Assignment 1 - Introduction to Risk Management, Assignment 2 - Risk Control, Assignment 3 - Risk Financing, Assignment 4 - Enterprise Risk Management, Assignment 5 - Insurance as a Risk Management Technique, Assignment 6 - Overview of Insurance Opera...

Code-as-rated means that the insurer should

Code those data elements that are variables in rating the coverage

Another term for cause of loss is

Peril

Insurer B (IB) notifies one of its independent agents that its agency contract will be terminated unless the agency improves its hit (or success) ratio during the next 90 days. This indicates that IB has

Written too few of the accounts it quoted for the agency

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? New building cost $60.0 million Safety system upgrades $6.0 million Insurance premiums $1.5 million Retained losses $3.0 million Risk management department budget at the site $1.0 million

$11.5 million

Westfork Insurance has a surplus share treaty with Durham Reinsurance and retains a line of $50,000. The treaty contains nine lines. Which one of the following represents that maximum amount of coverage Westfork can write for a single building under the treaty?

$500,000

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?

.000025, or .0025%

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?

.56

At year-end, a property casualty insurer had a combined ratio of 111.8, and an investment income ratio of 10.2. What is the insurer's overall operating ratio for the year?

101.6

Insurer C (IC) has the following year-end results: Written premiums $30,000,000 Earned premiums $25,000,000 Incurred underwriting expenses $12,000,000 Incurred losses (including LAE) $20,000,000 Which one of the following is IC's combined ratio (trade basis)?

120 percent

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?

5

Argot Stock Insurance Company's (Argot) net income is $1,000,000 and its average owners' equity is $16,500,000. Argot's average policyholders' surplus is $20,000,000. Using the GAAP approach, which one of the following is Argot's return on equity?

6%

Depending on the type of insurance, insurers use automated underwriting systems to

Encode underwriting guidelines

Which one of the following is an element of a loss exposure?

A cause of loss

Insurer A writes standard personal lines insurance products. The insurer is adopting a new strategy for distributing products that emphasizes direct and Internet sales over 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 expected to be more efficient as a result. Which one of the following strategies is Insurer A most likely pursuing?

A cost leadership strategy

A summary of key statistics for variables is

A data cube

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 description of material defects the actuary believes are in the data

An insurance company employee who investigates the scene of a loss; meets with insureds, claimants, lawyers, and others; and inspects damage is most accurately called

A field claim representative

Which one of the following statements is correct regarding treaty reinsurance?

A long-term relationship with a reinsurer enables a primary insurer to consistently fulfill producers' requests for insurance

Which one of the following statements is true concerning the premium auditing process?

A premium auditor's job involves not only counting loss exposures, but also classifying them correctly

Which one of the following statements is true regarding traditional marketing systems for insurance?

A principal characteristic that distinguishes one traditional marketing system from another is the ownership of policy expirations

Public protection class is an example of

A rating element

Which one of the following statements is correct with respect to business income coverage?

A seasonal business could suffer a severe loss from a relatively short shutdown

An example of an intangible asset that an individual may possess is

A unique skill set

The control of a computer user's ability to review, enter, and change information in a claim information system is an example of which one of the following types of claim department control?

Access security

Which one of the following statements is correct with respect to establishing actual cash value (ACV) of damaged property?

Adjusters often rely on published guides to determine depreciation and individual insurers create such guides based on their experience

A situation that occurs because people with the greatest probability of loss are the ones likely to purchase insurance is known as

Adverse selection

Which one of the following is the term used to refer to a situation that occurs because people with the greatest probability of loss are the ones most likely to purchase insurance?

Adverse selection

Independent agent networks are known as

Agent clusters

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?

Agreed amount

In addition to implementing effective and efficient measures, complying with legal requirements, and promoting safety, risk control should

Aim to ensure business continuity

The optimal balance between retention and transfer varies for each organization, depending on specific characteristics. Which one of the following statements is true with regard to these characteristics?

All else being equal, the more risk control an organization undertakes, the more likely its ability to fund the retention of the affected exposures

Which one of the following is an amount field included in Insurance Services Office (ISO) statistical plans?

Allocated loss adjustment expense amount

Defining accuracy ratios

Allows comparison of one audit period to the next

Exploratory data analysis (EDA) is

An after-the fact, back-end process

With products liability, any explicit statement about the product that accompanies the sale is known as

An express warranty

After auditing a large commercial shipping operation, premium auditor Carl realized that the insured exposure had been grossly underestimated. The most likely result of this error is

An inadequate deposit premium for a renewal

Most insurers give some producers the authority to pay claims up to a certain amount. In this role, producers function much like

An inside claim representative

Due to the possibility of an environmental pollution exposure resulting in extensive losses, several insurers in a particular state have joined together to insure the exposure because no single insurer was willing to insure the entire risk. This insurance arrangement is typical of

An insurance pool

Which one of the following is the best example of an insurer's risk control activities generating additional revenue for the insurer?

An insurer provides industrial hygiene services to a self-insured firm for a fee

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

Analyzing loss exposures

The Five Forces Model is a commonly used method of

Analyzing the competitive environment

The strategy formulation phase of the strategic management process involves

Analyzing the external and internal environments

Insurers must typically file statistics with state insurance departments

Annually

Property claim adjusters are primarily concerned with

Applying detailed policy provisions to specific situations

Ideally insurable loss exposures are subject to losses that

Are definite in time, cause, and location

Which one of the following statements is true?

As an organization's retention level increases, so does the level of liquidity required

Buildings, investments, patents, and human resources are all examples of

Assets exposed to loss

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?

Attracting children to the play area may require a higher than normal duty of care

Which one of the following types of loss exposures meets all of the characteristics of ideally insurable personal loss exposures?

Automobile liability

Insurers can use different methods of setting claim reserves. Which one of the following methods establishes a predetermined dollar amount of reserve for each claim as it is reported?

Average value

An insured requesting reimbursement for payments to customers whose goods were damaged by fire while in the insured's care would be claiming under a(n)

Bailee policy

Which one of the following statements is correct regarding personnel loss exposures?

Because retirement is usually planned, most resulting personnel losses can be handled with proper planning

Claim representatives must distinguish among various auto bodily injury coverages. To protect themselves against other, irresponsible parties, auto liability purchasers may select from any of these coverages, EXCEPT

Bodily injury insurance

Property policies for carriers in the business of transporting other people's property typically protect the interests of

Both the carrier and the property owner

If a portion of an assembly line is out of operation, resulting in a business interruption, the interruption's cause may be referred to as a

Bottleneck

An insurer that targets large middle-market and national accounts would most likely use which one of the following distribution systems?

Broker

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?

Business customer

Which one of the following is true regarding business income coverage under the BOP?

Business income coverage under the BOP is writen on an actual loss sustained basis

In which one of the following ways are premium auditors most helpful to claim representatives?

By verifying the earnings of injured employees for workers compensation claims

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?

COSO II

Which one of the following distribution channels is also an efficient way to handle claim reporting and billing inquiries?

Call centers

Pedro's Chemical Sprays (Pedro's) has been unable to obtain liability coverage for its products. Insurers consider Pedro's to be uninsurable. Pedro's risk manager, Johanna, believes that their company can cover the losses and fund them. Which one of the following plans is Johanna considering for Pedro's?

Captive

Which one of the following best describes how ISO measures personal automobile exposure?

Car-years or car-months

Clash coverage limits should be set by considering all of the following, EXCEPT

Catastrophe excess of loss reinsurance purchased by the primary insurer

Tania, an underwriting trainee for Keithly Insurance Company, has received a new homeowners application for Nanami. The home is to be insured for $150,000. It is a frame house with a swimming pool and trampoline in the back yard. The grass needs mowing and the shrubbery needs trimming. Nanami has a marginal credit score. What is Tania's first step in underwriting the policy for Nanami?

Check to see if she has the underwriting authority to make the decision

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

Chief executive officer (CEO)

The enterprise risk manager, who is often called a chief risk officer, typically reports to the organization's

Chief executive officer (CEO)

Which one of the following cases illustrates how underwriting guidelines ensure uniformity and consistency?

Chloe and Elin are underwriting identical homeowners risks for Cromley Insurance Company. The applicants have the same protection class, construction, and coverage amount. After checking the underwriting guidelines, they come to the same underwriting decision.

These are all issues on which the claim representative should concentrate when handling business income claims, EXCEPT

Choosing between prospective and respective loss settlement approaches

"Every claim will be acknowledged within twenty-four hours" is an example of which of these quality measures?

Claim department best practice

Professional liability claims can be difficult to adjust because of all of the following factors, EXCEPT

Claims usually settle rather than going to trial

Claims information can be valuable to premium auditing in the verification of employment classifications. However, premium auditing provides an even more valuable contribution to the claims function by verifying or correcting the

Classification codes assigned to an insured's claims

Sota's Superstore has recently become an insured of Keithly Insurance Company. Kaito, Keithly's premium auditor, is being sent to conduct an advance audit. Which one of the following tasks will Kaito do to assist underwriting?

Classify the various exposures

Sofie, a property underwriter for Cintriell Insurance Company is reviewing a new homeowners application. 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 Sofie performing?

Classifying and pricing accounts

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?

Co-participation provision

The risk control service of conducting a physical survey consists of

Collecting underwriting information on a customer's loss exposures

States are most likely to require insurers to provide risk control services to

Commercial insureds for workers compensation coverage

Which one of the following statements is correct with respect to property loss exposures?

Commercial property loss exposures are commonly examined based on construction, occupancy, protection, and environment

In testing for data reasonableness, a distributional edit review

Compares key field data to a profile of data from prior experience

When applicable law conflicts with the Actuarial Standard of Practice No. 23 (ASOP 23) which one of the following is true?

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

Insurance can be used to meet both the statutory and contractual requirements of insurance coverage and to provide evidence of financial resources. What insurance benefit does this statement describe?

Complying with legal requirements

Which one of the following is determined by a company's underwriting policy?

Composition of the insurer's book of business

Which one of the following items' property value would be most dramatically and suddenly affected by depreciation?

Computer system

Which one of the following statements is true?

Consistency tests are easier but more limited than a distributional edit review in testing for reasonableness

Which one of the following statements is true?

Consumer complaints are investigated by the state insurance departments

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?

Continuity of operations

Which one of the following is typically a post-loss risk management goal?

Continuity of operations

In operations liability claims, which one of the following would most likely be the policyholder?

Contractor

In the claim function, supporting the insurer's profit goal is accomplished through

Controlling expenses

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

Cost of residual uncertainty

The financial consequences of risk include expected costs of losses. In an industrial accident, besides the cost of compensation paid to the injured employee, there are other hidden costs. All of the following represent possible hidden costs, EXCEPT

Cost of the risk management technique used

Which one of the following is considered the primary advantage of using retention as a risk financing technique?

Cost savings

The question, "Did the Loss Occur During the Policy Period?" is part of the framework for coverage analysis. Which one of the following statements is true with respect to policy periods?

Courts have interpreted the date of occurrence differently

Which one of the following cases illustrates how underwriting guidelines ensure that selection decisions provide uniformity and consistency by all the insurer's underwriters?

Cromley is training new underwriters and is using a work sample for a homeowner risk which has a unacceptable roof and an overgrown yard. New underwriters Erin and Filip check the guidelines and make the same underwriting decision to decline the risk.

Which one of the following planned retention funding measures is the least formal and the least expensive to administer?

Current expensing of losses

The needs and characteristics of customers—both existing and those in target markets—are key factors in an insurer's selection of distribution systems and channels because

Customer satisfaction drives their purchase decisions

The fact that price changes have little or no influence on decisions to purchase insurance required by statute indicates that

Demand for mandatory insurance is more inelastic than for many other products

How has ISO defined quality data?

Data that are fit for the intended use

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?

Divestiture strategy

Which one of the following is a procedure that claim representatives must follow to settle a claim?

Documenting the cause and amount of the loss

Which one of the following is an essential element of a fleet safety program?

Driver selection

The federal Commercial Motor Vehicle Safety Act (CMVSA) of 1986 requires that

Drivers of specific large vehicles hold a commercial driver's license (CDL)

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

Duplication

Which of the following post-loss goals would seek ways of creating consistent results over time, rather than choose actions that might produce fluctuating results?

Earnings stability

When it comes to providing management with the desired level of assurance, with which of the following does tolerable uncertainty conflict?

Economy of operations

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

Enhanced decision making

All of the following are steps in monitoring and revising a risk management program, EXCEPT

Evaluate standards that have not been exceeded

All of the following represent steps in the business continuity process, EXCEPT

Evaluate the effect of the risks on non-critical functions

The account underwriting approach

Evaluates all of an applicant's supporting business across all lines

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?

Exclusive agency

ASOP No. 23 advises actuaries, when evaluating the quality of a data set for a particular analysis, to select the data with consideration of all of the following EXCEPT

Expense to gather and process

Underwriters gain underwriting authority with which one of the following

Experience

Which one of the following is the term used for reinsurance of individual loss exposures 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?

Facultative reinsurance

A reinsurance program is the same as a reinsurance agreement. True or false?

False

Which one of the following statements is correct regarding government involvement in insurance?

Federal and state government are involved in insurance to facilitate compulsory insurance purchases

An insurer decides to discontinue writing a class of workers compensation insureds because losses on the business have exceeded expectations. Instead, in an effort to maximize its return on equity, the insurer plans to use its resources to increase the volume of accounts in an area that offers more promising returns. This need to redirect the focus for desired business is an example of an underwriting constraint due to

Financial capacity

Which one of the following is a constraint to the development of underwriting policy?

Financial capacity

Every loss exposure has which one of the following elements?

Financial consequences of loss

In the context of the ISO general liability statistical plan, square footage of a retail store is an example of a

Fixed exposure based rating element

Which one of the following statements is true concerning personal property?

Fixtures are personal property that have become attached to and part of real property

When the ceding commission is a fixed percentage of the ceded premium with no adjustment for the primary insurer's loss experience, the ceded commission is known as a

Flat commission

Niche insurance marketing programs that offer tailored coverages to specific groups of customers are examples of

Focused differentiation strategy

The Committee of Sponsoring Organizations of the Treadway Commission (COSO) published what is referred to as COSO II. COSO II, a risk management framework,

Focuses on threats to the organization and application of controls

Which one of the following statements is correct with respect to underwriting workers compensation insurance?

From an underwriting standpoint, housekeeping refers to cleanliness and operating efficiency

While developing goals for its book of business, an insurer's staff underwriter decides to increase its market share of workers compensation insurance in the construction industry. This type of underwriting activity is known as

Formulating underwriting policy

Insurance deals primarily with loss exposures that are fortuitous. Which one of the following statements best characterizes fortuitous losses?

Fortuitous losses are beyond the insured's control

Probabilities are stated as a decimal figure, a percentage, or a

Fraction

Which one of the following statements is correct regarding insurance regulatory constraints on growth?

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

In the business continuity process, the duration of interruption necessary to produce a substantial effect depends on the

Function

In a single-business company, which one of the following organizational structures might be the most suitable?

Functional structure

Damages that courts award in order to compensate claimants for such things as pain and suffering that do not involve specific measurable expenses are referred to as

General damages

Underwriters may encourage insurance to value to provide better policyholder protection against total loss, and to

Generate premiums that properly reflect loss exposures

A primary insurer that plans to grow is likely to need additional reinsurance for all of the following reasons, EXCEPT

Growth could lead to geographic diversification of loss exposures

Which one of the following statements is correct with respect to evaluating the efficiency of alternative risk control measures?

Given a loss exposure and alternative risk control measures, the risk management professional can determine which is most efficient by using cash flow analysis

Which one of the following correctly describes a reason for government involvement in property-casualty insurance?

Government programs can meet legitimate public demands unmet by private insurers

Umbrella policies are designed to cover

High-severity, low-frequency losses

For regulatory purposes, Statistical Plans collect

Historical insurer experience by state, by class, and by coverage

Which one of the following statements is correct with regard to property loss exposures?

Homes can be grouped into classes that face essentially the same loss potential

All of the following are questions adjusters ask to determine whether fixtures are real property, EXCEPT

How long has the fixture been on the property?

In addition to claims personnel, internal claim audits may be conducted by personnel from other departments, such as

Human resources and training

Which one of the following is not compulsary unless contractually required by a client or customer?

ISO 31000:2009

A log created by statistical software that records the history of calculations completed and their results is a tool that

Identifies missing data

Which one of the following statements is correct with respect to replacement cost coverage under property policies?

If the exact type of property destroyed is no longer available, settlement can be made based on property of like kind and quality

Which one of the following statements is correct regarding treaty reinsurance?

If treaty reinsurance agreements permitted primary insurers to choose which loss exposures they ceded, the reinsurer would be exposed to adverse selection

Which one of the following statements is correct regarding the approaches to global expansion?

In a joint venture, companies share ownership, responsibilities, and management of a foreign venture

Which one of the following is an example of a common hazard relating to premises and operations liability loss exposures?

Inadequate housekeeping

Which one of the following statements is true?

Intentionally set fires are arson, whether committed by the insured or not

In an Insurance Services Office (ISO) statistical plan, the inception dates on both premium and loss records

Indicate which set of statistical plan codes were valid at the inception of the coverage

Which one of the following statements is correct with regard to the various users of claim information?

Individual underwriters are interested in claim information for the specific accounts they have underwritten

A prerequisite to asserting a claim under a property insurance policy is which one of the following types of interest in the policy?

Insurable

Insurer Y is small but has a speciality insurance market for high-value vehicles. In competing with a larger insurer with a broader market, Insurer Y is likely to have which one of the following advantages?

Insurer Y can be more nimble, allowing it to respond quickly to an emerging trend or change

Which one of the following statements is true?

Insurers benefit from insurance to value because it promotes higher limits of property insurance

The main insurance distribution systems include all of the following, EXCEPT

Internet sales system

Which one of the following best represents a way collaboration technology can be used to share metadata within an organization?

Intranets

All of the following are insureds' duties after a loss, EXCEPT

Investigating salvage options

Which of the following is an example of how incorporating ERM into its strategic planning process can improve an organization's decision-making?

It can address potentially devastating threats

Of all of the characteristics of an ideally insurable loss exposure, which one of the following is probably the most important?

It can be insured at an economically feasible premium

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?

It can be used to decide which activities to undertake

Which one of the following is a benefit of a business continuity process?

It can minimize the scope of threats facing an organization

Which one of the following best describes auditing?

It is a proactive technique that influences data collection

Which one of the following best describes reconciliation as used in data auditing?

It is a top-down approach that checks that totals from one source match the totals from another, usually more reliable source

Which one of the following statements is correct with respect to the U.S. property-casualty insurance market?

It is cyclical

Which one of the following statements is true?

It is important when combining distribution systems and channels for an insurer to provide consistent messages about its products and services

Which one of the following best describes the usefulness of comparing company data to industry-wide data when reviewing the reasonableness of the data?

It is only useful if distributions in a company's book of business and the industry average are expected to be similar

Which one of the following statements is correct?

It is preferable to insure to value with rates that reflect the loss exposure than to underinsure property at inflated rates

Which one of the following best explains the term "residual uncertainty"?

It is the level of risk that remains after implementing risk management plans

Which one of the following statements is true with regard to the selection of appropriate risk financing measures?

It is typically more economical for an organization to retain rather than transfer loss exposures directly related to its core operations

Which one of the following statements is correct with respect to underwriting umbrella liability insurance?

It requires careful analysis of the loss exposures covered by the underlying policies, plus those exposures covered only by the umbrella policy

When two or more individuals who are not spouses have a complete, indivisible interest in property, that type of ownership is referred to as

Joint ownership

An insurer's shared ownership and shared responsibilities with an insurer in a foreign country is a

Joint venture

The approach to global expansion in which companies share ownership, responsibilities, and management of a foreign venture is a

Joint venture

Which one of the following statements is correct with respect to the fire cause of loss in commercial property insurance?

Knowing the value of a building or its contents is critical in measuring the amount of a fire loss

Which one of the following is a property gradual cause of loss?

Latent defect

As part of its risk management program, a vending company installed a new top of the line security system with an expectation of fewer thefts and

Less residual uncertainty

Property-casualty insurers can be classified in which one of the following ways?

Licensing status

Which one of the following best describes the purpose of authority levels?

Limiting reserve and payment amounts

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?

Line underwriter

Which one of the following lists the financial components used to calculate a combined ratio?

Loss and loss adjustment expenses incurred, earned and written premiums, and underwriting expenses incurred

Enterprise-wide risk management (ERM) will generally result in which one of the following?

Management by consensus

Which one of the following statements is correct?

Many times, the insurer's duty to defend is more important to the insured than the duty to indemnify

The term used to denote the data that describe data is

Metadata

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?

Mitigate

Overfitting errors occur in the analysis step of the insurance data life cycle due to which one of the following?

Models that describe statistical noise rather than a relationship in the data

Which one of the following statements is correct?

Most property insurance policies provide coverage only for direct physical loss

Which one of the following statements is correct with respect to risk transfer measures?

Most risk transfer measures limit the potential loss amounts being transferred

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?

National Flood Insurance Program (NFIP)

Which one of the following insurance consumer groups would have the most risk financing alternatives available to them?

National accounts

With regard to liability claim adjusting, which one of the following is the most important aspect of any liability claim investigation?

Obtaining all of the relevant evidence

With a property loss, the insured is required to

Notify the police in case of loss by theft

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?

Obsolescence

What has been the primary influence of investment income on the underwriting cycle in the period from 1978 to 2004?

Offset underwriting losses

In an Insurance Services Office (ISO) statistical plan, the loss amount is reported

On a direct basis

If a summary-based Statistical Plan does not collect exposures, what method must an actuary relying on this data use to calculate rates?

On-level-earned premium

Which one of the following statements is correct with respect to the premium auditing process?

Once premium auditors have obtained the data necessary for calculating the premium, they must decide whether the data are reasonable

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

Operations liability

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?

Opportunities

Concerning liability claim adjusting, which one of the following intangible factors of bodily injury is usually the largest component of damages?

Pain and suffering

If a company is sued due to an alleged faulty product and is successful in winning the case, the company will still incur costs. All of the following represent potential costs the company might incur, EXCEPT

Payment of damages

Which one of the following types of excess of loss reinsurance is used primarily with liability insurance; applies the attachment point and the reinsurance limit separately to the losses occurring on each insurance policy; and is triggered when a loss on a policy exceeds the attachment point?

Per policy

Which one of the following statements is correct with respect to premium audits?

Policyholders are far less likely to submit false or misleading information when they know it will be verified by a premium auditor

Which one of the following statements is correct with regard to analyzing the global environment?

Political considerations are critical when considering investment in foreign operations

All of the following help insurers both to improve the independence of their insured loss exposures and to minimize their catastrophic exposure, EXCEPT

Pooling

Which one of the following statements is correct with regard to the concept of pooling?

Pooling arrangements combine the loss exposures and financial resources of pool members for the purpose of sharing losses

Which of the following is a true statement regarding pooling?

Pooling makes actual cost more consistent and less variable

The foundation of the premium collection process for auditable commercial business is the

Premium audit

Which one of the following statements is correct with regard to the importance of accurate premium audits?

Premium audit errors can cause an insurer problems in customer retention, goodwill, efficiency, and collections

Which one of the following statements about premium auditing is true?

Premium auditors determine whether a given policy uses the correct rating classification(s)

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?

Prevent economic disruption

Which one of the following types of reinsurance is generally chosen by newly incorporated insurers or insurers with limited capital because it is effective in providing surplus relief?

Pro rata

Pravalt Construction Company pays less than its competitors for workers compensation insurance because Pravalt has had substantially fewer employee injuries than other firms in its class. This illustrates which one of the following benefits of insurance?

Promote risk control

Which powerful adjustment tool is written, signed, and sworn to by the insured, yet not often used by property adjusters?

Proof of loss

Blue Sky Enterprises wants to join with a small group of other organizations to create an entirely new type of medical device for heart transplant patients. ABC Insurer is interested in working with the group to meet their insurance needs. However, ABC has no experience in the biotechnology field. Which function of reinsurance would be most beneficial to ABC Insurer?

Provide underwriting guidance

The accounting date in an Insurance Services Office (ISO) statistical plan

Provides assurance that the intended premium and loss data were reported, and reported once only

Which one of the following statements is true regarding data quality?

Quality data is data fit for the intended purpose

An established regional commercial property insurer decides to increase its market share by 20% 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?

Quota share

A test of premium-to-exposure ratios is an example of a

Range comparison test

Which one of the following is the best source for an adjuster to use to gauge depreciation for a commercial structure?

Realtor rental values

Files chosen by managers or technical support staff for internal claim audits are selected on the basis of the

Reason for audit

The principal advantage of risk transfer measures is that they

Reduce exposure to large losses

In a soft market, insurers that loosen underwriting standards to increase insurance sales could be highly susceptible to harm from

Reductions in investment income

Which one of the following methods of prospecting is more likely to be used by an experienced producer than a new insurance producer?

Referrals from present clients

Which one of the following statements is correct with regard to the external constraints insurers face?

Regulatory actions resulting from consumer dissatisfaction can constrain insurers' ability to meet profit goals

Summary-based statistical plans are primarily used for

Regulatory reporting

Insurance pools operate either as a syndicate or through

Reinsurance

Which one of the following is most likely to cause insurance demand to be inelastic?

Required coverage

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?

Resell the product in the same condition and packaging in which it left the manufacturer

Which one of the following statements is correct with respect to residential property loss exposures?

Residential property loss exposures associated with fire, windstorm, and flood involve a large number of similar exposure units

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?

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

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?

Resources, events, and impacts

A commercial automobile classified for retail use may be rated higher than a similar commercial automobile classified for service use because

Retail use involves delivery vehicles that may travel on unfamiliar routes and have tight schedules

Which one of the following statements is correct with respect to retention's ability to meet risk financing goals?

Retention enables an organization to manage its cost of risk

Which one of the following represents two nonfinancial measures that are used to evaluate underwriting performance by focusing on underwriting actions?

Retention ratio and hit ratio

Reinsurers may transfer part of the liability that they have accepted in reinsurance agreements to other reinsurers, known as

Retrocessionaires

Which one of the following statements is true concerning risk control?

Risk control can assist marketing by providing advice on improving safety

The most widely-known risk management technique used by individuals is

Risk financing by purchasing insurance

Aaron, a senior producer for Blithe Insurance Company (Blithe) has over 15 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 benefit of Aaron's field underwriting?

Saves Blithe from having to evaluate accounts that they will ultimately reject

Catastrophe bonds are used to

Securitize insurance risk through a marketable security

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?

Separation

Which one of the following best describes why a group of insurers would choose to form a reinsurance pool, syndicate, or association?

So that the members can share the loss exposures of the group, usually through reinsurance

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?

Some data elements are common to most lines of business and some are unique to a particular line

At which step in the insurance data life cycle are input errors most common?

Step 1

Which of the following techniques do insurers use to more closely define a group of customers within a market segment?

Target marketing

Which one of the following is an underwriting evaluation tool that uses Global Positioning System (GPS) tracking to collect and analyze data regarding driver behavior and vehicle use?

Telematics

At the initial contact with the insured or the insured's representative, the claim representative will normally take all of the following actions, EXCEPT

Tell the insured if the claim will be covered and the estimated payment amount

Which one of the following terms is used to identify the property ownership of a husband and wife?

Tenancy by entirety

According to ISO's Strength in Numbers pamphlet, what step should follow testing program controls in the data quality audit process?

Test output controls

Risk involves the possibility of a negative outcome. Possibility means

That an outcome may or may not occur

Treaty reinsurance is best described as a reinsurance agreement

That covers an entire class or portfolio of loss exposures, and all loss exposures that fall within the treaty are automatically reinsured

Which one of the following costs is part of the overall financial consequences of risk?

The cost of the value lost due to events that caused a loss

Which one of the following best explains a constructive total loss in auto property damage claims?

The cost to repair the damaged auto plus its salvage value equals or exceeds the auto's pre-loss value

All of the following statements are true regarding the factors affecting the formation of an insurer's underwriting policy, EXCEPT

The higher an insurer's premium-to-surplus ratio, the greater its ability to expand premium writings

Diversifying risk is an emerging goal for property-casualty insurers because of

The increase in catastrophe losses that have occurred over the past decade

Which one of the following statements is true concerning the use of alternative distribution channels to sell insurance?

The increasing use of multiple distribution channels has been driven by technology and customer preferences

A loss reserving method that bases reserves on the circumstances of the claim and the claim representative's experience in handling similar claims is called

The individual case method

What is the primary source regulators use to collect data to determine the financial solvency of an insurer?

The insurer's Annual Statement

Which one of the following is true about insurable interest in properrty insurance?

The most common interest in property comes from outright ownership

Which one of the following statements is correct with respect to finite risk insurance plans?

The premium in a finite risk insurance plan is a very high percentage of the policy limits

When an insurer continues to write new insurance without addition to capital in order to compete in a soft market,

The premium-to-surplus ratio is eroded

Which one of the following statements is correct with respect to transfer's ability to meet risk financing goals?

The primary benefit of transfer is certainty regarding the ability to pay losses

Which one of the following statements is correct with respect to excess of loss reinsurance?

The reinsurer responds to a loss only when the loss exceeds the primary insurer's retention

Which one of the following statements is correct with respect to pro rata reinsurance?

The reinsurer usually pays a ceding commission to reimburse the primary insurer for acquisition costs associated with the underlying policies

Which one of the following statements is correct regarding the relationship between risk control and claims?

The risk control department needs claim experience information to direct loss-control resources and efforts to crucial areas

The focus of risk quadrants is different from the focus of risk classifications. While the classifications of risk focus on some aspect of the risk itself, the four quadrants of risk focus on

The source of risk and who has traditionally managed it

Argot Insurance Company ("Argot") has a written business continuity plan which was developed when Argot was formed five years ago. This plan has been periodically reviewed and updated by Argot's management. Some examples of the contents of Argot's current business continuity plan are: -Listings of the roles and responsibilities of numerous Argot employees; -Crisis response procedures to deal with employee life and safety issues; -Procedures for minimizing damage to the Argot brand; -Recommendations for dealing with crises in any way possible under the existing circumstances; and -A schedule for testing the effectiveness of the business continuity plan. Which one of the following is an improvement which should be made to Argot's business continuity plan?

There should be recommendations for dealing with crises in the most efficient and cost-effective ways

Which one of the following best describes effective and efficient risk control measures?

They are the least expensive measures that achieve an organization's risk management goals

The purpose of the transformation aggregations step in the insurance data life cycle is

To make data available to users in the necessary format

Which one of the following is the primary business purpose of a professional reinsurer?

To serve insurers' reinsurance needs

Which of the following pre-loss goals involves the implementation of a risk management program to assure managers that whatever might happen will be within the bounds of what was anticipated and will be effectively treated by the risk management program?

Tolerable uncertainty

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?

Uncertainty of outcome

The underwriter must evaluate each underwriting alternative carefully and select the optimal one under the circumstances. Which one of the following is true regarding the selection of an alternative?

Underwriters should ensure that accepting a submission supports the insurer's goals for mix of business

Premium auditing contributes most directly to which insurer function?

Underwriting

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?

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

Which one of the following statements is correct with respect to personnel losses arising from the death cause of loss?

Unless a disaster occurs, death losses are typically independent and not catastrophic

Which one of the following statements is true?

Violations of certain laws, such as traffic laws, are deemed negligence per se

Which one of the following statements is correct with respect to insurance for crimes committed by others?

When evaluating loss exposures, underwriters consider an item's susceptibility to being stolen and its marketability

Return on equity influences the underwriting cycle because

When rates are raised to generate higher returns, the cycle turns

Return on equity influences the underwriting cycle because

When the majority of insurers raise rates to generate higher returns, the cycle turns

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?

When the value of the claim approaches or exceeds the insured's policy limits

Benjamin has his home insured with Westfork Mutual under an HO-3 policy for $100,000. He is the named insured on the policy. There are three other residents of the home: Maria, Benjamin's mother; Daniel, his nephew; and Cian, a family friend. An accidental fire causes damage to the home and to personal property of all four occupants. Benjamin reports the loss to Westfork and Fatima, a claim representative, is assigned the claim. Which one of the following will most likely be Fatima's principal concern when analyzing coverage for the loss?

Whether Maria's, Daniel's, and Cian's property would be covered

Which one of the following statements is correct regarding the interaction between risk control and other insurer functions?

A risk control evaluation can make the difference between the applicant's being rejected or accepted by the underwriter

Which one of the following best describes the type of data included in loss transaction records submitted by insurers to transaction-based Statistical Plans?

Loss payments (full or partial) and loss reserve transactions

A company installs a guard on a machine to protect against employees' injuring their hands. What type of risk control technique is the company using?

Loss prevention

During a premium audit the insured mentioned plans to expand operations and erect new buildings to Gail, the premium auditor. Gail can benefit both the insured and the insurer by notifying

Marketing (sales)

Which one of the following statements is correct regarding net income loss exposures?

Net income loss exposures associated with property losses exhibit almost all the characteristics of ideally insurable risks

Which one of the following is measurable and quantifies risk?

Probability

Which one of the following statements is true concerning claim information users?

Producers must have policyholder loss information to prepare renewal policies properly

Under certain circumstances, a cooperative insurer can obtain additional capital by borrowing funds using surplus notes. These notes can usually be repaid only from

Profits

Which one of the following statements is true concerning adjustment of property claims?

Proper settlement of business income claims requires detailed analysis of financial records

While there are many causes of net income losses, net income losses are usually associated with

Property losses

For insurance and traditional risk management purposes, loss exposures are typically divided into four types. Which one of the following lists those four types?

Property, liability, personnel, and net income

COPE is an acronym for the basis used to examine commercial property loss exposures. The letter P in COPE represents

Protection

Underwriting guidelines serve all of these purposes, EXCEPT

Provide rating criteria

Which one of the following is a way in which risk control activities can help an insurer meet its profit goal?

Providing an additional source of revenue

In which one of the following ways can the premium auditor contribute to the risk control function?

Providing information about unsafe procedures or working conditions

Though marketing plans are varied, they all serve the same fundamental purpose of

Providing the "roadmap" necessary to profitably and effectively acquaint sellers with potential buyers

Which one of the following is an external constraint insurers contend with that may prevent them from meeting their goals?

Public opinion

For liability claims, damages for which the insured may be found liable include compensatory and

Punitive

Which one of the following is an actual step in the premium auditing process?

Reporting the audit findings

Risk control can assist premium auditing by

Reporting the existence of new operations

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?

Retrospective rating plan

Specific measures of an insurer's operational performance are the investment income ratio, overall operating ratio, and the

Return on equity ratio

Which one of the following tasks is the responsibility of a staff underwriter as opposed to a line underwriter?

Review and revise rating plans

All of these are line underwriting activities, EXCEPT

Revise pricing plans

Julian is the new business continuity manager for Cromley Industries, Inc. ("Cromley"). One of Julian's initial tasks is to review the business continuity plan currently on file at Cromley's world headquarters. Julian has also been asked to make improvements to the plan, which is over 100 pages long and includes several exhibits. The plan addresses a wide variety of risks, each varying in levels of severity, and requires all Cromley employees to complete some components of crisis training. Which one of the following actions should Julian take to improve Cromley's business continuity plan?

Revise the plan so that it is sufficiently detailed but easy to read

Which one of the following statements is correct with regard to the risk control function of insurers?

Risk control helps insurers meet profit goals by improving the quality of underwriting decisions

The executive team of a primary insurer decides to become a third-party administrator of claims. This is an example of which one of the following types of corporate-level strategy?

Related diversification

The most difficult time for an insurer to change distribution systems is when

Renewing an existing book of business

What valuation approach do most underwriters regard as the most appropriate to commercial property coverage?

Replacement cost

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?

Risk financing alternatives

The first step in the underwriting process is evaluating the submission. Which one of the following statements is correct with respect to that evaluation?

Underwriters must understand the activities, operations, and character of each applicant

Which one of the following statements is correct with respect to factors considered in underwriting personal automobile insurance?

Underwriters often use consumer investigation reports to determine the personal characteristics of drivers

Which one of the following statements is true regarding amount subject and probable maximum loss (PML) in evaluating property loss exposures?

Underwriters often use the expression "within four walls" to explain the concept of amount subject

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?

Underwriting

Which one of the following core functions of a typical insurer determines whether and under what conditions the insurer is willing to provide insurance products and services to potential customers?

Underwriting

Which one of the following is the insurer's quality control check for uniform application of the underwriting guidelines and for continuous improvement?

Underwriting audits

Underwriting guidelines reflect the levels of

Underwriting authority

Which one of the following statements is true with regard to property claims for commercial structures?

A commercial structure is more likely than a personal residence to significantly depreciate due to factors other than wear and tear

Which one of the following best defines the term "direct writing reinsurer"?

A reinsurer whose employees deal directly with primary insurers

Which one of the following is not a type of insurance but a marketplace such as a stock exchange?

Lloyd's

Which one of the following statements is true with regard to the various forms of ownership of property-casualty insurers?

Lloyd's and insurance exchanges are each examples of an insurance marketplace

All of the following are cooperative insurers, EXCEPT

Lloyd's of London

Misclassifying hazardous business into a lower-rated classification results in

Loss of premium volume

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?

Loss of use

At year end, Omicron Insurance Company (OIC) posted these results: Premiums written $10,000,000 Premiums earned 9,500,000 Underwriting expenses incurred 4,000,000 Loss and loss adjustment expenses incurred 5,700,000 Based on this information, which one of the following represents OIC's trade basis combined ratio?

100%

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?

95%

Which one of the following is correct regarding captive programs?

A captive collects premium, issues policies, purchases reinsurance, invests assets and pays losses, just like any other insurer

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 captive plan

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 funded reserve

Which one of the following is a noninsurance risk transfer measure?

A hold-harmless agreement

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

A large bank that operates from a single location in a major city

At a minimum, metadata includes

A listing of all elements in a database

Which one of the following statements is true?

A marketing plan identifies the product or service to be promoted and the customers to be targeted

New exposures are an important area in which an auditor might provide information to underwriting. New exposures can result from a change in operations or from

A new venture

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 prospective settlement

A marketing plan for a typical insurance product includes

A situational (SWOT) analysis of the current marketplace

When considering global expansion, which one of the following offers a low-risk approach to quickly entering a new market?

A strategic alliance

Which one of the following is correct regarding traditional risk management (RM) verses Enterprise-wide risk management (ERM)?

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

The term risk control refers to

A technique to prevent or mitigate losses

The settlement technique that is most appropriate for small claims and promotes excellent public relations is known as

A walk-away settlement

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 lagging the 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?

Ability to expand into additional states

Which one of the following statements is correct with regard to auto bodily injury liability claims?

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

Worthley Insurance Company uses claim audits to ensure compliance with best practices. These audits evaluate both quantitative and qualitative factors. Which one of the following factors that Worthley evaluates is a qualitative factor?

Accurate evaluation of insured's liability

To be successful, the differentiation business-level strategy must

Accurately determine customers' preferences to develop products perceived as distinctive

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?

Acknowledge receipt of the claim to Chad and enter the claim information into ABC's computer system

Which one of the following statements regarding monitoring the results of a risk management program is true?

Activities standards are necessary to obtain a complete picture of the success or failure of a risk management program

Claim representatives maintain a record of all the activities and analyses that occur while handling a claim in

Activity logs

When determining the dollar amount of the loss, what valuation method is usually calculated as replacement cost minus depreciation?

Actual cash value (ACV)

Pravalt Insurance Company, a proprietary insurer is concerned about meeting their insurer goal of earning a profit. CEO Emily has asked for suggestions from her management staff to meet this goal. Which one of the following suggestions from her staff will most effectively achieve this goal?

Actuarial Manager, Elin suggests their product be priced competitively in the market and appropriately for their risk

The actuary can best help ensure quality in source databases by

Advocating improvements in data management and data quality practices

Which one of the following statements is true?

An increase in supply will soften the market

Which one of the following statements regarding characteristics of the underwriting cycle is true?

An increased supply has a softening effect on the market

Which one of the following statements is correct with respect to retrospective rating plans?

An organization must have a substantial insurance premium to benefit from retrospective rating

Operations liability cases usually focus on

An unsafe act

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?

Analyze, evaluate, and prioritize critical risks

A facultative reinsurance agreement is written for a specified time period

And cannot be cancelled by either party unless contractual obligations, such as payment of premiums, are not met

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)?

Any material judgment adjustments that the actuary applied to the data to allow the actuary to perform the analysis

Which one of the following statements is correct with respect to applying risk control techniques to the various types of loss exposures?

Any measure that controls property, liability, or personnel loss exposures also indirectly controls associated net income loss exposures

When selecting appropriate data for ratemaking analysis, actuaries should select loss and exposure data that are reasonably current and that

Are drawn from exposures similar to those expected in the future

Profit cycles in insurance and in agriculture

Are supply driven

A management control tool used to determine whether line underwriters are properly implementing underwriting policy is known as an underwriting

Audit

All of the following are areas in which ASOP 23 provides guidance to the actuary, EXCEPT

Auditing data

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?

Auto insurance is compulsory, and the program makes it possible for all drivers to have reasonably priced insurance

In the insurance industry, reinsurers are in a position to control the price and amount of capacity they provide, limiting insurers' ability to provide certain types of insurance. According to the Five Forces Model for analyzing the competitive environment, which one of the following forces that drive competition does this demonstrate?

Bargaining power of suppliers

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?

Because she handles all financial transactions, Erin is well positioned to steal from OFO

Which one of the following statements is correct?

By exercising sound risk control, organizations fulfill occupational safety and health standards and comply with local, state, and federal laws

Which method of discovery can be described as sworn statements made about the activities or knowledge of a party or witness concerning the subject matter of a lawsuit that can be used as trial evidence if that party or witness cannot attend trial?

Depositions

Soon after a loss has been assigned and initial reserves have been established, a claim representative contacts the insured or the insured's representative. Which one of the following statements is correct with respect to that contact?

Claim representatives must be careful not to give the impression that a claim will be paid if potential grounds exist to deny the claim

Under the ISO construction classes, a building constructed of a wood frame with aluminum siding would be classified as

Class 1—Frame

Once an underwriter has evaluated a submission, selected and applied any appropriate modifications, and determined the premium, the next step is to implement the underwriting decision. To implement the decision, the underwriter should first

Communicate the decision to the producer

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?

Comparative negligence

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?

Comparative negligence

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?

Compare actual results with the established performance standards

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 lagging the goal. The management team at Jancy is concerned and has decided to do a SWOT analysis. Which one of the following facts discovered during the SWOT analysis represents a threat to Jancy?

Competitors are offering more pricing options and Web site quotes

The principal method of determining a prospect's insurance needs is through

Completing a risk management review for the prospect

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?

Custom items particularly adapted to the real property, such as custom draperies, are generally considered to be real property

Juan received a phone call from an angry policyholder. The insured received a bill as a result of a workers compensation premium audit. The individual does not understand why premium has increased when his total payroll is lower than originally projected. Juan advises the insured that he will contact the auditor, review the audit, and call back with an explanation. Which one of the following producer functions is Juan performing?

Customer service

Which one of the following statements is true with regard to occupancy analysis when underwriting property insurance?

Electrical equipment is a source of common hazards that exists in almost all business occupancies

Which one of the following best describes who is responsible for Step 0: Data requirements, in the insurance data life cycle?

Data managers and actuaries at the source and the destination for the data

The insurance industry has been experiencing increased competition, widely available coverage, low premiums and decreased profitability. One strategy for an insurance company to maintain market share regardless of the effect on underwriting profitability is to

Decrease prices

Which one of the following best describes appropriate data according to Actuarial Standard of Practice (ASOP) No. 23?

Data are appropriate if they are suitable for the intended purpose of an analysis and relevant to the system or process being analyzed

Outliers found using which one of these data analysis tools should be compared to the metadata to determine valid data elements?

Data cube

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?

Descriptive statistics

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?

Desirable

For which one of the reasons below do actuaries review claim files?

Determination of how reserves were established

A risk control representative's physical survey report is likely to contain all of the following, EXCEPT

Determination of insured property values

In handling a property claim under Special Form Coverage, a claim representative should gather facts about the cause of loss and then

Determine if the cause of loss is excluded in the Special Form Coverage

Antonia and Philip have their house insured with Durham Insurance under an HO-3 homeowner's policy. Philip is the named insured and there is no mortgagee shown on the policy. During a storm, a lightning strike results in a kitchen fire and high winds causes a tree to fall on the roof, leaving a large hole. The homeowners make emergency repairs to protect against further damage and report the loss to the insurer. The claim is assigned to Miguel who identifies the policy and performs an initial review. After discussing the loss with Antonia and Philip, which one of the following will Miguel most likely do?

Determine whether lightning and windstorm are covered causes of loss and whether any exclusions apply

For statistics analyzed using the accident-year method, the date of loss in an Insurance Services Office (ISO) statistical plan

Determines the assignment of the paid and/or outstanding loss or allocated loss adjustment expense (LAE) to the proper accident year

All of these are challenges that the claim representative faces when handling residential personal property claims, EXCEPT

Determining deductibles on the damaged, destroyed, or stolen personal property

Which one of the following statements is true concerning products liability claims?

Determining liability in products claims often involves redesigning the product after an accident often involving expert opinion

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

Determining whether the owner of the adjacent structure had property insurance on the structure

Which of the following steps in the ERM integration process constitutes establishing internal and external contexts?

Develop ERM goals

The principal purpose of underwriting is to

Develop and maintain a profitable book of business for the insurer

The purpose of underwriting is to

Develop and maintain a profitable book of business for the insurer

Which one of the following statements is correct with respect to developing safety management programs?

Developing a safety management program begins with a complete evaluation of the policyholder's operations

Which one of the following is NOT a method of transferring premiums to the insurer in the agency bill process?

Direct bill basis

Which one of the following premium collection methods is used in the majority of personal insurance sales?

Direct bill process

A crumpled car fender is an example of which kind of loss?

Direct loss

Insurance Company D (ICD) has traditionally used regional brokers to market and produce its insurance products. The management team at ICD has decided it wants to launch a new specialized product. The marketing plan includes ICD's desire to control the targeted number of monthly applications as well as the methods that will be used to advertise and campaign to achieve the desired results. Which one of the following distribution systems will best allow ICD the desired control?

Direct writer

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

Direct writer marketing system

A data analysis tool called a box and whisker plot is

Displayed as a 5-point summary of a single variable's distribution

Which one of the following is a key test or check that should be considered in a review of reasonableness of the data?

Distributional edit review

Risk can be classified as diversifiable or nondiversifiable. Which one of the following statements is true with respect to this type of risk classification?

Diversifiable risks tend not to be correlated so they can be managed through diversification or spread of risk

Which one of the following risk control techniques is more commonly applied to managing business risk rather than hazard risk?

Diversification

Keithly Insurance Company traditionally has written business in coastal states. Over the last decade, 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 Nicholas specifically trying to achieve with the development of his new plan?

Diversify risk

Pro rata reinsurance is the appropriate choice when which one of the following is the main concern related to a primary insurer's rapid growth?

Drain on policyholders' surplus

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?

Duplication

Which one of the following risk control techniques will reduce loss severity and make losses more predictable, without increasing loss frequency?

Duplication

Which one of the following statements about the underwriting cycle is true?

During a soft market, insurance pricing reflects the desire to hold market share

Which one of the following statements is true regarding traditional risk management (RM) verses enterprise-wide risk management (ERM)?

ERM emphasizes the interrelationships between pure and speculative risk

Which one of the following is true regarding enterprise-wide risk management (ERM)?

ERM is an approach to managing all of an organization's key risks and opportunities

All of the following statements about the distinction between traditional risk management and ERM are true, EXCEPT

ERM is normally involved only in the elements of an organization's strategy that deal with pure risk and hazard risks, while traditional risk management is integrated with the entire organization's strategy

Which one of the following is most likely to conflict with the post-loss goal of continuity of operations?

Economy of operations

The state advisory organization has developed a new homeowner's form which increases the personal property limits for guns, silverware, jewelry, and boats. Jancy Insurance Company is considering modifying the form for its own use. Which one of the following members of Jancy's staff would be involved in the research and development of this new form?

Emma, the staff underwriter

All of the following factors are considered when underwriting workers compensation insurance, EXCEPT

Employee gender and marital status

A liability-based third-party coverage under which an injured employee must prove negligence is

Employers liability

All of the following are characteristics of employee dishonesty loss exposures, EXCEPT

Employers readily believe that employees may steal from them

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 best served by inclusion of these acceptable approaches?

Ensure uniformity and consistency in risk selection

All of the following are goals of BS 31100, EXCEPT

Ensuring that an organization maximizes its profits

Insurers engage in all of the following activities to meet legal requirements, EXCEPT

Establishment of broad employee benefits programs

The focus of a line underwriter is

Evaluating new submissions and renewal underwriting

Which one of these internal constraints can be overcome by the insurer's making certain that current staff have the skills or training needed to perform their jobs adequately or by hiring staff to better fulfill job requirements?

Expertise

What risk is transferred through the use of hedging?

Exposure to loss from declines or increases in an asset's market price

Experience rating bases an insured's current premium on the insured's

Exposure units and losses

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?

Extra expense

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

Extra expense

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

Failed to exercise the standard of care accepted in the profession of nasal surgeon

Which one of the following statements concerning government insurance programs is true?

Fair Access to Insurance Requirements (FAIR) plans make basic property insurance available to property owners who can't get it otherwise

All organizations must apply external frameworks and standards uniformly. True or false?

False

Which one of the following statements is correct regarding internal constraints insurers face?

Financial constraints can affect insurers' ability to achieve profit goals

Loss ratios, expense ratios, and combined ratios are all examples of which one of the following?

Financial controls

George works for a large company and part of his job is to monitor assets according to their liquidity. George is particularly concerned that the company fleet cars are affecting its liquidity and rising fuel prices are having an adverse effect during tight economic markets. If George's concerns were categorized as causes of loss according to the quadrants of risk, his concern most directly relates to which one of the following types of risks?

Financial risks

Which one of the following is the most common type of intentionally caused loss?

Fire

Inception date typically coincides with the

First day of coverage

Omicron Manufacturing has approached Delta Insurance Brokerage to develop and implement a voluntary insurance program for life, health, and disability insurance for Omicron's employees. Delta puts together a program in which employees receive the coverage at discounted rates, and premiums are deducted from the employees' paychecks. Omicron and Delta are using which one of the following types of group marketing to offer this program?

Franchise marketing

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?

Fredine sells unbundled risk control services to self-insured companies

Which one of the following statements is correct regarding government insurance programs?

Government programs can operate as reinsurers, reinsuring 100 percent of the risk or that part in excess of the private insurer's retention

Reinsurance pools, syndicates, and associations are

Groups of insurers that share the loss exposures of the group, usually through reinsurance

In remodeling the primary office location, Phil, who is a partner in his family's construction business, found asbestos in the attic of the building. He is concerned not only about the current tear-out exposure but is also aware that asbestos may have resulted in unidentified harm. In the "quadrants of risk," Phil's concern about the asbestos most likely falls into which one of the following quadrants of risk?

Hazard risks

Jessica has her car insured for liability, collision, and comprehensive coverage with Greatview Insurance. She has decided to purchase a pickup truck as a second vehicle. As she is leaving the dealership with her new pickup, she accidently collides with another vehicle, causing damage to both. Neither she nor the other driver is injured. Jessica returns home and calls her insurer to advise of her new purchase and to report the claim. Her claim is assigned to Lucas. After identifying the policy and entering initial loss information, which one of the following describes how Lucas would most likely proceed?

He would confirm that a "newly acquired auto" meets the policy definition of "your covered auto."

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?

Highly Desirable

Given the complexity of commercial insurance, which one of the following is best suited for its distribution?

Independent agencies

Which one of the following types of agent is usually paid the same commission rate for new business and renewals?

Independent agent

Which one of the following activities is the first step in the business continuity process?

Identify the organization's critical functions

Which one of the following statements is correct with respect to the use of SWOT analysis to analyze the competitive environment?

Identifying internal strengths and weaknesses involves considering financial, physical, human, and organizational assets

When the investigation has been completed and all documentation has been received, the claim representative must decide whether to pay the claim or deny it. Which one of the following statements is correct with respect to this element of claim handling?

If a disagreement arises over the value of a claim, alternative dispute resolution methods may be used to resolve the situation

Which one of the following statements is correct with respect to the characteristics of the products liability loss exposure?

If a product has been widely distributed, a loss could be catastrophic in terms of number of claims

Why would fire loss to a building be considered a pure risk rather that a speculative risk?

Involves only the possibility of loss and no possibility of gain

Under certain circumstances, an insurer may authorize the adjustment of claims by producers. One of the benefits of providing producers with draft authority is that

If an agent can issue a draft directly to the insured, it reduces the time an insured waits for payment

Which one of the following statements is correct with respect to umbrella liability insurance?

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

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

If customers will receive the same message about products and services no matter which system they choose

After receiving a claim assignment, a claim representative will identify the policy and assess the coverage available. Which one of the following statements is correct with respect to this activity?

If it is apparent that coverage may not be available for the loss, the claim representative must notify the insured through a nonwaiver agreement or a reservation of rights letter

Which one of the following statements is correct with respect to characteristics of insurable loss exposures?

If losses are not fortuitous, the insurer cannot calculate an appropriate premium

Incorrect or incomplete audits affect the insurer by

Impacting customer retention

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

Implement the selected techniques

The common distinction between line underwriters and staff underwriters is that line underwriters

Implement the steps in the underwriting process. Staff underwriters assist underwriting management with formulating underwriting policy

Benefits of risk management for organizations can include all of the following, EXCEPT

Increases an organization's degree of risk aversion

The combined ratio (trade basis) is used to measure an insurer's performance and is calculated as

Incurred losses and loss adjustment expenses divided by earned premiums and incurred underwriting expenses divided by written premiums

The process of restoring an individual or organization to a pre-loss financial condition is the process of

Indemnification

Which one of the following statements is correct with regard to risk and ideally insurable characteristics of loss exposures?

Indemnification is the process of restoring an insured to a pre-loss financial condition

The primary role of insurance is to

Indemnify individuals and organizations for covered losses

A primary insurer uses reinsurance to

Indemnify it for some or all of the financial consequences of certain loss exposures covered by the insurer's policies

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

Independent

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?

Independent agent

Gulford Insurance Company (Gulford) is a direct writer of commercial insurance in Pennsylvania. The management team is frustrated by the continued lack of success in the more rural western part of the state. It is difficult to penetrate the market without a local presence, but the cost of assigning agents to this territory is not justified by the returns. Which one of the following distribution systems would best allow Gulford the local presence in a cost-effective manner?

Independent agents

Private insurers are reluctant to provide windstorm insurance on coastal properties. This is because the loss exposures fail to meet the criterion that ideally insurable exposures must be

Independent and not catastrophic

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?

Individuals and organizations vary greatly as to how much residual uncertainty they are willing to accept, and this benefits society and the economy

Which one of the following statements is correct with respect to the expected cost of losses or gains?

Industrial accidents can illustrate the various costs that need to be accounted for in determining cost of losses

Business continuity management was initially developed with a focus on

Information technology concerns

Most insurers give some producers the authority to issue claim payments, up to a certain amount, directly to insureds. In this role, producers function much like a(n)

Inside claim representative

The retention ratio as an underwriting performance measure is the percentage of

Insurance policies renewed

For many organizations, paying for losses does not only entail paying for the actual losses or portions of losses retained, it also covers transfer costs, which are costs paid to transfer responsibility for losses to another party. Which of the following would be a transfer cost for a hazard risk?

Insurance premium

Which one of the following statements about a hard market is true?

Insurance premiums rise during a hard market

It is important that premium audits be accurate for the sake of which one of the following?

Insurance rates

Insurance companies face the uncertainty that the premiums they have collected will not be adequate to pay the losses. This uncertainty is called

Insurance risk

The maximum amount of insurance or limit of liability that an insurer will accept on a single loss exposures is called a

Line

Which one of the following statements is correct with respect to forces that drive competition according to the Five Forces Model?

Insurers can raise barriers to entry by offering unique or customized products or services

Which one of the following statements is true concerning premium audits?

Insurers conduct premium audits to determine correct policy premiums

Which one of the following statements is correct regarding property claims?

Insurers rarely require an examination under oath, but when they do it is usually because they suspect the policyholder of fraud

Which one of the following statements is correct with regard to notice requirements under property policies?

Insurers require prompt notice of claims because adjusters can't properly investigate losses after too much time has passed

The underwriting cycle is made up of two phases. Which one of the following best describes the soft market phase?

Intense competition in the market and decreased profitability

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?

Investigate the claim

Risk can be classified as pure or speculative. Which one of the following is the best example of a speculative risk?

Investing in shares of stock

The primary sources of revenue for insurers are insurance premiums and

Investment income

Which one of the following statements is correct regarding the investment function within an insurer?

Investment income enables an insurer to reduce the premium that it must charge for the underwriting risks it assumes

Which one of the following statements is correct regarding the benefits that insurance provides?

Investment income helps keep insurance premiums at a reasonable level

Riko is an automobile claim representative who has been assigned a claim submitted by John. John owns a 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 with his parents and his sister, Carla. One Saturday, while John is asleep, Carla borrows his car to run errands. Unfortunately she backs into the concrete base of a sign at the mall, damaging the vehicle. Riko confirms that the Honda is the covered vehicle, that it is insured against collision, and that the loss occurred during the policy period. Which one of the following will she most likely determine next?

Is Carla covered as a driver of the damaged vehicle?

The level of cash flow variability that an organization is willing to accept

Is affected by the risk appetite of its stakeholders

The transaction effective date in an Insurance Services Office (ISO) statistical plan

Is the date on which coverage begins or changes

Which one of the following statements is correct with respect to self-insurance?

It is often used to cover workers' compensation and other loss exposures that have claim payments that extend over time

Which one of the following presents a challenge in adjusting a residential personal property claim?

It's often difficult to determine that the property existed and was lost

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?

Juan should arrange defense for Bert because protection against false claims is an important element of liability coverage

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?

Large number of similar exposure units

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?

Loss prevention

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?

Loss prevention

Incurred losses (including loss adjustment expenses) divided by earned premium is the formula for

Loss ratio

Automatic sprinklers are a classic example of which one of the following risk control techniques?

Loss reduction

Consulting with an attorney for guidance through the legal steps necessary to resolve liability claims is an example of what type of risk control technique?

Loss reduction

One of the biggest problems in measuring insurer profitability arises from errors in estimating

Loss reserves

Which one of the following statements is correct with respect to employee dishonesty?

Losses can be hidden from discovery and large losses are common

Risk transfer measures are most appropriate for losses that exhibit which one of the following patterns?

Low-frequency, high-severity

Which one of the following is a problem with an individual or organization maintaining high levels of liquidity?

Maintaining high levels of liquidity typically results in a lower rate of return on investments

Which one of the following describes the method that state regulators use to ensure that insurers adhere to filed classification and rating plans?

Market conduct examinations

Martina, a premium auditor for Cintriell Insurance Company is conducting a premium audit for Carolina's Cookies. Carolina mentioned to Martina that she is opening a coffee shop at another location. By sharing this information, Martina would provide a contribution to which one of the following insurer functions?

Marketing

Producer Tina has recently received many requests for cell phone coverage from auto insurance customers. She feels that this type of coverage could be inexpensive for the insurer to develop but could possibly attract youthful policyholders. Tina should discuss her product innovation ideas with the insurer's

Marketing and distribution department

Which one of the following is the goal of enterprise-wide risk management (ERM)?

Maximize the organization's value

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?

Measurable

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 Numbers pamphlet?

Measure the data's accuracy, completeness and timeliness

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

Meeting customers' needs

Which one of the following insurer performance goals is the most difficult to evaluate?

Meeting social responsibilities

Which one of the following cases illustrates an external constraint for meeting insurer goals?

Mellfor Insurance Company has lost income from a recent increase in workers compensation losses caused by fraud

Which one of the following statements is true regarding occupancy hazards when underwriting fire insurance?

Mercantile occupancies such as clothing stores and grocery stores are subject to large loss to stock from relatively small fires

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

Metatdata are information about data, business rules, and data processing

Which one of the following insurer customer groups may have a risk manager to assist with coverage decisions, typically use brokers to access the insurance markets, and may be targeted by small (local), regional, or national brokers?

Middle markets

Which one of the following cases illustrates an internal constraint for meeting insurer goals?

Millwright Insurance Company's website is not interactive and does not provide rate quotes on line

In addition to implementing effective and efficient measures, complying with legal requirements, and promoting safety, risk control should aim to

Minimize or eliminate significant business interruptions, whatever their cause

What do risk control techniques hope to achieve?

Minimize the frequency or severity of losses

Which one of these data quality problems impairs or prevents an analyst's ability to use the affected variables for analysis?

Missing data

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?

Mitigate

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?

Modified fire-resistive construction

The appropriate remedy sought in most lawsuits for bodily injury and property damage is which one of these?

Money damages

Which insurance regulation duty relates to ensuring that insurers do not engage in unfair practices and that insurers fulfill the terms of their policies?

Monitoring of market conduct

An individual decides to go for a drive in a blizzard. He believes, because he has full coverage on his automobile, he will be covered if he has an accident due to recklessness. This would be an example of a

Morale hazard

Driving carelessly or failing to lock an unattended building are examples of

Morale hazard

All of the following are costs often included in insurance premiums that an organization can avoid if it chooses to retain the risk of auto liability, EXCEPT

Morale hazard costs

Increasing amounts of data provided to actuaries has led to

More errors

Which one of the following statements is correct regarding the use of treaty and facultative reinsurance?

Most treaties require that all loss exposures within the treaty's terms be reinsured

ABC Insurance Company is organized by geographic regions and has departmental operations within each region. Which one of the following best describes ABC's organizational structure?

Multidivisional structure

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?

National accounts

Insurer Q has earned premium of $5 million and unearned premium of $3 million. Its incurred losses are $3 million while underwriting expenses are $1 million for the calculation period. As far as underwriting performance, Insurer Q has a

Net gain of $1 million

Which one of the following is an insurer response to a soft market?

New products

A hold harmless agreement is a

Noninsurance risk transfer measure

Which one of the following is a main cause of depreciation?

Obsolescence

Personal and advertising injury coverage is designed for

Only companies that have incidental advertising injury exposure

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?

Operations liability for sales staff activities at vendors and advertisers

Liability policies cover insureds for compensatory damages an insured owes to a third party. Compensatory damages normally covered by the policy include

Pain and suffering and out-of-pocket expenses claimed up to the policy limit

Which one of the following statements is correct regarding insurers' involvement in safety management programs for insureds?

Part of a risk control consultant's role in developing a safety management program is assisting the insured in establishing risk control goals

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

Possibilities

Business continuity is designed to meet both the primary risk management program post-loss goal of continuity of operation and the

Post-loss goal of survival

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?

Post-loss goals broadly describe the degree of recovery that an organization will strive to reach following a loss

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?

Pre-action sprinkler system

Each of the following are regulatory compliance measures insurers can institute, EXCEPT

Pre-claim practice and drills

Which one of the following statements is correct with respect to the characteristics of premises and operations liability loss exposures?

Premises and operations liability losses are definite in time, cause, and location, and are measurable

Businesses that regularly have members of the public on their premises often experience what type of claim more than any other type of liability claims?

Premises liability claims

Workers compensation insurance includes all these benefits EXCEPT

Premises liability for injuries to employees' family members

An 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

Premises loss exposures

Lily, a premium auditor, works for Worthley Insurance Company. She has recently audited Taunton's Trucking. Which one of the following cases illustrates how Lily assists underwriting?

Premium auditor Lily identifies a pattern of inaccurate information given by producer Daniel

Which one of the following financial ratios is key for evaluating insurer solvency?

Premium to surplus ratio

Which one of the following statements is correct with respect to property loss exposures?

Premiums for flood insurance may not be economically feasible, depending on location

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% 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?

Pro rata

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?

Purchase facultative reinsurance and write the policy

An automobile owner faces a risk of loss from a possible collision. The auto will either suffer a collision loss or not. If a collision occurs, there will be a financial loss. If there is no collision, the owner's financial condition is unchanged. This is an example of what type of risk?

Pure

Traditional risk management is concerned with

Pure risk

Traditionally, the risk management professional's role has been associated with loss exposures related to

Pure risk

Which one of the following is recorded in the exposure data element of an ISO general liability statistical plan?

Rating basis

Which one of the following statements is correct regarding property insurance provisions?

Real and personal property might be valued differently, have different limits of insurance, and different coinsurance requirements under the same policy

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

Reasonable and necessary

The purpose of an activity log is to

Record all activities and analysis of a particular claim

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?

Record consistency

The right of subrogation allows the insurer to

Recover claim payments from a negligent third party

When selecting a retention for its reinsurance program, the primary insurer must consider the maximum amount that it can retain. This amount is a function of the primary insurer's financial strength and

Regulatory requirements

Which one of the following is not a source of reinsurance?

Reinsurance intermediaries

The amount of risk retained by a primary insurer under its reinsurance program is influenced by

Reinsurer requirements for retention

Donna is an insurance producer. She makes an appointment with a potential policyholder to review the prospect's loss exposures. She asks the prospect to complete a questionnaire to assist her in this effort. Donna is conducting a

Risk management review

If doubts about coverage exist in a residential dwelling loss, a claim representative can focus on the insurer's priorities without relinquishing any of the insurer's rights by

Sending the insured a reservation of rights letter

Which two risk control measures are directly aimed at reducing the severity of net income losses?

Separation and duplication

Alexis has inherited a family cottage that she has insured with Millstone Insurance for $100,000. One weekend while Alexis is at the cottage, a fire starts in the night. The cottage is a total loss. Alexis calls her insurance agent who reports the claim to Millstone. The claim is assigned to Victor, a property claim representative. After entering the information from the notice of loss into Millstone's claim-processing system, which one of the following will Victor most likely do?

Set preliminary loss reserves

Insurers use a variety of different methods when setting claim reserves. Which one of the following statements is correct with respect to loss reserves?

Setting accurate and adequate reserves is important to an insurer's continued solvency and ability to write new business

Risk control can use information from a claim representative's report of an accident to do all of the following, EXCEPT

Settle the loss

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?

Space Systems Risk Management

When adjusting a property loss, a claim representative must determine whether or not the loss was caused by a covered peril. Insurance that covers every cause of direct physical loss or damage that is not specifically excluded is referred to as

Special form coverage

Alex is involved in investigating the unusual circumstances of a large insurance claim. Alex is seeing indicators that the insured skewed the payroll numbers in order to obtain a lower premium. Alex most likely works in the insurer's

Special investigation unit

Alex, a premium auditor for Keithly Insurance Company, has received a workers compensation audit form which his insured completed for the prior year. He notes the payroll has been greatly decreased since the last audit. Which one of the following functional areas of Keithly can assist Alex with this audit's irregularity?

Special investigation unit

Bodily injury liability damages can be classified as either

Special or general

Plastics Manufacturing Company (PMC) operates globally with property values approaching $100 million. Liability exposures are considerable particularly for products liability. Because of its size, PMC decides to form a captive insurer. PMC's board of directors is unwilling to risk huge losses as the captive begins operations. Which function of reinsurance would be most beneficial to PMC and its captive insurer?

Stabilize loss experience

Which one of the following statements regarding underwriter responsibilities is correct?

Staff underwriters typically share responsibility for researching fundamental insurance issues with the actuarial and marketing departments

All of these can be indicators that an insurer meets its social responsibilities, EXCEPT

State insurance departments' regulation in solvency surveillance

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?

Stated value

A formal set of directions for recording and reporting insurance premiums, exposures, losses, and sometimes loss expenses to a statistical agent is a

Statistical plan

Which one of the following dimensions of organizational data quality is represented when responsibility for managing data has been assigned?

Stewardship

Which one of the following approaches to global expansion has the benefit of providing a low-risk approach to quickly entering a new market?

Strategic alliance

Which one of the following approaches to global expansion is considered the simplest and carries the lowest degree of risk?

Strategic alliance

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 would be classified as a(n)

Strategic risk

Hardware Store has been able to control its prices and inventory since it has no competitors. A new highway currently being constructed is going to allow increased competition for Hardware Store. According to the quadrants of risk, this risk of increased competition falls into the category of

Strategic risk

Which step in the strategic management process involves formulating the "who," "what," and "when" responsibilities?

Strategy formulation

Under what type of liability for products is the nature of the product the issue, instead of the defendant's behavior?

Strict liability in tort

Which type of settlement technique would be most appropriate when the claimant is expected to experience predictable regular damages into the future?

Structured settlement

Life, health, and retirement causes of loss are

Subject to moral and morale hazard problems

Under ISO's personal automobile statistical plan, the coverage being reported is recorded in which one of the following data elements?

Subline code

An actuary should review the data for reasonableness and consistency, unless, in the actuary's professional judgment, which one of the following is true?

Such review is not necessary or not practical

Which one of the following best describes a consistency test that should be considered in a review of reasonableness of data?

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

Which one of the following best describes the two basic types of statistical plans?

Summary-based and transaction-based

Underreserving losses ultimately has this effect on insurance supply

Supply ultimately decreases

All of the following are underwriting activities typically performed by staff underwriters, EXCEPT

Support producers and insureds

Which one of the following statements about insurance distribution systems and channels is true?

Surplus lines brokers can place coverage that is not available through standard market insurers

Pro rata reinsurance that covers policies whose amounts of insurance exceed a predetermined dollar amount, or line, is called

Surplus share reinsurance

Regarding diversifiable and nondiversifiable risk, which one of the following statements is accurate?

Systemic risks are generally nondiversifiable

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?

TBSS could suffer a severe business income loss from a relatively short shutdown

To select appropriate data for long-tailed lines of business, an actuary may need to select data

That include current information and older historical information

All of the following are sources of reinsurance, EXCEPT

The Brokers & Reinsurance Markets Association (BRMA)

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?

The Federation of European Risk Management Associations (FERMA)

Which one of the following statements is correct with respect to insurers' use of the Internet and insurance portals?

The Internet provides lead-generation and cross-selling opportunities for all products

What is the most dominant statistical agent in the United States for workers compensation data collection?

The National Council on Compensation Insurance (NCCI

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?

The PPC of 2 indicates that the public fire service should provide at least adequate public protection from fire loss

Which one of the following statements is correct with respect to an organization's risk financing goals?

The acceptable cash flow variability level for an organization depends on factors such as its size and financial strength

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,

The adjuster should take the reduced listed retail price into consideration

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?

The adjuster would pay the actual cash value of the coat at the time of the loss, or $1,500

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?

The alterations made to the original building may have left unprotected openings in Mellfor Hall's firestops

Which one of the following statements is true regarding measures of potential loss severity for property loss exposures?

The amount subject for a location, as estimated by any two underwriters with a common employer, should be consistent

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?

The claim adjuster should have a solid accounting report that establishes motive before considering asserting an arson defense

Which one of the following statements is correct?

The claim adjusting process can be a source of new coverage ideas and product niche innovations

Claim representatives are responsible for determining the cause of loss, liability, and the loss amount. Which one of the following statements is correct with respect to this process?

The claim representative reviews all component parts of the policy and applies them to the facts of the case

Many laws and regulations require organizations to implement specific risk control measures. Which one of the following statements is true in this regard?

The cost of adhering to these legal requirements becomes part of the cost of risk

In underwriting automobile insurance, the most important factor is

The driver(s) who will operate the vehicle

When selecting a distribution channel, which one of the following is an important consideration with regard to customers' needs and characteristics?

The ease of accessibility within the channel

Which one of the following statements is true regarding the financial consequences of loss?

The financial consequences depend on the type of loss exposure, the cause of loss, and the loss frequency and severity

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

The financial value of the saddle shop is not being maximized

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?

The fire resistive construction of this building is the best type of construction to prevent damage from most causes of loss

Which one of the following statements is true regarding risk management program goals?

The goal of tolerable uncertainty is to allow managers to make and implement decisions without being unduly affected by uncertainty

One of the first determinations a claim representative must make is whether or not the person involved in a loss is covered. In order for an individual to be covered under a property insurance policy, all of the following conditions must apply, EXCEPT

The individual must provide the systematic framework for coverage to the claim representative

Which one of the following statements is true concerning an insured's duty after a property loss?

The insured is required to protect the property from further loss by making emergency repairs

All of the following explain when the use of independent adjusters might be advantageous, EXCEPT

The insured may retain an independent adjuster after becoming dissatisfied with the pace of negotiations with the insurer

All of the following correctly describe reasons for the use of independent adjusters, EXCEPT

The insured may retain an independent adjuster if settlement negotiations with the insurer are not progressing satisfactorily

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?

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

Of all the characteristics of an ideally insurable loss exposure, probably the most important is that

The insurer is able to charge a premium that the insured can afford to pay

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?

The insurer needs more reinsurance because common stock is subject to wide market price fluctuations

The claim handling process begins when the insured reports the loss to the producer or to the insurer's claim center. Which one of the following statements is correct with respect to the next element of the claim handling process?

The insurer provides the insured with a claim number and contact information for the assigned claim representative

Which one of the following is an external constraint that may prevent insurers from meeting their established goals?

The insurer's competition

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

The item basis

Probability is best defined as

The likelihood that an outcome or event will occur

Tobias, a successful producer with Barnley's Insurance Company, is struggling with an intricate quote on homeowners coverage for his insured, Hanna. Hanna not only has substantial collections of guns and silverware, but also has a small farm located at her premises. Which one of the following individuals from Barnley Insurance Company could provide assistance and support to Tobias?

The line underwriter

Pooling arrangements reduce the most risk to the group when

The loss exposures being pooled are independent of one another

Buddy's store is damaged in a fire. He suffers loss of his merchandise as well as loss of income while he replenishes his stock. His direct loss is

The loss of his merchandise and damage to the store

Which one of the following statements is correct regarding the occupancy hazard in property underwriting?

The loss potential of a particular occupancy can be evaluated by examining the contents' ignition sources, combustibility, and susceptibility

Which one of the following statements is true regarding avoidance as a risk control technique?

The most effective way of managing any loss exposure is to avoid the exposure completely

In reference to products liability claims investigation, the issue of interest when strict liability is involved is

The nature of the product

Which one of the following statements is correct with respect to premium auditing?

The need for a premium audit arises because some insurance policies have adjustable premiums

A catastrophe bond is typically issued with a condition that if the issuer suffers a catastrophe loss greater than a specified amount, then

The obligation to pay interest and/or principal is deferred or forgiven

Which one of the following statements is correct with respect to workers compensation underwriting?

The off-premises hazard has three elements: the duration of travel, the mode of transportation, and the hazards at remote job sites

Why do many professional malpractice insurance policies require the policyholder's consent to settlement?

The outcome of malpractice claims affects the policyholder's professional reputation

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

The potential for many injuries or deaths resulting from a single incident

Which one of the following statements is true regarding risk management techniques?

The risk management techniques selected by for-profit organizations should be both effective in meeting the organizations' goals and economical

Which one of the following statements is correct with respect to umbrella and excess liability insurance?

The self-insured retention for a commercial umbrella liability policy is usually $10,000

Which one of the following controls the coverage provided by a workers compensation policy?

The state compensation laws

Which one of the following statements is correct with regard to the use of facultative reinsurance?

The treaty reinsurer is usually willing to allow the primary insurer to remove high-hazard loss exposures from the treaty by using facultative reinsurance

Which one of the following statements is correct with respect to selecting a distribution channel?

The types of insurance products and services to be delivered by the insurer must fit the marketing channel selected

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?

The ultimate responsibility for paying for loss remains with the transferor in a risk transfer agreement

The final, and ongoing, step in the underwriting process is monitoring underwriting decisions. Which one of the following statements is correct with respect to this process?

The underwriter is tasked with monitoring both individual policies and books of business to ensure that satisfactory results are achieved

A property location's probable maximum loss (PML) is

The underwriter's estimate of the largest loss likely to occur

Underwriting authority requirements are usually communicated to an underwriter through

The underwriting guidelines

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

The value of the inventory at the time of the last report

Which one of the following statements is correct?

The values that attorneys and adjusters place on liability claims are derived from actual results of claims litigated to conclusion

Which one of the following statements is correct with respect to marketing plans?

They identify target customers, and the resources and strategies to be used to create, price, promote, and sell the product

Which one of the following is a benefit of contingent surplus notes as an alternative to traditional reinsurance?

They increase a primary insurer's assets without increasing its liabilities

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

Third-party administrators

Which type of claim personnel are often contracted by organizations that have self-insurance plans?

Third-party administrators

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?

Time lost by employees who witnessed the accident

Which one of the following is considered an advantage of the use of retention as a risk financing technique?

Timing of cash flows

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?

To assume a loss exposure with potential financial consequences that are higher than its financial condition would otherwise permit

After an organization's internal and external environments and its business strategies have been examined, the next step to take is

To determine whether a change in course is required to achieve its goals

The overarching purpose of underwriting is

To develop and maintain a profitable book of business for the insurer

Most state rating laws require insurers to report statistical information on losses and premiums to help regulators do which one of the following?

To ensure that rates are not inadequate, excessive, or unfairly discriminatory

All of the following are reasons insurers conduct premium audits, EXCEPT

To establish current rates

Which one of the following best describers the purpose of the General Insurance Research Organization (GIRO) Data Quality Working Party report in 2006?

To examine the need for devoting more resources to data quality

Which one of the following describes the purpose of the analysis step in the insurance data life cycle?

To extract useful information from raw data

From an actuarial standpoint, which one of the following statements best describes the purpose of metadata?

To make information as transparent as possible

Predictive scores are typically used

To measure the risk or opportunity associated with a specific customer or transaction

Which one of the following best describes the primary purpose of Statistical Plans?

To provide uniform instructions that facilitate the aggregation of historical insurance statistics into a database of homogeneous experience

Which one of the following best describes the purpose of a safety program developed by an insurer's risk control representative?

To raise workers' awareness of loss exposures and appropriate safety behaviors

Because underwriting guidelines usually specify the attributes of accounts that insurers are willing to insure, insurers consider them

Trade secrets

Loss exposures that are determined to be of low frequency but high severity are best handled with what risk financing measure?

Transfer

Which one of the following is a risk financing technique?

Transfer

As a marketable product, insurance is an intangible product. The insurance customer receives an insurance policy, but what the customer actually purchases is a

Transfer mechanism

A reinsurance agreement that covers an entire class or portfolio of loss exposures is known as

Treaty reinsurance

A finite risk insurance plan is often used for especially hazardous loss exposures for which insurance capacity is limited or unavailable. True or false?

True

All risk management processes are designed to assess, control, and finance risk. True or false?

True

An example of a government insurance program formed to fulfill an unmet need in the private insurance market is the Terrorism Risk Insurance Program (TRIP). True or false?

True

How individuals and organizations comply with legal requirements depends on the individual requirements imposed by the applicable statutory or contractual obligations. True or false?

True

Traditional risk management focuses on preventing or reducing potential losses and on compensation for losses that do occur. True or false?

True

Which one of the following statements is correct with respect to risk control measures for net income loss exposures?

Two risk control measures that are directly aimed at reducing the severity of net income losses are separation and duplication

Which one of the following often leads to insurer insolvency, withdrawal from certain geographic markets, and reinsurance shortages?

Unanticipated catastrophic losses

Which one of the following is true regarding sidecar arrangements as an alternative to traditional and non-traditional reinsurance?

Under these arrangements, the primary insurer charges a ceding commission and may receive a profit commission if the book of business is profitable

State insurance regulators conduct claim audits to ensure

Understanding of reserving practices

Which one of the following statements is correct with respect to personal automobile insurance?

Underwriters evaluate a driver's prior accidents and prior moving violations

All of the following statements about measures of potential loss severity are true, EXCEPT

Underwriters generally agree on how to calculate the measures used to determine potential loss severity

Victor, the sales manager for Hallbinger's Insurance Company, wants the company to grow in written premium. He wants his agents to write more auto and homeowners 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?

Underwriting practices must generate policy premiums that exceed losses and expenses

Test audit programs are

Used by state workers compensation programs to substantiate the ratemaking process

Captive insurers are

Used to insure property loss exposures that are difficult to insure in the primary market

In claim adjusting, liability structured claim settlements are

Useful when the claimant may have regular damages into the future

Which one of the following types of reinsurance treaties has the advantage of enabling a primary insurer to retain a larger proportion of the small loss exposures that are within its financial capability to absorb, while maintaining a safer and smaller retention on larger loss exposures?

Variable quota share

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?

Vertical integration

Employers could be found liable for the acts of their employees under which one of the following types of liability?

Vicarious liability

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?

Weaknesses

Which one of the following best describes the typical questions an actuary may address regarding the selection of data?

What data should be used in setting rates going forward?

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

What is the dollar amount of the loss?

As a single mother on a very tight budget, Ciara is tempted to skimp on her insurance. However, her friend Mehmet tells her not to skimp on insurance, because it will help manage her cash flows. Which one of the following examples best illustrates Mehmet's point?

When her car's windshield breaks, Ciara has to pay only $100 of the $600 cost of replacing it

Which one of the following statements is true regarding property claim adjusting?

When the application of a coinsurance penalty reduces the recoverable amount of a property loss, the insured benefits by having the deductible applied first

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?

When the cost to repair the vehicle plus its remaining salvage value equals or exceeds the vehicle's pre-loss value

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?

Wholesale bakery

Jessica has a beach house on the gulf coast which is subject to hurricanes. She has homeowner coverage through Argot Insurance Company. Recently, she obtained coverage through her state wind pool. Which one of the following describes the coverage provided by the windstorm pool?

Wind damage from hurricanes and other windstorms paid by the pool

Which of the following losses may be economically unfeasible to insure because the losses can be catastrophic?

Windstorm and flood

Which one of the following is true regarding organizational post-loss goals?

With a post-loss goal of profitability, senior management may establish a minimum amount of profit that no loss can be allowed to reduce

State governments can be involved in insurance at various levels. Some states provide which one of the following types of insurance in competition with private insurers?

Workers compensation

The majority of what particular type of bodily injury claim is compensated regardless of fault and usually without judicial intervention?

Workers compensation claims

States are most likely to require premium audits for

Workers compensation insurance

Generally anyone has an insurable interest in property who

Would be financially harmed by the destruction of that property