusion of business rules C. Compilation and extraction D. Use of statistical plans

A

Which one of the following risk financing measures can reduce an organization's cost of risk over time, but has significant start-up costs relative to the other measures? A. A captive plan B. A large deductible plan C. A retrospective rating plan D. A self insurance plan

A

Which one of the following statements about claim evaluation is correct? A. Prompt evaluation helps to ensure compliance with time limits specified by unfair claims settlement practices acts. B. The limit of liability should be considered when evaluating a liability claim. C. The claim representative's opinion of the value of a claim is the most important evaluation factor. D. Evaluation of a liability claim should be made after the claimant makes his or her first settlement demand.

A

Which one of the following statements about claim investigations describes an element of good-faith claim handling? A. Claimants are more likely to share information when contacted promptly by the claim representative. B. The claim representative should begin the claim investigation after the insured is contacted. C. Liability claims should be evaluated so that the level of investigative thoroughness can be determined. D. Leading questions help investigators to determine the legitimacy of a claim.

A

Which one of the following statements is correct regarding characteristics of ideally insurable loss exposures? A. A common function that insurance provides is a spreading of risk across a large number of similar exposure units within the same period. B. Intertemporal risk transfer, the spreading of risk through time, requires a large number of similar exposure units. C. One requirement of the law of large numbers is that past events occur under different circumstances in the future. D. Loss exposures such as homes and automobiles generally will not meet the ideally insurable requirement that the exposure be of a large number of similar exposure units.

A

Which one of the following statements is correct regarding insurers' involvement in safety management programs for policyholders? A. Part of a risk control consultant's role in developing a safety management program is assisting the policyholder in establishing risk control goals. B. Risk control consultants are usually actively involved in implementing safety management programs. C. Once the safety management program is implemented, the risk control consultant is of little use in monitoring the program for necessary adjustments. D. Risk control consultants typically have authority to exercise a management role in the policyholder's safety program.

A

Which one of the following statements is correct regarding the use of treaty and facultative reinsurance? A. Most treaties require that all loss exposures within the treaty's terms be reinsured. B. Primary insurers generally use facultative reinsurance as the foundation of their reinsurance program. C. Usually, primary insurers have only one reinsurance treaty with a single reinsurer. D. A primary insurer's underwriting policy and underwriting guidelines are usually developed by its treaty reinsurer.

A

Which one of the following statements is correct with regard to auto bodily injury liability claims? A. Accident reconstruction experts can be used to determine vehicle speed and what a driver should have been able to see at the time of an accident. B. Uninsured motorists (UM) claims are relatively easy to defend with respect to liability. C. When an insured is involved in an accident while driving another's vehicle, the insured's coverage usually applies first. D. Only the most experienced claim adjusters normally handle these claims because auto accidents can cause the worst bodily injuries.

A

Which one of the following statements is correct with regard to property loss exposures? A. Homes can be grouped into classes that face essentially the same loss potential. B. Commercial property exposures are easier to group into classes than individual homes. C. When insuring homes, insurers need not avoid excessive concentration of loss exposures. D. The property loss exposures associated with residential fires are not ideally insurable.

A

Which one of the following statements is correct with regard to the concept of pooling? A. Pooling arrangements combine the loss exposures and financial resources of pool members for the purpose of sharing losses. B. Pooling arrangements reduce the most risk when the loss exposures being pooled are correlated. C. As the size of a pool increases, the expected losses to each pool member become less predictable. D. Generally, a loss to one member of a pooling arrangement increases the chance of a loss to another member.

A

Which one of the following statements is correct with regard to the risk control function of insurers? A. Risk control helps insurers meet profit goals by improving the quality of underwriting decisions. B. Insurance regulation in all states prohibits insurers from selling unbundled risk control to firms that self-insure. C. Providing risk control services increases the chance of policyholders making errors and omissions claims based on insurer negligence. D. Insurance regulation in all states requires insurers to provide a minimal level of risk control services to commercial policyholders.

A

Which one of the following statements is correct with regard to underwriting activities? A. The formation of underwriting policy is constrained by financial capacity, regulation, personnel, and reinsurance. B. The purpose of developing underwriting guides is to ensure that an insurer writes only above average accounts. C. While rates and forms must be filed with state regulators, no states require the filing of underwriting guidelines. D. Once effective underwriting guides are established, they need not be evaluated or modified.

A

Which one of the following statements is correct with respect to SWOT analysis? A. Identifying internal strengths and weaknesses involves considering financial, physical, human, and organizational assets. B. Managers use SWOT analysis to predict the future state of their companies. C. SWOT analysis tends to focus on a company's internal environment rather than on the external environment. D. Customers are generally not considered during the process of SWOT analysis, which focuses on the organization's own assets.

A

Which one of the following statements is correct with respect to employee dishonesty? A. Losses can be hidden from discovery and large losses are common. B. Most employers are eager to have dishonest employees prosecuted. C. Employee dishonesty insurance is generally unprofitable for insurers. D. Most mercantile establishments purchase employee dishonesty insurance.

A

Which one of the following statements is correct with respect to evaluating the efficiency of alternative risk control measures? A. Given a loss exposure and alternative risk control measures, the risk management professional can determine which is most efficient by using cash flow analysis. B. The efficiency of various risk control measures is usually determined based on both quantitative and qualitative standards. C. An advantage of using cash flow analysis to evaluate the efficiency of alternative risk control measures is that it considers nonfinancial goals and selection criteria. D. A disadvantage of using cash flow analysis to evaluate the efficiency of alternative risk control measures is that the basis of comparison varies for each value-maximizing decision.

A

Which one of the following statements is correct with respect to insurers' use of the Internet as a distribution channel? A. Customers will assume that insurance purchased over the Internet is less expensive. B. Customers who do not understand insurance will no longer need explanations or advice if they use the Internet. C. The ability to access competitor information is reduced for customers via use of the Internet. D. The amount of information available on the Internet has shifted customer focus toward service rather than price.

A

Which one of the following statements is correct with respect to line underwriters? A. Line underwriters can offer valuable technical assistance to an insured's risk manager and to the producer responsible for the account. B. Line underwriters formulate underwriting policy and develop underwriting guides. C. Line underwriters select and rate new business. They are not generally involved in the proposal or renewal process. D. Line underwriters focus on risk characteristics and need not be knowledgeable about policy forms and provisions.

A

Which one of the following statements is correct with respect to premium audits? A. Policyholders are far less likely to submit false or misleading information when they know it will be verified by a premium auditor. B. Premium audits are typically conducted by specially trained representatives of the state insurance department. C. Premium audits generally leave policyholders with the impression that the insurer is looking for ways to charge them additional premiums. D. Premium audits focus on accounting documents and cannot generate additional underwriting information about a policyholder

A

Which one of the following statements is correct with respect to replacement cost coverage under property policies? A. If the exact type of property destroyed is no longer available, settlement can be made based on property of like kind and quality. B. It is assumed to be the amount the insured originally paid for the property less depreciation. C. Insureds with replacement cost coverage on a building can usually elect to receive a cash settlement before the property is repaired. D. When determining replacement cost of a building, the claim representative can exclude overhead.

A

Which one of the following statements is correct with respect to state insurance regulators' involvement in the claim process? A. Enforcement by state insurance regulators is usually handled under the Unfair Claims Settlement Practices Act or a similar law. B. All states currently license adjusters, and standard procedures and regulations are in place for doing so. C. Market conduct investigations that are periodically performed by insurance regulators are limited to the review of claim practices. D. Consumer complaints to state insurance departments about claim service typically result in the loss of the adjuster's license.

A

Which one of the following statements is correct with respect to the consequences of incorrect or incomplete premium audits? A. They can cause an insurer to lose premium volume while retaining policyholders whose premiums are insufficient. B. Premium audit errors are rarely discovered, so policyholders are not informed that errors have been made. C. The only cost associated with premium audit errors is the lost premium revenue on incorrectly classified accounts. D. Even if a premium audit error is discovered, regulations prevent an insurer from redoing the audit to correct the error.

A

Which one of the following statements is correct with respect to the premium auditing process? A. Before they look at the books, premium auditors observe the operation, compare it to similar businesses, and assess management. B. It is a simple matter to determine who the policyholder's employees are for coverages in which premiums are payroll-based. C. Vacation pay, tool allowances, bonuses, commissions, and sick pay cannot be included in payroll for premium calculation purposes. D. Premium auditors should be involved in setting up a policyholder's bookkeeping records or procedures.

A

Which one of the following statements is correct with respect to transfer's ability to meet risk financing goals? A. The primary benefit of transfer is certainty regarding the ability to pay losses. B. Transfer is less effective than retention in managing cash flow variability. C. Transfer increases the level of liquidity that an organization requires. D. The primary benefit of transfer is that it allows an organization to manage its cost of risk.

A

Which one of the following statements is correct with respect to underwriting umbrella liability insurance? A. It requires careful analysis of the loss exposures covered by the underlying policies, plus those exposures covered only by the umbrella policy. B. Umbrella policy underwriters need not concern themselves with the specific coverage provided under the underlying policies or endorsements. C. If the insurer providing the underlying coverage is unable to defend a claim, the umbrella insurer is relieved of its duty to do so. D. Umbrella liability insurance policies are generally written with relatively low limits because they are excess of underlying coverage.

A

Which one of the following statements is correct with respect to underwriting workers compensation insurance? A. From an underwriting standpoint, housekeeping refers to cleanliness and operating efficiency. B. An insured's providing healthcare benefits is not related to its workers compensation exposure. C. On-premises hazards relating to housekeeping and maintenance are rare. D. All firms in the same industry generally have the same hazards and level of risk.

A

Which one of the following statements is correct? A. By exercising sound risk control, organizations fulfill occupational safety and health standards and comply with local, state, and federal laws. B. All states require insurers to provide a minimum level of risk control services to commercial policyholders. C. Policyholders generally consider an insurer's risk control recommendations to be a source of unnecessary expenses and a financial burden. D. While risk control services benefit insurers and policyholders, they have little or no impact on society as a whole.

A

Which one of the following statements is correct? A. Contractors must usually provide evidence of liability insurance before a construction contract is granted. B. Insurers generally do not provide incentives to organizations to implement risk control measures. C. Insurance policies typically cannot be used to provide evidence of financial resources. D. One disadvantage of insurance is that it promotes inefficient use of policyholders' funds.

A

Which one of the following statements is correct? A. From a regulator's perspective, if an insurer's ratio of written premium to policyholders' surplus exceeds 3 to 1, the insurer is selling more insurance than is prudent relative to the size of its net worth. B. State insurance regulation mandates that, for accounting purposes, premiums be recognized as reserve at the time a new policy is sold and expenses be recognized as they are earned over the policy's life. C. When an insurer's policyholders' surplus increases, that insurer's ability to grow its premium is diminished. D. State regulators prohibit reinsurers from providing primary insurers with payment for policy acquisition.

A

Which one of the following statements is correct? A. If an insurer cannot provide the insurance product at a reasonable premium, there will be no demand. B. Loss exposures involving only small losses are generally considered to be insurable. C. Generally, the characteristics of ideally insurable loss exposures are unrelated to the premium that must be charged. D. The expense of providing insurance decreases with the frequency of claims because of economies of scale.

A

Which one of the following statements is correct? A. It is preferable to insure to value with rates that reflect the loss exposure than to underinsure property at inflated rates. B. Having adequate limits of insurance on new business ensures ongoing insurance to value. C. Insisting on insurance to value can damage an insurer's competitive position in the market. D. Most property losses are total losses so insurance to value is needed to cover most losses.

A

Which one of the following statements is correct? A. Most property insurance policies provide coverage only for direct physical loss. B. Commercial property insurance policies typically cover nonphysical loss resulting from loss of market. C. Most property insurance policies include coverage for loss of use of insured property resulting from any cause. D. Property insurance policies typically exclude loss of use that results from civil authorities closing a business because of nearby hazardous conditions.

A

Which one of the following statements is correct? A. Producers encourage policyholders' risk control activities and coordinate the efforts of risk control personnel with the insured. B. The primary responsibility for delivering risk control services to an insurance customer rests with the producer. C. Some large agencies and brokerages maintain risk control departments, but they are not on par with those of insurers. D. Producers are generally better able to identify customers' risk control needs than are risk control representatives because producers are more familiar with their customers.

A

Which one of the following statements is correct? A. The claim adjusting process can be a source of new coverage ideas and product niche innovations. B. The marketing department relies on policy features rather than customer satisfaction with claim settlement to market insurance products. C. Producers typically do not require policyholder loss information in order to service their customers' accounts. D. The other services an insurer performs for customers often compensate for poor claims performance.

A

Which one of the following statements is correct? A. The values that attorneys and adjusters place on liability claims are derived from actual results of claims litigated to conclusion. B. For most liability claims, resolving the issue in court is relatively fast and inexpensive, and results are reasonably predictable. C. In liability claims, selection of the defense attorney and the defense strategy rests with the insured defendant. D. Generally, an insurer need only defend that part of the claimant's allegations that are covered by the liability policy.

A

Which one of the following statements is true concerning claim information users? A. Producers must have policyholder loss information to prepare renewal policies properly. B. Actuaries, by reviewing claim files, can detect material aspects of an insured's loss exposures since the policy was first underwritten. C. Marketing establishes reserves for IBNR losses and projects development of claims for which the reserves may change over the life of the claim. D. Actuaries evaluate losses that sometimes reveal an undetected loss exposure.

A

Which one of the following statements is true concerning negotiating and settling claims? A. When the value of a claim approaches or exceeds the insured's policy limit, settlement becomes a legal obligation. B. The insured, rather than the insurer, controls the defense and claim settlement, and therefore is expected to make the first demand. C. Negotiating claims is seen as a weakness to both adjusters and attorneys. D. The majority of liability claims that are settled use structured settlements.

A

Which one of the following statements is true regading Statistical Plans? A. Transaction-based plans better support the business need for data. B. Summary-based plans provide the most accurate data for actuarial-related purposes. C. Transaction-based plans collect loss data only when a claim is closed. D. Summary-based plans do not provide enough detail for regulatory reporting purposes.

A

Which one of the following statements is true regarding avoidance as a risk control technique? A. The most effective way of managing any loss exposure is to avoid the exposure completely. B. The aim of avoidance as a risk control technique is solely to reduce loss frequency. C. Avoidance is used as a method to isolate loss exposures from one another. D. Complete avoidance is the most common risk control technique.

A

Which one of the following statements is true regarding the different types of insurers? A. Stock insurance companies are the most prevalent type of proprietary insurer in the U.S. B. American Lloyds account for a significant proportion of insurance premiums in the U.S. C. Fair Access to Insurance Requirements plans are also known as reciprocal exchanges. D. Most of the large mutual insurers assess policyholders additional premiums if funds are needed.

A

Which one of the following statements is true regarding the effect of the type of insurance sold on the reinsurance needs of a primary insurer? A. The insurance products offered vary in loss stability which affects the primary insurer's ability to project loss experience. B. Because of the sheer volume of business, personal lines insurers need more reinsurance than do commercial lines insurers. C. A primary insurer that sells only a few types of insurance is more likely to have a stable loss ratio and less need for reinsurance. D. Underwriting risk is generally not a factor in the need for reinsurance because it is fairly stable among the various lines of insurance.

A

Which one of the following statements is true regarding the legal environment of bad faith in insurance claim transactions? A. Most bad-faith law is case law. B. Charges of bad faith are invariably proven. C. Bad-faith law must be enacted through federal courts rather than through state legislatures. D. Bad-faith litigation is decreasing and becoming less common.

A

Which one of the following statements is true with regard to property claims for commercial structures? A. A commercial structure is more likely than a personal residence to significantly depreciate due to factors other than wear and tear. B. The depreciation amount recorded in a policyholder's financial records for a structure can be relied upon as being accurate. C. One of a claim adjuster's primary duties when adjusting property claims for commercial structures is to engage a contractor to perform reconstruction. D. A claim adjuster is obligated to resolve disputes between mortgageholders and owners of commercial structures regarding whether to rebuild or not.

A

Which one of the following statements is true? A. An increase in supply will soften the market. B. Capacity is the total amount of risk that insurers are willing to assume. C. The demand for insurance has a much greater effect on the underwriting cycle than does the supply. D. The demand for insurance is similar to the demand for most other products in that it is very elastic.

A

Which one of the following statements is true? A. Insurers benefit from insurance to value because it promotes higher limits of property insurance. B. The insurable value of a building is the same as the building's book value. C. The coinsurance clause in a property policy encourages insurance to value through premium discounts. D. Adequate limits of insurance on new business ensure ongoing insurance to value.

A

Which one of the following statements is true? A. Intentionally set fires are arson, whether committed by the insured or not. B. Losses caused by faulty design are covered causes of loss in most property policies. C. If property has suffered a gradual loss, any further losses to that property are excluded. D. Additional costs to rebuild or demolish a structure due to local ordinances are generally covered under a property policy.

A

Which one of the following statements is true? A. It is important when combining distribution systems and channels for an insurer to provide consistent messages about its products and services. B. The exclusive agency system dominates the commercial insurance market. C. Personal insurance requires more hands-on service than commercial insurance in a distribution system. D. It is not important for an insurer to consider the complexity of the product being sold when making decisions regarding distribution systems and channels.

A

Which one of the following statements is true? A. It is typically more economical for an organization to retain rather than transfer loss exposures directly related to its core operations. B. Diversifying loss exposures tends to reduce the accuracy of loss estimates, and increases the uncertainty regarding future losses. C. An organization that undertakes extensive risk control measures is less likely to have the ability to fund retention of its loss exposures. D. The higher an organization's willingness to accept risk, the higher the likelihood that transfer will be used to cover its loss exposures.

A

Which one of the following statements is true? A. Surplus lines brokers can place coverage that is not available through standard market insurers. B. Managing general agents (MGAs) serve as employees of direct writer companies. C. Exclusive agents are usually free to represent as many or as few insurers as they want. D. Direct writer marketing systems use sales persons who are independent contractors.

A

Which one of the following types of premium audit errors has the most significant overall adverse effect? A. An error in classification B. A rate calculation error C. An underwriting error D. A late reporting error

A

Which one of the following would be a critical strength required for a personal lines insurer planning to expand geographically through Web-based distribution? A. Financial resources B. Producer force C. Coverage expertise D. Service capabilities

A

While developing goals for its book of business, an insurer's staff decides to increase its market share of workers compensation insurance in the construction industry. This type of underwriting activity is known as A. Reviewing and revising rating plans. B. Developing underwriting guides. C. Formulating underwriting policy. D. Providing assistance to policyholders.

A

With products liability, any explicit statement about the product that accompanies the sale is known as A. An express warranty. B. A breach of contract. C. An assumption of liability. D. A warranty.

A

A claim adjuster is handling a claim for a commercial manufacturing plant that was completely destroyed by fire. The building is insured for $2,500,000 on an actual cash value (ACV) basis. Which one of the following statements is true regarding the claim adjustment process for this claim? A. In addition to working with an architect to develop building specifications, the claim adjuster will need to engage a contractor to perform the reconstruction on the plant. B. The claim adjuster should have a solid accounting report that establishes motive before considering asserting an arson defense. C. If there is a mortgagee involved, the claim adjuster must be sure to make the claim settlement check payable only to the mortgagee. D. To determine ACV, the claim adjuster should use the amount shown for depreciation in the owner's financial records.

B

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

B

A pedestrian is injured as a result of tripping over a bag of cement being used by a contractor to repair a sidewalk. The commercial general liability loss exposure for the contractor in this example is known as A. Personal and advertising liability. B. Operations liability. C. Products liability. D. Contractual liability.

B

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

B

A primary insurer that plans to grow is likely to need additional reinsurance for all of the following reasons, EXCEPT: A. Growth usually causes a drain on policyholders' surplus. B. Growth could lead to geographic diversification of loss exposures. C. Variability of the loss ratio on new policies could cause instability of underwriting results. D. Growth could entail expanding into markets with greater coverage requirements.

B

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

B

All of the following are correct with respect to fair evaluation of a claim, EXCEPT: A. A fair approach to evaluating liability claims is to evaluate them as if no coverage limit existed. B. Claim representatives are prohibited from discussing the evaluation of a claim with anyone not directly connected with that claim. C. Legislation often specifies a time limit within which evaluations of coverage and damages must be completed. D. Information about settlements or trial results from similar cases can help claim representatives knowledgably evaluate a claim.

B

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? A. Worksite marketing B. Affinity marketing C. Sponsorship marketing D. Franchise marketing

B

An important aspect of acknowledging a claimant's liability claim, upon first contact, is A. To try to obtain information on the claimant's medical history. B. To try to obtain information on the nature and extent of the injury. C. To try to obtain information on the claimant's accident history. D. To try to obtain information on the claimant's sources of additional income.

B

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

B

An insurance company has the following year-end financial results: Written premiums: $ 100,000,000, Earned premiums: $ 95,000,000, Underwriting expenses: $ 40,000,000, Incurred losses and loss adjustment expenses: $ 76,000,000. Based on this information, which one of the following is the insurance company's loss ratio? A. 76 percent B. 80 percent C. 116 percent D. 122 percent

B

An insurance company must have adequate policyholders' surplus if it wishes to A. Avoid adverse selection. B. Increase its written premium volume. C. Produce profitable business. D. Generate premiums that exceed losses.

B

An insurer develops a new policy designed specifically for the construction industry. The insurer is anxious to market this product which will increase its writings and boost its profits. The policy form is not approved in time to meet the product's planned launch date. This is an example of which one of the following types of external constraints? A. Competition B. Regulation C. Marketing systems D. Public opinion

B

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

B

An underwriter is working with a loss control representative on a new opportunity. Given the complexity of the exposures, a physical survey is conducted by the loss control representative, and a formal report is prepared. The report reveals that the insured owns several unattended properties, and that they were unlocked when the loss control representative conducted the survey. This failure to properly secure an unattended building would be an indicator to the underwriter of which one of the following types of hazard? A. Moral B. Morale C. Legal D. Physical

B

Jose reads an advertisement in a national trade magazine for personal automobile insurance. The advertisement encourages the reader to call or to mail an attached postcard for a free quote. This distribution channel is known as the A. Call center channel. B. Direct response channel. C. Worksite marketing channel. D. Franchise marketing channel.

B

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

B

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

B

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

B

At year end, Omicron Insurance Company (OIC) posted these results: Premiums written: 10000000; Premiums earned: 9500000; Underwriting expenses incurred: 4000000; Loss and loss adjustment expenses incurred: 5700000. Based on this information, which one of the following represents OIC's trade basis combined ratio? A. 97% B. 100% C. 102% D. 110%

B

Clash coverage limits should be set by considering all of the following, EXCEPT: A. Potential for multiple primary policies to be involved in a single occurrence B. Catastrophe excess of loss reinsurance purchased by the primary insurer C. Potential for excess of policy limits losses D. Policy limits offered by the primary insurer

B

Commercial insured Barry realizes that due to an error in a past premium audit, he has been overcharged for insurance. His premium is based on past loss experience and exposure units. A factor used in calculating his future premium would be A. A credibility factor. B. An experience modification factor. C. A loss adjustment factor. D. A loss correlation factor.

B

Current expensing of losses as a planned retention funding measure would be most appropriate for funding which one of the following? A. Losses that represent a large proportion of the organization's cash flows B. An auto physical damage deductible C. Litigated liability claims D. Losses

B

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

B

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

B

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

B

Employers could be found liable for the acts of their employees under which one of the following types of liability? A. Absolute liability B. Vicarious liability C. Strict liability D. Statutory liability

B

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

B

Excess of policy limit losses are extra-contractual obligations of the insurer. However, a feature that distinguishes excess of policy limits losses from other types of extra-contractual obligations is that they A. Result from bad faith in claim handling. B. Could have been settled within the insured's policy limits. C. Are paid under a clash cover. D. Result from a suit by the insured.

B

Ezekial, a new claim representative with Tall Pines Insurance Company, has set a modest reserve on a bodily injury claim he is handling. He receives several additional medical bills and raises the reserve to issue payments. Later, he raises the reserve again when subsequent bills are submitted. His manager, Gregory, wants Ezekial to avoid this process called stairstepping. Which one of the following reserve methods would best prevent frequent stairstepping? A. Formula method B. Roundtable method C. Loss ratio method D. Average value method

B

For insurers to utilize pooling most effectively, the insured exposure units need to be A. Correlated. B. Independent. C. Adjacent. D. Different.

B

For underwriting to achieve its purpose, A. Underwriters must select applicants with legal hazards. B. Insurers must minimize the effects of adverse selection on the book of business. C. Underwriters must randomly select applicants to insure. D. Insurers must follow the steps in the underwriting process in strict sequence.

B

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

B

Georgia, a new underwriter for Barnley Insurance Company wants to advance within the underwriting department and increase her authority to handle homeowner and auto business. Which one of the following statements would indicate Georgia is progressing to have her underwriting authority increased? A. Georgia is able to underwrite a great volume of applications. B. Georgia's loss ratio in her area is below 55 percent. C. Georgia has been with the underwriting department for a year. D. Georgia's agents have high production.

B

Georgio, a claim representative for Grounded Insurance Company, is handling a windstorm loss for his insured, Matthew, who has an unendorsed HO-3 policy. He tells Matthew by phone to go ahead and repair all the roof damage on his home and his concrete building. When Georgio arrives at Matthew's home, he finds that Matthew has repaired the roof on the home and also the roof on his concrete building where his painting contracting business is located. There is no coverage for the concrete building because business is conducted there. Georgio likely cannot deny the roof claim for the concrete building because of A. Bad faith. B. Waiver. C. Barring of rights. D. Reservation of rights.

B

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

B

Hallbinger Shoe Store closed for two months due to smoke and water damage resulting from a fire in an adjacent structure. All of the following are important issues involved in adjusting Hallbinger's business income claim, EXCEPT: A. Deciding whether to settle the claim before or after operations have been resumed B. Determining whether the owner of the adjacent structure had property insurance on the structure C. Determining whether Hallbinger used due diligence in completing repairs D. Determining the time period necessary for the store to be restored to use.

B

In 2001, a property casualty insurer had a combined ratio of 111.8 after dividends, and a net investment ratio of 10.2. What is the insurer's operating ratio for 2001? A. 100.4 B. 101.6 C. 106.0 D. 122.0

B

In claim adjusting, liability structured claim settlements are A. Appropriate for small value claims. B. Useful when the claimant may have regular damages into the future. C. Effective to discourage claimants from hiring attorneys to represent them. D. Effective in promoting assertive claim handling.

B

In response to the financial and accounting scandals of the 1990s, congress passed a law that required publicly traded companies to meet and certify certain financial disclosure requirements that required insurers and commercial insureds to conduct more intense investigations of claims to ensure legal compliance. The act that was passed for this purpose was the A. McCarran Ferguson Act. B. Sarbanes-Oxley Act. C. Gramm-Leach-Bliley Act. D. The Fair Credit Reporting Act.

B

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

B

Incorrect or incomplete premium audits negatively affect the insurer in which one of the following ways? A. Insureds receive a competitive advantage due to undercharged premium. B. Insureds may lack confidence in the insurer and take their business to a different insurer. C. Overall policyholder surplus may suffer significant decreases. D. Collection of premiums due to misclassification is prohibited by law.

B

Insurance products are often designed around which one of the following types of loss exposures? A. Low-frequency, low-severity B. Low-frequency, high-severity C. High-frequency, low-severity D. High-frequency, high-severity

B

Insurer A has used the same premium auditor for 20 years, only to recently learn that the auditor misclassified the majority of the exposures resulting in massive premium errors. Of all the following impacts of premium auditing errors, which result has the largest financial impact on the insurer? A. Insureds are less cooperative in claim investigations. B. The loss of business and the cost to marketing and underwriting to replace the lost business is significant. C. Insureds may not be as willing to implement risk control measures. D. Insureds will lose confidence in the insurer.

B

Insurer A introduced a new insurance product into the market that results in attracting youthful drivers. As a result of teen drivers purchasing Insurer A's policies, the insurer outperformed its strategic goals. This is an example of A. Pure risk. B. Upside risk. C. Market fluctuation risk. D. Traditional risk.

B

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? A. The single widely-accepted definition of bad faith used by insurers is from the Black's Law Dictionary. B. Claim representatives must be familiar with the bad-faith laws in all jurisdictions in which they handle claims. C. Bad-faith allegations can only be brought by second-party or third-party claimants. D. Third-party bad-faith claims generally arise in property insurance.

B

It is important that premium audits be accurate for the sake of which one of the following? A. Claims reported B. Insurance rates C. Insurance company surplus D. Producer commissions

B

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

B

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

B

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? A. Consulting B. Customer service C. Premium collection D. Risk management review

B

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

B

Julio, a producer for Argot's Insurance Company (Argot) submits an application for a fifty year old residence to Mathilde, the underwriter. Julio wants to know why the homeowner rate is higher for his fifty year old residence. Mathilde explains that the homeowner rate for the fifty year old residence is not the same for a five year old residence. Which one of the following underwriting profitability functions of Argot is Mathilde's explanation supporting? A. Guarding against adverse selection B. Ensuring adequate policyholder's surplus C. Enforcing policy guidelines D. Protecting the homeowner rate

B

Many of Fredine Insurance Company's risk control activities help the insurer reach its profit goals by reducing the frequency and severity of covered losses that would detract from Fredine's profits. Which one of the following activities provides an additional revenue source that contributes directly to Fredine's profit goals? A. Fredine risk control representatives identify unsafe conditions that policyholders can correct. B. Fredine provides fee-based risk control services to self-insured companies. C. The underwriting information provided by Fredine's risk control representatives leads to better underwriting decisions. D. The quality of Fredine's risk control services helps retain policyholders.

B

Martin Insurance Company targets manufacturers of specialty products. Its insureds place a high value on producer expertise, responsiveness, and confidentiality. Martin wants to expand into similar markets. Which one of the following insurance marketing distribution systems is most appropriate for Martin Insurance Company? A. Independent agent network B. Direct writer C. Financial institution D. Surplus lines broker

B

Meeting countersignature law requirements for business in multiple states and obtaining access to an increased number of insurers are benefits of which one of the following insurance distribution systems? A. Managing general agent B. Independent agent network C. Surplus lines broker D. Financial institution

B

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

B

Olivia is a new premium auditor for Hallbinger Insurance Company. She recently completed a premium audit for Freja's Fudge Shop including the candy shop clerks. She fails to include the candy makers in the shop. Which one of the following is a result of the errors made by Olivia in the premium audit? A. Incorrect loss exposure B. Incorrect experience modification C. Inadequate loss costs D. Incorrect classification

B

On the following illustration of supply and demand, what is indicated by the dashed line? (Supply and demand graph. The supply line stays still and the demand line shifts left) A. Demand had risen. B. Demand has fallen. C. Supply has risen. D. Supply has fallen.

B

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

B

Paying close attention to hazards is important when underwriting. A moral hazard is a condition A. Of carelessness or indifference that increases loss frequency or severity. B. That increases the likelihood that a person will intentionally cause or exaggerate a loss. C. Of property, persons, or operations to be insured that increases loss frequency or severity. D. That increases the likelihood that a person will break the law.

B

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

B

Phil's Diner is a national chain of restaurants serving traditional diner-style food. Although the chain is profitable overall, its Northeast Region has been increasingly unprofitable over the past five years. Market research indicates that consumers in that region feel that diner food is unhealthy and have switched to eating at the many newer restaurants that have opened. The senior management team decides to try and find a buyer for its Northeast Region restaurants. Which one of the following corporate strategies is the company pursuing? A. Harvest strategy B. Divestiture strategy C. Turnaround strategy D. Liquidation strategy

B

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

B

Richley Insurance Company's CEO Delmond has called his staff together concerning increasing premiums in several states. Which one of the following suggestions could Javiera, Richley's premium audit manager offer as a solution? A. Premium audits could be discontinued. B. Premiums developed by audit positively impact state premiums. C. Deposit premium prevents collection problems. D. Premium audits property classified are an efficient management of cash.

B

Riko is an automobile claim representative with ABC Insurance Company. She has been assigned a claim submitted by John. John owns a 2008 Honda Civic, which is insured in his name for liability, collision, and comprehensive coverage on a personal auto policy (PAP). He is the only named insured on the policy. John lives at home with his parents and his younger sister, Carla. One Saturday morning, while John is still asleep, Carla decides to borrow his car to run a few errands. Unfortunately, she backs into the concrete base of a large sign in the mall parking lot. Damage to the vehicle is minor. Which one of the following best describes how Riko would most likely handle this loss? A. Deny coverage because Carla is not an insured on the policy. B. Cover the loss because the PAP includes family members as insureds. C. Deny coverage because Carla did not have John's permission to use the car. D. Cover the loss to maintain customer goodwill because the damage is minor.

B

Risk can be classified as diversifiable or nondiversifiable. Which one of the following statements is true with respect to this type of risk classification? A. Inflation, unemployment and natural disasters, such as hurricanes, are examples of diversifiable risk. B. Diversifiable risks tend not to be correlated so they can be managed through diversification or spread of risk. C. Systemic risks are generally diversifiable. D. Private insurance tends to concentrate on nondiversifiable risks; government insurance is often suitable for diversifiable risks.

B

Samuelson Insurance has developed special programs to market personal insurance to members of college alumni and professional associations. This is an example of which one of the following types of market segmentation? A. Behavioristic B. Demographic C. Geographic D. Psychographic

B

Southwest Airlines was able to take customers from the large national airlines by offering lower fares. Its strategy included using only one type of aircraft, not providing in-flight meals, and turning flights around quickly. This is an example of which type of business level strategy? A. Differentiation strategy B. Cost leadership strategy C. Single business strategy D. Focus strategy

B

Tania has been unemployed for six months, and her unpaid bills are mounting. She recently damaged the front fender of her vehicle after running off the road. When seeking repairs to the vehicle, she convinced the auto body shop to include damages from previous incidents in the estimate. This would allow her to collect extra money from her insurer. From an insurance and risk management perspective, Tania's behavior is indicative of a A. Legal hazard. B. Moral hazard. C. Morale hazard. D. Physical hazard.

B

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

B

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

B

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

B

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

B

The foundation of the premium collection process for auditable commercial business is the A. Feasibility study. B. Premium audit. C. Loss exposure classification. D. Loss assessment.

B

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

B

The law of bad faith developed because insurers were perceived to have abused their power over insureds. All of the following describe historical factors that led to the development of the law of bad faith, EXCEPT: A. If an insurer denied a claim that the insured thought should be covered, the insured sometimes tried to sue the insurer for alleged torts such as fraud, or intentional infliction of emotional distress. However, these cases were difficult to prove. B. In situations in which an insured's actions caused the insurer to pay more in claim settlement than it felt it would otherwise have paid, the insurer often sued. C. If an insured whose claim had been denied successfully sued the insurer for breach of contract, the law only allowed the insured to recover amounts up to the policy limits, regardless of additional costs that the insured may have incurred. D. Some insureds became personally liable for losses or damages that they thought their insurance would cover, and in these circumstances their only recourse was to sue the insurer.

B

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

B

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

B

The two major types of insurers by legal form of ownership are A. Admitted and nonadmitted. B. Proprietary and cooperative. C. Direct writer and exclusive writer. D. Domestic and foreign.

B

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

B

Three risk control techniques can be used effectively to control liability losses. Which one of the following is included among those three techniques? A. Separation B. Loss reduction C. Duplication D. Diversification

B

To understand risk, one needs to know the probability of an outcome or event occurring. Which one of the following statements is correct with respect to probability? A. It is typically expressed verbally rather than numerically. B. It can be used to decide which activities to undertake. C. It verifies that risk is present, but does not quantify it. D. It identifies what can be lost when a negative outcome occurs.

B

Two steps of the risk management process, when combined, constitute the process of assessing loss exposures. For this reason, they are probably the two most important steps in the process. These two steps are identifying loss exposures and A. Selecting the appropriate risk management techniques. B. Analyzing loss exposures. C. Examining feasibility of risk management techniques. D. Implementing selected risk management techniques.

B

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

B

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

B

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

B

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

B

Which one of the following best defines the term "direct writing reinsurer"? A. A reinsurer that writes narrowly defined classes of business as directed by state insurance regulators B. A reinsurer whose employees deal directly with primary insurers C. A reinsurer that writes business under the direction of a reinsurance intermediary D. A reinsurer that sells reinsurance coverage directly to the insured

B

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

B

Which one of the following correctly describes a reason for government involvement in property-casualty insurance? A. Selling insurance provides the government with a non-tax source of revenues and profits. B. Government programs can meet legitimate public demands unmet by private insurers. C. Competition from government plans keeps private insurer's premiums competitive. D. Preventing high-risk individuals or activities from being insured is in the public interest.

B

Which one of the following data elements captures policy limits in an ISO homeowners statistical plan? A. Policy form B. Exposure C. Deductible D. Public protection

B

Which one of the following financial consequences of loss can be established with a high degree of certainty fairly soon after the loss occurs? A. The value of a pollution loss B. The value of a building that has been damaged by fire C. The value of business lost while the building damaged by fire is being restored D. The value of liability claims related to a defective product

B

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

B

Which one of the following is a condition that increases the likelihood that a person will intentionally cause or exaggerate a loss? A. Physical hazard B. Moral hazard C. Morale hazard D. Legal hazard

B

Which one of the following is a constraint to the development of underwriting policy? A. Underwriting audits B. Financial capacity C. Market research D. Underwriting guides

B

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

B

Which one of the following is a risk control activity that can help insurers reach their profit goals? A. Eliminating premium audits B. Providing an additional source of revenue C. Confirming rating values D. Improving staff credibiilty

B

Which one of the following is an element of a loss exposure? A. The verification of risk B. A cause of loss C. The probability of a loss D. The occurrence of a loss

B

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

B

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

B

Which one of the following is correct with respect to a business continuity plan? A. It details all of the risk control techniques that an organization has implemented in order to meet its risk management goals. B. It is designed to be used during a crisis, so it should be clear and able to be quickly read and understood. C. It is developed after the occurrence of an accidental loss and outlines how the organization will respond to similar future losses. D. It is typically a closely-guarded document, available only to an organization's senior management.

B

Which one of the following is determined by a company's underwriting policy? A. The underwriting authority the insurer grants its producers B. Composition of the insurer's book of business C. The market pursued by the insurer D. The rating organization to which the insurer will belong

B

Which one of the following is not compulsary unless contractually required by a client or customer? A. Solvency II B. ISO 31000:2009 C. Sarbanes-Oxley Act of 2002 D. Basel II

B

Which one of the following is the best example of an insurer's risk control activities generating additional revenue for the insurer? A. A risk control representative works with a policyholder to identify safety improvements. B. An insurer provides industrial hygiene services to a self-insured firm for a fee. C. An insurer helps a policyholder prevent occupational injuries. D. A risk control representative provides an underwriter with an inspection report.

B

Which one of the following is true about insurable interest in properrty insurance? A. An insured's recovery is limited to the amount of its insurable interest at the time the insurance is purchased. B. The most common interest in property comes from outright ownership. C. No more than one entity may have an insurable interest in a given property at a given point in time. D. Insurable interest is the primary policy provision that determines the amount paid.

B

Which one of the following is true regarding sidecar arrangements as an alternative to traditional and non-traditional reinsurance? A. Sidecars are a means through which a primary insurer can exchange a portion of its insurance risk for another insurer's insurance risk. B. Under these arrangements, the primary insurer charges a ceding commission and may receive a profit commission if the book of business is profitable. C. Sidecars have a strike price at which the primary insurer will be able to receive cash from its investors to enable it to pay losses from a catastrophe. D. Under a sidecar arrangement, investors receive their return for the risk assumed through periodic interest payments on the principal amount assumed.

B

Which one of the following items' property value would be most dramatically and suddenly affected by depreciation? A. Furniture B. Computer system C. Refrigerator D. Heating system

B

Which one of the following often leads to insurer insolvency, withdrawal from certain geographic markets, and reinsurance shortages? A. Regulatory controls B. Unanticipated catastrophic losses C. Economic inflation D. Underwriting cycle shifts

B

Which one of the following planned retention measures is appropriate for funding losses with a low expected value, but becomes less advisable as the expected value of losses gets larger? A. Using a funded reserve B. Current expensing of losses C. Using an unfunded reserve D. Borrowing funds

B

Which one of the following statement is correct with respect to the Five Forces Model? A. The advent of new distribution channels, such as the Internet, creates a barrier to entry for potential entrants to an industry. B. Companies can raise barriers to entry by offering unique or customized products or services. C. The threat of substitute products or services refers to substitutes offered by a company's direct competitors. D. Buyers in the insurance industry generally have very limited bargaining power, particularly in personal lines.

B

Which one of the following statements about good faith negotiations is correct? A. Settlement negotiations should begin before the claim is evaluated. B. Claim representatives can use arbitration clauses to resolve disputes over the settlement amount. C. Claim representatives are expected to make unrealistic offers when confronted with outrageous demands. D. Claim representatives should always wait for a demand before presenting an offer to settle.

B

Which one of the following statements about premium auditing is true? A. Premium auditors exclude from the audit report any payroll that has been improperly classified. B. Premium auditors determine whether a given policy uses the correct rating classification(s). C. Premium audits are conducted at the beginning of each policy period. D. Premium audits determine the estimated premium an insured must pay.

B

Which one of the following statements is correct regarding considerations involved in the selection of insurance marketing systems and distribution channels? A. The direct writer system dominates the medium to large commercial insurance business. B. The independent agency and brokerage system generally is the most flexible. C. Personal insurance customers require the most direct involvement from the producer. D. Small-business customers have not shown an interest in exploring various distribution channels.

B

Which one of the following statements is correct regarding government insurance programs? A. Government insurers cannot function as primary insurers for duties such as collecting premiums, providing coverage, or paying claims. B. Government programs can operate as reinsurers, reinsuring 100 percent of the risk or that part in excess of the private insurer's retention. C. Government partnerships with private insurers usually develop in especially desirable lines of business. D. Government insurance programs cannot operate in direct competition with private insurers.

B

Which one of the following statements is correct regarding non-financial measures? A. Non-financial measures evaluate underwriters on their results rather than on their actions. B. During an underwriting audit, the percentage of desirable, average, and below-average risks in a portfolio is evaluated, relative to the goals established. C. Insurers typically do not have standards related to the mix of products that underwriters write. D. A high hit ratio might indicate that underwriting selection criteria is too strict.

B

Which one of the following statements is correct regarding personnel loss exposures? A. Retirement insurance is generally available to compensate organizations for the resulting loss when key employees retire. B. Because retirement is usually planned, most resulting personnel losses can be handled with proper planning. C. Generally a personnel loss resulting from a key employee's retirement is fortuitous from the organization's perspective. D. The personnel loss associated with retirement is the value of any pension or other benefits paid, which is easily measured.

B

Which one of the following statements is correct regarding property insurance provisions? A. Policy provisions about what property is covered, where it is covered, and when it is covered, are a common area of disagreement between insurers and insureds. B. Real and personal property might be valued differently, have different limits of insurance, and different coinsurance requirements under the same policy. C. Most property policies automatically extend coverage to losses occurring within 60 days following policy expiration. D. The failure of electrical components of a refrigerator caused by a lightning strike is an example of indirect loss.

B

Which one of the following statements is correct regarding risk control? A. Risk control representatives are responsible for compiling all the information required for a premium audit. B. Risk control personnel can make the difference between the applicant's being rejected or accepted by the underwriter. C. Risk control representatives compile detailed, data for the actuarial department to use in establishing rates. D. Risk control personnel are responsible for answering any complex questions that insureds have about premium audits.

B

Which one of the following statements is correct regarding sources of reinsurers? A. Primary insurers dealing with direct writing reinsurers generally use a single reinsurer for all of their needs. B. Reinsurance intermediaries can often help secure high coverage limits and catastrophe coverage. C. Reinsurance intermediaries generally have access only to the domestic reinsurance market. D. Reinsurance intermediaries generally represent professional reinsurers and receive a brokerage commission from the primary insurers.

B

Which one of the following statements is correct regarding the benefits provided by insurance? A. The reduction in losses paid by insurers due to risk control measures benefits individual insureds, but not society as a whole. B. Insurance helps reduce the financial burden to society by compensating accident victims. C. The primary role of insurance is to meet mandatory insurance requirements. D. Insurance reduces the financial consequences of loss exposures, but not the related uncertainty.

B

Which one of the following statements is correct regarding the claim function of an insurer? A. By overcompensating the policyholder or claimant the insurer keeps customers happy and can lower the cost of insurance. B. The claim function helps insurers achieve underwriting profit through control of expenses. C. Policyholders and claimants are likely to accept any settlement offer that is made quickly. D. The claim function has no impact on the insurer's reputation for providing the services promised under the insurance policy.

B

Which one of the following statements is correct regarding treaty reinsurance? A. The integrity and experience of the primary insurer's management are generally not factors that treaty reinsurers consider. B. If treaty reinsurance agreements permitted primary insurers to choose which loss exposures they ceded, the reinsurer would be exposed to adverse selection. C. If reinsurers are comfortable with a primary insurer's published underwriting guidelines, they are generally not concerned with the degree to which those guidelines represent the insurer's actual practices. D. Primary insurers usually make treaty reinsurance agreements so their underwriters have discretion in using that reinsurance.

B

Which one of the following statements is correct with regard to the use of facultative reinsurance? A. Facultative reinsurance is generally not an option for insuring loss exposures that are inconsistent with the primary insurer's typical portfolio. B. The treaty reinsurer is usually willing to allow the primary insurer to remove high-hazard loss exposures from the treaty by using facultative reinsurance. C. The administrative costs associated with placing facultative reinsurance are relatively low. D. Facultative reinsurance is generally not an option for insuring classes of loss exposures that are excluded under treaty reinsurance.

B

Which one of the following statements is correct with respect to an organization's risk financing goals? A. Managing the cost of risk means minimizing administrative, risk control, and risk financing expenses in an attempt to increase profits. B. The acceptable cash flow variability level for an organization depends on factors such as its size and financial strength. C. For most organizations, borrowing is the only available method of increasing liquidity to pay for retained losses. D. The level of cash flow variability that an organization is willing to accept is highest for organizations that prefer to avoid risk.

B

Which one of the following statements is correct with respect to characteristics of insurable loss exposures? A. If the insured has control over whether or when a loss will occur, the risk is attractive to insure. B. If losses are not fortuitous, the insurer cannot calculate an appropriate premium. C. If a loss is fortuitous, the chance of loss could increase as soon as a policy is issued. D. Private insurance is suitable for risks where the probability and timing of loss is known.

B

Which one of the following statements is correct with respect to developing safety management programs? A. Less experienced risk control representatives are often assigned to developing safety management programs. B. Developing a safety management program begins with a complete evaluation of the policyholder's operations. C. Safety management program development can often be done remotely without the need to visit the policyholder's premises. D. Examples of safety management programs include fire safety, driver safety, and machine operation safety.

B

Which one of the following statements is correct with respect to establishing actual cash value (ACV) of damaged property? A. Under the broad evidence rule, some courts have provided a formula for calculating ACV. B. Adjusters often rely on published guides to determine depreciation and individual insurers create such guides based on their experience. C. In some jurisdictions, courts have defined ACV as being equivalent to fair market value less depreciation. D. ACV does not apply to items such as collectibles, antiques, or art that are known to appreciate in value over time.

B

Which one of the following statements is correct with respect to finite risk insurance plans? A. A finite risk insurance plan is typically used for high-frequency, low severity loss exposures. B. The premium in a finite risk insurance plan is a very high percentage of the policy limits. C. A finite risk insurance plan typically provides lower limits than guaranteed cost insurance. D. A disadvantage is that a finite risk plan does not address the goal of complying with legal requirements.

B

Which one of the following statements is correct with respect to insurers' use of the Internet and insurance portals? A. Maintaining an Internet presence increases an insurer's underwriting and claim processing costs. B. The Internet provides lead-generation and cross-selling opportunities for all products. C. The use of insurance portals eliminates insurers' need to screen and fully underwrite the leads generated. D. The primary goal of the use of insurance portals is to reduce staffing costs.

B

Which one of the following statements is correct with respect to personal automobile insurance? A. Drivers are more likely to be involved in fatal auto accidents in urban areas. B. Underwriters evaluate a driver's prior accidents and prior moving violations. C. Auto theft and vandalism occur more frequently in remote areas with fewer witnesses. D. All states prohibit the use of gender or marital status as underwriting or rating factors.

B

Which one of the following statements is correct with respect to premium audits? A. Policyholders rarely record the accounting information or other data used to determine the premium base. B. A skilled premium auditor usually assembles the required information and determines the actual earned premium. C. Insurance regulators in all states require annual premium audits for all lines of commercial insurance. D. Premium auditors rarely explain the process to insureds because of the risk that records might be falsified for subsequent audits.

B

Which one of the following statements is correct with respect to retention's ability to meet risk financing goals? A. Retention exposes an organization to less variability in cash flows than transfer. B. Retention enables an organization to manage its cost of risk. C. Retention is the most effective way to meet the risk financing goal of paying losses. D. Retention generally reduces the level of liquidity needed.

B

Which one of the following statements is correct with respect to retrospective rating plans? A. The loss limit for a retrospective rating plan is the most the insured must pay in any one year for losses. B. An organization must have a substantial insurance premium to benefit from retrospective rating. C. Retrospective rating adjusts premiums for the current policy period based on actual losses from prior policy periods. D. The loss limit for a retrospective rating plan is the most the insurer will pay per occurrence for a loss.

B

Which one of the following statements is correct with respect to selecting a distribution channel? A. Customers are prepared to spend a reasonable amount of time and effort interacting with a distribution channel if that channel saves them money. B. The types of insurance products and services to be delivered by the insurer must fit the marketing channel selected. C. The majority of customers prefer to speak with a producer or service representative rather than access their account information online. D. The primary consideration is what approach will allow the insurer to operate efficiently.

B

Which one of the following statements is correct with respect to self-insurance? A. It is an informal retention plan in which an organization pays losses using cash flows or current liquid assets with no method of recording losses. B. It is often used to cover workers' compensation and other loss exposures that have claim payments that extend over time. C. Cost of risk with self-insurance is typically higher than with other risk financing measures. D. It is usually used for low-frequency loss exposures.

B

Which one of the following statements is correct with respect to the characteristics of the products liability loss exposure? A. Typically, premiums for products liability insurance are economically feasible, regardless of the product. B. If a product has been widely distributed, a loss could be catastrophic in terms of number of claims. C. Because products liability losses arise out of defective or inherently dangerous products, they are not considered to be fortuitous. D. Products liability losses are typically definite in cause and relatively easy to measure in monetary terms.

B

Which one of the following statements is correct with respect to the fire cause of loss in commercial property insurance? A. Pinpointing the time at which a fire began is usually difficult and loss timing is critical. B. Knowing the value of a building or its contents is critical in measuring the amount of a fire loss. C. An insurer can do little to ensure that fire loss exposures are independent and not catastrophic. D. Because fires are high-severity events, this cause of loss is generally expensive to insure.

B

Which one of the following statements is correct with respect to the premium auditing process? A. Premium auditors use rules, rather than judgment, when analyzing and verifying premium data to ensure audit validity. B. Once premium auditors have obtained the data necessary for calculating the premium, they must decide whether the data are reasonable. C. Advisory organizations specify the amount of evidence required to ascertain loss exposures and classifications with reasonable certainty. D. The written audit report summarizes the results of the audit, but does not document the process or the sources of the data used.

B

Which one of the following statements is correct? A. An insurer's investment operations enable it to earn investment income on the funds generated by its claims activities. B. Investment income enables an insurer to reduce the premium that it must charge in exchange for the risks it assumes. C. Because liability losses tend to be larger than property losses, liability policies do not support investment income. D. An insurer that assumes high underwriting risks must assume greater investment risks to generate higher investment yield.

B

Which one of the following statements is correct? A. Few insurers are able to provide the non-core, support functions, such as investment or actuarial, in-house. B. Investments, risk control, premium auditing, reinsurance, actuarial, and information systems support an insurer's core services. C. Captives, pools, risk retention groups, and self insurers do not require the non-core, support functions. D. The non-core, support functions of insurers comprise human resources, administration, finance, and engineering.

B

Which one of the following statements is correct? A. Insurers that require risk control inspections on submissions generally write less business than insurers that do not require the inspections. B. Risk control representatives are often the only insurer employees that the insured meets, so they serve an important public relations role. C. Risk control inspections and reports focus on the premises of the applicant rather than on the applicant's operations. D. Insurers cannot charge policyholders a fee in addition to the policy premium for supplemental risk control services.

B

Which one of the following statements is correct? A. International strategic alliances are typically limited to marketing activities. B. In a joint venture, companies share ownership, responsibilities, and management of a foreign venture. C. Joint ventures with governments or state-owned industries are extremely rare. D. Wholly owned subsidiaries are the least risky method of entering foreign markets because the company retains control of operations.

B

Which one of the following statements is correct? A. One of the primary goals for cooperative insurers is to earn a profit. B. An unprofitable proprietary insurer may be unable to raise the capital needed to operate. C. The goal of meeting customers' needs does not often conflict with the goal of earning a profit. D. The expense associated with complying with state insurance regulations is minimal.

B

Which one of the following statements is true concerning adjustment of property claims? A. Claims for extra expense are settled only prospectively. B. Proper settlement of business income claims requires detailed analysis of financial records. C. Most claim representatives with experience in residential losses can estimate commercial losses. D. Residential personal property is the only significant source of salvage for the insurance industry.

B

Which one of the following statements is true concerning an insured's duty after a property loss? A. The insured is required to notify the insurer of the loss in writing. B. The insured is required to protect the property from further loss by making emergency repairs. C. Even if requested, the insured is not required to provide a written proof of loss to the insurer. D. The insured may submit claims based on photographic or verbal evidence.

B

Which one of the following statements is true concerning the premium auditing process? A. A personal examination of the policyholder books and records is called a voluntary report. B. Auditor's jobs involve counting and classifying loss exposures. C. Auditors consider the definition of "employee" the same for workers compensation and commercial general liability policies. D. Auditors visit every prospective policyholder prior to the insurer accepting the account.

B

Which one of the following statements is true regarding risk management program goals? A. The goal of economy of operations is that the organization should incur only moderate costs in exchange for significant benefits. B. The goal of tolerable uncertainty is to allow managers to make and implement decisions without being unduly affected by uncertainty. C. The goal of earnings stability is that the organization should strive for the highest possible level of profit in the post-loss period. D. An organization with a post-loss goal requiring a minimum level of profit tends to spend less on risk financing than an organization that does not require minimum profit.

B

Which one of the following statements is true regarding risk management techniques? A. Data based on objective risk factors are usually the only criteria considered in determining appropriate risk management techniques. B. The risk management techniques selected by for-profit organizations should be both effective in meeting the organizations' goals and economical. C. In support of the goal of economy of operations, the risk management techniques selected by most for-profit organizations should be the least expensive ones. D. Nonfinancial considerations are usually disregarded in selecting risk management techniques because they cannot be factored into a cost/benefit analysis.

B

Which one of the following statements is true? A. Kendall's Tau indicates statistical dependence between two variables in a test for reasonableness. B. Consistency tests are easier but more limited than a distributional edit review in testing for reasonableness. C. Company to industry data comparisons for data reasonableness are valid within a book of business. D. Data review for reasonableness requires objective measures to be substituted for judgment.

B

Which one of the following tasks is the responsibility of a staff underwriter as opposed to a line underwriter? A. Assist producers and insureds in determining appropriate coverage B. Review and revise rating plans C. Verify policies are issued with appropriate forms and endorsements D. Prepare premium quotations

B

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

B

While identifying risks to strategy using the enterprise-wide risk management process, an organization might ask the question, "What if an event occurs that decreases the product yield for one of our major competitors"? Assuming the likelihood of the event is high, which one of the following techniques for treating risks to strategy would be the most appropriate to treat this risk? A. Avoid B. Optimize C. Mitigate D. Transfer

B

Why do many professional malpractice insurance policies require the policyholder's consent to settlement? A. Many malpractice policies have a high deductible that is the responsibility of the policyholder. B. The outcome of malpractice claims affects the policyholder's professional reputation. C. Many malpractice policies require the policyholder who rejects a proposed settlement to be responsible for any verdict in excess of the proposed settlement. D. Malpractice claims are litigated by the most sophisticated plaintiff and defense attorneys.

B

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

B

A hold harmless agreement is a A. Risk retention measure. B. Form of liability insurance. C. Noninsurance risk transfer measure. D. Type of risk pooling mechanism.

C

A property claim adjuster must answer a series of questions as part of the claim adjusting process. All of the following questions can be answered by consulting the policy and applying policy language to the given situation, EXCEPT: A. Who has an insurable interest in the damaged property? B. What causes of loss does the policy protect? C. What is the dollar amount of the loss? D. What property is insured under the policy?

C

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

C

A claim adjuster is handling a premises liability claim for an insured hotel. The claimant was injured after tripping in the hotel lobby. Which one of the following is an important defense available to the hotel owner that the adjuster should investigate? A. Improper use B. Failure to preserve the accident scene C. Comparative negligence D. Failure to maintain premises

C

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

C

Alexis and Amanda are sisters. They inherited a family cottage from their grandfather, which they own as joint tenants. The cottage is insured for $100,000 with ABC Insurance Company and there is no mortgage on the property. One weekend while the sisters are at the cottage, a fire starts accidentally in the middle of the night. While Alexis is able to escape, Amanda dies in the fire. The cottage is a total loss. Alexis reports the fire to ABC and the claim is assigned to Viktor. In taking an initial statement from Alexis, Viktor discovers that Amanda did not have a will. Which one of the following best describes how Viktor will approach this claim? A. Pay Alexis $50,000 for her share of the cottage. B. Wait until Amanda's estate is settled before making any payment. C. Pay Alexis $100,000 in settlement of the claim. D. Wait until Amanda's share of the cottage is transferred to Alexis before making payment.

C

All of the following are correct with respect to the elements of good-faith claim handling, EXCEPT: A. Consistent supervision, thorough training, and manageable caseloads help ensure that claim representatives are able to handle claims in good faith. B. If the insured has excess insurance, the claim representative should notify the excess insurer of the claim and provide the insured with copies of all communications. C. When resolving a coverage question, insurers should avoid the appearance of bad faith by dealing only with those lawyers hired to defend the insured. D. Claim representatives should use policy provisions, such as arbitration clauses, when applicable to resolve disputes over the settlement amount.

C

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

C

An agency bill process in which the producer is usually not required to pay the insurer until the premium is collected from the policyholder is known as A. The statement basis. B. The account current basis. C. The item basis. D. The direct bill basis.

C

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

C

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

C

An insurer's core functions are A. Actuarial, marketing, and risk control. B. Underwriting, investments, and actuarial. C. Marketing, underwriting, and claims. D. Claims, investments, and information systems.

C

An insurer's marketing department is trying to forecast which group of property-casualty insurance customers is most likely to purchase all lines of insurance from the same insurer. Which one of the following methods of market research would be most effective? A. Market segmentation B. Situational analysis C. Predictive analytics D. Market monitor system

C

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

C

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

C

Anna has a homeowners policy with RMI Insurance Company. Her full-length mink coat is covered under the policy on a stated amount (value) basis for its appraised value of $3,500. After retrieving her coat from the coat check at a restaurant one evening, Anna discovers that someone has slashed the lining in a number of places and has smeared what appears to be nail polish on the fur. The adjuster handling the claim at RMI determines that the coat is damaged beyond cleaning and repair. He also determines that since the coat was originally appraised, it has suffered significant moth damage and estimates its current value at $1,500. Assuming no exclusions apply to this claim, which one of the following describes how Anna's loss would be settled? A. The adjuster would pay the stated amount of $3,500, which is the stated value of the coat. B. The adjuster would pay the difference between the coat's appraised value and its value at the time of the loss, or $2,000. C. The adjuster would pay the actual cash value of the coat at the time of the loss, or $1,500. D. The adjuster would pay nothing because the coat had preexisting moth damage at the time of the loss.

C

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

C

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

C

Because insurers control how claims are resolved, courts reason that insurers should be responsible for the outcome of their claim handling if they have acted in bad faith. Therefore, courts hold insurers to a higher standard of conduct to A. Encourage insurers to be equitable in all insurance transactions. B. Encourage insurers to keep rates accurate, fair, and reasonable. C. Discourage insurers from abusing their position of power. D. Discourage insurers from deceiving the public in marketing and advertising practices.

C

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

C

Best Reinsurers assumes, under a treaty, all homeowners and personal auto business underwritten by Aurora Insurance Company. On occasion, Aurora will underwrite some homeowners policies with very high value homes. Aurora underwriters have been directed through their underwriting guidelines not to cede high value homes (as in the directive) to the treaty. Although the treaty does not expressly exclude this business, the directive was developed to protect the treaty from unusually high losses. If an application is submitted for a home that falls within the directive and Aurora does not wish to retain the entire risk, what is the best method of handling this submission? A. Purchase another treaty and write the policy B. Decline the business for reinsurance reasons C. Purchase facultative reinsurance and write the policy D. Cede the policy to the existing treaty if the risk is acceptable

C

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

C

Congress enacted which one of the following laws to protect the confidentiality and security of customers of financial institutions? A. McCarran Ferguson Act B. Sarbanes-Oxley Act C. Gramm-Leach-Bliley Act D. The Fair Credit Reporting Act

C

Consider the following information reported by an insurance company: Incurred losses $8 million, Incurred Underwriting Expenses $2 million, Incurred Loss Adjustment Expenses $4 million, Net Written Premiums $24 million, Earned Premiums $16 million. Which one of the following is the company's trade basis-combined ratio? A. .500 B. .750 C. .833 D. .875

C

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

C

Delmond Corporation wishes to purchase key person life insurance to provide a financial cushion against the loss of its chief executive officer (CEO). This exposure may fail to meet which one of the following characteristics of an ideally insurable risk? A. Definite in location B. Definite in time C. Measurable D. Pure risk

C

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

C

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

C

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

C

Etchley Insurance Company has seen an increase in total fire losses. In examining the data, the underwriting manager, Martina is concerned about the causes of the fires. She is also concerned about any underwriters who may have approved the business for issue. Which one of the following would provide Martina with the information she needs? A. The underwriting supervisors could provide a list of issued homeowner policies by underwriter. B. Information systems could provide a listing of unprotected classifications and who issued them. C. Information systems could provide a list of policies issued that are an exception to underwriting guidelines and who issued them. D. Martina could ask her underwriting supervisors if they noticed any trends with their new underwriters.

C

Expense ratios and loss ratios are examples of which controls? A. Operational B. Behavioral C. Financial D. Process

C

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

C

Fixtures are personal property that have become attached to and part of real property. Which one of the following is correct with respect to determining whether damaged "fixtures" are real or personal property? A. Policies generally include a complete list of the items considered to be part of the building and therefore real property. B. Any item installed in a leased building by a tenant is considered to be the personal property of the tenant. C. Custom items particularly adapted to the real property, such as custom draperies, are generally considered to be real property. D. Items permanently attached to the building are real property; items that can be physically dismantled and removed are personal property.

C

Following the 9/11 terrorist attacks, insurers became reluctant to provide property insurance on target properties until the federal Terrorism Risk Insurance Program (TRIP) was introduced. What social goal did this government insurance program achieve? A. Incentive to purchase insurance B. Pooling C. Prevent economic disruption D. Reduced risk to society

C

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

C

State insurance departments market conduct regulatory actions are a good indication of an insurer's success or failure in meeting which one of the following major goals? A. Earn a profit B. Meet customer needs C. Meet legal requirements D. Fulfill duty to society

C

Gulford Insurance Company (Gulford) is a direct writer of commercial insurance in Pennsylvania. Management is frustrated by the continued lack of success in the more rural western part of the state. They believe that there is a profitable market in this territory, but have trouble continuing to justify the cost of assigning agents to this territory. It is difficult to penetrate the market without a local presence. Which one of the following distribution systems should Gulford consider for this territory? A. Managing general agents B. Surplus lines brokers C. Independent agents D. National brokers

C

In good-faith claim handling, the insurer should give consideration to the insured's interests that is A. Less than that given to a third party claimant's interests. B. No less than the federally mandated threshold for the state in which the litigation occurs. C. At least equal to that given to the insurer's interests. D. Greater than that given to the insurer's interests.

C

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

C

Insurance Company (IC) is updating its marketing plan for the coming year. An important part of the plan is deciding on the distribution system and channel to use. The management team is proposing a combination of the distribution systems and channels. A consideration unique to combining distribution systems and channels is A. Which system will be the most cost effective to implement that the insurer has used successfully in the past B. How the insurer will market to all channels so that potential customers will know what is available to them C. If the insureds will be able to get the same information no matter which system they choose D. If the insurer will offer a discount in premium to customers who purchase insurance on the website

C

Insure-All Insurance Company (Insure-All) is adopting a new strategy for distributing products emphasizing direct and Internet sales over sales through the traditional agency network. It is also successfully experimenting with adjusting straightforward claims over the Internet. Underwriting and policy issuance are being automated through the use of expert systems, and all areas of operation are more efficient as a result. Which one of the following strategies is Insure-All pursuing? A. A harvest strategy B. A differentiation strategy C. A cost leadership strategy D. A vertical integration strategy

C

Insurer Y bills a commercial insured $10,000 in premium which is $5,000 higher than the previous year premium. The insured refused to pay the entire premium and questioned the producer who realized that the insured's exposure did not change. A re-audit reveals that mistakes were made and the resulting premium should be $11,000. In this situation the A. Insurer committed fraud. B. Insured should sue the insurer for breach of contract. C. Insured has most likely lost confidence in the insurer. D. Insurer has not dealt in good faith with the insured.

C

Jancy Meat Company, which provides beef products to supermarkets nationwide, faces the possibility of a contamination problem that could generate claims from many consumers of its products. Although Jancy is eager to purchase products liability insurance, insurers are reluctant to provide it because A. The exposure fails to involve a pure risk. B. The exposure fails to involve fortuitous losses. C. The number of claims resulting from a single loss could be catastrophic. D. The number of exposure units is small compared with other exposures.

C

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

C

Joe Smith borrowed his neighbor's car with permission. While driving his neighbor's car, Joe caused an accident and a passenger in the other car was injured. Which auto coverage would be first to respond in most cases. A. Joe's auto liability coverage B. Joes's uninsured motorists coverage C. Joe's neighbor's auto liability coverage D. The injured passenger's auto liability policy

C

Jones Insurer writes only commercial property policies for businesses in Florida. Jones has a large premium base and excellent overall experience. Jones would have all of the following, EXCEPT: A. Extra contractual obligations exposure B. Excess of policy limits exposure C. Clash exposure D. Catastrophe exposure

C

Keithly Insurance Company traditionally has written business in coastal states; however, there has been a high concentration of losses in these areas due to catastrophes. Keithly's CEO Nicholas has now developed a plan to write business in non coastal areas to offset the concentration of losses in coastal states. Which one of the following insurer goals is CEO Nicholas specifically trying to achieve with the development of his new plan? A. Fulfill their duty to society B. Earn a profit C. Diversify risk D. Avoid adverse selection

C

Larissa owns a store specializing in olives and olive oil. Larissa's warehouse suffered a covered fire loss. Although the labels on nearly all the bottles in Larissa's olive warehouse showed water damage, the olives themselves were unaffected. Because Larissa will not sell her olives in a damaged jar, she insists that the olives are a total loss and demands payment in full from her insurer. How would a professional salvage firm be best utilized to help with the challenges of adjusting this claim? A. A professional salvage firm could be used to dispose of the damaged olives in an environmentally safe way. B. A professional salvage firm could show Larissa how to repackage and sell the damaged merchandise, thereby reducing the amount of the insurance claim while at the same time keeping the insured satisfied. C. The insurer could settle with Larissa for the full value of the olives, and use a professional salvage firm to protect the olives from further damage and to advise about the residual value of the damaged goods. D. The insurer could trigger the policy's appraisal clause and select a professional salvage firm as its appraiser.

C

Lawyers who defend the insured should be selected based on their experience, knowledge of the law, and A. Attorney fees. B. Ability to interview and interrogate. C. Success in the courtroom. D. Caseload.

C

Legal liability in premises liability claims is determined by negligence. The standard of care owed by a property owner is qualified by the claimant's status on the premises. To which one of the following would a property owner owe the highest level of care? A. Social guest B. Trespasser C. Business customer D. Mail carrier

C

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

C

Misclassifying hazardous business into a lower-rated classification results in A. An increase in risk. B. Adverse selection on part of the insured. C. Loss of premium volume. D. A moral hazard.

C

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

C

On the following illustration of supply and demand, when the demand curve shifts to the left as indicated by the dashed line, what is the effect on price equilibrium? A. Price equilibrium is higher. B. Price equilibrium is unaffected. C. Price equilibrium is lower. D. Price equilibrium no longer exists.

C

One of the primary goals of the claim function is A. Informing producers of court rulings that affect the insurer's loss exposures or pricing. B. Reviewing post-loss evaluations with the underwriting department. C. Supporting the insurer's profit goal. D. Sharing accurate loss information with an insurer's actuarial department.

C

One step in the liability claims adjusting process is determining legal liability. As they investigate liability, claim representatives must also investigate possible defenses. Which one of the following defenses allows the claimant's recovery to be reduced in proportion to the claimant's share of fault? A. Contributory negligence B. Assumption of risk C. Comparative negligence D. Absence of sole negligence

C

Oscar's custom-built vehicle looks like a sausage sandwich on wheels. He plans to drive it to special events at schools around the country where it will serve as a mobile billboard to promote his product. Oscar is surprised to learn that insurers are reluctant to insure his vehicle because it fails to meet one of the ideal characteristics of an insurable risk. Which characteristic is Oscar's vehicle least likely to meet? A. Definite and measurable B. Independent and not catastrophic C. Large number of similar exposure units D. Pure risk

C

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

C

Premium auditor Dennis was inspecting an insured's work site which appeared to run smoothly. However in questioning the employees, Dennis learned that they were apathetic toward equipment maintenance. They entered false information into the maintenance logs and skipped scheduled facility cleaning sessions. This type of situation uncovered by Dennis is indicative of A. Fraud. B. A moral hazard. C. A morale hazard. D. A physical hazard.

C

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

C

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

C

Risk can be classified as subjective or objective. Which one of the following statements is correct with respect to these risk classifications? A. Subjective risk is risk associated with individuals; objective risk is risk associated with objects or things. B. Risk managers focus on objective risk and attempt to avoid allowing subjective risk to affect their decisions. C. Subjective risk can exist even where objective risk does not. D. Individuals' subjective perception of risk in a given set of circumstances is typically much higher than the objective risk.

C

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

C

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

C

Small Insurer (SI) has the following year-end results: Written premiums: 30000000; Earned premiums 25000000; Underwriting expenses: 12000000; Incurred losses and loss adjustment expenses: 20000000. On a trade basis, which one of the following is SI's combined ratio? A. 48 percent B. 80 percent C. 120 percent D. 128 percent

C

Staff underwriters share research of the market responsibilities with actuarial and marketing departments. Research includes an ongoing evaluation of which one of the following? A. Revision to coverage forms B. Average loss ratio for a book of business C. Optimal product mix in the book of business D. The hit ratios by underwriter

C

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

C

The Five Forces Model is a method used to analyze the competitive environment. In the insurance industry, reinsurers are in a position to constrain the types and amounts of insurance that insurers can profitably write. Which one of the following forces that drive competition does this demonstrate? A. Threat of substitute products or services B. Bargaining power of buyers C. Bargaining power of suppliers D. Rivalry among existing firms

C

The Wellborn agency represents only Coastal Insurance. Wellborn is an independent contractor but its contract with Coastal specifies that all insurance it sells will be placed with Coastal. Wellborn is operating under which one of the following marketing systems? A. The independent agency system B. The direct writer system C. The exclusive agency system D. The managing general agency system

C

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

C

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

C

The focus of line underwriter is A. Managing the risk selection process. B. Conducting education and training. C. Evaluating new submissions and renewal underwriting. D. Securing and maintaining treaty reinsurance.

C

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

C

The losses listed below arose from three policies and one occurrence: Policy 1, $300,000; Policy 2, $600,000; Policy 3, $800000. Given the above losses, what is the difference between the amount of loss a primary insurer would recover under a $750,000 xs $250,000 per policy excess of loss reinsurance treaty versus a $1,000,000 xs $1,000,000 per occurrence excess of loss reinsurance treaty? A. $0 B. $50,000 C. $250,000 D. $700,000

C

The most difficult time for an insurer to change distribution systems is when A. Expanding to a larger territory. B. Entering a new target market. C. Renewing an existing book of business. D. Launching a new insurance product.

C

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

C

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

C

The principal method of determining a prospect's insurance needs is through A. Reviewing the prospect's current insurance policies. B. Determining how much the prospect is willing to pay for insurance coverage. C. Completing a risk management review for the prospect. D. Asking the prospect what coverage they would like to purchase.

C

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

C

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

C

The risk control technique that spreads loss exposures over numerous projects, products, regions, or markets is A. Separation. B. Duplication. C. Diversification. D. Loss prevention.

C

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? A. Speed is not an important consideration for customers. B. Customers are always willing to pay more for good service. C. The channel should be consistent with the customer's expectations for service. D. Customers value a challenging experience when conducting business with insurers.

C

The settlement technique that is most appropriate for small claims and promotes excellent public relations is known as A. A structured settlement. B. An advance payment. C. A walk-away settlement. D. A bad-faith claim.

C

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

C

Though marketing plans are varied, they all serve the same fundamental purpose of A. Establishing the contractual relationship between producer and insurer to enable each to meet its goals. B. Developing compensation methods for producers. C. Providing the "roadmap" necessary to profitably and effectively acquaint sellers with potential buyers. D. Developing distribution channels for products and services.

C

Timely and correct premium audits can significantly benefit A. Employee relations. B. The insurer's assets. C. The insurer's collections. D. The insurer's loss ratio.

C

To achieve profitability, the underwriting function serves which one of the following additional purposes? A. Enforcing underwriting goals B. Adding to policyholder surplus C. Guarding against adverse selection D. Transferring the risks of individuals and businesses

C

Tobias, a successful producer with Barnley's Insurance Company (Barnley's) is struggling with an intricate quote on homeowner 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? A. Staff B. The actuary C. The line underwriter D. The claims representative

C

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

C

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

C

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

C

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

C

Underwriting guidelines serve which one of the following purposes? A. Provide for flexible and unstructured decisions B. Allow for the development of insights and experience C. Avoid duplication of effort D. Provide rates for individual risks

C

Victor, sales manager for Hallbinger's Insurance Company wants the company to grow in written premium. He wants his agents to write more auto and homeowner business. In order to do so, the company must have adequate capacity. Which one of the following impacts Victor's agents and the company the most concerning surplus and capacity? A. Claims must pay only covered losses and have low expenses. B. Research and development must create policies which are marketable. C. Underwriting practices must generate policy premiums that exceed losses and expenses. D. Sales must write profitable business not loss producing business.

C

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

C

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

C

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

C

When applicable law conflicts with the Actuarial Standard of Practice No. 23 (ASOP 23) which one of the following is true? A. Compliance with such applicable law shall be deemed a deviation from this standard. B. Compliance with such applicable law shall not be deemed a deviation from this standard. C. Compliance with such applicable law shall not be deemed a deviation from this standard, provided the actuary discloses that the actuarial assignment was performed in accordance with the requirements of such applicable law. D. Compliance with such applicable law shall be deemed a permissible deviation from this standard, provided the actuary discloses that the actuarial assignment had to be performed in accordance with such applicable law that was in conflict with ASOP 23.

C

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

C

Which marketing system would be most appropriate for an insurer that wants some control over its agents, but does not want the responsibility of the administrative functions associated with employees? A. Direct writer B. Independent agency network C. Exclusive agency D. Regional brokerage

C

Which method of valuing property is typically used for jewelry or furs, when a sales receipt or appraisal is available for the property in question? A. Agreed amount B. Fair market value C. Stated value D. Actual cash value

C

Which one of the following allegations in insurance claims handling remains one of the most troublesome and controversial issues for claim representatives and insurers? A. Use of improper valuation techniques allegations B. Unfair rating practices allegations C. Bad faith allegations D. Contract or policy manipulation allegations

C

Which one of the following approaches to global expansion is considered the simplest and carries the lowest degree of risk? A. Wholly owned subsidiary B. Joint venture C. Strategic alliance D. Merger

C

Which one of the following best describers the purpose of the General Insurance Research Organization (GIRO) Data Quality Working Party report in 2006? A. To identify areas in which data quality was lacking B. To compare the quality of data in the insurance industry against other industries C. To examine the need for devoting more resources to data quality D. To identify data quality best practices for the insurance industry

C

Which one of the following is used where property is highly susceptible to water damage from damaged sprinklers or piping and consists of a sprinkler system with closed valves until smoke or heat detectors open them in response to a fire? A. Wet pipe sprinkler system B. Dry pipe sprinkler system C. Pre-action sprinkler system D. Deluge sprinkler system

C

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

C

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

C

Which one of the following best describes the type of data included in loss transaction records submitted by insurers to transaction-based Statistical Plans? A. Full loss payments B. Full or partial loss payments C. Loss payments (full or partial) and loss reserve transactions D. Final loss payments and outstanding loss reserve increases

C

Which one of the following best describes the typical questions an actuary may address regarding the selection of data? A. What data should be disregarded in setting rates going backward? B. What rates should be used in selecting data going forward? C. What data should be used in setting rates going forward? D. How are the rates assembled going backward?

C

Which one of the following concerning claim status reports is true? A. Claim status reports are not vital to an insurer because the reports are usually read only by insurance department employees. B. Claim status reports are not vital to an insurer because the reports are used only as a method of illustrating work that needs to be done by the claims adjuster. C. Claim status reports are vital to an insurer because the reports advise the insurer how the claim is progressing on periodic basis. D. Claim status reports are vital to an insurer because the reports provide work for the claim representatives, rounding out their written and verbal skills.

C

Which one of the following correctly describes a typical element of an insurance product marketing plan? A. Production planning determines the procedures involved in actually producing the proposed new product. B. Situational analysis focuses on the company's internal environment and how it will affect the proposed new product. C. Marketing goals outline the proposed target market including detailed sales projections and how success will be measured. D. The product proposal and sales goals focus on detailed sales projections and estimated annual profits from the new product.

C

Which one of the following departments provides information to the underwriting department to assist in selecting and rating risks? A. Marketing B. Actuarial C. Risk control D. Claims

C

Which one of the following describes how an effective risk management program should support an organization's pre-loss operational goals? A. It should ensure that risk management costs are kept to a minimum. B. It should eliminate uncertainty by identifying and managing loss exposures. C. It should help ensure that the organization's legal obligations are satisfied. D. It should ensure that no conflicts exist among the pre-loss goals.

C

Which one of the following has the benefit or providing a low-risk approach to quickly entering a new foreign market? A. International licensing B. Merger C. Strategic alliances D. Wholly owned subsidiaries

C

Which one of the following is a common alternative dispute resolution (ADR) technique. A. Motion for summary judgment B. Pleadings C. Arbitration D. Interrogatories

C

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

C

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

C

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

C

Which one of the following is a procedure that claim representatives must follow to settle a claim? A. Avoiding waiver and estoppel B. Conduct an examination of the insured under oath. C. Documenting the cause and amount of the loss D. Engaging a public adjuster

C

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

C

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

C

Which one of the following is most likely to conflict with the post-loss goal of continuity of operations? A. Social responsibility B. Tolerable uncertainty C. Economy of operations D. Survival

C

Which one of the following is true regarding organizational post-loss goals? A. The most basic post-loss goal is survival, which means returning the organization to the condition that existed before the loss. B. Social responsibility is a post-loss goal that is unique to not-for-profit and public entities. C. With a post-loss goal of profitability, senior management may establish a minimum amount of profit that no loss can be allowed to reduce. D. With a post lost goal of earnings stability, the risk management professional will seek to raise retention levels to minimize the amount spent on risk transfer mechanisms.

C

Which one of the following statements is correct with regard to analyzing the global environment? A. The factors to consider when evaluating the global environment are consistent among countries. B. Emerging global markets present tremendous opportunities with very little risk. C. Political considerations are critical when considering investment in foreign operations. D. Stable foreign governments and economies can generally be relied upon to remain stable.

C

Which one of the following statements is correct with regard to risk and ideally insurable characteristics of loss exposures? A. An ideally insurable loss exposure should be associated with speculative risk. B. One purpose of insurance is to enable the insured to profit from a loss. C. Indemnification is the process of restoring an insured to a pre-loss financial condition. D. If a loss exposure includes the possibility of gain, it is a more desirable risk to insure.

C

Which one of the following statements is correct with respect to business income coverage? A. A covered loss can occur even without direct damage to property at the insured premises. B. PML is based on projected earnings and estimated rebuilding costs. C. A seasonal business could suffer a severe loss from a relatively short shutdown. D. The BOP provides business income coverage subject to a relatively high dollar limit.

C

Which one of the following statements is correct with respect to claimants' representation by attorneys? A. Attorney representation generally results in higher insurance settlements for claimants. B. When claimants hire attorneys, the insurer must pay the claimants' attorney fees in addition to the settlement amount. C. For some types of claims and in certain areas of the U.S., claimants are more likely to hire attorneys. D. Attorney representation of claimants generally guarantees a faster claim settlement.

C

Which one of the following statements is correct with respect to insurance distribution system? A. Insurers specializing in large commercial accounts should select a direct response distribution system. B. Multiple distribution systems cannot be used simultaneously because they do not generally complement each other. C. The expertise of current staff and producers must be sufficient to manage the selected system. D. All insurance distribution systems are equally effective in accomplishing both sales and service activities.

C

Which one of the following statements is correct with respect to liability insurance policies? A. In liability insurance policies, the terms "bodily injury" and "personal injury" hold the same meaning. B. Lawsuits alleging financial harm due to breach of contract are clearly covered under liability insurance policies. C. Claims for interference with use of property seeking only injunctive relief may be covered under liability insurance policies because loss of use is considered to be "property damage." D. In jurisdictions that allow tort claims based on emotional injury only, the emotional injury generally does not constitute bodily injury for coverage purposes under liability insurance policies.

C

Which one of the following statements is correct with respect to marketing plans? A. Their purpose is to analyze customer spending habits and determine how much consumers might be willing to pay for a product. B. They focus primarily on how a product will be advertised and delivered to potential customers. C. They identify target customers, and the resources and strategies to be used to create, price, promote, and sell the product. D. Their principal use is with new products; they are not effective for marketing existing products.

C

Which one of the following statements is correct with respect to personal and advertising injury coverage? A. The advertising injury coverage provided under the ISO CGL coverage form is intended for advertising, telecasting, and broadcasting firms. B. The ISO CGL coverage form must be endorsed to provide personal and advertising injury coverage. C. Personal injury loss exposures include such things as legal liability arising out of libel, slander, and copyright infringement. D. Underwriters usually evaluate this loss exposure closely for all risks.

C

Which one of the following statements is correct with respect to personnel losses arising from the death cause of loss? A. The existence of life insurance means that death involves speculative risk. B. Because everyone will ultimately die, death is not considered to be fortuitous. C. Unless a disaster occurs, death losses are typically independent and not catastrophic. D. The economic loss due to the death of a key employee is generally quite easily measured.

C

Which one of the following statements is correct with respect to risk control measures for net income loss exposures? A. Measures that control property, liability, or personnel loss exposures are ineffective in controlling net income loss exposures. B. Risk control measures focused on reducing the immediate effect of losses on net income will satisfy risk control needs for long-term impact. C. Two risk control measures that are directly aimed at reducing the severity of net income losses are separation and duplication. D. Diversification is not a viable risk control measure for controlling net income losses.

C

Which one of the following statements is correct with respect to the expected cost of losses or gains? A. The expected cost of gains or losses includes only the direct costs associated with a particular risk. B. Calculating the expected cost of losses or gains for pure risks is more complex than for speculative risks. C. Industrial accidents can illustrate the various costs that need to be accounted for in determining cost of losses. D. The expected cost of losses is equal to the uninsured portion of any bodily injury or property damage.

C

Which one of the following statements is correct with respect to umbrella and excess liability insurance? A. Umbrella liability insurance is designed to cover an aggregation of smaller, high-frequency losses. B. While umbrella policies are typically layered, a single excess policy will provide all the increased limits an insured requires. C. The self-insured retention for a commercial umbrella liability policy is usually $10,000. D. Excess liability insurance policies typically offer much broader coverage than do the underlying policies.

C

Which one of the following statements is correct with respect to umbrella liability insurance? A. Umbrella liability polices provide coverage for gaps in underlying policies, but will not provide coverage when the aggregate limits of the underlying policies have been exhausted. B. Policy language and underwriting rules are standardized among umbrella liability insurers. C. If an insured fails to maintain underlying insurance with agreed limits, the umbrella policy will respond as though the required underlying coverage is in place. D. Most umbrella liability policies do not contain a deductible or self-insured retention.

C

Which one of the following statements is correct with respect to workers compensation underwriting? A. Employee morale is generally not a factor considered when underwriting workers compensation insurance. B. The standard workers compensation policy for a contractor specifically excludes coverage for employees of any uninsured subcontractors. C. The off-premises hazard has three elements: the duration of travel, the mode of transportation, and the hazards at remote job sites. D. Seasonal employees tend to be better trained and more attentive to work safety than full-time employees.

C

Which one of the following statements is correct? A. Safety training programs have been found generally to be ineffective in developing positive safety attitudes among workers. B. Insurers rarely provide information on the interpretation of safety standards, or particular safety management products or suppliers. C. Many insurers provide periodic testing and maintenance of policyholders' fire detection and protection systems. D. Insurers generally decline to discuss underwriting acceptability or rating of a proposed building prior to its being constructed.

C

Which one of the following statements is true concerning personal property? A. Personal property is considered part of the building and is easy to describe and identify. B. The owner's intent is not a factor in distinguishing real and personal property. C. Fixtures are personal property that have become attached to and part of real property. D. Personal property is land and everything attached to it; all else is real property.

C

Which one of the following statements is true concerning products liability claims? A. Retailers are not responsible to the claimant if the manufacturer cannot be identified. B. Defending products liability claims is similar for manufacturers than wholesalers and retailers. C. Determining liability in products claims often involves redesigning the product after an accident often involving expert opinion. D. Warnings that accompany the product, if not read or remembered by the claimant, can still be alleged as the cause of the claimant's accident.

C

Which one of the following statements is true concerning the use of alternative distribution channels to sell insurance? A. Most distribution channels do not allow insurers to contact customers directly. B. The introduction of new distribution channels has resulted in the elimination of traditional marketing systems. C. The increasing use of multiple distribution channels has been driven by technology and customer preferences. D. Most distribution channels are not yet available for customer service.

C

Which one of the following statements is true regarding amount subject and probable maximum loss (PML) in evaluating property loss exposures? A. The amount subject is determined through a precise calculation of the boundaries of a fire division. B. The PML is the underwriter's estimate of the largest loss likely to occur with all fire protection services working. C. Underwriters often use the expression "within four walls" to explain the concept of amount subject. D. Insurer underwriting guidelines are fairly consistent on how to calculate PML for a location.

C

Which one of the following statements is true regarding the concept of contract certainty? A. Contract certainty came into play primarily because insureds were often uncertain as to what their premiums would be. B. Contract certainty is applicable to the issuance of primary insurance contracts but not to reinsurance contracts as of now. C. Part of the NAIC's rules require that reinsurance contracts be finalized within nine months of the policy commencement. D. Finalization of reinsurance contracts has not been a problem because of the equal bargaining power between the two parties.

C

Which one of the following statements is true regarding the effects of risk management on individuals, organizations, and society in general? A. Organizations tend to exhibit a greater degree of risk aversion than do individuals. B. Risk management tends to increase the deterrence effect of risk in organizations. C. Risk management makes those who own or run an organization more willing to undertake risky activities. D. The benefits that risk management efforts provide to individuals and organizations are not felt by society in general.

C

Which one of the following statements is true regarding traditional marketing systems for insurance? A. The three traditional marketing systems are the independent agency system, the captive agency system, and the exclusive agency system. B. An insurer operating through a managing general agent can expect higher fixed costs. C. A principal characteristic that distinguishes one traditional marketing system from another is the ownership of policy expirations. D. A single producer cannot operate as both an agent and a broker in a given state.

C

Which one of the following statements is true with regard to excess of loss reinsurance? A. Per policy excess of loss applies primarily to property insurance, and per risk excess of loss applies primarily to liability insurance. B. Per policy excess of loss applies to both property and liability insurance. C. Per policy excess of loss applies primarily to liability insurance, and per risk excess of loss applies primarily to property insurance. D. Per risk excess of loss always applies to both property and liability insurance.

C

Which one of the following statements is true with regard to the various forms of ownership of property-casualty insurers? A. Stock insurance companies and mutual insurance companies are owned by the policyholders. B. The main reason that cooperative insurers are formed is to earn a profit for their owners. C. Lloyd's and insurance exchanges are each examples of an insurance marketplace. D. Most pools that are required by law are underwritten by state governments.

C

Which one of the following statements is true? A. In insurance, supply equals capacity. B. In insurance, risk is affected by capacity. C. In insurance, supply may be less than capacity. D. In insurance, supply and capacity equals risk.

C

Which one of the following statements regarding monitoring the results of a risk management program is true? A. A results standard focuses on the quality and quantity of the risk management activities undertaken by the organization. B. Risk management professionals generally prefer performance standards that are solely dependent on the organization's loss record. C. Activities standards are necessary to obtain a complete picture of the success or failure of a risk management program. D. When performance substantially exceeds the standard, the risk management professional knows that the standard has been appropriately set.

C

Which one of the following types of loss exposures meets all of the characteristics of ideally insurable personal loss exposures? A. Property windstorm B. Net income C. Automobile liability D. Health

C

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

D

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. A direct writer B. An independent agent C. A managing general agent D. A surplus lines broker

D

A crucial responsibility of the premium auditing function is to A. Match classifications with the rates. B. Provide values of inventories. C. Communicate relevant information to insurer functions. D. Classify insured exposures correctly.

D

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

D

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

D

A prompt and accurate premium audit can benefit the insurer's financial position in which one of the following ways? A. Accurate classification of losses produces little impact on insurance rates. B. Premium audits reduce the balance sheet totals. C. Premium developed by audit is earned overtime and has little effect on income. D. Timely premium audits directly effect the insurer's cash flow management.

D

Aaron is a claim adjuster for JSP Insurance Company. He has been assigned a business interruption claim submitted by Ione's Quilt Shop. A major fire at the quilt shop caused it to temporarily close. During the investigation, Aaron learns that the shop owner plans to rebuild the shop in a new configuration, very different from the original design. Given this information, which one of the following is the most suitable loss settlement approach? A. A stated value settlement B. An actual cash value settlement C. An extra expense settlement D. A prospective settlement

D

All of the following are staff underwriting activities, EXCEPT: A. Researching the market B. Formulating underwriting policy C. Conducting underwriting audits D. Providing service to policyholders and producers

D

All of the following explains when the use of independent adjusters might be advantageous, EXCEPT: A. Insurers may use independent adjusters for specific types of losses, for example aircraft accidents, in which specialized expertise is required to settle the claim. B. In the case of a catastrophic loss such as a hurricane, an insurer may not have sufficient staff to manage the claim volume and may temporarily depend upon independent adjusters to handle the excess. C. In some areas it is not economically feasible to set up remote claim offices and in these areas insurers may depend on independent adjusters to handle their insureds' losses. D. The insured may retain an independent adjuster after becoming dissatisfied with the pace of negotiations with the insurer.

D

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

D

An established regional commercial property insurer decides to increase its market share by 20 percent per year over the next three years. Currently, the insurer is experiencing a premium-to-surplus ratio of 4 to 1. Which one of the following types of reinsurance treaties will be most effective in providing the insurer with needed surplus relief? A. Surplus share B. Per policy excess of loss C. Per occurrence excess of loss D. Quota share

D

An external constraint that insurers face is competition. An insurance industry market cycle characterized by decreasing prices and increasing competition is A. The economic market cycle. B. The hard market cycle. C. The protracted market cycle. D. The soft market cycle.

D

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

D

An insurer decides to stop writing a class of workers compensation insureds due to a rapidly declining loss ratio. Instead, the insurer plans to use its resources to increase its volume of commercial property insurance. This constraint on underwriting policy is called A. Reinsurance. B. Regulation. C. Personnel and physical resources. D. Financial capacity.

D

An insurer just began operations in its state of domicile. The minimum surplus requirement is met and the insurer is ready to implement its business plan. It will specialize in workers' compensation coverage because industry data is readily available and loss costs are provided by a rating organization. The investments behind the insurer's surplus are mostly short-term bonds, but it does have a fair amount invested in stocks. Market conditions are favorable for it to write business. With regard to determining reinsurance needs, which one of the following describes the consequences of moving its investments from short-term bonds to common stocks? A. The insurer needs less reinsurance because investments in common stock yield a higher return than investments in short-term bonds. B. The insurer needs more reinsurance because moving its investments from short-term bonds to common stocks increases the insurer's underwriting risk. C. The insurer needs less reinsurance because common stock is readily marketable. D. The insurer needs more reinsurance because common stock is subject to wide market price fluctuations.

D

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

D

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

D

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

D

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

D

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

D

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 distribution channels to offer this program? A. Direct response marketing B. Affinity marketing C. Mass marketing D. Franchise marketing

D

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

D

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

D

People who handle claims fall into a number of categories. Those who handle claims, keep claim records, and perform statistical analysis on behalf of self-insureds are called A. Claim managers. B. Independent adjusters. C. Staff claim representatives. D. Third-party administrators.

D

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 A. A large number of similar exposure units. B. Definite and measurable. C. Fortuitous. D. Independent and not catastrophic.

D

Rate distortions resulting from misrepresenting of exposure units are likely to be minor relative to distortions resulting from A. Review of past claims. B. Under reporting of exposure units. C. Over reporting of exposure units. D. Misclassification.

D

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

D

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

D

Risk can be classified as pure or speculative. Which one of the following is the best example of a speculative risk? A. Buying a new personal vehicle B. Purchasing an insurance policy C. Acquiring a new television D. Investing in shares of stock

D

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

D

Specialty insurers such as those offering surety bonds, aviation insurance, and livestock mortality insurance usually grant underwriting authority through the A. Use of specialty underwriting guides. B. Referral of those lines to senior underwriters. C. Use of staff underwriters. D. Centralization of underwriting authority.

D

State governments can be involved in insurance at various levels. Some states provide which one of the following types of insurance in competition with private insurers? A. Crop B. Flood C. General liability D. Workers compensation

D

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? A. What are customer's expectations regarding accessibility? B. Will customers be willing to pay a premium for services? C. Can customers navigate easily within the channel? D. Does it have the necessary financial resources?

D

Tania receives an application for homeowner's insurance for a home valued at $500,000 from Patrick, the producer for Keithly Insurance Company. Since Tania's underwriting authority is $350,000 on property risks, she must refer it to Lachlan, her underwriting supervisor. Which one of the following additional functions for underwriting profitability does this case illustrate? A. Guarding against adverse selection B. Adequacy of trained staff C. Prevention of errors and omissions D. Enforcing underwriting guidelines

D

Tania, an underwriting trainee for Keithly Insurance Company has received a new homeowner application on Nanami who has marginal credit insured for $150,000 coverage on a frame house with swimming pool and trampoline in the back yard. The grass needs mowing and the shrubbery needs trimming. What is Tania's first step in underwriting the policy for Nanami? A. Determine whether the credit score is acceptable. B. Check the underwriting guidelines on the pool and trampoline. C. Contact the agent about the upkeep problem. D. Check to see if she has the underwriting authority to make the decision.

D

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

D

The approach to global expansion in which companies share ownership, responsibilities, and management of a foreign venture is a A. Merger. B. Licensing agreement. C. Subsidiary. D. Joint venture.

D

Which one of the following statements is correct regarding premium growth? A. An insurer can effectively achieve premium growth by increasing rates rather than writing new policies. B. The most financially sound insurers are those that are able to consistently achieve rapid premium growth. C. Establishing reasonable rules to measure the adequacy of premium growth is a relatively simple matter. D. For an insurer to achieve its profit goals, premium growth from new sales must be sustained over time.

D

Which one of the following statements is correct regarding property claims? A. Once an insured has notified the insurer of a property loss, the insurer must immediately take measures to prevent further damage. B. If an insured engages a public adjuster, the insurer may refuse to handle the claim and require the insured to work with the insurer to adjust the claim. C. After a loss, the insured must determine the cause of loss and submit it for the insurer's approval, with the assistance of experts if required. D. Insurers rarely require an examination under oath, but when they do it is usually because they suspect the policyholder of fraud.

D

Which one of the following statements is correct with regard to assessing the external environment under the Five Forces Model? A. The threat of substitute products or services does not exist in the insurance industry. B. Government policy cannot act as a barrier to entry into the insurance industry. C. When buyers have significant power, it tends to decrease competition within the insurance industry. D. Insurance consumers have greater bargaining power in a soft market.

D

Which one of the following statements is correct with regard to the external constraints insurers face? A. Insurance regulation is relatively simple and does not impose a major constraint on insurers. B. Since the 1980s, the number of insurers in the U.S. market has increased significantly. C. Inflationary cycles in the economy are not known to adversely impact insurers. D. Regulatory actions resulting from consumer dissatisfaction can constrain insurers' ability to meet profit goals.

D

Which one of the following statements is correct with regard to the submission evaluation step in the underwriting process? A. While producers for direct writing and exclusive agency insurers perform field underwriting to screen applicants, independent agents and brokers generally do not. B. When an insurance application form is completed properly, an underwriter normally does not need any additional information. C. An applicant's financial status as indicated by a financial rating service is not an important piece of underwriting information for evaluating potential loss exposures. D. Government reports that provide underwriting information include motor vehicle reports, criminal records, and civil court records.

D

Which one of the following statements is correct with regard to the various users of claim information? A. The three primary departments that receive claim information are purchasing, underwriting, and actuarial. B. Post-loss evaluation is not important for underwriting management because claim adjusters alert underwriters to any negative trends. C. In order to project the development of open claims and establish reserves for IBNR claims, actuaries need paid losses, but not losses that are on reserve. D. Individual underwriters are interested in claim information for the specific accounts they have underwritten.

D

Which one of the following statements is correct with respect to applying risk control techniques to the various types of loss exposures? A. Separation, duplication, and diversification are the most effective risk control techniques for treating liability loss exposures. B. Risk control techniques to reduce a liability loss once it occurs are generally not available. C. The most cost-effective risk control techniques for personnel loss exposures are those aimed at causes of loss that occur outside the workplace. D. Any measure that controls property, liability, or personnel loss exposures also indirectly controls associated net income loss exposures.

D

Which one of the following statements is correct with respect to factors considered in underwriting personal automobile insurance? A. All insurers' underwriting guides distinguish drivers on the basis of their occupations. B. Auto modifications made to accommodate a driver with physical impairments usually make a risk undesirable. C. Insurers typically do not allow rate discounts for vehicles with safety features such as antilock braking or side air bags. D. Underwriters often use consumer investigation reports to determine the personal characteristics of drivers.

D

Which one of the following statements is correct with respect to insurance for crimes committeed by others? A. Because crime can occur anywhere, the location of an item is not a consideration when underwriting this coverage. B. It is especially important with this coverage that the limits selected reflect full insurance to value. C. Coverage for crimes committed by others is generally subject to a deductible and a coinsurance clause. D. When evaluating loss exposures, underwriters consider an item's susceptibility to being stolen and its marketability.

D

Which one of the following statements is correct with respect to premises medical payments coverage? A. It pays medical expenses for insureds injured by the policyholder's premises or operations. B. It requires that the policyholder be legally liable for the injured party's injury. C. The limits for medical payments coverage are typically $25,000 to $50,000. D. The coverage can be excluded by endorsement, but this is rarely done.

D

Which one of the following statements is correct with respect to premium auditing? A. Most insurers typically audit every auditable policy every year. B. An insurer rarely accepts a voluntary report from the insured in lieu of an audit. C. There are no legal requirements that pertain specifically to premium auditing. D. NCCI rules specify audit requirements and restrict classification changes.

D

Which one of the following statements is correct with respect to premium audits? A. Premium auditors can obtain data on a policyholder's total insured loss exposures by class from the insurer's own database. B. The primary purpose of premium auditing is uncovering fraudulent attempts by insureds to underreport exposures to reduce premiums. C. Data developed during premium audits are confidential and insurers rarely share that data with advisory or rating bureaus. D. A premium audit allows the insurer to determine the amount of exposure units.

D

Which one of the following statements is true concerning claim department contacts? A. Expense management for defense is a non essential component of the overall claim function. B. Technological improvements have weakened the quality of claim service. C. All states require claim adjusters to be licensed. D. State regulators monitor insurers' activities in the claim settlement process.

D

Which one of the following statements is correct with respect to premium audits? A. There is no strictly defined procedure for premium audits and individual auditors may consider different factors during an audit. B. Policyholders are required to present accounting information and other data to the auditor in the specified form required by the auditor. C. Workers compensation insurance is the one line of commercial insurance that is rarely subject to premium audit requirements. D. When a policy is written subject to audit, the exact exposure and premium bases cannot be known until the end of the policy period.

D

Which one of the following statements is correct with respect to property loss exposures? A. Many organizations do not have property loss exposures related to their business operations. B. All property fire losses are fortuitous and involve pure risk. C. Windstorm losses are ideally insurable because they are independent and not catastrophic. D. Premiums for flood insurance may not be economically feasible, depending on location.

D

Which one of the following statements is correct with respect to risk transfer measures? A. The majority of risk transfer measures are pure transfers. B. Risk transfers shift the transferor's legal responsibility for paying a loss to the transferee. C. Risk transfer measures tend to increase the variability of cash flow making an organization less attractive to investors. D. Most risk transfer measures limit the potential loss amounts being transferred.

D

Which one of the following statements is correct with respect to the characteristics of premises and operations liability loss exposures? A. Because organizations profit from their operations, premises and operations liability loss exposures involve speculative risk. B. Premises and operations liability losses typically arise from an insured's negligence, so they cannot be considered to be fortuitous. C. Given the large number of retail stores in the U.S., the premises and operations liability loss exposure is potentially catastrophic. D. Premises and operations liability losses are definite in time, cause, and location, and are measurable.

D

Which one of the following statements is correct? A. All insurance producers perform the same functions, which are specified in state insurance regulations. B. Cold calling, or cold canvas, is generally not used by insurance producers because it is an ineffective method of prospecting. C. Insurance producers are prohibited from accepting referrals from strategic partners, such as banks or real estate brokers. D. In the exclusive agent and direct writer marketing systems, insurers might assist producers with prospecting.

D

Which one of the following statements is correct? A. An insurer's duty to defend does not extend to lawsuits that are fraudulent or meritless. B. The adverse psychological effects of litigation tend to ease as time progresses, a circumstance that decreases incentives to settle. C. Liability insurance policy wordings prohibit insurers from settling frivolous lawsuits even when settling would save legal expenses. D. Many times, the insurer's duty to defend is more important to the insured than the duty to indemnify.

D

Which one of the following statements is correct? A. Claim settlements that exceed the promised amount payable under the policy increase insurer profitability through enhanced public relations and increased sales. B. Claim department employees typically consult with underwriters in order to determine the value of a claim. C. Minimizing claim settlement amounts is desirable because it results in decreased expenses for the insurer and lower premiums for all insureds. D. The claim handling process is designed to achieve a fair settlement in accordance with the applicable insurance policy provisions.

D

Which one of the following statements is correct? A. Inconsistency or inaccuracy of classification and measurement of exposure units effects individual premiums but rarely class rates. B. It is appropriate for premium auditors in one area to classify a particular industrial class differently than auditors in another area. C. Errors in premium auditing have implications for billing, but rarely other departments within the insurance company. D. Premium audit errors can cause an insurer problems in customer retention, goodwill, efficiency, and collections.

D

Which one of the following statements is correct? A. Insurers are prohibited from investing in social projects. B. Insurance provides a source of investment funds for insurers but not for policyholders. C. Insurers cannot invest premium income because it must be available to pay claims. D. Insurers' investment income helps keep premiums at a reasonable level.

D

Which one of the following statements is correct? A. Risk control representatives generally have neither the expertise nor the responsibility to compete a property valuation. B. Underwriters typically decline to provide a quotation until all recommended risk control measures have been implemented. C. While physical surveys are useful and informative for the insurer, they provide little immediate benefit to the customer. D. Risk control representatives may make written recommendations to help a customer eliminate or control loss exposures.

D

Which one of the following statements is correct? A. Risk control representatives rarely help marketing meet its sales goals. B. Risk control representatives can sell insureds additional coverage if they see a need. C. Risk control representatives are rarely involved in the insurance product development process. D. Risk control representatives can play a key role in retaining customers.

D

Which one of the following statements is correct? A. The claim department has its own technical resources and rarely relies on the risk control department for expertise. B. While the details of individual losses are useful to risk control representatives, frequency and severity data by line of business are rarely used. C. While risk control representatives carefully review property claims, they rarely examine liability or workers' compensation losses. D. The risk control department needs claim experience information to direct loss-control resources and efforts to crucial areas.

D

Which one of the following statements is correct? A. The insurance mechanism relies on each insurer auditing policyholders' accounting records. B. If premium audit errors occur, the policyholder is invariable charged too much premium. C. Errors in premium auditing can affect current premiums but not future premiums. D. Premium audit errors can distort an insurer's rating structure.

D

Which one of the following statements is true concerning guidelines for insurers combining systems and distribution channels? A. Customers are receptive to receiving different messages across the different distribution channels. B. Customers expect a different experience when interacting with an insurer's different distribution channels. C. Internal communication can differ across marketing systems and distribution channels. D. Different marketing systems can be used for different types of insurance based on which is most suitable.

D

Which one of the following statements is true regarding measures of potential loss severity for property loss exposures? A. The amount of insurance carried on a property location is the most useful figure for determining potential loss severity. B. The amount subject to a single loss at a location is consistent for all causes of loss to which the location is exposed. C. The amount subject should be determined separately for each policy an insurer writes within a single fire division. D. The amount subject for a location, as estimated by any two underwriters with a common employer, should be consistent.

D

Which one of the following statements is true regarding occupancy hazards when underwriting fire insurance? A. The occupancy hazards presented by manufacturing risks tend to be similar regardless of the product being manufactured. B. Office occupancies usually contain materials that are highly susceptible to damage, and present a relatively high-hazard occupancy exposure. C. The occupancy hazards presented by habitational risks are typically reduced when someone other than the owner of the building is responsible for building maintenance. D. Mercantile occupancies such as clothing stores and grocery stores are subject to large loss to stock from relatively small fires.

D

Which one of the following statements is true regarding traditional risk management (RM) verses enterprise-wide risk management (ERM)? A. Both RM and ERM focus on pure risk. B. RM considers the risk that the organization will outperform its strategic goals. C. ERM focuses only on pure risk, while RM does not. D. ERM emphasizes the interrelationships between pure and speculative risk.

D

Which one of the following statements is true with regard to distribution channels for selling insurance? A. "Franchise marketing" is also known as affinity marketing. B. The objective of group marketing is to sell insurance products and services over the Internet. C. Mass marketing plans offer insurers' policies to a small number of targeted individuals based upon their demographic characteristics. D. The objective of insurance portals is to deliver leads to the firms whose products they offer through their sites.

D

Which one of the following statements is true with regard to occupancy analysis when underwriting property insurance? A. An insured's management practices can do little to improve the acceptability of an account with significant occupancy hazards. B. Severe loss to the contents of a building is an underwriting concern only for large fires that are difficult to extinguish. C. The office occupancy category is a high hazard category due to the extreme combustibility of contents. D. Electrical equipment is a source of common hazards that exists in almost all business occupancies.

D

Which one of the following statements regarding underwriter responsibilities is correct? A. Line underwriters often serve on industry committees that study standard policy forms and recommend changes. B. Staff underwriters offer valuable technical assistance to the insured's risk manager and the producer who is directly responsible for determining what coverage best meets the insured's needs. C. Line underwriters are generally responsible for completing underwriting audits of the branch or region in which they work. D. Staff underwriters typically share responsibility for researching fundamental insurance issues with the actuarial and marketing departments.

D

Which one of the following terms is used to identify the property ownership of a husband and wife? A. Ownership in common B. Custodian ownership C. Security interest D. Tenancy by entirety

D

Which one of the following types of personal loss exposures is not usually fortuitous? A. Liability loss exposures B. Life loss exposures C. Health loss exposures D. Retirement loss exposures

D

Which one of the following will draft a manuscript policy or endorsement that is worded to address the specific needs of the insured? A. Underwriting supervisor B. Staff underwriter C. Underwriting specialist D. Line underwriter

D

Which one of the following would be most likely to be a factor affecting the selection of a retention by a primary insurer in its reinsurance program? A. Extra-contractual obligations B. Clash cover C. Catastrophe exposure D. Co-participation provision

D

Which one of these data analysis tools or techniques can include a numeric table of the mean, median, minimum, maximum, and standard deviation to detect outliers in variables? A. Box and whisker plots B. Data cubes C. Methods to identify missing data D. Descriptive statistics

D

While negotiating to settle claims is a key responsibility of liability claim representatives, the insurer must have the right to litigate to protect itself against frivolous, fraudulent, or unfounded claims. When does the insurer have the legal obligation to settle? A. When the insured makes a formal request to settle to avoid trial B. When the legal expenses exceed the proposed settlement C. When the defense attorney recommends settlement D. When the value of the claim approaches or exceeds the insured's policy limits

D

Delmond Manufacturing is opening a new manufacturing facility in a building that it purchased from a competitor. Using the information below, which one of the following represents the cost of risk of opening the new facility? A. $7.0 million B. $10.0 million C. $11.5 million D. $71.5 million

N