AINS 101 - Increasing Your Insurance IQ

Bob is shopping for auto insurance. Insurance Company A's rating system determines that Bob should be charge $800 per auto. If Bob is looking to insure four autos, what premium will he be charged by Insurance Company A?

$3,200

Bill's three year old stereo was completely destroyed in a covered loss. Its expected useful life was 10 years. its replacement cost is $600. Its actual cash value (ACV) is

$420

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?

$500

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

A contract of utmost good faith.

Which one of the following describes the characteristics of a mutual insurance company?

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

Johann is an insurance company employee who investigates the scene of a loss and meets with insureds, claimants, lawyers, Johann is most accurately called

A field claims representative

Which of the following statements is correct regarding the interaction between risk control and other insurer functions? (2)

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

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

Acknowledging the claim - identifying the policy - contacting the insured

Compensatory damages represent

Actual harm suffered

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

Adequate policyholder surplus.

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

Adverse selection

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?

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

A person or entity that would suffer a financial loss if property were damaged has

An insurable interest.

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?

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

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?

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

Ideally insurable loss exposures are subject to losses that

Are definite in time, cause, and location.

ABC Insurance Company decided to automate most of its personal lines underwriting functions. The computer has been programed with acceptable answers to the questions. If the answers on the app are all acceptable, the policy is automatically issued. Rejected apps are auto forwarded to a human underwriter who reviews them. ABC Insurance Company's use of computers to evaluate apps electronically is an application of

Artificial intelligence

MFC offers a wide array of mutual fund options to investors. Each mutual fund has a different fund objective and set of investment guidelines that apply to the fund. While MFC gives considerable freedom to its fund portfolio managers, they are required to abide by the funds investment guidelines. To monitor compliance, MFC developed a computer algorithm. The computer algorithm continuously monitors each fund's compliance with investment guidelines. If a fund manager violates the investment guidelines, the computer immediately notifies MFC's internal control director, and corrective action is taken. MFC's use of the computer algorithm to monitor investment compliance and to provide notification when corrective action is necessary illustrates use of

Artificial intelligence

A reinsurance company

Assumes loss exposures from a primary insurer.

The state of Maryland operates a residual auto plan (the Maryland Auto Insurance Fund - MAIF) that provides coverage for drivers who are unable to obtain coverage from private insurers. Which of the following is the best rationale for the MAIF program?

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

Which one of the following types of financial statements shows the financial position of an insurance company at any particular point in time?

Balance sheet

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

Binder

Which one of the following is shown on the balance sheet of an insurer?

Cash and short-term investments

Coverage for money and other business property from various causes of loss such as burglary, robbery, theft, and employee dishonesty typically provided by

Commercial crime insruance

The insurance agent suggested that Sally's Snack Shop buy a policy that combines property, crime, and liability coverage into one policy. This is referred to as as a(n)

Commercial package policy (CPP)

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

Comparing an organization results with established performance standards.

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 those 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 id called

Computer vision

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

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

Conditional contract

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?

Corporate Underwriter

if an insurers admitted assets stayed the same but its liabilities decreased significantly, its policyholders surplus would

Decrease

Wayne, an insured, submits a claim for a sever-year-old refrigerator that was damaged due to lightening. Claims representative Guillaume will probably factor in an allowance for wear and tear. This is called

Depreciation

Understanding the steps in the claims handling process is important to new claims reps. Which one of the following steps generally comes after investigating and documenting the claims and before concluding the claim?

Determining cause of loss and loss amount.

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

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

Which one of the following is the best measure of the amount of insurance provided for a given period.

Earned premium

Admitted assets are types of property that regulators allow insurers to show as assets on their financial statements because they are

Easily converted to cash

One of the reasons for insurance regulation is to prevent destructive competition. In which one of the following scenarios would destructive competition be exhibited?

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.

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

Evaluate the submission

Combined ratio formula

Expense ratio (incurred underwriting expenses / written premiums) + loss ratio (incurred losses / earned premiums)

Which one of the following is the fundamental measure of loss exposure used in insurance rating?

Exposure unit

Produce, such as apples or grapes, may be priced by the unit or by the pound. In insurance, these measures are similar to

Exposure units

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

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

Brain works in the underwriting department for DGH Insurance. In addition to carefully selecting insured, he works with producers and premium auditors to ensure accurate classification and pricing. Brain is a

Field underwriter

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

Fortuitous losses are beyond that insured's control.

Damages for disfigurement are a form of

General damages

Damages for pain and suffering are a form of

General damages

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?

Gerald makes most of his income from commission from customer sales.

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

Government programs can meet legitimate public demands unmet by private insurers.

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?

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

Robert, a producer from Grantley Insurance, is always alert to changes in her clients loss exposures. Why is this so important?

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

Expense ratio formula

Incurred underwriting expenses / written premiums

The primary role of insurance is to

Indemnify individuals and organizations for covered losses.

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

Which one of the following statements is correct regarding the benefits provided by insurance?

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

Carlos is new to the insurance business and is learning about insurance regulation and what he, now working with Grady Insurance, will need to be aware of regarding the subject of compliance. Which one of the following will Carlos find is accurate as he better understands why insurance is regulated?

Insurance regulation protects customers by guaranteeing insurance is available and accessible to everyone who needs it.

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

Insureds share the cost of each other's losses.

An insurance policy is considered a contract of adhesion when it is drafted by the

Insurer

The big difference between property and liability policies are found in their

Insuring agreements.

Most of the income an insurer receives is either from underwriting or

Investments

Spencer Insurance Associates is an independent agency selling primarily homeowners policies. This agency

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

Lacey is a customer service rep (CSR) who has been employed by Greeley Insurance for 5 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 reps and producers. As she continues to 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?

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

Stephanie works for Waynesgood Insurance. She appreciates the help she received from Clem in the company's claims department who provides her with recent statistics and comments on Waynsgood's customer satisfaction levels. Stephanie works in which one of the following departments?

Marketing

Which one of the following lists provides the optimum order of responsibilities that a producer may engage with any customer on a continual basis?

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

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?

Misclassifying exposures

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

Modular policy

A type of an insurer that is owned by policyholders and may pay dividends to policyholders as a return of a portion of premiums paid is a

Mutual insurer

All of the following appear on an insurer's balance sheet, EXCEPT:

Net income

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 in exchange for contract

Of unequal amounts

Which of the following is a non-admitted asset?

Office equipment

A homeowners policy is a type of

Personal property-casualty insurance policy.

All of the following are categories of liabilities found on an insurer's balance sheet, EXCEPT:

Policyholders' surplus

An insurer's income statement shows amounts for all of the following, EXCEPT:

Policyholders' surplus

Which one of the following accurately describes activities related to customer services reps?

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

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?

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

Willis, a claims representative, is collaborating with his colleague Suzanna from his insurance company's risk control department. How will Suzanna help Willis?

Provide laboratory analysis when Willis is investigating a claim.

Subrogation is the insurer's right to

Recover its claim payment from the responsible party.

Insurance Company wrote a commercial liability policy for a manufacturer of off-road motorcycles. The potential cost of the insured's loss exposure exceed Insurance Company's capacity. Insurance Company could consider which one of the following types of contractual transferring agreement to meet its needs?

Reinsurance

An insurer's income statement can best be described as a financial statement that shows the

Relationship between revenues, expenses, and net income.

Renegade Insurance prides itself on its upstanding reputation through its commitment to small communities' homeowners coverage needs over the past 20 years. Which on of Renegades actions over this time would best illustrate its continued commitment to maintaining its solvency?

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

Actual Cash Value (ACV) is

Replacement cost minus depreciation

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?

Revise underwriting guidelines

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

Risk

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

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

Producer Josh never tires in encouraging insureds to adopt and sustain a robust and measurable risk management program. As part of this effort, which on of the following will Josh find is true?

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

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?

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

After Marvin's car was stolen, and he was reimbursed for the loss by Greatson Insurance, the police found and returned the vehicle, which was dented and spray-painted, but still had parts that could be usable. Greatson's rights to recover and sell or otherwise dispose of insured property on which it has paid a total loss are called

Salvage rights

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 insureds

Work on a new claim begins for claims representative Anita upon receipt of a claim notice. Anita gathers initial information and verifies coverage. From the list of activities below, the next step Anita would take in the process is

Set a loss reserve

An insurer's balance sheet can best be described as a

Snapshot of its financial position.

What term refers to the ability of an insurer to meet its obligations as they become due?

Solvency

A liability adjuster must be concerned with specific, out-of-pocket expenses when evaluating the damages being claimed. The technical term for such expense is

Special damages

Jimmy decided to buy a house in his neighborhood that had been foreclosed on by the bank that held the mortgage. He is hoping to do some renovation and repair work on the house, and then sell it for a quick profit. Which one of the following types of risk is this for Jimmy?

Speculative risk

All of the following are types of private insurers, EXCEPT:

State workers compensation funds

Reggie, Harper, Kimmie, and Stefan work in the claims department of North Insurance Company (NIC). Which one of the following is true regarding the various types of claims personnel employed at NIC?

Stefan, a claim supervisor, review files and helps determine staff development strategies.

An insurer that was formed for the purpose of earning a profit for its stockholders is a

Stock insurer

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?

Strategic Risk

The size of an employer's loss exposure for workers compensation insurance is based on

The amount of its payroll

Which one of the following most accurately describes one of the policy provisions in an insurance policy?

The exclusions are in place to reduce duplicate coverage.

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

The key to the direct writer marketing system is that

The insurer is using its own employees as producers.

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

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

Which one of the following best explains why regulators do not permit insurers to include assets of their balance sheet?

They cannot be readily converted to cash.

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?

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

An insurer's financial statement shows a loss reserve and an unearned premium reserve. These reserves are part of the insurer's

Total liabilities

Which one of the following is part of written premiums?

Unearned premiums

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

Use past cases which are similar as a guide.

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 flow. 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.

Shelton Industries experienced a fire in its manufacturing plant. Several employees suffered burns and smoke inhalation injuries as they tried to escape the building. Which one of Shelton Industries' commercial property-casualty policies would pay for the employee's injuries and illnesses?

Workers compensation insurance