Risk Management and Insurance Final Exam

A personal umbrella policy requires

A certain amount of underlying coverage.

The cause of loss in a liability loss exposure is

A lawsuit or claim.

Charles is an underwriter evaluating a submission for personal umbrella insurance. He goes to the applicant's property and notices a broken lock on the pool gate. Charles is performing which one of the following?

A personal inspection

Underwriters use which one of the following to ensure that commercial vehicles are classified properly and charged the correct premium?

A rating system

An example of an employers liability exposure is most likely

A young man injuring his foot while clearing a field for a farmer.

The tendency of people most likely to experience loss to also be the most likely to purchase insurance is called

Adverse selection.

Which one of the following explains the difference between excess liability and umbrella policies?

An excess liability policy can provide no broader protection than that provided by the underlying coverage, but an umbrella policy can provide coverage for losses not available in the underlying policies.

A source for underwriting commercial and personal insurance that provides most, if not all, of the information needed to make an underwriting decision is the

Application.

To achieve the goal of business continuity, risk management identifies activities whose interruption cannot be tolerated, as well as ensuring

Availability of resources.

Often, the least practical risk management technique is to

Avoid the risk.

Which one of the following best describes how underwriters must negotiate policy terms and pricing?

Balance both the customer's need for the best coverage at a competitive price and the insurer's need for a profit

Which one of the following offers the most basic level of coverage among the causes of loss forms?

Basic Form

Which one of the following is a temporary agreement providing insurance coverage until the formal policy is issued?

Binder

A fixture attached to a building is classified as which type of property under the Building and Personal Property Coverage Form, or BPP?

Building

Which one of the following is the amount of business an insurer can write based on regulatory guidelines and the insurer's own voluntary constraints?

Capacity

An underlying policy covering personal and advertising injury liability for organizations is

Commercial general liability (CGL) insurance.

An organization that creates a risk committee and employs external auditors is primarily doing so to achieve which one of the following risk management goals?

Complying with legal and regulatory requirements

Which one of the following best describes effective risk management at an organization

Continual process

Which one of the following is true regarding Section II of the homeowners policy?

Coverage is provided for claims for bodily injury or property damage for which the insured is legally liable.

For claims professionals, conflicts of interest occur when personal interests interfere with decisions in a way that adversely affect

Customers and the employer.

The underwriting function

Determines which loss exposures will be insured, for what amount of coverage, at what price, and under what conditions.

When preprinted forms do not provide the terms of coverage needed by a particular insured or small group of insureds, the insurer may

Draft a manuscript form to meet the customer's needs.

Selection goals for underwriters are often established to

Ensure that the quality of the underwriter's book of business does not deteriorate.

An example of action taken by a state to regulate rates is

Ensuring that similar risks are charged similar rates.

Which one of the following is the first step in the underwriting process?

Evaluate the submission

Managing moral hazards is a reason an insurer might use a(n)

Exclusion

Which one of the following statements is correct regarding insurance policy exclusions?

Exclusions may appear outside the exclusions section.

The difference between an independent agency and an exclusive agency is that an

Exclusive agency is contracted to sell insurance for one insurer or group of insurers.

Vendors and regulators are considered an organization's

External customers.

The elements used to describe loss exposures are an asset exposed to loss, a cause of loss, and the

Financial costs of loss.

For most businesses, which one of the following is the peril that poses the greatest risk of a large or total property loss?

Fire

Factors that underwriters consider in relation to the property's protection

Focus on fire prevention, detection, and suppression measures; adequacy of water pressure; water supply in the community; distance from the nearest fire station; and so forth.

For hazard risks, the likelihood of a loss can be referred to as its

Frequency.

An example of real property is a

Garage.

Traditional risk management has concentrated primarily on which one of the following types of risk?

Hazard

Under a traditional risk management organizational model, the Risk Management Department manages which one of the following types of risks?

Hazard

Which two of the four quadrants of risk are classified as pure risks?

Hazard risks and operational risks

Which type of loss is typically most difficult to transfer?

High severity, high frequency.

Which one of the following determines how well underwriters are meeting sales goals by comparing the number of policies written with applications that have been quoted?

Hit ratio

The first step in the risk management process is to

Identify loss exposures.

Risk financing is primarily addressed through

Insurance purchases.

Which one of the following best describes the concept of pooling?

Insureds share the cost of each other's losses.

Field claims representatives handle claims that require

Investigation of the scene of a loss; resolution of complex investigative issues; meeting with insureds, claimants, and lawyers; and working with damage appraisers and independent adjusters.

Coverage is provided for claims for bodily injury or property damage for which the insured is legally liable.

Is typically available only when OTC coverage is also purchased.

The construction of a covered building is an important element of construction, occupancy, protection, and external exposure (COPE) because

It determines the building's ability to resist damage from covered causes and is less likely to change than other COPE factors.

Dwelling policies provide

Liability coverage by endorsement

Which one of the following is a reason that insurance is regulated?

Many insurance policies are sold on a take-it-or-leave-it basis.

A technical specialist who assists claims representatives in investigations; determines repairability of autos and other property; estimates the damage; and negotiates the price with the insured's repair facility or, if repair is not possible, determines the value and finds a salvage buyer is a

Material damage appraiser.

Which one of the following coverages does not require a determination of legal liability for insurance to cover such a loss?

Medical payments

Segregation of exposures, loss prevention, and loss reduction are techniques that most particularly

Modify the risk.

The Insurance Services Office, Inc. (ISO) commercial package policy (CPP) is an example of a

Modular policy.

Compared to one for a domestic insurer, a license for an alien insurer must be renewed

More frequently.

Which one of the following scenarios depicts an automobile liability loss exposure?

Negligent engine repairs causing an accident with injuries

The act of leaving a dangerous article with a person whom the lender knows, or should know, is likely to use it in an unreasonably risky manner is

Negligent entrustment.

Loss of reputation falls into which one of the following categories?

Personal and advertising injury liability loss exposures

An example of insurance that is considered a necessity for most people is coverage for

Personal auto liability.

Which one of the following provides limited coverage for owned and nonowned boat trailers?

Personal auto policy (PAP) watercraft coverage

Which one of the following coverages provides a loss payment to an insured from the insured's own insurer regardless of who is at fault?

Personal injury protection (PIP)

A homeowners policy is a type of

Personal insurance policy.

When insurers allow producers to handle smaller claim

Policyholders receive quicker service.

When insurers allow producers to handle smaller claims

Policyholders receive quicker service.

Applications and questionnaires for personal liability insurance should be carefully evaluated to look for issues that can increase potential loss frequency and severity, such as

Poor housekeeping and maintenance of premises or an unfenced pool.

Which one of the following is a reason why regulation exists to maintain insurer solvency?

Premiums are paid in advance of claims occurring.

Which one of the following statements is correct regarding producers?

Producers are often able to explain complex policy language to insureds.

Because they interview the applicant first, see the property or operations to be insured, and evaluate the loss exposures, the most important primary source of information for the underwriters is the

Producers.

Which one of the following is correct regarding property claims?

Property claims are generally straightforward and can usually be settled promptly.

Which one of the following is found in Section I of the homeowners policy but not in Section II?

Property coverages

The two main sectors of insurance in the United States are

Property-casualty insurance and life-health insurance.

Which one of the following involves locating people and businesses that may be interested in purchasing insurance?

Prospecting

Which one of the following scenarios presents a chance of gain, loss, or no loss?

Purchasing stock

Loss settlements that are unreasonably high

Raise the cost of insurance for everyone.

A business faces premises liability loss exposures because of its ownership of

Real property.

The decision to accept or reject an applicant is based on

Research and analysis of the risk.

An individual's personal assessment, similar to an organization's loss history, is used to

Review one's own past losses to reveal patterns.

Before contacting the insured or the insured's representative, the claims representative

Reviews the loss notice and policy to verify that coverage exists.

Which one of the following is primarily a responsibility of staff underwriters?

Revise underwriting guidelines

Which one of the following represents uncertainty about outcomes that can be negative or positive?

Risk

Which one of the following is true regarding risk management for individuals?

Risk management can help individuals identify loss exposures and plan accordingly.

An analysis in which employees help identify and isolate the underlying reason for a failure is a(n)

Root cause analysis.

Which one of the following best describes reports that can help employees adhere to established standards?

Safety manuals

Which one of the following is primarily a responsibility of line underwriters?

Select insureds

Working independently and managing their work while following through on any issues and finishing what they start describe which two characteristics that are associated with successful claims professionals' attitude and positive work ethic?

Self-discipline and persistence

Which one of the following types of expenses is unique to the insurance industry?

Servicing policies

Which one of the following provides open perils coverage?

Special Form

A dramatic ideological shift in corporate policies after a national or state election is an example of which one of the following quadrants of risk?

Strategic risk

By identifying potential current and emerging risks that may threaten an organization, risk management is particularly helping to achieve which one of its goals?

Survival

The board of directors must receive information

Tailored with variations to its own needs for risk management oversight.

Which one of the following best describes real property?

Tangible property that includes land, structures permanently attached to the land, and whatever is growing on the land.

Increasingly, insurers are able to assess drivers' skill and ability through

Telematics.

Which one of the following summarizes the coverage provided under a policy?

The declarations

Which one of the following is the policyholder in an insurance transaction?

The insured

Policy conditions specify

The insured's and insurer's duties.

If an insurer's permanent place of business is in the state of Texas, and it also conducts insurance business in Oklahoma and New Mexico, which one of the following statements is true?

The insurer is licensed as a foreign insurer in New Mexico.

The key to the direct writer marketing system is that

The insurer is using its own employees as producers.

The physical damage loss exposures of the vehicles listed on an insurance application help determine

The physical damage loss exposures of the vehicles listed on an insurance application help determine

Which one of the following is the intent of business income coverage?

To help a business maintain its financial position

An example of a strategic risk, one of the broad categories of risk that a board of directors must oversee, is

Two new and unexpected competitors to the organization.

When an underwriter is reviewing a commercial umbrella applicant's operations, he or she will typically refer to which one of the following for a list of eligible and ineligible operations?

Underwriting guidelines

When evaluating the physical condition of an applicant's vehicle, the underwriter examines

Use, maintenance, and age.

Which one of the following is a cause of loss?

Vandalism