AINS 21 study terms

Q: Estimating how large the losses may be and how often they may occur is required under which one of the steps of the risk management process? Select one: A. Analyzing loss exposures B. Identifying loss exposures C. Examining the feasibility of risk management techniques D. Monitoring results

A: A. Analyzing loss exposures

Q: Which one of the following can be covered by a floater? Select one: A. Jewelry B. Antenna towers C. Swimming pools D. Carports

A: A. Jewelry

Q: Which of the following is considered to be an acquisition expense for an insurance co.? A. Sales commissions B. Guarantee fund expenses C. Dividends D. Losses

A: A. Sales Commissions

Q: The type of insurance most likely to use individual rates is Select one: A. Personal auto. B. Commercial property. C. Business auto. D. Homeowners.

A: B. Commercial property

Q: The scope of an agent's authority can go beyond the terms of the agency contract and may include authority to perform other tasks customary to the agency relationship. This authority is referred to as Select one: A. Apparent authority. B. Implied authority. C. Contractual authority. D. Express authority

A: B. Implied authority

Q: 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? Select one: A. Duplication B. Insurance C. Retention D. Avoidance

A: B. Insurance

Q: The difference between an organization's total revenues and its total expenses is Select one: A. Gross profit. B. Net income. C. Operating profit. D. Net sales.

A: B. Net income

Q: One of the main distinguishing features between independent agency systems and other marketing systems is the ownership of Select one: A. The sales prospecting list. B. The agency expiration list. C. Insurance company stock. D. The insurer expiration list.

A: B. The agency expiration list

Q: It is easier to gauge the potential severity of property losses than of liability losses because property loss exposures Select one: A. Are confined to the building and contents. B. Typically have a finite value. C. Can be determined as an average according to the type of business. D. Have a calculable frequency.

A: B. Typically have a finite value.

Q: A liability policy has an aggregate limit of $1 million, an each occurrence limit of $500,000, and an each person limit of $100,000. A court ordered the insured under this policy to pay $50,000 in damages to each of three claimants as the result of a single accident. What is the total amount payable under this policy to all three claimants? Select one: A. $50,000 B. $100,000 C. $150,000 D. $500,000

A: C. $150,000

Q: The property casualty insurance policy provisions that indicate who or what is covered, and where and when coverage applies, are found in the Select one: A. Insuring agreements. Incorrect Incorrect. The Declarations indicates when or what is covered and when and where coverage applies. B. Miscellaneous provisions. C. Declarations. D. Definitions.

A: C. Declarations.

Q: A broad statement of an insurer's promises to the insured may be found in a policy's Select one: A. Endorsements. B. Declarations. C. Insuring agreements. D. Conditions.

A: C. Insuring agreements.

Q: An award of compensatory damages is the amount of money that has been judged to equal Select one: A. Special damages only. B. All of the damages incurred. C. Special and general damages. D. Punitive damages only.

A: C. Special and general damages

Q: If Katie purchases auto insurance from an out-of-state insurer without a license to sell insurance in Katie's state, the policy may be an invalid contract because Select one: A. Utmost good faith was not practiced by the parties. B. The principle of indemnity has been violated. C. The insurer was not legally competent to make the agreement. D. The contract does not have a legal purpose.

A: C. The insurer was not legally competent to make the agreement.

Q: Wear and tear, rust, marring, and scratching are examples of maintenance perils that are usually excluded by property insurance policies because Select one: A. It is against public policy to cover these types of perils. B. It is illegal to cover these types of perils. C. There might not be enough claim adjusters in the event of a loss. D. Losses arising from these perils are certain to occur.

A: D. Losses arising from these perils are certain to occur.

Q: The insurer's rights to recover and sell or otherwise dispose of insured property on which the insurer has paid a total loss are called Select one: A. Fiduciary rights. B. Constructive rights. C. Catastrophe rights. D. Salvage rights.

A: D. Salvage rights

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

Answer: B. Agency contract

Question: The premium charged for an insurance policy should be Select one: A. Equal to the loss exposure. B. Commensurate with the loss exposure. C. Equivalent to the loss exposure. D. Concurrent with the loss exposure.

Answer: B. Commensurate with the loss exposure

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

Answer: B. Sale of company stock.

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

Answer: C. Subscribers.

Question: 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

Answer: D. Producers' commissions

Q: Self-contained policies Select one: A. Address complete coverage needs. B. Require more than one form to address coverage needs. C. Do not address all of an insured's coverage needs. D. Address unique coverage needs.

A: A. Address complete coverage needs.

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

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

Q: An accurate definition of a tort is Select one: A. Any wrongful act other than a crime or breach of contract. B. An unbroken chain of events that causes injury or damage. C. A failure to act in a reasonably prudent manner. D. The legal right of recovery for damage or injury.

A: A. Any wrongful act other than a crime or breach of contract.

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

A: A. Are definite in time, cause, and location

Q: A completed operations liability loss exposure differs from a products liability loss exposure in that the completed operations liability loss exposure Select one: A. Arises out of the entity's completed work, including defective parts or materials furnished with the work. B. Is based solely on strict liability rather than negligence or strict liability. C. Arises out of the entity's defective product, whether or not it has been installed as part of the finished work. D. Is based solely on negligence and breach of warranty rather than strict liability.

A: A. Arises out of the entity's completed work, including defective parts or materials furnished with the work.

Q: Which one of the following is an example of general damages? Select one: A. Compensation for disfigurement B. Lost wages C. Prescription costs Incorrect Incorrect. An example of general damages is compensation for disfigurement. D. Hospital expenses

A: A. Compensation for disfigurement

Q: For contract purposes, an offer is valid if it includes the capacity to contract, an agreement, a legal purpose, and Select one: A. Consideration from both parties. B. An agreement between the parties. C. An acceptance from the one party. D. A legally enforceable promise from the offeree to the offeror.

A: A. Consideration from both parties.

Q: A neighbor has sued Andy for property damage that is potentially covered under Andy's homeowners liability coverage. Even if this lawsuit is found to be groundless, Andy's insurer will still probably be obligated to pay Select one: A. Defense costs. B. Special damages. C. Compensatory damages. D. General damages.

A: A. Defense costs

Q: Because insurers control how claims are resolved, courts reason that insurers should be responsible for the outcome of their claim handling if they have acted in bad faith. Therefore, courts hold insurers to a higher standard of conduct to Select one: A. Discourage insurers from abusing their position of power. B. Encourage insurers to keep rates accurate, fair, and reasonable. C. Discourage insurers from deceiving the public in marketing and advertising practices. D. Encourage insurers to be equitable in all insurance transactions.

A: A. Discourage insurers from abusing their position of power.

Q: When a firm is selecting a distribution channel, which one of the following is an important consideration with regard to its operations? Select one: 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: A. Does the selected channel capitalize on its core capabilities?

Q: A taxi firm maintains a few spare vehicles to keep all drivers on the road even if one vehicle needs repair. Which one of the following identifies the risk management technique being used in this example? Select one: A. Duplication B. Separation C. Diversification D. Avoidance

A: A. Duplication

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

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

Q: Ships and their cargoes represent a special category of property insurance. Which one of the following statements is correct with respect to this category? Select one: A. Even more than other property, ocean cargoes fluctuate in value according to their location. B. Because of the high risk of loss, ships and their cargoes are generally considered to be uninsurable. C. If a ship cannot reach its intended destination, the cargo cannot be sold in a different port. D. Ships and their cargoes are exposed only to the perils of windstorm and sinking.

A: A. Even more than other property, ocean cargoes fluctuate in value according to their location.

Q: As part of the risk management process, determining how to allocate the costs of the risk management program is important. All of the following are risk management costs that should be allocated, EXCEPT: Select one: A. General overhead expenses B. Insurance premiums C. Costs of risk control D. Losses retained

A: A. General overhead expenses

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

A: A. Implementing risk management techniques.

Q: Which one of the following describes a benefit to businesses of making insurance part of an overall risk management program instead of relying solely on insurance? Select one: A. Improved access to affordable insurance B. Increased use of exposure avoidance C. Reducing the number of persons dependent on society for support D. Stimulating economic growth

A: A. Improved access to affordable insurance

Q: Net income losses can be caused by which one of the following? Select one: A. Increases in expenses B. Increases in revenue C. Decreases in hazard risks D. Decreases in expenses

A: A. Increases in expenses

Q: Sound risk management benefits society in each of the following ways, EXCEPT: Select one: A. Increasing opportunity costs B. Stimulating economic growth C. Causing fewer disruptions in the economic and social environment D. Reducing the number of people dependent on society for support

A: A. Increasing opportunity costs

Q: Frank and Jan recently married and purchased their first home together. What is an effective way for Frank and Jan to begin identifying the liability loss exposures associated with their new home? Select one: A. Inspect the home for loss exposures B. Purchase a homeowners insurance policy C. Hire a professional risk manager D. Determine the value of the home and contents

A: A. Inspect the home for loss exposures

Q: 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. Large number of similar exposure units B. Independent and not catastrophic C. Definite and measurable D. Pure risk

A: A. Large number of similar exposure units

Q: Dudley drives to work in the city each day and until recently, parked on a street near his office. Dudley began parking in a lot that has an attendant to reduce the chance of his vehicle being damaged while it is parked. Which one of the following risk management techniques is Dudley applying? Select one: A. Loss prevention B. Avoidance C. Retention D. Noninsurance transfer

A: A. Loss prevention

Q: The death of a shareholder in a close corporation is often a significant event for the corporation for which one of the following reasons? Select one: A. Ownership in a close corporation is typically concentrated in just the few major shareholders, most of whom are also managers. B. Shareholders in a close corporation also serve on the board of directors resulting in a disparity of shareholder votes. C. The death or disability of one of the shareholders generally results in payment of dividends to the remaining shareholders. D. Key shareholders are paid high salaries and are difficult to replace.

A: A. Ownership in a close corporation is typically concentrated in just the few major shareholders, most of whom are also managers.

Q: A company turnover rate well above company and industry averages could be a sign of Select one: A. Personnel problems that need to be addressed. B. Employee slacking. C. Claims-consciousness. D. Financial problems that need to be addressed.

A: A. Personnel probs that need to be addressed

Q: The laws of agency impose all of the following specific duties on all agents, EXCEPT: Select one: A. Profitability B. Obedience C. Accounting D. Loyalty

A: A. Profitability

Q: Paying close attention to hazards is an important consideration when reviewing an underwriting submission. An underwriter should recognize a moral hazard, which is a condition Select one: A. That increases the likelihood that a person will intentionally cause or exaggerate a loss. B. Of property, persons, or operations to be insured that increases loss frequency or severity. C. Of carelessness or indifference that increases loss frequency or severity. D. That increases the likelihood that a person will break the law.

A: A. That increases the likelihood that a person will intentionally cause or exaggerate a loss.

Q: For insurance purposes, money and securities are separate from other types of contents because Select one: A. They are highly susceptible to loss by theft. B. The burden of proof for a loss is on the insurer. C. They are not susceptible to the same perils as other property. D. The insurance industry considers them uninsurable.

A: A. They are highly susceptible to loss by theft.

Q: War is generally excluded from property insurance policies because Select one: A. War affects many people at the same time with widespread losses. B. The federal government covers war losses. C. War losses can be prevented through careful planning. D. Most families and businesses do not face a war exposure.

A: A. War affects many people at the same time with widespread losses.

Q: Other than some type of merger, layoff, or organizational change, which one of the following is an example of a situation where an entire group of employees might leave an organization? Select one: A. When employees follow a manager to a new organization B. When the economy is in a long term period of inflation C. When an organization offers excessive compensation D. When statutes make it more attractive to pursue other career opportunities

A: A. When employees follow a manager to a new organization

Q: SEB Holdings has grown into a multi-billion dollar financial services firm. For 38 years, Big Hal has been its CEO and has ruled the company with an iron first. Big Hal is 78 years old, and financial analysts are concerned about his health and longevity and how closely these factors relate to the company's success. Which one of the following might help assuage the analysts' concerns? Select one: A. Disability insurance on Big Hal B. A corporate succession plan C. Key man retirement plan D. A letter attesting to Big Hal's good health

A: B. A corporate succession plan

Q: A type of individual rate that is used to develop a premium for a unique exposure for which there is no established rate is known as Select one: A. An experience rate. B. A judgment rate. C. A retrospective rate. D. A schedule rate.

A: B. A judgement rate

Q: From the insurer's perspective, occurrence basis liability coverage entails the possibility that the insurer will have to pay liability claims that surface long after Select one: A. A claim is made. B. A policy has expired. C. An insured has died. D. A loss was reported.

A: B. A policy has expired.

Q: An employee of an insurance company who performs some or all of the insurer's claim-handling activities is called Select one: A. A field claim adjuster. B. A staff claim representative. C. An inside claim representative. D. A public adjuster.

A: B. A staff claim representative

Q: A commercial building may contain furniture, machinery and equipment, raw materials, and finished products. Which one of the following is the term generally used in property insurance policies to refer to all these types of property? Select one: A. Commercial property B. Business personal property C. Inventory D. Stock

A: B. Business personal property

Q: A loss reserve that is assigned to an individual claim is called a Select one: A. Bulk reserve. B. Case reserve. C. Deferred reserve. D. Third-party reserve.

A: B. Case reserve

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

A: B. Continuing activities following an accident or other loss, and thus reducing inconvenience.

Q: When a business suffers loss of income following a liability suit that causes customers to lose confidence in the business' products, what type of loss has the business suffered? Select one: A. Confidence loss B. Damage to reputation C. Special damage D. Punitive damage

A: B. Damage to reputation

Q: A decrease in incurred losses will generally cause a decrease in all of the following, EXCEPT: Select one: A. Combined ratio B. Expense ratio C. Loss ratio D. Overall ratio

A: B. Expense ratio

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

A: B. Expiration lists

Q: A property insurance policy specifies what property is covered and where it is covered. Which one of the following is correct with regard to the property or location covered for a specific type of insurance policy? Select one: A. Personal auto policies typically cover collision damage to a described auto on a worldwide basis. B. Homeowners policies typically cover personal property on a worldwide basis, with some limitations. C. The building coverage of a commercial property policy usually excludes permanently installed fixtures and equipment. D. The building coverage of a commercial property policy usually excludes fire extinguishing equipment.

A: B. Homeowners policies typically cover personal property on a worldwide basis, with some limitations.

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

A: B. Identify loss exposures, analyze loss exposures, examine techniques, select techniques, implement techniques, monitor, and revise the program

Q: Which one of the following statements is correct with regard to risk and ideally insurable characteristics of loss exposures? Select one: A. An ideally insurable loss exposure should be associated with speculative risk. B. Indemnification is the process of restoring an insured to a pre-loss financial condition. C. If a loss exposure includes the possibility of gain, it is a more desirable risk to insure. D. One purpose of insurance is to enable the insured to profit from a loss.

A: B. Indemnification is the process of restoring an insured to a pre-loss financial condition.

Q: A goal of the claims function is to support the profit goal of the Select one: A. Claimant. B. Insurer. C. Policyholder. D. Insured.

A: B. Insurer

Q: There have been several recent burglaries in Sally's neighborhood. Which one of the following best describes a risk management technique and a corresponding example of that technique that Sally should consider due to the recent increase in burglaries? Select one: A. Loss reduction, such as keeping doors and windows locked B. Loss prevention, such as keeping doors and windows locked C. Separation, such as installing a new alarm system D. Loss prevention, such as installing a safe in her home

A: B. Loss prevention, such as keeping doors and windows locked

Q: A business installs a sprinkler system to reduce the amount of fire damage from potential fires. This is an example of Select one: A. Separation. B. Loss reduction. C. Avoidance. D. Loss prevention.

A: B. Loss reduction.

Q: Rachel is an insurance broker. She has received a sales referral from another broker concerning an airport management company, Airport Ltd. The company plans to operate a large, national airport in a major city and has requested a quote for airport liability coverage. Rachel will probably recommend the use of which one of the following types of policy forms? Select one: A. Preprinted B. Manuscript C. Miscellaneous D. Self-contained

A: B. Manuscript

Q: Loss histories can offer great insight into an organization's loss exposures. The problem with depending too heavily on this one source is that some past events might Select one: A. Not have been insured. B. Not have been recorded. C. Still be unresolved. D. Have been insured.

A: B. Not have been recorded

Q: Twelve-year-old Beth entered into a contract to purchase an expensive bracelet from Sherry. Before she paid Sherry for the bracelet, Beth accidentally dropped it into a meat grinder, ultimately crushing and destroying it. In a legal action, most courts would Select one: A. Permit Beth to pay only the actual cash value of the bracelet. B. Permit Beth to reject the contract due to her capacity to contract. C. Require Beth to pay Sherry the full value of the bracelet. D. Require Beth to replace the bracelet under the doctrine of substantial performance.

A: B. Permit Beth to reject the contract due to her capacity to contract

Q: Anyone who owns or occupies property has a Select one: A. Products liability loss exposure. B. Premises liability loss exposure. C. Pollution liability loss exposure. D. Professional liability loss exposure.

A: B. Premises liability loss exposure

Q: The Causes of Loss-Basic Form differs from the Causes of Loss-Broad Form in which one of the following ways? Select one: A. The broad form covers "risks of direct physical loss" subject to the form's exclusions and limitations. B. The broad form provides coverage for loss caused by collapse of a building or personal property resulting from specified perils. C. The broad form adds the water damage peril, which covers flooding, rainfall, sewer backup, and similar causes of water damage. D. The broad form specifically excludes rupture or bursting of water pipes and leakage of water or steam from any part of a system or appliance.

A: B. The broad form provides coverage for loss caused by collapse of a building or personal property resulting from specified perils.

Q: Sean drove his vehicle even though his doctor advised him not to drive because the medication he was taking caused drowsiness. While driving his vehicle, Sean was involved in an accident causing serious injury to himself and others. In this situation, Sean committed a Select one: A. Criminal act. B. Tort. C. Breach of contract. D. Assault.

A: B. Tort

Q: Lars was running an errand for his employer when he ran a red light and crashed into the side of another vehicle. Under which one of the following tort liability concepts could Lars' employer be held liable? Select one: A. Alternative liability B. Vicarious liability C. Expanded liability concepts D. Concert of action

A: B. Vicarious liability

Q: Extra expenses are a common financial consequence of property losses. Which one of the following is an example of an extra expense? Select one: A. A fence worth $7,000 was damaged by a car, and the fence owner has to pay $2,000 to have the damage repaired. B. When a family's house is damaged, the family must pay rent to live in a hotel temporarily. C. Even though fire has made a building untenantable, the landlord must continue making mortgage and tax payments. D. When a grocery store in a mall burns, other nearby stores have to close and lose revenue until the grocery store is repaired.

A: B. When a family's house is damaged, the family must pay rent to live in a hotel temporarily.

Q: 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? Select one: A. No, they are spending a lot of money for little protection. B. Yes, they are exchanging a large exposure for a little premium. C. Yes, they should do this indefinitely and not replace the tank. D. No, each neighbor will have insurance to cover any damage to their wells.

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

Q: Liability split limits for a Personal Auto Policy (PAP) expressed as $300/$500/$100 mean limits of Select one: A. $300 per person for bodily injury, $500 per accident for bodily injury, and $100 per accident for property damage. B. $300,000 per accident for bodily injury, $500,000 for property damage and bodily injury, and a $100,000 deductible. C. $300,000 per person for bodily injury, $500,000 per accident for bodily injury, and $100,000 per accident for property damage. D. $900,000 for all damages combined.

A: C. $300,000 per person for bodily injury, $500,000 per accident for bodily injury, and $100,000 per accident for property damage.

Q: To analyze the possible financial consequences of an income loss to his business, Joe estimates his normal revenue and expenses and compares them to his estimated revenue and expenses should a loss occur. Revenue: Normal ops($120,000) Post-loss($0) Expenses: Normal ops($70,000) Post-loss($40,000) Net Income: Normal ops($50,000) Post-Loss(-$40,000) Based on Joe's estimates, which one of the following represents his projected reduction in net income that could be covered by business income insurance? Select one: A. $40,000 B. $50,000 C. $90,000 D. $120,000

A: C. $90,000 --Business income insurance pays for the reduction in net income, which considers both the net income that would have occurred and the net loss that does occur. Joe's projected net income loss is $90,000: $50,000 he would have realized in normal operations + $40,000 lost in continuing expenses that are not offset by revenue, equals $90,000.

Q: 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 investment income ratio? Select one: A. 10% B. 20% C. 25% D. 50%

A: C. 20% Hometown's investment income ratio equals its net investment income ($1,000,000) divided by its earned premiums ($4,000,000), or 25 percent.

Q: Underwriting management arranges treaty reinsurance to reinsure Select one: A. Insureds that do not meet underwriting guidelines. B. All insurance of the primary insurer. C. A group or group of insureds. D. Individual accounts.

A: C. A group or group of insureds

Q: A contractual provision that obligates one party to assume the financial consequences of legal liability for another party is Select one: A. A warranty. B. An example of strict liability. C. A hold-harmless agreement. D. A statute.

A: C. A hold-harmless agreement.

Q: ABC Insurance Company's combined ratio is 102. Its operating ratio is 98. These ratios indicate that Select one: A. ABC is not generating a profit from its core operations. B. ABC's earned premium is greater than the sum of losses and expenses from its underwriting operations. C. ABC's return on investments is offsetting the unprofitable underwriting performance. D. ABC's underwriting performance is offsetting the lack of investment earnings.

A: C. ABC's return on investments is offsetting the unprofitable underwriting performance.

Q: Part One of the Workers Compensation and Employers Liability (WC&EL) Insurance Policy provides workers compensation coverage, which means the Select one: A. Disease must manifest itself during the policy period. B. Employee must suffer a disability during the policy period. C. Accident causing the injury must occur during the policy period. D. Injury must be reported during the policy period.

A: C. Accident causing the injury must occur during the policy period

Q: Angela is having a dispute with her insurance company regarding a claim and the definition of an insured loss. The definition is subject to two reasonable interpretations, one that favors Angela and one that favors the insurer. A court of law is likely to find in favor of Select one: A. Both parties, because the definition is subject to two interpretations. B. Neither party, because each side has failed to meet the burden of proof. C. Angela, because an insurance contract is a contract of adhesion. D. The insurer, because an insurance contract is a contract of adhesion.

A: C. Angela, because an insurance contract is a contract of adhesion.

Q: 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. Contract of indemnity. C. Conditional contract. D. Contract of adhesion.

A: C. Conditional contract.

Q: A rating plan available to commercial insurance applicants that awards debits and credits to a submission based on specific categories is known as a(n) Select one: A. Schedule rating plan. B. Financial rating plan. C. Experience rating plan. D. Retrospective rating plan.

A: C. Experience rating plan

Q: Insurance deals primarily with loss exposures that are fortuitous. Which one of the following statements best characterizes fortuitous losses? Select one: A. Fortuitous loss exposures are expected. B. Fortuitous losses are intentional. C. Fortuitous losses are beyond the insured's control. D. Fortuitous loss exposures are generally predictable.

A: C. Fortuitous losses are beyond the insured's control

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

A: C. Have a calculable value.

Q: 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? Select one: A. Increase the deductible to $2,000 B. Implement loss reduction programs C. Implement loss prevention programs D. Decrease the deductible to $500

A: C. Implement loss prevention programs

Q: Helen, the risk manager of a supermarket, has decided that the store needs a sprinkler system. She needs to check on the local water supply and building permits and decide what is necessary to comply with local ordinances as well as decide how much the supermarket can afford to spend on the system. Helen is making these decisions as part of Select one: A. Analyzing loss exposures. B. Examining the feasibility of the risk management technique. C. Implementing the selected risk management technique. D. Selecting the appropriate risk management technique.

A: C. Implementing the selected risk management technique.

Q: In preparation for installing a new alarm system at a business location, Risk Manager Tony Marcelli has consulted with his insurance agent to make sure that appropriate property and liability coverages are in place during installation. Also, Tony wants to be sure the insurer provides the proper insurance credit for the new alarm system. Tony's actions described above are part of which one of the following steps of the risk management process? Select one: A. Examining the feasibility of the risk management technique. B. Monitoring results of the risk management technique. C. Implementing the selected risk management technique. D. Selecting the appropriate risk management technique.

A: C. Implementing the selected risk management technique.

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

A: C. Increasing interest in leisure activities

Q: The monetary amount of damage that results from a loss is known as Select one: A. The deductible. B. Loss frequency. C. Loss severity. D. The retention.

A: C. Loss severity.

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

A: C. Maximize the org.'s value

Q: Neighbors Jack and Jerry were visiting and discussing the cost of new vehicles. Jack told Jerry he wanted to buy a $26,000 car but to do so he would have to sell his current auto for $8,000. Jerry said, "I accept your offer." The contract between Jack and Jerry is Select one: A. Valid because of Jack's intent to sell and Jerry's acceptance of Jack's offer. B. Not valid because there were no definite terms established. C. Not valid because Jack did not give the offer consideration. D. Valid because of Jack's intent to contract for sale of his car.

A: C. Not valid because Jack did not give the offer consideration.

Q: All of the following are categories of liabilities found on an insurer's balance sheet, EXCEPT: Select one: A. Loss and loss expense reserves B. "All other" liabilities C. Policyholders' surplus D. Unearned premium reserves

A: C. Policyholder's surplus

Q: Most property and liability insurance policies contain other insurance provision clauses in order to Select one: A. Ensure losses are fortuitous. B. Eliminate the collateral source rule. C. Prevent overindemnification. D. Encourage utmost good faith.

A: C. Prevent overindemnification.

Q: Traditionally, the risk management professional's role has been associated with loss exposures related to Select one: A. Business risk. B. Operational risk. C. Pure risk. D. Speculative risk.

A: C. Pure risk

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

A: C. Selecting the appropriate risk management techniques

Q: The declarations page of a Personal Auto Policy (PAP) Select one: A. Indicates that the policy period starts at 12:01 PM standard time at the address of the insurer. B. Lists any exclusions that are attached to the policy. C. Shows the name of the insured and the insured's mailing address. D. Identifies common policy definitions.

A: C. Shows the name of the insured and the insured's mailing address.

Q: Documents that can become part of an insurance policy include all of the following, EXCEPT: Select one: A. Relevant statutory terms and provisions B. Completed application C. Summary of available coverage options D. Insurer's bylaws

A: C. Summary of available coverage options

Q: Which one of the following best describes the coverage usually provided under a commercial property insurance policy? Select one: A. Fixtures, machinery, and equipment are considered to be contents rather than part of the building, even if they are permanently installed. B. It automatically covers any and all buildings owned by the insured and located in the coverage territory. C. The policy's definition of building includes additions that are either completed or under construction, as well as materials and supplies used for constructing the additions. D. It does not cover other outdoor structures that are not buildings, such as carports, antenna towers, and swimming pools.

A: C. The policy's definition of building includes additions that are either completed or under construction, as well as materials and supplies used for constructing the additions.

Q: Amy has decided to apply a retention risk management technique to reduce her automobile insurance premium. She is deleting the physical damage coverage (collision and other-than-collision) on her car. Her car is currently worth $3,000. She will be able to save $250 every six months. Based on informal guidelines for selecting risk management techniques, is this a good decision? Select one: A. No, this type of coverage is required in most states. B. No, because the plan does not include loss control. C. Yes, if Amy can afford to lose $3,000. D. Yes, Amy will save $500 per year.

A: C. Yes, if Amy can afford to lose $3,000.

Q: Which one of the following types of insurance policies is least likely to be considered a contract of adhesion? Select one: A. A commercial crime policy B. An automobile policy C. A personal articles floater D. A manuscript policy

A: D. A manuscript policy

Q: An auto dealer's showroom is destroyed by fire, and the dealer has to temporarily rent an adjacent building to use as a showroom. This is an example of Select one: A. A reduction in value. B. An altered condition. C. Lost income. D. An extra expense.

A: D. An extra expense

Q: Which one of the following is an example of a fortuitous loss? Select one: A. The value of an insured's home decreases due to a lack of maintenance. B. Insureds intentionally set a fire and burn their house down. C. An insured demolishes a deck that has been allowed to rot. D. An unknown vandal spray-paints graffiti on the insured's garage.

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

Q: Ching is a commercial claim representative who has been assigned a large fire loss. Ching suspects that the insured may not have been completely honest in describing the property before the policy was issued such that coverage for the claim may be denied. In which document might Ching find the representations of the insured regarding the property's description? Select one: A. Endorsements B. Manuscript C. Declarations D. Application

A: D. Application

Q: Martha works in the city and drives to work each day. She is concerned about her auto exposures due to driving in the city. If Martha sells her vehicle and begins using public transportation, which one of the following risk management techniques will she be applying to her situation? Select one: A. Retention B. Loss control C. Noninsurance transfer D. Avoidance

A: D. Avoidance

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

A: D. Benefits are intangible until a loss occurs.

Q: The possibility that a plumbing contractor might start a fire at a customer's house while soldering a pipe is what type of liability loss exposure for the plumber? Select one: A. Professional activities B. Products C. Completed operations D. Business operations

A: D. Business operations

Q: Which one of the following types of auto physical damage coverage responds to damage to a motor vehicle that is caused by its impact with another vehicle or object? Select one: A. Specified causes of loss B. Other than collision C. Comprehensive D. Collision

A: D. Collision

Q: The law that specifies the structure and powers of the three branches of the federal government is Select one: A. Congressional law. B. Common law. C. Federal law. D. Constitutional law.

A: D. Constitutional law

Q: Property insurance policies use the term "personal property" to refer to the Select one: A. Property in transit. B. Company's copyrights and trademarks. C. Buildings not attached to the main building. D. Contents of a building.

A: D. Contents of a building

Q: In a policy's insuring agreement, the insurer promises to pay to the insured, to pay on behalf of the insured and to Select one: A. Provide full coverage for any exposure. B. Educate the insured regarding policy language. C. Pay for all losses. D. Defend the insured.

A: D. Defend the insured.

Q: The cause of loss that occurs more frequently than death, causing personnel losses, is Select one: A. War/terrorism. B. Retirement. C. Kidnap. D. Disability.

A: D. Disability

Q: Watercraft liability and aircraft liability are excluded under commercial general liability (CGL) policies primarily to Select one: A. Avoid covering uninsurable losses. B. Avoid insuring losses that could be prevented. C. Keep premiums reasonable. D. Eliminate duplicate coverage.

A: D. Eliminate duplicate coverage

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

A: D. Encourages insurers to create innovative products and offer competitive prices

Q: In commercial insurance, the person who is responsible for paying premiums and who also has the right to receive any return premiums is the Select one: A. Named insured. B. Additional insured. C. Other insured. D. First named insured.

A: D. First named insured.

Q: The definitions section of the policy Select one: A. Contains a definitive statement of coverage. B. Describes the services provided by the insurer. C. Consists of dictionary meanings of words. D. Helps clarify real or perceived ambiguity.

A: D. Helps clarify real or perceived ambiguity.

Q: Which one of the following statements is correct with respect to the condition Duties in the Event of Loss or Damage of the Building and Personal Property Coverage Form (BPP)? Select one: A. To prevent insurance fraud, the insurer is obliged to notify the police of all losses reported. B. The insured is required to give the insurer notice of the loss, including a description of the property damaged, within 24 hours. C. The claims adjuster is required to take all reasonable steps to protect the property from further loss, prepare an inventory and set the damaged property aside. D. If the insured fails to perform any of them, the insurer may not have to pay for the loss.

A: D. If the insured fails to perform any of them, the insurer may not have to pay for the loss.

Q: Properly estimating loss severity is essential in treating a loss exposure because the potential severity is a major consideration in determining whether to Select one: A. Use loss avoidance or loss prevention. B. Physically inspect or rely on a loss exposure survey. C. Use risk control or risk financing. D. Insure or retain a particular loss exposure.

A: D. Insure or retain a particular loss exposure.

Q: Expenses associated with an insurer's UW activity include all of the following EXCEPT: A. Loss adjustment expenses B. Premium taxes, licenses, and fees C. Payment for losses D. Investment expenses

A: D. Investment expenses

Q: When an insured borrows money to purchase a car, the insured is usually required to add the lender to the auto policy as a Select one: A. Mortgagee. B. Named insured. C. Lessee. D. Loss Payee.

A: D. Loss Payee

Q: A business installs bars on windows and door deadbolts to prevent burglaries. This is an example of Select one: A. Avoidance. B. Separation. C. Loss reduction. D. Loss prevention.

A: D. Loss prevention.

Q: 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? Select one: A. Avoidance B. Noninsurance transfer C. Loss prevention D. Loss reduction

A: D. Loss reduction

Q: Which one of the following statements is correct with respect to insurance policy exclusions? Select one: A. Its purpose is to eliminate coverage, not to clarify the coverage granted. B. Its use does not help insurers manage moral and morale hazards. C. Its use has little or no impact on the policy premium an insurer must charge. D. One of its purposes is to eliminate coverages requiring special treatment.

A: D. One of its purposes is to eliminate coverages requiring special treatment.

Q: Joe owns a building covered by a property insurance policy. Joe intentionally sets fire to and destroys this building. He then files a claim with his insurance company. Which one of the following statements best describes why Joe would be precluded from recovering under his policy for this loss? Select one: A. Payment of the claim would violate the principle of indemnity B. Joe acted irrationally C. Joe acted under emotional duress D. Payment of the claim would be a violation of public policy

A: D. Payment of the claim would be a violation of public policy

Q: An insurer's income statement shows amounts for all of the following, EXCEPT: Select one: A. Underwriting expenses B. Earned premiums C. Incurred losses D. Policyholders' surplus

A: D. Policyholders' surplus

Q: Underwriting guidelines help an insurer achieve its goals by Select one: A. Maintaining a consistently applied set of behavioral measurements against which an individual's performance will be measured B. Establishing the criteria required for treaty reinsurance to apply C. Creating a channel for communication for the insurer's vision, mission, and objectives D. Providing rules that guide underwriters toward consistent decisions

A: D. Providing rules that guide underwriters toward consistent decisions

Q: In the claim evaluation process, specific, out-of-pocket expenses are called Select one: A. General damages. B. Compensatory damages. C. Negotiated damages. D. Special damages.

A: D. Special damages

Q: Manufacturing Company experienced a loss on its premises when expensive equipment was destroyed by fire. A provision in its insurance contract maintains that the insurer has a right to enter the premises in the event of a reported loss to inspect the damaged property. Manufacturing Company has refused to grant entry to the insurer's claim representative. Consequently, the insurer is considering whether it can deny coverage for the claim. Which one of the following best explains why Manufacturing Company's insurer may be able to deny coverage under the principle that an insurance policy is a conditional contract? Select one: A. The insurer may not be able to validate a covered loss and the actual value of the loss without inspection. B. The insurer may not be able to satisfy itself that the fire was not caused by arson without an inspection. C. The insured has no power to alter the written requirement to allow inspection. D. The insured must fulfill its duty to allow an inspection before a claim is paid.

A: D. The insured must fulfill its duty to allow an inspection before a claim is paid.

Q: All of the following are included as insureds under the Section II—Liability Coverages of a homeowners policy, EXCEPT: Select one: A. The named insured's grandmother who lives with her B. The named insured's neighbor while caring for the insured's dog if the dog causes injury while in the neighbor's care C. The named insured's 17-year-old foster child D. The named insured's separated spouse who resides and works in another state

A: D. The named insured's separated spouse who resides and works in another state

Q: All for-profit organizations are exposed to net income losses. Net income is defined as Select one: A. Total profit minus total expenses. B. Total income minus indirect losses. C. Total assets minus total liabilities. D. Total revenue minus total expenses.

A: D. Total revenue minus total expenses

Q: Which one of the following statements is true regarding the distinguishing characteristics of insurance contracts? Select one: A. Contracts of adhesion significantly influence the enforcement of insurance policies. B. Insurance policies are considered conditional because if the insured meets the premium payment condition, the insurer must pay the claims. C. Insureds are generally allowed to transfer an insurance policy to a third party without the insurer's written consent, because insurance policies are not considered to be personal contracts. D. Standard insurance policies contain no ambiguities.

A; A. Contracts of adhesion significantly influence the enforcement of insurance policies.

Question: Perils are an important aspect of property insurance. Which one of the following statements is correct with respect to perils? Select one: A. A peril is the actual means by which property is damaged or destroyed such as fire, lightning, windstorm, hail, or theft. B. Property insurance policies can cover specific perils and cannot exclude other perils. C. A peril is anything that increases the frequency or the severity of a loss. D. In order to be covered by an insurance policy, a peril must be defined and described in that policy.

Answer: A. A peril is the actual means by which property is damaged or destroyed such as fire, lightning, windstorm, hail, or theft.

Question: Harry has a new sports car that is insured with an Insurance Services Office, Inc. (ISO) Personal Auto Policy sold through his neighborhood agent. Because this is the first new car he's ever owned, Harry is interested in making sure he is fully covered and knowledgeable about his insurance policy. Which one of the following is true for Harry? Select one: A. An insurance contract, like the ISO policy Harry purchased, has certain additional characteristics other than those of typical valid contracts. B. As the policy is a contract of utmost good faith, both his insurer and his agent are the parties expected to be ethical in their dealings with one another. C. Harry can rest assured that if his new car is a total loss, he can expect to make a profit while being restored to his pre-loss financial position. D. Harry understands his policy is modular one, combining various coverage forms and other documents especially tailored to his needs.

Answer: A. An insurance contract, like the ISO policy Harry purchased, has certain additional characteristics other than those of typical valid contracts

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

Answer: A. Annually

Question: A homeowners insurance policy typically includes: A. Both property and liability coverage. B. Umbrella coverage. C. Only liability coverage. D. Only property coverage.

Answer: A. Both property and liability coverage.

Question: A policy that combines property, crime, and liability coverages into one policy is referred to as a(n) A. Commercial packager policy (CPP). B. Workers compensation policy. C. Commercial umbrella policy. D. Employee dishonesty policy.

Answer: A. Commercial package policy (CPP).

Question: 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. Erin is looking for minimum coverages and the lowest price available. Which one of the following is likely the best distribution system to meet Erin's needs? Select one: A. Direct writer Internet search B. Regional broker C. Financial institution D. Independent agent

Answer: A. Direct writer Internet search

Question: Authority that the insurance company specifically grants to an agent is called Select one: A. Express authority. B. Apparent authority. C. Binding authority. D. Implied authority.

Answer: A. Express authority

Question: Which one of the following statements is correct regarding government involvement in insurance? Select one: A. Federal and state government are involved in insurance to facilitate compulsory insurance purchases. B. Most organizations obtain workers compensation insurance through federal or state insurance programs. C. Government insurance plans typically incur significant costs in marketing and sales commissions. D. Legislators find it more straightforward to invite and analyze bids from private insurers than to establish government plans.

Answer: A. Federal and state government are involved in insurance to facilitate compulsory insurance purchases.

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

Answer: A. If regulators determine that an insurer is insolvent, the state insurance department places it in receivership.

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

Answer: A. Promote risk control

Question: State government involvement in Workers Compensation Insurance involves all of the following, EXCEPT: Select one: A. Providing coverage through insurance pools. B. Operating as a residual market. C. Competing with private insurers. D. Functioning as an exclusive insurer.

Answer: A. Providing coverage through insurance pools

Question: Market conduct regulation focuses on insurers' treatment of applicants for insurance, insureds, and others who present claims for coverage. Market conduct regulation affects all of the following areas of operations of an insurer, EXCEPT: Select one: A. Risk control B. Claims handling C. Underwriting D. Sales

Answer: A. Risk control

Question: All of the following are types of private insurers, EXCEPT: Select one: A. State workers compensation funds B. Stock insurers C. Reciprocal insurance exchanges D. Mutual insurers

Answer: A. State workers compensation funds

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

Answer: A. Surplus line insurers

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

Answer: A. The amount of its payroll

Question: When selecting a distribution channel, which one of the following is an important consideration with regard to customers' needs and characteristics? Select one: A. The ease of accessibility within the channel B. The expertise of current staff C. The compatibility of the channel with established channels D. The target market

Answer: A. The ease of accessibility within the channel

Question: Which one of the following best describes what is determined by the insurer's staff review of applications from prospective insureds? Select one: A. Whether the characteristics of the customer match the insurer's underwriting criteria. B. Whether any loss control recommendations will be made C. Whether the account should be written as a personal insurance policy or a commercial insurance policy D. Whether claims will be paid or denied

Answer: A. Whether the characteristics of the customer match the insurer's underwriting criteria.

Question: A US insurer licensed in a state other than its home state is A. A domestic insurer B. A foreign insurer C. An alien insurer D. A nonadmitted insurer

Answer: B. A foreign insurer

Question: Principals often authorize another party to act on their behalf. This relationship is called Select one: A. Fiduciary. B. Agency. C. Broker. D. Attorney in fact.

Answer: B. Agency

Question: A flex rating law is Select one: 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 under which prior approval is required only if the new rates exceed a certain percentage above (and sometimes below) the rates previously file. 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 that allows insurers to develop and use rates without having to file with or get approval from the state insurance department.

Answer: B. 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.

Question: A company interested in improving cash flow should consider meeting its insurance needs through which one of the following types of insurance organizations? Select one: A. Reciprocal insurance exchanges B. Captive insurers C. Mutual insurers D. Stock insurers

Answer: B. Captive insurers

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

Answer: B. Detect and address any policy provisions that are unfair.

Question: The Insurance Regulatory Information System (IRIS) A. Prescribes a format for insurers' annual financial statements B. Develops ratios that assess an insurer's overall financial condition C. Conducts field examinations of insurers D. Establishes financial requirements for all similarly licensed insurers

Answer: B. Develops ratios that assess an insurer's overall financial condition

Question: Which one of the following premium collection methods is used in the majority of personal insurance sales? Select one: A. Item basis B. Direct bill process C. Account current basis D. Statement basis

Answer: B. Direct bill process

Question: Properties of Insurtech Companies include all of the following, EXCEPT: Select one: A. Takes advantage of the current digital world by using web-enabled platforms and mobile devices. B. Elimination for the need of underwriters given the technological advances in this space. C. They were born out of emerging technologies. D. Capable of assisting traditional insurers with new products and services.

Answer: B. Elimination for the need of underwriters given the technological advances in this space.

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

Answer: B. Enterprise level

Question: Which one of the following statements concerning government insurance programs is true? Select one: A. Various state insurance programs provide crop insurance for perils such as drought, disease, excessive rain and hail. B. Fair Access to Insurance Requirements (FAIR) plans make basic property insurance available to property owners who can't get it otherwise. C. The federal government provides workers compensation insurance to employers who cannot get it from private insurers. D. Businesses seeking flood insurance under the National Flood Insurance Program (NFIP) must purchase it at local federal government offices.

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

Question: Which one of the following correctly describes a reason for government involvement in property-casualty insurance? Select one: A. Selling insurance provides the government with a non-tax source of revenues and profits. B. Government programs can meet legitimate public demands unmet by private insurers. C. Competition from government plans keeps private insurer's premiums competitive. D. Preventing high-risk individuals or activities from being insured is in the public interest.

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

Question: Don is an agent trying to find appropriate coverage for his customer, Wayne Industrial Supplies, which has large, unique, and hard-to-place commercial loss exposures. Fortunately, Wayne is in a state that has deregulated some insurance coverages, which will make Don's job a little easier. Based on this information, which one of the following statements is true? Select one: A. Surplus lines insurers are generally not exempt from insurance regulations pertaining to policy forms and rates. B. If Wayne's loss exposures can be covered by inland or ocean marine coverages, these may be exempt from regulation. C. There is a standard definition, across states, of the size of business to qualify for exemption from rate and form regulation. D. For workers compensation, Don knows most states will exempt this type of commercial coverage from regulation.

Answer: B. If Wayne's loss exposures can be covered by inland or ocean marine coverages, these may be exempt from regulation.

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

Answer: B. Insurers may become insolvent

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

Answer: B. Insurers' investment income helps keep premiums at a reasonable level.

Question: Risk control is intended to prevent or reduce losses. When practicing sound risk control, an organization Select one: A. Is likely to see the same economic benefit as compared to insurance. B. Is likely to use insurance to treat those loss exposures. C. Will not be required to expend economic resources to insure those loss exposures. D. Will often be able to eliminate losses from those loss exposures.

Answer: B. Is likely to use insurance to treat those loss exposures.

Question: Which kind of insurer has earned a reputation for accepting applications for unusual types of insurance, such as insuring the legs of a famous athlete against injury? A. Stock insurer B. Lloyd's C. Captive insurer D. Reciprocal insurance exchange

Answer: B. Lloyd's

Question: Which of the following is an example of a federal government insurance program? A. Workers compensation plans B. NFIP C. Residual auto plans D. Beach and windstorm plans

Answer: B. NFIP

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

Answer: B. Provides protection for a specified period with no cash value.

Question: 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 Select one: A. Retention. B. Risk transfer. C. Loss control. D. Avoidance.

Answer: B. Risk transfer

Question: Excella Insurance is a private insurer operating in the state of Arkansas. It primarily sells personal auto and homeowners policies and complies with all the necessary licensing and regulations required. Which one of the following is true for Excella in regard to this? Select one: A. Excella strives to make sure its revenue is equal to or less than its expenses and claim payments to remain financially viable. B. State insurance regulators are only one of many stakeholders that are interested in an insurer's financial health. C. Excella must fully comply with insurance regulations so that the federal government does not revoke its license. D. Paying expenses and making a reasonable profit is the ultimate measure of the insurer's success.

Answer: B. State insurance regulators are only one of many stakeholders that are interested in an insurer's financial health.

Question: 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 Select one: A. Similar to the rates charged by other insurers operating in the state. B. Sufficient to pay all claims and the expenses related to those claims. C. Able to generate a fair return for the insurer but no to excessive or unrealistic profit. D. Similar for insureds with similar loss exposures.

Answer: B. Sufficient to pay all claims and the expenses related to those claims.

Question: Which one of the following statements is true with regard to Internet distribution channels for selling insurance? Select one: A. "Franchise marketing" is also known as affinity marketing. B. The objective of insurance portals is to deliver leads to the firms whose products they offer through their sites. C. Mass marketing plans offer insurers' policies to a small number of targeted individuals based upon their demographic characteristics. D. The objective of group marketing is to sell insurance products and services over the Internet.

Answer: B. The objective of insurance portals is to deliver leads to the firms whose products they offer through their sites.

Question: Some insurance rating laws allow rates to be put into use immediately but require insurers to files the rates with the state within a specific period of time. These types of laws are known as Select one: A. Flex rating laws. B. Use-and-file laws. C. File-and-use laws. D. Prior-approval laws.

Answer: B. Use-and-file laws

Question: The principal method of determining a prospect's insurance needs is through Select one: A. Asking the prospect what coverage they would like to purchase. B. Reviewing the prospect's current insurance policies. C. Completing a risk management review for the prospect. D. Determining how much the prospect is willing to pay for insurance coverage.

Answer: C. Completing a risk management review for the prospect

Question: Which one of the following is a typical adjuster activity during the claim handling process? Select one: A. Notify underwriters of larger loss exposures than were originally contemplated. B. Determining policy terms and conditions C. Contacting the insured. D. Controlling the loss.

Answer: C. Contacting the insured

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

Answer: C. Direct writer

Question: The authority that the principal specifically grants to the agent is contained in the agency contract. This authority is known as Select one: A. Apparent authority. B. Implied authority. C. Express authority. D. Contractual authority.

Answer: C. Express authority

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

Answer: C. Insurance regulators review policies to determine if they benefit consumers.

Question: A reciprocal insurance exchange Select one: A. Is a subsidiary that provides all or part of the insurance for a parent company. B. Is a stock corporation providing insurance for its policyholders. C. Is an unincorporated association providing insurance coverage to its subscribers. D. Transfers potential costs of insured loss exposures from one insurer to another insurer.

Answer: C. Is an unincorporated association providing insurance coverage to its subscribers

Question: Which one of the following statements is true? Select one: A. Mutual insurers are usually large national insurers. B. Mutual insurers include few regional insurers. C. Mutual insurance companies include some large national insurers. D. Mutual insurers are exclusively regional or local insurers.

Answer: C. Mutual insurance companies include some large national insurers.

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

Answer: C. Owners are not necessarily insureds.

Question: Successful underwriting ensures selected applicants Select one: A. Can use the standard forms developed by insurance advisory organizations. B. Never experience losses that exceed the amount the insurer anticipated when pricing coverage. C. Receive coverage that adequately reflect their loss exposure. D. Do not require monitoring for increases in hazards.

Answer: C. Receive coverage that adequately reflect their loss exposures

Question: When an agency relationship is created between a principal and the agent, it requires a high degree of Select one: A. Patience. B. Creativity. C. Trust. D. Oversight.

Answer: C. Trust

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

Answer: C. Underwriting

Question: 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 one of the following is the best rationale for the MAIF program? Select one: A. Auto insurance for high-risk drivers is profitable, and the program enables the state to share in the profits. B. Private insurers face limited competition, and the state increases competitive pressures by operating this type of plan. C. Private insurers overcharge for auto insurance, and the state provides a low-cost alternative. D. Auto insurance is compulsory, and the program makes it possible for all drivers to have reasonably priced insurance.

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

Question: Which one of the following distribution channels is also an efficient way to handle claim reporting and billing inquiries? Select one: A. Affinity marketing B. Financial institutions C. Direct response D. Call centers

Answer: D. Call centers

Question: Which of the following is not a component of a successful marketing program? A. Advertising that informs customers about the insurer's products and services B. Selection of appropriate marketing systems C. Setting sales goals and implementing strategies for achieving them D. Determining policy terms and conditions

Answer: D. Determining policy terms and conditions

Question: Which one of the following would be a critical strength required for a personal lines insurer planning to expand geographically through web-based distribution? Select one: A. Producer force B. Service capabilities C. Coverage expertise D. Financial resources

Answer: D. Financial resources

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

Answer: D. Increases the total cost of insurance.

Question: Michelle is shopping for auto insurance. Which one of the following insurance agents is most likely to be able to give her quotes from several different, unrelated insurers? Select one: A. Implied agent B. Express agent C. Exclusive agent D. Independent agent

Answer: D. Independent agent

Question: Insurance customers' loss exposures arise out of their activities, as well as Select one: A. Insureds' goals. B. Insurers' coverages. C. Insurers' requirements. D. Insureds' property.

Answer: D. Insureds' property.

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

Answer: D. Insurer licensing

Question: Which one of the following statements is correct regarding consulting services? Select one: A. It is illegal for producers to reduce their consulting fees in recognition of commissions received. B. When consulting services are provided, insurance premiums, commissions, and fees are billed together. C. Producers are restricted to only providing consulting services to their current insureds. D. Many producers offer consulting services for which they are paid on a fee basis.

Answer: D. Many producers offer consulting services for which they are paid on a fee basis.

Question: A type of insurer that has as board of directors elected by policyholders and that may pay dividends to policyholders as a return of a portion of premiums paid is a A. Stock insurer. B. Reciprocal insurance exchange. C. Captive insurer. D. Mutual insurer.

Answer: D. Mutual insurer

Question: A northeastern state in the US has a mandatory rate law in effect. A southeastern state has established a file-and-use law. A Pacific coast state requires insurers to follow a prior-approval law, and a midwest state has enacted a flex rating law. Which one of the states and its regulators asserts the greatest extent of control over insurer rates? Select one: A. Midwest B. Southeastern C. Pacific coast D. Northeastern

Answer: D. Northeastern

Question: All of the following describe Lloyd's, EXCEPT: Select one: A. An insurance and reinsurance marketplace B. Operated by syndicates C. Insurance underwritten by a Name D. Primarily insurers unusual exposures

Answer: D. Primarily insurers unusual exposures

Question: Todd is a producer selling commercial insurance to small to medium sized businesses. Because some of them are struggling to pay the premiums, and because Todd gets more commissions the more policies he sells, he has started giving a portion of the policy premium back to his customers that place multiple coverages with him. In doing so, Todd is specifically engaging in the unfair trade practice of Select one: A. False advertising. B. Misrepresentation. C. Tie-in sales. D. Rebating.

Answer: D. Rebating

Question: An insurer that was formed for the purpose of earning a profit for its stockholders is a Select one: A. Mutual insurer. B. Captive insurer. C. Reciprocal insurance exchange. D. Stock insurer.

Answer: D. Stock insurer

Question: Which one of the following is the most common reason premium audits are conducted? Select one: A. The amount of actual losses are not known at the start of the policy period. B. Claim examiners have discovered unacceptable operations during the policy period. C. Loss control activities during the policy period may reduce the risk of loss. D. The amount of the loss exposure is unknown at the start of the policy period.

Answer: D. The amount of the loss exposure is unknown at the start of the policy period.

Question: Which one of the following statements is correct with respect to selecting a distribution channel? Select one: A. The majority of customers prefer to speak with a producer or service representative rather than access their account information online. B. Customers are prepared to spend a reasonable amount of time and effort interacting with a distribution channel if that channel saves them money. C. The primary consideration is what approach will allow the insurer to operate efficiently. D. The types of insurance products and services to be delivered by the insurer must fit the marketing channel selected.

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

Question: All of the following are reasons that insurance regulators try to maintain and enhance the financial condition of private insurers, EXCEPT: A. If an insurer becomes insolvent, future claims might nor be paid even though the premium has been paid B. Regulation is needed to protect the public interest C. Regulation is necessary to safeguard the substantial funds held by insurers for the ultimate benefit to policyholders D. They are contractually obligated to do so

Answer: D. They are contractually obligated to do so

Market conduct regulation

regulation of the practices of insurers in regard to four areas of operation: sales practices, underwriting practices, claims practices, and bad-faith actions

Common examples of federal govt. insurance plans:

NFIP & federal crop insurance

Q: What type of law is specifically designed to protect personal and property rights, as well as contract rights? Select one: A. Civil law B. Local ordinances C. Constitutional law D. Criminal law

A: A. Civil law

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

A: B. Identify loss exposures.

Q: Mira raised chickens in a coop that she constructed in her backyard. Due to her careless smoking, the coop was destroyed by fire. She submitted a claim to her homeowners insurer, which assigned an adjuster. This is the adjuster's first claim involving a building detached from a dwelling. Assuming the adjuster has established Mira's insurable interest in the property, which one of the following should the adjuster be asking next? Select one: A. How old is the chicken coop? B. Is the damaged property covered by the policy? C. How many chickens died in the fire? D. Was the chicken coop constructed within the standards of the local building code?

A: B. Is the damaged property covered by the policy?

Q: Someone contracting while under the influence of alcohol or drugs can avoid or ratify the contract upon becoming sober because there is no Select one: A. Legal purpose. B. Agreement. C. Capacity to contract. D. Consideration.

A: C. Capacity to contract

Q: Class rating relies on A. all insureds being charged the same rate B. similar frequency and severity of loss C. insureds with similar characteristics D. a highly refined classification

A: C. insureds with similar characteristics

Q: An insurance company employee who investigates the scene of a loss; meets with insureds, claimants, lawyers, and others; and inspects damage is most accurately called Select one: A. An adjusting agent. B. A third-party administrator. C. An independent adjuster. D. A field claim representative.

A: D. A field claim representative

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

Answer: A. Transfer the cost of losses

Question: Which one of the following statements is true concerning the use of alternative distribution channels to sell insurance? Select one: A. The introduction of new distribution channels has resulted in the elimination of traditional marketing systems. B. Distribution channels act as a conduit for establishing communication with current customers. C. Most distribution channels do not allow insurers to contact customers directly. D. Most distribution channels are not yet available for customer service.

Answer: B. Distribution channels act as a conduit for establishing communication with current customers.

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

Answer: B. Prospecting

Question: Which one of the following best describes the criterion that insurance rates not be unfairly discriminatory? A. Insurance rates should be consistently the same for everyone in a state. B. Rates can be based on risk profiles but must be fair and consistent. C. As long as rates are not excessive, insurers can set rates as they choose. D. Insurers should not use any type of profiling in setting insurance rates.

Answer: B. Rates can be based on risk profiles but must be fair and consistent.

Question: Insurers are required to submit annual financial statements to Select one: A. The Insurance Regulatory Information System (IRIS). B. State insurance departments. C. The state guaranty fund. D. The National Association of Insurance Commissioners (NAIC).

Answer: B. State insurance departments

Question: Bill is an insurance producer for ABC Insurance Company (ABC). He represents only ABC when marketing insurance products. ABC compensates Bill primarily through salary, and he has no ownership rights to policy expirations. Bill is a producer in the Select one: A. Exclusive agency marketing system. B. Independent agency marketing system. C. Direct writer marketing system. D. Captive agency marketing system.

Answer: C. Direct writer marketing system.

Question: Which one of the following best describes open-competition rating laws? A. States have no input at all into insurance rates. B. Insurers can use rates but must seek approval for them. C. Insurance departments monitor rates set by insurers. D. Insurers must seek state approval prior to setting rates.

Answer: C. Insurance departments monitor rates set by insurers.

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

Answer: C. Insurance shortages

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

Answer: C. Noninsurance transfer techniques

Question: State governments can be involved in insurance at various levels. Some states provide which one of the following types of insurance in competition with private insurers? Select one: A. Flood B. General liability C. Workers compensation D. Crop

Answer: C. Workers compensation

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

Answer: D. Assumes loss exposures from a primary insurer

Question: A mutual insurance company is owned by Select one: A. State insurance departments. B. Mutual funds. C. Independent investors. D. Policyholders.

Answer: D. Policyholders

Question: Prompt and professional loss adjustment services are a responsibility of which one of the following parts of an insurer's organization? Select one: A. The loss control function B. The underwriting function C. The premium audit function D. The claims function

Answer: D. The claims function

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

Answer: D. Well in excess of its ordinary expenses

Question: In which one of the following insurance roles can an abundance of data be used to analyze an insured's history and needs? a. insurance as a risk management technique b. insurance as a risk transfer system c. insurance as a business d. insurance as a contract

Answer: a. insurance as a risk management technique

Examples of state govt. insurance programs:

-WC plans -residual auto plans -beach & windstorm plans

Reasons for Government Insurance Programs

-to fill unmet needs in the private insurance market -to facilitate compulsory insurance purchases -to provide efficiency in the market and convenience to insureds -to achieve collateral social purposes

The 3 levels of Government Involvement

1) Exclusive insurer -- The govt. can be an exlusive insurer either b/c of law or b/c no private insurer offers a competing plan. 2) Partner w/private insurers -- Govt. partnerships w/private insurers can develop when private insurers are no longer able to adequately provide coverages they had typically offered previously. 3) Insurer who competes with private insurers -- Govt. involvement may also take the form of operating an insurance plan in direct competition with private insurers.

Q: All of the following are factors in determining the replacement cost of real property, EXCEPT: Select one: A. Actual cash value of the property B. Type and quality of the construction C. Construction cost per square foot D. Square footage of the property

A: A. Actual cash value of the property

Q: A commercial package policy is an example of a Select one: A. Nonstandard self-contained policy. B. Standard self-contained policy. C. Manuscript policy. D. Modular policy.

A: D. Modular policy.

Personal auto policy (PAP)

An insurance policy that covers an individual or a family against loss exposures arising out of the ownership, maintenance, or use of automobiles

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

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

Question: 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. transfer b. reinsurance c. prevention d. reunderwriting

Answer: a. transfer

Question: Which of the following is an example of a legal requirement for individuals that could be met through insurance? a. Contributing to the growth of the organization b. obtaining personal auto insurance c. paying for losses d. providing a source of investment funds

Answer: b. obtaining personal auto insurance

Question: Retention is often used in combination with insurance as a way of treating loss exposures. One of the major downsides of individuals using retention alone is Select one: A. The unavailability of insurer loss control services. B. The potential for financial ruin. C. The record keeping associated with retained losses. D. Availability of insurer loss settlement services

B. The potential for financial ruin

Commercial general liability (CGL) insurance

Insurance that covers many of the common liability loss exposures faced by an organization, including its premises, operations, and products

Open competition rating laws

Market prices driven by the economic laws of supply and demand, rather than regulatory decisions, determine insurance rates. However, state insurance departments typically have the authority to monitor competition and disapprove rates if deemed necessary. The major criteria that rates must be adequate, not excessive, and not unfairly discriminatory continue to apply.

Homeowners policy

Policy that covers most of the property and liability loss exposures that arise out of residential property ownership and occupancy, as well as property and liability loss exposures that individuals and families may have while they are away from their residences

Risk control

a conscious act or decision not to act that reduces the frequency and/or severity of losses or makes losses more predictable

Contract of indemnity

a contract in which the insurer agrees, in the event of a covered loss, to pay an amount directly related to the amount of the loss

Law of large numbers

a mathematical principle stating that as the number of similar but independent exposure units increases, the relative accuracy of predictions about future outcomes (losses) also increases

Internet of Things (IoT)

a network of objects that transmit data to and from each other without human interaction

Surplus lines insurer

a nonadmitted insurer that is eligible to insure risks that have been exported by a surplus lines licensee in accordance with a surplus lines law

Surplus lines law

a state law that permits any producer with a surplus lines license issued by that state to procure insurance from an eligible surplus lines insurer if the applicant cannot obtain the desired type of insurance in the admitted market

Guaranty fund

a state-established fund that provides a system for the payment of some of the unpaid claims of insolvent insurers licensed in that state, generally funded by assessments collected from all insurers licensed in the state

Business process management (BPM)

a systematic, iterative plan to analyze and improve business processes through life-cycle phases to achieve long-term goals and client satisfaction

National Association of Insurance Commissioners (NAIC)

an association of insurance commissioners from the fifty US states, the District of Columbia, and the five US territories and possessions, whose purpose is to coordinate insurance regulation activities among the various state insurance departments

Lloyd's (Lloyd's of London)

an association of investors, grouped in syndicates, who are represented by underwriters to write insurance and reinsurance

Insurance Regulatory Information System (IRIS)

an information and early-warning system established and operated by the NAIC to monitor the financial soundness of insurers

Domestic insurer

an insurer doing business in the jurisdiction in which it is incorporated

Alien insurer

an insurer domiciled in a country other than the US

Captive insurer

an insurer formed primarily to cover the loss exposures of its parent or members

Foreign insurer

an insurer licensed to operate in a state but incorporated in another state

Nonadmitted insurer

an insurer not authorized by the state insurance department to do business within that state

Nonadmitted insurer

an insurer not authorized by the state insurance dept. to do business within that state

Mutual insurer

an insurer that is owned by its policyholders and formed as a corporation for the purpose of providing insurance to them

Stock insurer

an insurer that is owned by its stockholders and formed as a corporation for the purpose of earning a profit for the stockholders

Admitted insurer

an insurer to which a state insurance department has granted a license to do business within that state

Utmost good faith

an obligation to act in complete honesty and to disclose all relevant facts

Contract of adhesion

any contract in which one party must either accept the agreement as written by the other party or reject it

Flex rating law

increases the amount of flexibility for insurers in their rate determinations. prior approval is only required when new rates exceed a certain percentage above previous rates

Workers compensation insurance

insurance that provides coverage for benefits an employer is obligated to pay under workers compensation laws.

Prior-approval law

insurers cannot charge a rate until it is filed and approved by state regulators

File-and-use law

insurers must file proposed rates but can immediately use the rates while state approval is pending

Premium audit

methodical examination of a policyholder's operations, records, and books of account to determine the actual exposure units and premium for insurance coverages already provided

Property-casualty insurance

one of the two main sectors of the insurance industry, encompassing numerous types of insurance, most of which cover the financial consequences of damage to one's own property or legal liability to others

Mandatory rate law

rate law that imposes the strictest control of an insurer's rates

Big data

sets of data that are too large to be gathered and analyzed by traditional methods

Unfair trade practices law

state law that specifies certain prohibited business practices

Solvency

the ability of an insurer to meet its financial obligations as they become due, even those resulting form insured losses that may be claimed several years in the future

Reserve

the amount the insurer estimates and sets aside to pay on an existing claim that has not been settled

NAIC Annual Statement

the primary financial statement prepared by insurers and required by every state insurance department

Underwriting

the process of selecting insureds, pricing coverage, determining insurance policy terms and conditions, and then monitoring the underwriting decisions made.

Solvency surveillance

the process, conducted by the state insurance regulators, of verifying the solvency of insurers and determining whether their financial condition enables them to meet their financial obligations and to remain in business

Reinsurance

the transfer of insurance risk from one insurer to another through a contractual agreement under which one insurer (the reinsurer) agrees, in return for a reinsurance premium, to indemnify another insurer (the primary insurer) for some or all of the financial consequences of certain loss exposures covered by the primary's insurance policies

Use-and-file law

variation of the file-and-use law that provides more flexibility for insurers in setting rates. rates must be filed within a specified period after they are used