AINS 101

The processing of almost every claim involves which one of the following activities? A. Engaging an accident scene reconstruction specialist B. Determining the amount of damages or extent of loss C. Subrogating D. Salvaging

B. Determining the amount of damages or extent of loss

A liability loss has the following damages: Medical expenses: $ 10,000 Damages for disfigurement: $ 50,000 Damages for pain and suffering: $ 100,000 What is the amount of special damages? Select one: A. $ 10,000 B. $ 50,000 C. $100,000 D. $160,000

A. $ 10,000

Earned premiums are the portion of written premiums that Select one: A. Apply to the part of the policy period that has already occurred. B. Apply to the part of the policy period that follows a loss. C. Are billed at the beginning of the policy period. D. Are available to generate investment income.

A. Apply to the part of the policy period that has already occurred

Sota's Superstore has recently become an insured of Keithly Insurance Company. Kaito, Keithly's premium auditor, is being sent to conduct an advance audit. Which one of the following tasks will Kaito do to assist underwriting? Select one: A. Classify the various exposures B. Confirm the inventory values C. Collect the premium D. Conduct initial loss control evaluation

A. Classify the various exposures

Margaret was severely injured and scarred due to a recent accident. Which one of the following is an example of general damages Margaret received? Select one: A. Compensation for disfigurement B. Hospital expenses C. Prescription costs D. Lost wages

A. Compensation for disfigurement

Because the insurance company usually determines policy wording and the insured has little choice but to "take it or leave it," an insurance contract is a Select one: A. Contract of adhesion. B. Contract of indemnity. C. Nontransferable contract. D. Bilateral contract.

A. Contract of adhesion.

James works very closely with producers on a daily basis. In addition to evaluating the applicants that the producers submit, James is involved in presenting policy quotations, processing policy endorsements, helping to explain coverages, and making coverage recommendations. James works as a Select one: A. Field Underwriter. B. Risk Control Representative. C. Service Representative. D. Staff Underwriter.

A. Field Underwriter.

Which one of the following best explains why producers should be alert to changes in clients' loss exposures? A. Implemented risk management techniques may prove to be ineffective or become obsolete. B. Knowledge of such changes will inform their efforts to create a list of experts that can be called to assist. C. Producers can aid clients in developing risk management cost allocation plans. D. Producers have expertise about risk financing through insurance.

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

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

A. Insurance shortages.

Windsor Insurance has sold more personal auto policies in the recent quarter than ever before in its history, thanks to new commission incentives for ambitious staff members. Even though Windsor is collecting more money upfront, it is actually making less per policy after remitting the higher commissions. Some claim payments are also now being delayed, resulting in many complaints against the company. Which one of the following objectives of insurance regulation is not being realized through this scenario? Select one: A. Maintaining insurer solvency B. Safeguarding policy language C. Restricting cancellations or renewals D. Preventing destructive competition

A. Maintaining insurer solvency

Pravalt Construction Company pays less than its competitors for workers compensation insurance because Pravalt has had substantially fewer employee injuries than other firms in its class. This illustrates which one of the following benefits of insurance? Select one: A. Promote risk control activity B. Enable efficient use of resources C. Meet legal requirements D. Reduce social burden

A. Promote risk control activity

Risk control can assist the claims department by Select one: A. Providing laboratory analyses. B. Reporting the existence of new operations. C. Developing safety management programs. D. Designing product recall procedures.

A. Providing laboratory analyses.

Bill is an insurance producer for and employed by ABC Insurance Company (ABC). He represents only ABC when marketing insurance products, and uses an administrative staff also employed by ABC. Bill is a producer in the Select one: A. Captive agency marketing system. B. Direct writer marketing system. C. Exclusive agency marketing system. D. Independent agency marketing system.

B. Direct writer marketing system.

Rachel is a new employee of Westley Insurance, and has been asked to review some existing policies to become familiar with the types of policies she will be working with. Which one of the following will Rachel find is true as she conducts her review? Select one: A. Rachel finds the policy begins with a coverage overview and then goes into more coverage details. B. Policy provisions state what is covered, but not what is not covered, in that particular policy. C. The definitions personalize the policy and are usually found on the policy's first page. D. The insuring agreement clarifies the insured's duties throughout the life of the policy.

A. Rachel finds the policy begins with a coverage overview and then goes into more coverage details.

Earned premiums are shown on an insurer's income statement because they are Select one: A. Revenues. B. Admitted assets. C. Expenses. D. Equal to net income.

A. Revenues.

A stock insurer differs from a reciprocal insurance exchange in which one of the following ways? Select one: A. Stockholders own a stock insurer. Members own a reciprocal insurance exchange. B. Both are owned by stockholders. However, the reciprocal insurance exchange provides coverage to investors. C. Both are formed to provide profit to investors. However, the stock insurer is managed through a board of directors. D. A stock insurer provides insurance to its policyholder-owners. A reciprocal insurance exchange provides insurance to investors.

A. Stockholders own a stock insurer. Members own a reciprocal insurance exchange.

Martina, a premium auditor for Cintriell Insurance Company is conducting a premium audit for Carolina's Cookies. Carolina mentioned to Martina that she is opening a coffee shop at another location. By sharing this information, Martina would provide a contribution to which one of the following insurer functions? Select one: A. Underwriting B. Accounting C. Risk Control D. Claims

A. Underwriting

All of the following are sources of underwriting information to evaluate an insurance submission, EXCEPT: Select one: A. Underwriting authority reports B. Applications C. Telematics D. Inspection reports

A. Underwriting authority reports

Sports, Inc. is looking to obtain a commercial property policy on its building for $400,000. If their insurer decides to charge them a rate of $0.50 per $100 of building insurance, what premium must Sports, Inc. pay? Select one: A. $1,000 B. $2,000 C. $4,000 D. $8,000

B. $2,000

John's two-year-old bicycle was stolen. The bicycle's purchase price was $700, its current replacement cost is $800, and depreciation was estimated at $450. What was the bicycle's actual cash value? Select one: A. $225 B. $350 C. $450 D. $800

B. $350

James West is a claims rep with Hatters Insurance. As he learns how to handle a claim from start to finish, which one of the following best describes the correct order for him to follow during this process? Select one: A. Receiving a claim from a manager, denying the claim, contacting the insured's representative, setting a claim reserve B. Identifying the policy, calculating a loss reserve, determining the cause of loss, preparing a loss statement C. Identifying the policy, issuing the claim payment, investigating the medical claim, closing the file D. Receiving a claim from a manager, calculating a loss reserve, contacting the insured's lawyer, verifying coverage

B. Identifying the policy, calculating a loss reserve, determining the cause of loss, preparing a loss statement

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

B. Insurers may become insolvent.

Joe is the owner of JG Auto Repair. He is always frustrated with the amount of commercial insurance premium he pays every year, even though he has not had a single claim in over 10 years. Joe is looking to partner with an insurance company that will share its profits and maybe return a portion of his premium if the results are good. Which one of the following types of insurer is the right fit for Joe? Select one: A. Reinsurer B. Mutual insurer C. Stock insurer D. Surplus lines insurer

B. Mutual insurer

If an insured wants to receive "new for old" in the event of a property loss, he or she would purchase Select one: A. Agreed value. B. Replacement cost. C. Market value. D. Actual cash value (ACV).

B. Replacement cost.

Many auto manufacturers have automated a portion of their assembly lines by introducing a smart product. The smart product performs repetitive tasks, such as making the same weld on each vehicle frame as it passes the smart product. These smart products, which can be fixed or mobile, reduce repetitive motion injuries. They can also be used to perform dangerous tasks and for heavy-lifting jobs. These smart products, enabled by artificial intelligence, are called Select one: A. Wearables. B. Robots. C. Drones. D. Automated sensors.

B. Robots.

Riley Turner is performing a comprehensive evaluation of Hardwick Enterprises to make sure its insurance and risk management efforts are serving the organization appropriately. Which one of the following will be true in regard to this effort? Select one: A. Results-based standards are solely responsible for ensuring successful risk management. B. Riley will concentrate on new risk management techniques rather than changes in loss exposures. C. Besides risk management goals being attainable, they should also pose a challenge. D. The four step-by-step risk consultation process is considered the most effective method to use.

C. Besides risk management goals being attainable, they should also pose a challenge.

Which one of the following is the amount of business an insurer can write based on regulatory guidelines, usually a comparsion of the insurer's written premiums to the policyholders' surplus? Select one: A. Underwriting guidelines B. Book of business C. Capacity D. Policyholders' surplus

C. Capacity

Because insurance contracts impose an obligation for ethical practices and behaviors on the parties while dealing with one another, an insurance contract is called a Select one: A. Contract of indemnity. B. Conditional contract. C. Contract of utmost good faith. D. Contract of adhesion.

C. Contract of utmost good faith.

Which two of the four quadrants of risk are classified as pure risks? Select one: A. Operational risks and financial risks B. Hazard risks and strategic risks C. Hazard risks and operational risks D. Financial risks and strategic risks

C. Hazard risks and operational risks

Michael is a commercial lines underwriter. He received a risk control report on a new business that he had recently written with Laura, one of his producers. After reviewing the report, Michael contacted Laura to let her know that they needed to process a policy change request adding a new classification and some exposures to the general liability policy. These activities are occurring during which one of the following steps of the underwriting process? Select one: A. Determine an appropriate premium B. Issue required documents C. Monitor the underwriting decision D. Evaluate the application

C. Monitor the underwriting decision

Joel is the underwriter for Stanton Industries. He received a notice from the premium auditor on the account. After a recent visit to the insured's location, the auditor wanted to make Joel aware of a decline in the business and some questionable business practices. Which one of the following types of hazards is the auditor identifying? Select one: A. Legal hazards B. Physical hazards C. Moral hazards D. Morale hazards

C. Moral hazards

Joe and Helene are married with two teenage children and two dogs. They own three cars and a large house with a swimming pool in the back yard. Their insurance agent advised them that the pool, teenage drivers, and dogs put them at risk for large liability losses. Which one of the following personal property-casualty insurance policies would provide them with protection for their high potential for large liability losses? Select one: A. Health insurance B. Personal auto C. Personal umbrella D. Homeowners

C. Personal umbrella

The two main sectors of the insurance industry are Select one: A. Personal insurance and commercial insurance. B. Homeowners insurance and auto insurance. C. Property-casualty insurance and life-health insurance. D. Property insurance and liability insurance.

C. Property-casualty insurance and life-health insurance.

Donna is an insurance producer. She makes an appointment with potential policyholder Sandie to review her loss exposures. She asks Sandie to complete a questionnaire to assist her in this effort. Donna is conducting a Select one: A. Customer service analysis. B. Sales proposal. C. Risk management review. D. Sales closing call.

C. Risk management review.

For a loss exposure to be ideally insurable it must be definite in Select one: A. Scope, origin, and coverage. B. Duration, damage, and cost. C. Time, cause, and location. D. Value, extent, and consequences.

C. Time, cause, and location.

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 expenses $2,000,000 What is Hometown Insurer's loss ratio? Select one: A. 20% B. 30% C. 50% D. 75%

D. 75%

Allian Insurance Company is a growing regional insurer selling policies in three states, specializing in personal auto and homeowners policies. Which one of the following is most likely true regarding Allian and the policies it sells? Select one: A. The manuscript forms that Allian issues are developed by ISO. B. Allian offers modular policies for coverages common to a large number of its insureds. C. Customized coverages are usually issued through a self-contained policy. D. Allian issues more preprinted policies than manuscript forms.

D. Allian issues more preprinted policies than manuscript forms.

Rachel is considering investing in the stock of an insurance company. Which one of the following is likely to provide the best indication of the insurer's financial position at this point in time? Select one: A. Cash flow report B. Sales report C. Income statement D. Balance sheet

D. Balance sheet

Jessie is a new customer service representative (CSR) at the Winfield Agency. Jessie usually engages in all the following activities, EXCEPT: Select one: A. Answering billing inquiries B. Explaining coverage C. Reporting new claims D. Determining coverage quotes

D. Determining coverage quotes

Erin has recently graduated from college and relocated to Chicago. She has purchased a car and rented an apartment and now needs to purchase insurance. She is comfortable buying from social media recommendations and recently was impressed with an insurer sending her coverage details online with a minimum of forms and salesperson interactions. Which one of the following is likely the best distribution channel to meet Erin's needs? Select one: A. Group marketing B. Financial institution C. Call center D. Direct response

D. Direct response

Winston is skimming through his new personal auto policy that just arrived. Winston discovers that every insurance policy is represented through a collection of policy provisions. He discovers all of the following policy provisions, EXCEPT: Select one: A. Declarations B. Definitions C. Conditions D. Exceptions

D. Exceptions

The difference between an independent agency and an exclusive agency is that an Select one: A. Exclusive agency employs direct writer agents, who are employees of the insurer. B. Independent agency employs direct writer agents, who are employees of the insurer. C. Independent agency is contracted to sell insurance for one insurer or group of insurers. D. Exclusive agency is contracted to sell insurance for one insurer or group of insurers.

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

Jennie recently purchased a personal auto policy from Westcox Insurers. Three weeks later, Jennie reported her car was stolen from her driveway during the middle of the day. Upon further investigation, claims representative Harry finds out the home address he has on file for Jennie does not match the location where the theft occurred. In light of this scenario, which one of the following would be particularly helpful for Harry to pursue concerning Jenny's claim? Select one: A. Harry can review any relevant statutory terms mentioned in the policy that would apply to Jennie's particular type of claim. B. Since Jennie purchased a modular policy, Harry will need to spend extra time reviewing the length and complexity of her contract. C. As Westcox is a mutual insurer owned by its policyholders, Harry will find it especially helpful to review the insured's associated rights and duties. D. Harry can verify Jennie's address and other possible helpful information by reviewing her policy which has her original application information attached.

D. Harry can verify Jennie's address and other possible helpful information by reviewing her policy which has her original application information attached.

Sean was driving and caused an injury to a pedestrian named Wilbur. In the context of the resulting claim made to Sean's insurance company and assigned to Andrea in the claims department, Sean and Wilbur and Andrea are, respectively, Select one: A. Claimant and insured and claims representative B. Claimant and claims representative and insured C. Claims representative and insured and claimant D. Insured and claimant and claims representative

D. Insured and claimant and claims representative

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? Select one: A. Definite and measurable B. Independent and not catastrophic C. Pure risk D. Large number of similar exposure units

D. Large number of similar exposure units

Which one of these is most directly associated with a satisfied customer? Select one: A. Soft underwriting cycles B. Decreased cost efficiencies C. Increased cost efficiencies D. Leads and referrals that can be used to generate new business

D. Leads and referrals that can be used to generate new business

Which one of the following is the correct formula for calculating an insurer's combined ratio? Select one: A. Investment income ratio + premium income ratio B. Investment income ratio + overall operating ratio C. Loss ratio + underwriting ratio D. Loss ratio + expense ratio

D. Loss ratio + expense ratio

At Greenfield Insurance Company, Bernadette and Rachel are corporate underwriters, and Tomas and Jose are field underwriters. All of the following are underwriting activities typically performed by corporate (or staff) underwriters like Bernadette and Rachel, EXCEPT: Select one: A. Conduct underwriting audits B. Formulate underwriting policy C. Research the market D. Support producers and insureds

D. Support producers and insureds

When the Smiths purchased their first home, they were required to purchase a homeowners insurance policy in order to get a mortgage. Because they did not have a lot of extra money in their budget, they wanted to buy as little insurance coverage as possible. The Smiths' insurance agent advised them that if they purchase an insurance policy that adequately covers damage to their home and personal property, they only have to budget for the insurance premium, rather than the full cost of rebuilding the house and replacing its contents. Which one of the following key components of insurance is the insurance agent explaining to the Smiths? Select one: A. Risk B. Pooling C. Risk control D. Transfer

D. Transfer

Maria is a new producer who wears many hats when forming relationships and then serving her established customers. In this capacity, which one of the following scenarios most accurately describes her ongoing work wearing the hat of "claims handler"? A. Customer Roland directly contacts Maria and she assumes full responsibility for his claim as she was the first insurance employee to receive the claims information. B. Juanita directly contacts Maria who sold her a policy to adjust her homeowners claim; Maria nicely explains she has no further responsibilities after making the sale. C. Alex directly contacts Maria after a hailstorm damages his new car the day after he bought a policy from her, and she handles the claim as he is a brand new customer. D. Veronica directly contacts Maria for guidance on how to report a stolen car, Maria provides that, and claims rep Sean takes over after an introduction from Maria.

D. Veronica directly contacts Maria for guidance on how to report a stolen car, Maria provides that, and claims rep Sean takes over after an introduction from Maria.