RMIN Review - B

Claim buildup is considered to be among which one of the following costs of insurance? A. Increased losses B. Premiums paid C. Opportunity costs D. Operating costs

A. Increased losses Claim buildup is considered to be among the increased losses costs of insurance.

Unfair trade practices acts involve which one of the following insurance company operations? A. Underwriting B. Rate filings C. Coverage form design D. Financial reporting

A. Underwriting Unfair trade practices acts involve the insurance company operations of sales, underwriting, and claim handling.

A document listing potential loss exposures that a household or an organization may face is a A. Loss exposure analysis. B. Loss exposure survey or checklist. C. Flowchart. D. Method of monitoring loss exposures.

B. A document listing potential loss exposures that a household or an organization may face is a loss exposure survey or checklist.

Though premiums are an obvious cost of insurance, many insureds believe they are too high because A. Insurers only use eighty cents from every premium dollar to pay losses. B. Benefits are intangible until a loss occurs. C. Insureds do not deliberately cause losses. D. Premiums are not a regular cost of living.

B. Benefits are intangible until a loss occurs.

Which one of the following is generally exempt from state insurance regulations pertaining to policy forms and rates? A. Workers compensation insurers B. Surplus line insurers C. Commercial property insurers D. Health insurers

B. Surplus line insurers Surplus line insurers are generally exempt from state insurance regulations pertaining to policy forms and rates.

From a risk management viewpoint, insurance is used to A. Reduce the cost of losses. B. Transfer the cost of losses. C. Prevent the cost of losses. D. Isolate the cost of losses.

B. Transfer the cost of losses. Insurance is used to transfer the cost of losses from the insured to the insurer.

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

C. The goal of ERM is to maximize the organization's value.

The dollar amount of damage that results from a loss is the loss A. Severity. B. Prevention. C. Frequency. D. Reduction.

A. The dollar amount of damage that results from a loss is the loss severity.

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

A. Agent clusters. Independent agent networks are known as agent clusters.

Which one of the following is a key focus of states' insurance regulation? A. Insurer licensing. B. Producer concentration. C. Product branding. D. Premium taxation.

A. Insurer licensing. Insurer licensing is a key focus of states' insurance regulation.

The technique that is used to decrease the frequency and/or severity of losses is A. Risk control. B. Retention. C. Risk financing. D. Transfer.

A. Risk control The technique that is used to decrease the frequency and/or severity of losses is risk control.

One of the benefits to a business of retaining a loss exposure instead of insuring it is A. A greater peace of mind. B. A reduction in expenses. C. Increase in expenses. D. Access to the insurer's loss control services.

B. Retaining losses rather than insuring them creates a reduction in expenses.

Risk management concepts in one form or another apply A. Only to international companies. B. To all companies and families. C. Only to large companies. D. To all companies but not families.

B. Risk management concepts in one form or another apply to all companies and families.

The producer who is an employee of a direct writer insurer generally receives A. Fee income and perhaps a bonus. B. A salary and perhaps a bonus. C. Commission income only. D. A salary and contingent commission.

B. A salary and perhaps a bonus. The producer who is an employee of a direct writer insurer generally receives a salary and perhaps a bonus.

In the legal relationship known as agency, which one of the following is the principal? A. Agent B. Insurer C. Insured D. Third party

B. Insurer In the legal relationship known as agency, the insurer is the principal.

Owners of reciprocal insurance exchanges are also known as A. Correspondents. B. Subscribers. C. Policyholders. D. Names.

B. Subscribers. Owners of reciprocal insurance exchanges are also known as subscribers.

Another name for liability insurance is A. First-party insurance. B. Second-party insurance. C. Third-party insurance. D. Multiple-party insurance.

C. Third-party insurance. Liability insurance involves a third party, the claimant.

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

D. Direct bill basis Rhonda is operating under a direct bill basis.

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

D. Large number of similar exposure units Since Oscar's vehicle is custom-made and used for an unusual purpose, there are not a large number of similar exposure units.

Jane's son, Joe, is 15-years-old and he will obtain his driver's license this summer when he becomes 16. Joe has expressed an interest in driving Jane's car once he has his license. Jane owns a compact car and is concerned that Joe might be hurt if he is involved in an accident while driving her car. Jane has read reports indicating that people occupying sport utility vehicles suffer less severe injuries when involved in accidents. If Jane trades her compact car in for a sport utility vehicle, which one of the following risk management techniques will she be applying? A. Loss prevention B. Noninsurance transfer C. Avoidance D. Loss reduction

D. Loss reduction Loss reduction is the risk management technique that applies.

A nonadmitted insurer is typically a A. Domestic insurer. B. Foreign insurer. C. Professional liability insurer. D. Surplus lines insurer.

D. Surplus lines insurer. A nonadmitted insurer is typically a surplus lines insurer.

What is solvency? A. Transparency of policy language B. The process of a state taking over the assets and obligations of a failing insurer C. Destructive competition D. The ability of an insurer to meet its obligations as they become due

D. The ability of an insurer to meet its obligations as they become due Solvency refers to the ability of an insurer to meet its obligations as they become due.

Sometimes a policy is cancelled or non-renewed even though the agent was paid its commission. In these situations the agent will be requested to return the A. Earned commission. B. Contingent commission. IncorrectIncorrect. In these situations the agent will be requested to return the unearned commission. C. Estimated commission. D. Unearned commission.

D. Unearned commission.

In developing insurance rates, a state mandatory rate law requires the insurer to A. Use rates developed by the National Association of Insurance Commissioners (NAIC). B. Establish and file rates for all admitted lines of insurance. C. Maintain rates equal to policyholder surplus. D. Use state developed rates.

D. Use state developed rates. A state mandatory rate law requires the insurer to use state developed rates.

Jeff recently started a consulting business. One of his concerns is that he will be sued for giving erroneous advice to a client. Which one of the following would most likely be the best risk management technique for Jeff's use in this situation? A. Insurance B. Avoidance C. Retention D. Duplication

A. Insurance Insurance would most likely be the best risk management technique used in this situation.

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

A. Insurance helps reduce the financial burden to society by compensating accident victims. Insurance helps reduce the financial burden to society by compensating accident victims.

Once a state agent's license has been issued, the agent must seek to be appointed by one or more A. Trade associations. B. Insurers. C. Brokers. D. Insurance departments.

B. Insurers. Once a state agent's license has been issued, the agent must seek to be appointed by one or more insurers.

In an insurance agency relationship, the agent's fundamental responsibility is to act for the benefit of the A. Policyholder. B. Broker. C. Insurer. D. Insured.

C. Insurer. In an insurance agency relationship, the agent's fundamental responsibility is to act for the benefit of the insurer.

The capital of a stock insurance company comes primarily from A. Return on invested premium reserves. B. Sale of insurance policies. C. Leveraging the difference from when a premium is paid in and when a claim is paid out. D. Sale of company stock.

D. Sale of company stock. The capital of a stock insurance company comes primarily from the sale of company stock.

Some loss exposures are not easy to retain, avoid, or control. Which one of the following risk management techniques is frequently used to treat such exposures? A. Prevention B. Reinsurance C. Reunderwriting D. Transfer

D. Transfer The risk management technique of transfer is often used to treat loss exposures that are not easily treated by retention, avoidance, or control.

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

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

For an insurer to be considered solvent, states require it to have financial reserves A. Well in excess of its ordinary expenses. B. As a fraction of its ordinary expenses. C. Equal to its ordinary expenses. D. Double its ordinary expenses.

A. Well in excess of its ordinary expenses. For an insurer to be considered solvent, states require it to have financial reserves well in excess of its ordinary expenses.

The laws of agency impose all of the following specific duties on all agents, EXCEPT: A. Relaying information B. Knowledge C. Accounting D. Loyalty

B. Knowledge

Which one of the following is true regarding a homeowners policy? A. It only provides property coverage. B. It excludes losses caused by wind and lightning. C. Most include coverage for theft of contents within the home. D. It only provides liability coverage.

C. Most include coverage for theft of contents within the home. A homeowners policy provides both property and liability coverage. This includes coverage for theft of personal property as well as perils such as wind and lightning.

When an independent agency is bought or sold, the agency's most valuable asset is its A. Building and personal property. B. Written premiums. C. Accounts receivables. D. Expiration lists.

D. Expiration lists. When an independent agency is bought or sold, the agency's most valuable asset is its expiration lists.

Which one of the following best describes how effective risk management benefits society? A. Causing fewer disruptions in the economic and social environment B. Increasing the types of charitable and governmental agencies available to the general public C. Creating a positive effect on an insurer's underwriting results D. Providing more thoughtful consumers of insurance

A. Causing fewer disruptions in the economic and social environment Effective risk management benefits society by causing fewer disruption in the economic and social environment.

Individuals and families benefit from effective risk management in which one of the following ways? A. Continuing activities following an accident or other loss, and thus reducing inconvenience. B. Creating a positive effect on an insurer's underwriting results C. Stimulating economic growth because fewer losses mean that more funds are available for other uses D. Increasing their personal cash flows by retaining rather than insuring their property exposures

A. Continuing activities following an accident or other loss, and thus reducing inconvenience. Individuals and families benefit from effective risk management by continuing activities following an accident or other loss, and thus reducing inconvenience.

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

A. Definite. Losses that occur during the policy period are definite in time.

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

A. Does the selected channel capitalize on its core capabilities? When a firm is selecting a distribution channel, an important consideration with regard to its operations is whether the selected channel capitalizes on its core capabilities.

A stock insurer is distinguished from a mutual insurer by the fact that A. Owners are not necessarily insureds. B. It is governed by a board of directors. C. It seeks to generate a profit. D. Owners have voting rights.

A. Owners are not necessarily insureds. A stock insurer is distinguished from a mutual insurer by the fact that owners are not necessarily insureds.

John Young is a risk manager of a medium-size business with both auto and real property exposures. John is looking for ways to save money on insurance premiums. John should consider A. Retaining some or all of the auto physical damage exposures. B. Canceling the insurance and implementing noninsurance transfer techniques. C. Retaining the auto liability loss exposures. D. Retaining the property loss exposures.

A. Retaining some or all of the auto physical damage exposures. John should consider retaining some or all of the auto physical damage exposures.

Which one of the following identifies the two broad categories of risk management techniques? A. Risk control and risk financing B. Loss prevention and loss reduction C. Separation and duplication D. Insurance and noninsurance

A. Risk control and risk financing The two broad categories of risk management techniques are risk control and risk financing.

Randy and Ida are concerned that a buried heating oil tank in their yard might be leaking, but they have decided that replacing that tank must wait until they have the funds in a year or two. Randy and Ida have discovered that pollution resulting from a leak would not be covered by their homeowners insurance policy. They fear the oil might seep into the water table and contaminate their neighbors' well water. Illness and damage that might result could be very expensive. Randy and Ida can purchase an endorsement that will provide coverage for this pollution exposure. The endorsement would cost $50 per year. Is this an effective risk management selection for Randy and Ida until they can replace the tank? A. Yes, they are exchanging a large exposure for a little premium. B. Yes, they should do this indefinitely and not replace the tank. C. No, each neighbor will have insurance to cover any damage to their wells. D. No, they are spending a lot of money for little protection.

A. Yes, they are exchanging a large exposure for a little premium. Yes, they are exchanging a large exposure for a little premium.

Which one of the following lists the steps in the risk management process in the correct order? A. Select techniques, examine techniques, identify loss exposures, analyze loss exposures, implement techniques, monitor, and revise the program B. Identify loss exposures, analyze loss exposures, examine techniques, select techniques, implement techniques, monitor, and revise the program C. Implement techniques, monitor and revise the program, identify loss exposures, analyze loss exposures, examine techniques, and select techniques D. Identify loss exposures, analyze loss exposures, select techniques, examine techniques, implement techniques, monitor, and revise the program

B. Identify loss exposures, analyze loss exposures, examine techniques, select techniques, implement techniques, monitor, and revise the program is the correct order.

When an insurer appoints an agent to act on its behalf, the agent's scope of authority is spelled out in the A. Letter of intent. B. Agency contract. C. Broker of record letter. D. Insurance contract.

B. Agency contract. When an insurer appoints an agent to act on its behalf, the agent's scope of authority is spelled out in the agency contract.

Which one of the following statements is correct regarding considerations involved in the selection of insurance marketing systems and distribution channels? A. The direct writer system dominates the medium-to large-sized commercial insurance business. B. An insurer can exercise the greatest control over producers in the direct writer system. C. Personal insurance customers require the most direct involvement from the producer. D. Small-business customers have not shown an interest in exploring various distribution channels.

B. An insurer can exercise the greatest control over producers in the direct writer system. An insurer can exercise the greatest control over producers in the direct writer system.

If a customer slips and falls in an insured's store, which one of the following provides protection in the event of a lawsuit? A. Workers compensation insurance B. Commercial general liability (CGL) insurance C. Commercial crime insurance D. Commercial property insurance

B. Commercial general liability (CGL) insurance Commercial general liability (CGL) insurance covers many of the common liability loss exposures faced by an organization, including its premises, operations, and products.

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

B. Consulting A producer is usually paid a fee for performing consulting.

The two objectives of insurance policy form regulation are to ensure that policies are clear and readable and to A. Ensure that the insurers rights are protected. B. Detect and address any policy provisions that are unfair. C. Limit policies' length and complexity. D. Ensure policies are negotiable between an insurer and insured.

B. Detect and address any policy provisions that are unfair. The two objectives of insurance policy form regulation are to ensure that policies are clear and readable and to detect and address any policy provisions that are unfair.

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

B. Direct bill Direct billing is generally used for personal insurance policies and small commercial accounts.

A small business owner concerned about something happening and not being able to work or earn a living for an extended period of time due to an accident should purchase A. Medical insurance. B. Disability insurance. C. Universal life insurance. D. Personal liability insurance.

B. Disability insurance. A small business owner concerned about something happening and not being able to work or earn a living for an extended period of time due to an accident should purchase disability insurance.

Which one of the following best describes how effective risk management benefits insurers? A. Causing fewer disruption in the social environment B. Encourages insurers to create innovative products and offer competitive prices C. Stimulating economic growth D. Increased ability to accurately predict future losses

B. Encourages insurers to create innovative products and offer competitive prices

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

B. How quickly can inquiries and transactions be processed? An important question for an insurer to ask when examining customers' needs and characteristics to select a distribution channel is "how quickly can inquiries and transactions be processed?"

In order to monitor and modify the risk management program, the risk manager must periodically A. Purchase insurance. B. Identify and analyze new and existing loss exposures. C. Rewrite the risk management mission statement. D. Change insurers.

B. Identify and analyze new and existing loss exposures. In order to monitor and modify the risk management program, the risk manager must periodically identify and analyze new and existing loss exposures.

Sometimes the existence of insurance encourages losses. The result of this phenomenon is that it A. Reduces agents' commissions. B. Increases the total cost of insurance. C. Reduces the term of many policies. D. Increases competition in the industry.

B. Increases the total cost of insurance. Sometimes the existence of insurance encourages losses. The result of this phenomenon is that it increases the total cost of insurance.

In the selection of appropriate risk management techniques, financial management decisions are often made with the objective of A. Decreasing the worry factor. B. Increasing operating efficiency. C. Decreasing expenses. D. Increasing the cost of risk.

B. Increasing operating efficiency. Financial management decisions are often made with the objective of increasing operating efficiency.

Private insurers are reluctant to provide windstorm insurance on coastal properties. This is because the loss exposures fail to meet the criterion that ideally insurable exposures must be A. Definite and measurable. B. Independent and not catastrophic. C. Fortuitous. D. A large number of similar exposure units.

B. Independent and not catastrophic. Because many properties can be damaged in the same hurricane or tropical storm, coastal properties are not independent, and potential losses are catastrophic.

Insurance is not the only risk management transfer technique. When circumstances are appropriate, transfer can be accomplished through A. Retention. B. Noninsurance transfer techniques. C. Avoidance. D. Loss prevention.

B. Noninsurance transfer techniques. A transfer technique that does not involve the use of insurance is a noninsurance transfer.

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

B. Prospecting All producers perform prospecting.

Sally is a recent college graduate who lives in the suburbs and drives to work daily in the city. She recognizes that owning a car creates both property damage and liability exposures for her and at the same time she has the burden of student loans. For someone in Sally's circumstances the most practical risk management technique for dealing with her auto-related loss exposures is A. Avoidance. B. Risk transfer. C. Retention. D. Loss control.

B. Risk transfer. For someone in Sally's situation, risk transfer is the most practical technique.

Financial management decisions are made during which one of the following steps in the risk management process? A. Analyzing loss exposures B. Selecting the appropriate risk management techniques C. Implementing the selected risk management techniques D. Examining the feasibility of risk management techniques

B. Selecting the appropriate risk management techniques Financial management decisions are made during step 4, selecting the appropriate risk management techniques.

Outdoor Designs Company (ODC) makes cedar patio furniture. ODC's lumber supplier, L&L Wood Products, is the largest and most competitive supplier of lumber in the area. ODC's risk manager is concerned that a disruption in the supply of lumber from L&L due to a large fire loss would adversely affect its production. Which one of the following would best minimize the adverse effect to ODC of a large loss experienced by L&L? A. Loss prevention B. Separation C. Avoidance D. Duplication

B. Separation Separation would best minimize the adverse effect to ODC of a large loss experience by L&L.

Alan Peachtree owns a hobby shop, which he runs from a detached garage on his property. Alan has set aside funds to pay for possible property losses rather than purchasing insurance. Which one of the following risk management techniques is Alan using? A. Non-Insurance transfer B. Avoidance C. Retention D. Loss control

C. Alan is using the risk management technique of retention.

Gauging the severity of property losses is easier than gauging the severity of liability losses because property losses A. Tend to be insured. B. Have an infinite value. C. Have a calculable value. D. Tend to happen more frequently.

C. Gauging the severity of property losses is easier than gauging the severity of liability losses because property losses are easier to calculate.

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

C. Risk management activities under the enterprise-wide risk management approach occur at the enterprise level.

The first step in the risk management process is to A. Implement the selected technique. B. Analyze loss exposures. C. Identify loss exposures. D. Select the appropriate technique.

C. The first step in the risk management process is to identify loss exposures.

An independent business owner or firm that sells insurance by representing customers rather than insurers is which one of the following? A. An independent adjuster B. An underwriter C. An insurance broker D. An independent agent

C. An insurance broker An independent business owner or firm that sells insurance by representing customers rather than insurers is an insurance broker.

Generally, how often must a foreign insurer's license be renewed? A. Semi-annually B. Every two years C. Annually D. Every five years

C. Annually Generally, a foreign insurer's license must be renewed annually.

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

C. Are definite in time, cause, and location. Ideally insurable loss exposures are subject to losses that are definite in time, cause, and location.

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

C. Contractors must usually provide evidence of liability insurance before a construction contract is granted. Contractors must usually provide evidence of liability insurance before a construction contract is granted.

Which one of the following is true regarding the administration of the Insurance Regulatory Information System (IRIS)? A. If the insurer has financial ratios that are inside predetermined norms, IRIS identifies the company for regulatory attention. B. Under a special provision in state licensing laws, state regulators are empowered to completely take over an insurer at any time. C. If regulators determine that an insurer is insolvent, the state insurance department places it in receivership. D. If an insurer cannot be rehabilitated, the state's guaranty fund may be available to increase the effects of the insurer insolvency.

C. If regulators determine that an insurer is insolvent, the state insurance department places it in receivership. If regulators determine that an insurer is insolvent, the state insurance department places it in receivership. If the insurer cannot be rehabilitated, it is liquidated according to the state's insurance code.

Larger organizations often have a written risk management statement outlining procedures and authority for A. Identifying risk management techniques. B. Analyzing risk management techniques. C. Implementing risk management techniques. D. Eliminating risk management techniques.

C. Implementing risk management techniques. Larger organizations often have a written risk management statement outlining procedures and authority for implementing risk management techniques

Risk management departments of large organizations generally rely on a manual to inform others of how to identify new exposures, what risk management techniques are currently in place, how to report insurance claims, and other important information. This communication of risk management information is part of which one of the following steps in the risk management process? A. Examining the feasibility of techniques B. Monitoring results C. Implementing the selected risk management techniques D. Analyzing loss exposures

C. Implementing the selected risk management techniques This is part of implementing the selected risk management techniques.

Businesses, individuals, and families that practice sound risk management can benefit society in all of the following ways, EXCEPT: A. Reducing the overall number of losses B. Controlling medical expenses through reduced injuries C. Increasing interest in leisure activities D. Stimulating economic growth

C. Increasing interest in leisure activities Sound risk management does not benefit society by increasing interest in leisure activities.

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

C. Independent agencies Given the complexity of commercial insurance, independent agencies are best suited for its distribution.

Coverage for miscellaneous types of property such as movable property, goods in domestic transit, and property used in transportation and communication, typically is provided by A. Crime insurance. B. Business income insurance. C. Inland marine insurance. D. Auto physical damage insurance.

C. Inland marine insurance. Coverage for miscellaneous types of property, such movable property, goods in domestic transit, and property used in transportation and communication, typically is provided by inland marine insurance.

Destructive competition in the insurance industry could result in A. Excess regulation. B. Inadequate regulation. C. Insurance shortages. D. Oversupply of insurance.

C. Insurance shortages. Destructive competition in the insurance industry could result in insurance shortages.

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

C. Insurers' investment income helps keep premiums at a reasonable level. Insurers' investment income helps keep premiums at a reasonable level.

Because the agent represents the insurer, the law presumes that A. Agents are employees of the insurer. B. Knowledge acquired by the insurer is knowledge acquired by the agent. C. Knowledge acquired by the agent is knowledge acquired by the insurer. D. All communications between the agent and the insurer will be in writing.

C. Knowledge acquired by the agent is knowledge acquired by the insurer. The law presumes that knowledge acquired by the agent is knowledge acquired by the insurer.

A risk retention group can write insurance only for its members, and it may write A. Only personal liability insurance. B. Any line of business approved by the state department of insurance. C. Only commercial liability insurance. D. Only workers compensation insurance.

C. Only commercial liability insurance. A risk retention group can write insurance only for its members and it may write only commercial liability insurance.

Market conduct regulation focuses on insurers' treatment of applicants for insurance, insureds, and others who present claims for coverage. Market conduct regulation affects which one of the following areas of operation? A. Financial requirements B. Annual statements C. Sales D. Field examinations

C. Sales Sales. State regulators can suspend or revoke the licenses of sales agents or brokers who engage in unfair trade practices, and can suspend or revoke the operating license of or fine an insurer for unfair underwriting practices.

Riko's insurance agent was caught embezzling several insureds' premiums, which involves what area of insurance company operations and what punishment by state regulators? A. Claim handling; operating license revoked B. Underwriting; agent license revoked C. Sales; agent license revoked D. Claim handling; operating license suspended

C. Sales; agent license revoked Sales; agent license revoked.

When deciding to approve or disapprove an insurer's request for a rate, a state insurance commissioner must determine if the rates are adequate. Adequate means that the rates should be A. Similar for insureds with similar loss exposures. B. Able to generate a fair return for the insurer but no to excessive or unrealistic profit. C. Sufficient to pay all claims and the expenses related to those claims. D. Similar to the rates charged by other insurers operating in the state.

C. Sufficient to pay all claims and the expenses related to those claims. Adequate means that the rates should be sufficient to pay all claims and the expenses related to those claims.

The selection of a distribution channel for an insurer's products and services depends, partly, on customer preferences. Which one of the following statements is true regarding customer preferences that should be considered when selecting a distribution channel? A. Speed is not an important consideration for customers. B. Customers are always willing to pay more for good service. C. The channel should be consistent with the customer's expectations for service. D. Customers value a challenging experience when conducting business with insurers.

C. The channel should be consistent with the customer's expectations for service. The channel should be consistent with the customer's expectations for service.

Adhering to the characteristics of an ideally insurable loss exposure in selling insurance help assure that A. The insurer can charge a high premium for the coverage. B. The insurer is able to predict the amount and timing of each future loss. C. The insurer is able to charge a premium that the insured can afford to pay. D. The losses associated with it typically involve small amounts.

C. The insurer is able to charge a premium that the insured can afford to pay. Adhering to the characteristics of an ideally insurable loss exposure in selling insurance help assure that the insurer is able to charge a premium that the insured can afford to pay.

A physical inspection is a method used to A. Analyze loss exposures. B. Examine the feasibility of techniques. C. Monitor results. D. Identify loss exposures.

D. A physical inspection is a method used to identify loss exposures.

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

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

An Ohio insurer that is licensed to sell insurance in Michigan is known as what in Michigan? A. An alien insurer B. A captive insurer C. A domestic insurer D. A foreign insurer

D. A foreign insurer An insurer formed in one state, but doing business in another state, is known as a foreign insurer in the state where it is doing business.

An independent business owner or firm that sells insurance by representing customers rather than insurers is A. A managing general agency. B. An exclusive agent. C. A direct writer. D. An insurance broker.

D. An insurance broker. An independent business owner or firm that sells insurance by representing customers rather than insurers is an insurance broker.

A flex rating law is A. An insurance rating law in which the rates and supporting rules must be filed with and approved by the state insurance department before they can be used. B. An insurance rating law that allows insurers to develop and use rates without having to file with or get approval from the state insurance department. C. A state law under which insurance rates are set by a state agency or rating bureau and all licensed insurers are required to use those rates. D. An insurance rating law under which prior approval is required only if the new rates exceed a certain percentage above (and sometimes below) the rates previously file.

D. An insurance rating law under which prior approval is required only if the new rates exceed a certain percentage above (and sometimes below) the rates previously file.

Which one of the following is an opportunity cost of insurance? A. An insurer's loss on invested premiums B. The cost of claims payments that would not have been necessary if insureds' carelessness had not caused losses C. The payment of commissions to agents D. An insured's funds that could be invested elsewhere if purchasing insurance were not necessary

D. An insured's funds that could be invested elsewhere if purchasing insurance were not necessary An insured's funds that could be invested elsewhere if purchasing insurance were not necessary is an example of an opportunity cost of insurance.

What will individuals gain as a benefit of applying sound risk management to automobile loss exposures? A. Economic growth B. A loss free future C. No future increases in insurance premiums D. Greater peace of mind

D. Greater peace of mind Individuals will gain greater peace of mind as a benefit of applying sound risk management to automobile loss exposures.

Sho Ching is risk manager for Market Sales Company. Market Sales owns a large fleet of autos used by the sales employees. The fleet is insured with $1,000 physical damage deductibles. Sho Ching is concerned about an increasing frequency of auto accidents in recent years. Which one of the following is the best risk management option for addressing the increased frequency of accidents from the fleet of autos? A. Increase the deductible to $2,000 B. Implement loss reduction programs C. Decrease the deductible to $500 D. Implement loss prevention programs

D. Implement loss prevention programs The best management option for addressing the increased frequency of accidents is to implement a loss prevention program.

Which one of the following statements is true? Select one: A. Insurance policies are private contracts, the language of which is largely unregulated. B. Regulators set coverage standards, but allow insurers to determine policy language. C. Insurers must be free to create policies that are in their best interest. D. Insurance regulators review policies to determine if they benefit consumers.

D. Insurance regulators review policies to determine if they benefit consumers.

Why are insurance regulators concerned about the effects of large catastrophes? A. Insurance rates will rise. B. They could lead to destructive competition. C. Licensed insurers will be unable to handle demand. D. Insurers may become insolvent.

D. Insurers may become insolvent. Regulators try to maintain the financial condition of insurers because poor financial condition may lead to insolvency in the event of a large catastrophe.

Which one of the following statements is correct regarding the benefits that insurance provides? A. The premiums collected by insurers must be held in cash to be available to pay claims. B. Insurers are prohibited from investing in such things as research or technological advancements. C. Insurance provides a source of investment funds for insurers but not for insureds. D. Investment income helps keep insurance premiums at a reasonable level.

D. Investment income helps keep insurance premiums at a reasonable level. Investment income helps keep insurance premiums at a reasonable level.

Which one of the following is an operating cost of insurers? A. Increased liability loss payments because people have insurance B. Increased property losses because people have insurance C. An insured's funds that could be invested elsewhere if purchasing insurance were not necessary D. Producers' commissions

D. Producers' commissions Producers' commissions are among the operating costs of insurers.

Term life insurance A. Accrues a cash value. B. Allows the policyholder to borrow against policy savings. C. Provides lifetime protection. D. Provides protection for a specified period with no cash value. CorrectCorrect. Term life insurance provides protection for a specified period with no cash value.

D. Provides protection for a specified period with no cash value. Term life insurance provides protection for a specified period with no cash value.

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

D. Referrals from present clients Referrals from present clients are more likely to be used by an experienced producer than a new insurance producer.

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

D. When her car's windshield breaks, Ciara has to pay only $100 of the $600 cost of replacing it. Since the windshield loss is covered, the financial effect on Ciara's cash flow is reduced to the amount of her deductible.