AINS 101

A. Personal property-casualty insurance policy.

A homeowners policy is a type of Select one: A. Personal property-casualty insurance policy. B. Personal umbrella policy. C. Life insurance policy. D. Commercial insurance policy.

C. Assumes loss exposures from a primary insurer.

A reinsurance company Select one: A. Is formed to write all or part of the insurance for a parent company. B. Transfers losses to a primary insurer. C. Assumes loss exposures from a primary insurer. D. Provides primary insurance for loss exposures that private insurers are unwilling to provide.

A. Strategic risk

ABC Company experienced a dramatic ideological shift in corporate policies after a national election. This is an example of which one of the following quadrants of risk? Select one: A. Strategic risk B. Financial risk C. Operational risk D. Hazard risk

C. Replacement cost minus depreciation

Actual cash value (ACV) is Select one: A. Replacement cost plus depreciation. B. Agreed value minus depreciation. C. Replacement cost minus depreciation D. Replacement cost minus agreed value.

A. 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 Select one: A. The insurer is able to charge a premium that the insured can afford to pay B. The insurer can charge a high premium for the coverage. C. The insurer is able to predict the amount and timing of each future loss. D. The losses associated with it typically involve small amounts.

A. Use past cases which are similar as a guide

Adjuster Toni is evaluating damages in a bodily injury liability claim where she has determined that the insured is completely at fault for the accident. The claimant suffered a sprain and strain injury to his neck. His special damages total $1,500. He was out of work for a week, was disabled and prevented from performing some regular activities for a month, and attended physical therapy for six weeks. In assessing general damages, Toni should Select one: A. Use past cases which are similar as a guide B. Consider what she would want to be paid if she were in claimant's shoes. C. Multiply $1,500, the amount of special damages, by six, the number of weeks of physical therapy, and pay $9,000. D. Multiply the amount of special damages of $1,500 by three as a rule of thumb, and pay $4,500.

C. Corporate Underwriter

Aimee recently accepted a job in the Underwriting department at Noble Insurance Company. Her responsibilities will include developing coverage forms, arranging reinsurance agreements, and conducting underwriting audits. Which one of the following is the title of Aimee's new job? Select one: A. Field Underwriter B. Underwriting Technician C. Corporate Underwriter D. Line Underwriter

D. Alicia can process policy endorsements and explain coverage to her customers.

Alicia works for the Drewman Agency, Sandi at insurer Greenway Insurance, and Rosa at Grossman Brokers, all as customer service representatives. Which one of the following is true regarding their work? Select one: A. Sandi is the only one who can replicate the activities of a producer. B. Rosa can provide superior service but is not generally involved in attracting new customers. C. Sandi, Alicia, and Rosa are not involved in the generation of new business D. Alicia can process policy endorsements and explain coverage to her customers.

B. A contract of utmost good faith.

An insurer has decided to take an extremely narrow interpretation of a property insurance policy provision to limit the number of loss payments it will need to make. It realizes that its interpretation is probably wrong, but it knows that individual insured's loss amounts will be small, such that most insureds will not take the trouble to file lawsuits against it. The insurer may be violating the principle that an insurance policy is Select one: A. A contract of adhesion. B. A contract of utmost good faith. C. A conditional contract. D. A contract of indemnity.

A. Conditional contract.

An insurer will make a loss payment if an insured loss occurs and if the insured performs certain duties. This illustrates that an insurance policy is a Select one: A. Conditional contract. B. Contract of indemnity. C. Contract of adhesion D. Personal contract.

A. Snapshot of its financial position

An insurer's balance sheet can best be described as a Select one: A. Snapshot of its financial position B. Summary of premiums written. C. Relationship between revenue and liabilities. D. Relationship between assets and expenses.

A. Relationship between revenues, expenses, and net income.

An insurer's income statement can best be described as a financial statement that shows the Select one: A. Relationship between revenues, expenses, and net income. B. Relationship between revenue and liabilities. C. Relationship between revenues and incurred losses. D. Relationship between assets and income.

D. Propose the general liability coverage at a lower premium level, but apply a small deductible.

Anna was reviewing an all-lines submission for SP Markets. SP Markets owns and operates 5 small grocery stores located in the suburbs of Boston. The stores all seem to be well maintained and clean. While the overall loss experience on the account is good relative to the indicated premium, the loss runs show a frequency of small general liability claims from customer slips and falls. Rather than reject the application for SP Markets, Anna would like to suggest a coverage modification to the producer that could make the application acceptable and possibly add value for the insured. Which one of the following is a good coverage modification for Anna to suggest? Select one: A. Offer a proposal with all lines of coverage except the general liability coverage. B. Offer a proposal for all lines of coverage, but price the general liability at an unjustified premium level. C. Propose the general liability coverage, excluding the 2 locations that have most of the small claims. D. Propose the general liability coverage at a lower premium level, but apply a small deductible.

B. Misclassifying exposures

As an experienced underwriter, Rick has learned to make every effort to avoid a mistake that can produce insufficient premium to cover losses, or pricing that isn't competitive. Which one of the following underwriting mistakes can often cause these issues? Select one: A. Using predictive models B. Misclassifying exposures C. Recommending the applicant implement risk control measures D. Adjusting policy terms and conditions

D. Anchoy can use group marketing to target large numbers of recent local college graduates.

As it continues to grow, Anchoy Insurance is examining other distribution channels to more effectively market its products. Through this experience, which of one the following will Anchoy most likely learn? Select one: A. Using call centers will take away its need for customer service representatives or chatbots. B. No matter what it selects, Anchoy must use a producer to effectively sell its products. C. It will market through banks and financial services when utilizing the exclusive agency distribution channel. D. Anchoy can use group marketing to target large numbers of recent local college graduates.

A. Computer vision.

Autonomous Vehicle Applications (AVA) is a start-up company that develops safety technologies that can be sold to companies that are producing autonomous vehicles. One technology AVA is developing allows an autonomous vehicle to detect, extract, and analyze images; and then to respond to the images. For example, the technology would detect a presence in a crosswalk, extract the image, and a computer would analyze the image. When the image was determined to be a human being, the vehicle would slow down or stop until the crosswalk was clear. This technology, which is designed to capture and analyze images, and to act on the recognition of the image; is called Select one: A. Computer vision. B. Transducer technology. C. Visual acuity. D. Accelerometer technology.

A. Field underwriter

Brian works in the Underwriting department for DGH Insurance. In addition to carefully selecting insureds, he works with producers and premium auditors to ensure accurate classification and pricing. Brian is a Select one: A. Field underwriter B. Staff underwriter C. Account manager D. Corporate underwriter

B. An unknown vandal spray-paints graffiti on the insured's garage

Claims supervisor Charlotte is reviewing the incoming claims for the day to decide which ones to assign to various claims reps. Of those claims, which one of the following descriptions will Charlotte find is an example of a fortuitous loss? Select one: A. Insureds intentionally set a fire and burn their house down. B. An unknown vandal spray-paints graffiti on the insured's garage C. An insured demolishes a deck that has been allowed to rot. D. The value of an insured's home decreases due to a lack of maintenance.

C. Adequate policyholders' surplus

Clare is a commercial lines underwriter. She always tries to follow underwriting guidelines, effectively evaluate loss exposures, and charge adequate premiums. By doing these things, Clare's goal is to ensure Select one: A. A significant bonus. B. A collaborative relationship with her producers. C. Adequate policyholders' surplus D. Adverse selection.

B. Adequate policyholders' surplus

Clare is a commercial lines underwriter. She always tries to follow underwriting guidelines, effectively evaluate loss exposures, and charge adequate premiums. By doing these things, Clare's goal is to ensure Select one: A. Adverse selection. B. Adequate policyholders' surplus C. A significant bonus. D. A collaborative relationship with her producers.

C. Commercial crime insurance.

Coverage for money and other business property from various causes of loss such as burglary, robbery, theft, and employee dishonesty typically is provided by Select one: A. Inland marine insurance. B. Ocean marine insurance. C. Commercial crime insurance. D. Professional liability insurance.

B. General damages

Damages for pain and suffering are a form of Select one: A. Out-of-pocket damages. B. General damages C. Special damages. D. Punitive damages.

A. Henry will determine the type of loss - such as property damage or liability - for each claim he handles

Henry is a new claims representative with Able Insurers. Which one of the following will Henry find is true as he gains more experience with his company's claims handling process? Select one: A. Henry will determine the type of loss - such as property damage or liability - for each claim he handles B. Henry learns that all claims, no matter the circumstances or parties involved, could involve subrogation. C. Henry learns that policy denials do not need to be routinely reflected or included in the claims file. D. Henry sits in the cubicle next to another claims representative, Marty, who assigns claims to Henry.

D. Are definite in time, cause, and location.

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

B. Conditional contract.

Insurance policies are written in such a way that the parties have to perform only under certain conditions, because an insurance contract is a Select one: A. Contract of utmost good faith. B. Conditional contract. C. Contract of adhesion. D. Contract of indemnity.

A. Adverse selection

Insuring individuals with a high probability of loss at a cost lower than the insurer would normally charge for that risk because it wasn't aware of the actual risk involved is known as Select one: A. Adverse selection. B. Policyholders' surplus. C. Capacity. D. Unprofitable business.

A. Acknowledging the claim - identifying the policy - contacting the insured

Jerome Wilder is a claims representative with Hermani Insurance. Which group of activities listed below would best exemplify Jerome's actions, in the order they are given, as he systematically handles a new loss in his role? Select one: A. Acknowledging the claim - identifying the policy - contacting the insured B. Determining the cause of loss - investigating and documenting the claim - identifying the policy C. Determining the cause of loss and loss amount - identifying the policy - acknowledging the claim D. Investigating and documenting the claim - contacting the insured - concluding the claim

B. Select insureds

Jill works in the field for Goshen Mutual as a line underwriter. Which one of the following is primarily a responsibility of line underwriters? Select one: A. Research the market B. Select insureds C. Develop coverage forms D. Revise underwriting guidelines

B. A field claims representative

Johann is an insurance company employee who investigates the scene of a loss and meets with insureds, claimants, lawyers, Johann is most accurately called Select one: A. An adjusting agent. B. A field claims representative C. A claims supervisor. D. An independent adjuster.

B. Lacey has been trained to replicate many of the activities performed by producers

Lacey is a customer service representative (CSR) who has been employed by Greeley Insurance for five years. She worked in Greeley's call center for just a year when she was moved to a busy insurance office staffed primarily with claims representatives and producers. As she continues her exemplary service to Greeley and its customers, which one of the following best describes how she supports her fellow insurance professionals in her role as a CSR? Select one: A. Lacey is not permitted to show empathy or take information related to a new loss that just occurred. B. Lacey has been trained to replicate many of the activities performed by producers C. Lacey is not permitted to give advice on how a customer may meet specific coverage needs. D. Lacey performs all the roles of a claims professional and a producer but with a different title.

A. The total cost of all aspects of the organization that relate to managing risk

Leadon Transportation is using the expertise of its producer Carmen to help the organization understand how to correct substandard performance as well as evaluate exceeded standards. One measurement she will use is the cost of risk which is best described as Select one: A. The total cost of all aspects of the organization that relate to managing risk B. The terms of insurance or other risk-financing mechanisms. C. The allocation of risk management costs. D. Substandard performance and/or risk management standards.

C. Of unequal amounts.

Ling has noticed that her neighbor has recovered money for two homeowners property claims and an auto damage claim he has filed in recent years. Ling has been paying insurance premiums for many years and has never suffered a loss or made a claim. She feels that her insurance contracts over the years have been worthless to her. What Ling does not understand is that she has been paying premiums for a contract Select one: A. That is nontransferable. B. Of adhesion. C. Of unequal amounts. D. Of utmost good faith.

B. Sallie's application may contain endorsements which modify the basic policy form

New homeowner and small business owner Sallie learns that an insurance policy may contain other documents than its insurance forms. Accordingly, which one of the following will Sallie find is true regarding her new insurance purchases? Select one: A. Sallie learned all policies, personal and commercial, contain relevant statutory terms for clarity. B. Sallie's application may contain endorsements which modify the basic policy form C. Sallie's application for insurance was returned to her as it was no longer useful after receiving her policy. D. As Sallie's policy coverages are relatively common, she will simply require a manuscript policy.

D. East Insurance comes up with a new rate structure allowing "preferred customers" discounted policies when they continually renew year after year; East eventually loses needed revenue but is rewarded by its competitors leaving the market.

One of the reasons for insurance regulation is to prevent destructive competition. In which one of the following scenarios would destructive competition be exhibited? A. North Insurance is trying to break into a specialized type of insurance market that is generally out of range for most customers; North decides to price its coverages commensurate with other insurers offering similar policies. B. South Insurance purposely writes its policies with hard-to-understand terminology that only its agents can explain, so that its insureds will purchase its products without asking a lot of questions. C. West Insurance has had three straight years of record-setting low claims and has accumulated more than expected profits; it plans on the trend continuing and overspends on new long-term investments. D. East Insurance comes up with a new rate structure allowing "preferred customers" discounted policies when they continually renew year after year; East eventually loses needed revenue but is rewarded by its competitors leaving the market.

C. Independent and not catastrophic

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

B. Exposure units

Produce, such as apples or grapes, may be priced by the unit or by the pound. In insurance, these measures are similar to Select one: A. Construction cost index. B. Exposure units. C. Rates. D. Premiums.

A. Gerald makes most of his income from commissions from customer sales

Producer Gerald Hilker is one of the most successful producers at the Westfield Agency, which represents several different insurers. Because of this, which one of the following is most likely true? Select one: A. Gerald makes most of his income from commissions from customer sales B. Gerald usually presents a proposal for coverage soon after meeting prospective insureds. C. Gerald's interactions with customers usually end after he issues them their policies. D. Gerald, due to his success at the agency, is more accurately an "agent" than a "producer".

C. Risk management goals should be attainable to the organization, but they should also pose a challenge.

Producer Josh never tires in encouraging insureds to adopt and sustain a robust and measurable risk management program. As part of this effort, which one of the following will Josh find is true? Select one: A. Results-based standards are always more important than activity standards to the overall success of an organization. B. The first - and most important of all steps in the process - is to establish standards of acceptable performance C. Risk management goals should be attainable to the organization, but they should also pose a challenge. D. The second step occurs when the producer and the business agree on what success looks like for the risk management program.

A. Renegade keeps enough cash assets on hand to cover claims on policies long after it collected the premiums from customers

Renegade Insurance prides itself on its upstanding reputation through its commitment to small communities' homeowners coverage needs over the past twenty years. Which one of Renegade's actions over this time would best illustrate its continued commitment to maintaining its solvency? Select one: A. Renegade keeps enough cash assets on hand to cover claims on policies long after it collected the premiums from customers B. Renegade emphasizes that its insurance is readily available and accessible to customers in its service area that need it. C. Renegade is committed to branching out in the near future to include more coverages for specialized small businesses. D. Renegade's producers know policy language well so that they can easily and understandably answer policyholders' questions.

D. Implemented risk management techniques may prove to be ineffective or become obsolete.

Robin, a producer from Grantley Insurance, is always alert to changes in her clients' loss exposures. Why is this so important? Select one: A. Producers have expertise about risk financing through insurance. B. Producers can aid clients in developing risk management cost allocation plans. C. Knowledge of such changes will inform their efforts to create a list of experts that can be called to assist D. Implemented risk management techniques may prove to be ineffective or become obsolete.

A. $500

Shelton manufacturing has $1 million in annual sales, its liability insurance is priced per 1,000 of sales, and the per-unit rate is $0.50. What is Shelton Manufacturing's liability insurance premium? Select one: A. $500 B. $1,000 C. $5,000 D. $10,000

C. Is free to work with as many different insurers as it wants

Spencer Insurance Associates is an independent agency selling primarily homeowners policies. This agency Select one: A. Generally represents its customers rather than insurance companies. B. Cannot commit an insurer to write a policy, unlike a broker, who usually can. C. Is free to work with as many different insurers as it wants D. Can use the policyholder expiration lists, but they are owned by insurers.

D. Marketing

Stephanie works for Waynesgood Insurance. She appreciates the help she receives from Clem in the company's claims department who provides her with recent statistics and comments on Waynesgood's customer satisfaction levels. Stephanie works in which one of the following departments? Select one: A. Premium auditing B. Risk control C. Underwriting D. Marketing

C. Modular policy

The Insurance Services Office, Inc. (ISO) commercial package policy is an example of a Select one: A. Manuscript form. B. Single insurance document. C. Modular policy D. Self-contained policy.

C. Insuring Agreements

The big differences between property and liability policies are found in their Select one: A. Definitions B. Exclusions C. Insuring Agreements D. Conditions

B. 40%

The financial report for Hometown Insurer contains the following information: Earned premiums $4,000,000 Written premiums $5,000,000 Net investment income $1,000,000 Incurred Losses $3,000,000 Incurred underwriting expense $2,000,000 What is Hometown Insurer's expense ratio? Select one: A. 20% B. 40% C. 50% D. 75%

A. The insurer is using its own employees as producers

The key to the direct writer marketing system is that Select one: A. The insurer is using its own employees as producers B. Customers purchase insurance through call centers. C. An agency is contracted to sell insurance for one insurer or group of insurers. D. Customers can get quotes for coverage through web-based portals.

D. Indemnify individuals and organizations for covered losses.

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

B. The amount of its payroll.

The size of an employer's loss exposure for workers compensation insurance is based on Select one: A. The final premium audit. B. The amount of its payroll. C. The number of its employees. D. The extent of its operations

A. Tony will generally need to spend less time insuring a family's activities than a business' services and liabilities.

Tony is a producer working with several different insurers. Which one of the following most accurately describes Tony's activities for reaching and serving customers? Select one: A. Tony will generally need to spend less time insuring a family's activities than a business' services and liabilities. B. Policy issuance is a more important function of Tony's work than making sales or claims handling. C. Tony's job of selling is usually confined to the one type of insurance coverage the customer initially requests from him. D. A loss run will be most helpful to Tony in helping his personal customers with their risk management concerns.

A. Revise underwriting guidelines

Tony now works at the corporate level for Newtown Insurance. He is considered a staff underwriter. Which one of the following is primarily a responsibility of staff underwriters? Select one: A. Revise underwriting guidelines B. Recommend coverage C. Manage a book of business D. Support producers

A. Comparing an organization's results with established performance standards

Waycroft Industries is working with their insurance producer Graydon Murphy. Graydon and the risk managers at Waycroft have already completed the first step of the risk consultation process. The second step of the process is Select one: A. Comparing an organization's results with established performance standards B. Doing an evaluation of any substantially exceeded standards. C. Revising the standards or correcting any substandard performance. D. Determining the standards of acceptable performance to be used.

C. Depreciation

Wayne, an insured, submits a claim for a seven-year-old refrigerator that was damaged due to lightning. Claims representative Guillaume will probably factor in an allowance for wear and tear. This is called Select one: A. Replacement cost. B. Stated amount. C. Depreciation D. Agreed amount.

C. Solvency

What term refers to the ability of an insurer to meet its obligations as they become due? Select one: A. Reserves B. Capacity C. Solvency D. Capital

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

When preprinted forms do not provide the terms of coverage needed by a particular insured or small group of insureds, the insurer may Select one: A. Draft a manuscript form to meet the customer's needs B. Ask the customer to resubmit an application. C. Incorporate statutes into a policy. D. Work with an advisory organization to develop a form.

D. Profitability in the insurance business is directly linked to customer retention.

Which one of the following accurately describes activities related to customer service representatives? Select one: A. It costs more in advertising to keep an existing customer than to attract a new one. B. Excellent service builds strong relationships but not necessarily customer loyalty. C. It takes longer to renew an existing account than it does to write a piece of new business. D. Profitability in the insurance business is directly linked to customer retention.

D. Insureds share the cost of each other's losses.

Which one of the following best describes the concept of pooling? Select one: A. Insurance benefits society as a whole. B. Risk management is concerned with positive and negative risks. C. The financial consequences of unanticipated losses are transferred to an insurer. D. Insureds share the cost of each other's losses.

B. A corporation owned by policyholders that provides insurance to its policyholders.

Which one of the following describes the characteristics of a mutual insurance company? Select one: A. An unincorporated association that provides reciprocal coverage to subscribers. B. A corporation owned by policyholders that provides insurance to its policyholders. C. An unincorporated association that earns profits for its individual investors. D. A corporation owned by stockholders that earns profits for the stockholders.

C. Binder

Which one of the following is a temporary agreement providing insurance coverage until the formal policy is issued? Select one: A. Book of business B. Rating classification C. Binder D. Submission

C. Earned premium

Which one of the following is the best measure of the amount of insurance provided for a given period? Select one: A. Written premium that has already occurred. B. Unearned premium C. Earned premium D. Paid premium

C. Evaluate the submission

Which one of the following is the first step in the underwriting process? Select one: A. Monitor the underwriting decision B. Determine an appropriate premium C. Evaluate the submission D. Develop underwriting alternatives

B. Meeting a prospective customer, doing a needs and activities analysis, preparing a coverage proposal, closing the sale

Which one of the following lists provides the optimum order of responsibilities that a producer may engage with any customer on a continual basis? Select one: A. Meeting a prospective customer, giving advice, issuing the policy, adjusting a claim B. Meeting a prospective customer, doing a needs and activities analysis, preparing a coverage proposal, closing the sale C. Meeting a prospective customer, reviewing a loss run, issuing a policy, receiving a commission D. Meeting a prospective customer, issuing the policy, collecting premiums, adjusting a claim

D. The exclusions are in place to reduce duplicate coverage.

Which one of the following most accurately describes one of the policy provisions in an insurance policy? Select one: A. The declarations state the insurer's promise to the insured. B. The definitions contain a list of forms included in the policy. C. The conditions state what the insurer specifically will not cover D. The exclusions are in place to reduce duplicate coverage.

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

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

D. Risk control personnel can assist underwriters in modifying a new applicant's loss exposures to meet eligibility requirements.

Which one of the following statements is correct regarding the interaction between risk control and other insurer functions? Select one: A. Risk control representatives are responsible for compiling all the information required for a premium audit. B. Risk control personnel are responsible for answering any complex questions that insureds have about premium audits. C. By making marginal accounts acceptable, risk control helps the Claims Department settle losses D. Risk control personnel can assist underwriters in modifying a new applicant's loss exposures to meet eligibility requirements.