AINS Review
The laws of agency impose all of the following specific duties on all agents; EXCEPT Select one: A. Relaying information B. Loyalty C. Knowledge D. Accounting
C
What is a profitable combined ratio
<1
A small business owner concerned about something happening and not being able to work or earn a living for an extended period of time due to an accident should purchase Select one: A. Disability insurance. B. Personal liability insurance. C. Universal life insurance. D. Medical insurance.
A
An increase in earned premiums with no change in written premiums or any other financial figures will generally cause a decrease in all of the following, EXCEPT: Select one: A. Expense ratio B. Dividend ratio C. Combined ratio D. Investment income ratio
A
An independent business owner or firm that sells insurance by representing customers rather than insurers is which one of the following? Select one: A. An insurance broker B. An independent agent C. An independent adjuster D. An underwriter
A
An insurer's net underwriting gain or loss provides a better measure of the insurer's marketing, underwriting, and claims skills than its overall gain or loss from operations. This is true because the overall gain or loss from operations includes investment gains or losses that Select one: A. Are not directly related to how well the insurer conducts its marketing, underwriting, and claims activities. B. Vary over time C. Are generally not subject to income tax. D. Are inversely related to how well the insurer conducts its marketing, underwriting, and claims activities.
A
During which one of the following steps in the underwriting process would an underwriter request a risk control visit to a prospective policyholder's location? Select one: A. Evaluating the submission B. Determining underwriting alternatives C. Implementing the underwriting decision D. Monitoring the loss exposures
A
Prospective loss costs indicate Select one: A. The money the insurer can expect to need to pay for future claims for each exposure unit. B. The additional costs an insurer can expect to pay over historical loss costs with the addition of considerations for profits and expenses. C. The aggregate loss in dollars that an insurer can expect to need to pay from a particular book of business. D. The increase in loss costs that the insurer can expect to pay for each $100 of insurance purchased.
A
Rating agencies such as Dun & Bradstreet (D&B) provide Select one: A. Data on credit ratings of businesses. B. Aggregate loss experience data. C. Information about business operations' safety records D. Data on motor vehicle reports.
A
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. Tort. B. Criminal act. C. Assault. D. Breach of contract.
A
The two objectives of insurance policy form regulation are to ensure that policies are clear and readable and to Select one: A. Detect and address any policy provisions that are unfair. B. Limit policies' length and complexity. C. Ensure that the insurers rights are protected. D. Ensure policies are negotiable between an insurer and insured.
A
Underwriting management develops underwriting guidelines, which Select one: A. Specify the insurer's attitude toward applicants exhibiting certain characteristics. B. Set firm standards that rarely, if ever, are modified. C. Ensure that unprofitable business will be offset by profitable business. D. Vary from one underwriter to another.
A
Which one of the following describes the effect underwriting standards can have on premium? Select one: A. Insurers can lower premiums for better-than-average risks. B. If more causes of loss are covered, premiums will increase. C. Reduced cash flow drives up premium interest charges. D. The more services provided, the more premiums will increase.
A
Which one of the following is an opportunity cost of insurance? Select one: A. An insured's funds that could be invested elsewhere if purchasing insurance were not necessary B. The cost of claims payments that would not have been necessary if insureds' carelessness had not caused losses C. An insurer's loss on invested premiums D. The payment of commissions to agents
A
Which one of the following is the most common reason premium audits are conducted? Select one: A. The amount of the loss exposure is unknown 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 actual losses are not known at the start of the policy period.
A
Which one of the following is true about the participation of the head of the underwriting department in the insurer's management? Select one: A. May participate in selecting the type of marketing system to be used B. Is heavily involved in the day-to-day claims, finance, and actuarial decisions, as well as other decisions C. Is generally restricted to enforcing underwriting guidelines D. Reviews all underwriting decisions for adherence to underwriting guidelines
A
Which one of the following is true concerning the direct response distribution channel to market insurance? Select one: A. It relies heavily on advertising. B. There is less contact between the insurer and the customer with its use. C. It relies heavily on producer interaction D. Commission costs are generally increased.
A
Which one of the following statements is correct with regard to the submission evaluation step in the underwriting process? Select one: A. Government records that provide underwriting information include motor vehicle reports, criminal records, and civil court records. B. Underwriters generally rely more on loss runs and government records than producers, as sources of information.I C. When an insurance application form is completed properly, an underwriter normally does not need any additional information. D. An applicant's financial status as indicated by a financial rating service is an incidental piece of underwriting information for evaluating potential loss exposures.
A
Which one of the following statements is correct with respect to characteristics of insurable loss exposures? Select one: A. If losses are not fortuitous, premiums could increase for all policyholders. B. If a loss is fortuitous, the chance of loss could increase as soon as a policy is issued. C. Private insurance is suitable for risks where the probability and timing of loss is known. D. If the insured has control over whether or when a loss will occur, the risk is attractive to insure.
A
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. Financial resources B. Service capabilities C. Producer force D. Coverage expertise
A
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.
Conditional Contract
A contract that one or more parties must perform only under certain conditions.
Treaty Reinsurance
A reinsurance agreement that covers an entire class or portfolio of loss exposures and provides that the primary insurer's individual loss exposures that fall within the treaty are automatically reinsured.
Expressed Authority
Authority that arises from specific statements made by the principal (employer) to the agent (employee)
A type of insurance rate that reflects the unique characteristics of an insured or the insured's property is known as Select one: A. An experience rate B. An individual rate. C. A judgment rate. D. A class rate.
B
Alan Peachtree owns a hobby shop, which he runs from a detached garage on his property. Alan has set aside funds to pay for possible property losses rather than purchasing insurance. Which one of the following risk management techniques is Alan using? Select one: A. Avoidance B. Retention C. Loss control D. Non-Insurance transfer
B
All of the following are true with regard to the unearned premium reserve, EXCEPT: Select one: A. It represents premiums prepaid by insureds for services that the insurer has not yet rendered. B. It equals the admitted portion of unearned premium minus the nonadmitted portion of unearned premium. C. It represents the total premium refunds the insurer would owe its policyholders if it were to immediately cancel all policies. D. It is the total of an insurer's unearned premiums on all policies at a particular time.
B
An agent may at times act on behalf of the principal in ways that the principal did not intend, and a third party reasonably believes that the agent has sufficient authority. This authority is known as Select one: A. Express authority B. Apparent authority. C. Contractual authority. D. Implied authority
B
An insurer's net underwriting gain or loss provides a better measure of the insurer's marketing, underwriting, and claims skills than its overall gain or loss from operations. This is true because the overall gain or loss from operations includes investment gains or losses that Select one: A. Are generally not subject to income tax. B. Are not directly related to how well the insurer conducts its marketing, underwriting, and claims activities. C. Are inversely related to how well the insurer conducts its marketing, underwriting, and claims activities. D. Vary over time.
B
Commercial general liability insurance policies written on an occurrence basis apply to bodily injury and property damage that occurs during the policy period. This provision supports the principle that insurable loss exposures must ideally be Select one: A. Independent. B. Definite. C. Fortuitous. D. Pure risks.
B
For the law of large numbers to function properly, exposure units must be Select one: A. Random. B. Independent. C. Equal D. Accurate.
B
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. Hire a professional risk manager B. Inspect the home for loss exposures C. Determine the value of the home and contents D. Purchase a homeowners insurance policy
B
Insurers are required to submit annual financial statements to Select one: A. The Insurance Regulatory Information System (IRIS). B. State insurance departments. C. The National Association of Insurance Commissioners (NAIC). D. The state guaranty fund.
B
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. Noninsurance transfer B. Loss reduction C. Loss prevention D. Avoidance
B
Josephine Redmond who is the sole proprietor of Dream Quilts, Inc., operates out of three branch offices with 17 employees. What happens to Josephine's business if she dies or retires? Select one: A. The business is divided among the remaining partners. B. The business ceases to exist. C. The disposition of the business must be resolved in a court of law D. The business is divided among the employees.
B
Leah decides to purchase her personal automobile insurance through a program offered by her employer. Leah's employer offers her a discounted premium which is deducted from her paycheck. Leah's employer is using which type of distribution channel? Select one: A. Direct response marketing B. Worksite marketing C. Affinity marketing D. Mass marketing
B
The size of an employer's loss exposure for workers compensation insurance is based on Select one: A. The final premium audit. B. The amount of its payroll. C. The extent of its operations. D. The number of its employees.
B
When individual fire insurance rates are established for commercial insureds, the rate is published and the published rate is applied Select one: A. "Per $100 of risk B. "Per $100 of insurance." C. "Per $1,000 of risk." D. "Per $1,000 of insurance."
B
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. Reducing the number of persons dependent on society for support B. Improved access to affordable insurance C. Increased use of exposure avoidance D. Stimulating economic growth
B
Which one of the following is the fundamental measure of loss exposure used in insurance rating? Select one: A. Risk B. Exposure unit C. Premium D. Rate
B
Which one of the following statements concerning government insurance programs is true? Select one: A. The federal government provides workers compensation insurance to employers who cannot get it from private insurers. B. Fair Access to Insurance Requirements (FAIR) plans make basic property insurance available to property owners who can't get it otherwise. C. Various state insurance programs provide crop insurance for perils such as drought, disease, excessive rain and hail. D. Businesses seeking flood insurance under the National Flood Insurance Program (NFIP) must purchase it at local federal government offices.Incorrect. Fair Access to Insurance Requirements (FAIR) plans make basic property insurance available to property owners who can't get it otherwise because of their property's location or any other reason.
B
A decrease in incurred losses will generally cause a decrease in all of the following, EXCEPT: Select one: A. Loss ratio B. Combined ratio C. Expense ratio D. Overall ratio
C
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. Retrospective rating plan. B. Financial rating plan. C. Schedule rating plan. D. Experience rating plan.
C
An insurer's loss expense reserve is Select one: A. An asset designated to pay claims for losses that have occurred. B. A liability designated to pay claims for losses that have occurred. C. A liability designated to pay the cost of settling the claims included in the loss reserve. D. An asset designated to pay the cost of settling the claims included in the loss reserve.
C
Besides using the law of large numbers to predict the amount of future losses, insurers also rely on it to Select one: A. Select insureds. B. Select exposure units. C. Determine average loss costs. D. Plan for catestrophic events.
C
During which one of the following steps in the underwriting process would an underwriter request a risk control visit to a prospective policyholder's location? Select one: A. Monitoring the loss exposures B. Implementing the underwriting decision C. Evaluating the submission D. Determining underwriting alternatives
C
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 must fully comply with insurance regulations so that the federal government does not revoke its license. B. Excella strives to make sure its revenue is equal to or less than its expenses and claim payments to remain financially viable. C. State insurance regulators are only one of many stakeholders that are interested in an insurer's financial health. D. Paying expenses and making a reasonable profit is the ultimate measure of the insurer's success.
C
In individual rating, Select one: A. Individual insureds are assigned to a specific class. B. The law of large numbers allows accurate premium determination. C. Points are added or subtracted to arrive at a rate. D. Underwriters are often forced to make an arbitrary judgment.
C
Personnel loss exposures can be comprised of all of the following categories of key personnel, EXCEPT: Select one: A. Individual employees B. Owners, officers, and managers C. Shareholders D. Groups of employees
C
Produce, such as apples or grapes, may be priced by the unit or by the pound. In insurance, these measures are similar to Select one: A. Premiums B. Construction cost index. C. Exposure units. D. Rates.
C
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. Use risk control or risk financing. C. Insure or retain a particular loss exposure. D. Physically inspect or rely on a loss exposure survey.
C
Rating agencies such as Dun & Bradstreet (D&B) provide Select one: A. Information about business operations' safety records. B. Aggregate loss experience data C. Data on credit ratings of businesses. D. Data on motor vehicle reports.
C
Renata owns a valuable antique sculpture by a famous artist. One day she accidentally dropped the sculpture and a piece of it broke off. Renata took the sculpture to an art restorer, who reattached the broken piece and repaired the surface. From a distance, the statue looks the same as it did before Renata dropped it, but a close inspection reveals the repair. Which one of the following best describes the financial consequences of the accident? Select one: A. There are no financial consequences because the piece looks the same as it did before the accident. B. The only financial consequence of the accident is the money Renata paid the art restorer for the repair. C. The financial consequences include the cost of the repair and the reduction in value resulting from the repaired damage. D. Renata has incurred a total loss because original artwork is impossible to replace.
C
Telephone Company installs fiber-optic cable using a trenching machine that digs a trench, buries the cable, fills in the trench, and reseeds, all in one pass. The trenching machine can install cable in a fifty-home neighborhood in one day. Soon after the trenching machine passes by, a member of the community steps on the trenched area, sinks in, and breaks his leg. This is an example of a liability loss exposure arising out of Select one: A. Mobile equipment. B. Premises C. Completed operations. D. Products.
C
The Bakery, an applicant for commercial property insurance, has experienced a series of property losses over the past three years. In order to find this applicant viable, the underwriter agrees to increase the property deductible. This type of underwriting modification is known as Select one: A. Using facultative reinsurance. B. Using schedule rating modifications. C. Amending policy terms and conditions. D. Requiring loss control measures.
C
The loss of or damage to property can have adverse financial consequences including reduced property value. Which one of the following statements is correct with respect to a reduction in value? Select one: A. When property is lost or destroyed, the limit of insurance is deemed to be the amount of the reduction in value. B. For insurance purposes, the dollar amount of a reduction in value is the same regardless of the valuation measure used. C. A valuable painting that is repaired after being damaged is likely to have declined in value. D. If a cell phone is lost or stolen, its decline in value is measured as its replacement cost minus its salvage value
C
The monetary amount of damage that results from a loss is known as Select one: A. The deductible. B. The retention. C. Loss severity. D. Loss frequency.
C
The principal method of determining a prospect's insurance needs is through Select one: A. Determining how much the prospect is willing to pay for insurance coverage. B. Asking the prospect what coverage they would like to purchase. C. Completing a risk management review for the prospect. D. Reviewing the prospect's current insurance policies.
C
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. Private insurers overcharge for auto insurance, and the state provides a low-cost alternative. B. Private insurers face limited competition, and the state increases competitive pressures by operating this type of plan. C. Auto insurance is compulsory, and the program makes it possible for all drivers to have reasonably priced insurance. D. Auto insurance for high-risk drivers is profitable, and the program enables the state to share in the profits.
C
Underwriting management arranges treaty reinsurance to reinsure Select one: A. Individual accounts. B. All insurance of the primary insurer. C. A group or group of insureds. D. Insureds that do not meet underwriting guidelines.
C
Which one of the following best identifies types of organizations that should be concerned with personnel loss exposures from a manager leaving for another organization? Select one: A. Close corporations, but not sole proprietorships B. Sole proprietorships, but not corporations with separation of ownership and control C. Sole proprietorships, close corporations, and corporations with separation of ownership and control D. Sole proprietorships and close corporations, but not corporations with separation of ownership and control
C
Which one of the following is considered to be an acquisition expense for an insurance company? Select one: A. Dividends B. Guarantee fund expenses C. Advertising expenses D. Losses
C
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. Insurance provides a source of investment funds for insurers but not for policyholders. C. Insurers' investment income helps keep premiums at a reasonable level. D. Insurers are prohibited from investing in social projects.
C
Which one of the following statements is correct? Select one: A. Insurance producers are prohibited from accepting referrals from strategic partners, such as banks or real estate brokers. B. All insurance producers perform the same functions, which are specified in state insurance regulations. C. In the exclusive agent and direct writer marketing systems, insurers might assist producers with prospecting. D. Cold calling, or cold canvas, is generally not used by insurance producers because it is an ineffective method of prospecting.
C
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.
C
Which one of the following types of agent is usually paid the same commission rate for new business and renewals? Select one: A. Managing agent B. Exclusive agent C. Independent agent D. Direct writer sales agent
C
While developing goals for its book of business, an insurer's staff underwriter decides to increase its market share of workers compensation insurance in the construction industry. This type of underwriting activity is known as Select one: A. Reviewing and revising rating plans. B. Developing underwriting guides C. Formulating underwriting policy. D. Providing assistance to policyholders.
C
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 that allows insurers to develop and use rates without having to file with or get approval from the state insurance department. C. A state law under which insurance rates are set by a state agency or rating bureau and all licensed insurers are required to use those rates. D. An insurance rating law under which prior approval is required only if the new rates exceed a certain percentage above (and sometimes below) the rates previously file.
D
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. Southeastern B. Pacific coast C. Midwest D. Northeastern
D
Adhering to the characteristics of an ideally insurable loss exposure in selling insurance help assure that Select one: A. The insurer can charge a high premium for the coverage. B. The losses associated with it typically involve small amounts. C. The insurer is able to predict the amount and timing of each future loss. D. The insurer is able to charge a premium that the insured can afford to pay.
D
All of the following appear on an insurer's balance sheet, EXCEPT: Select one: A. Liabilities B. Assets C. Policyholders' surplus D. Net income
D
All of the following are principal sources of underwriting information, EXCEPT: Select one: A. Applications B. Financial rating services C. Producers D. Underwriting authority reports
D
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. An altered condition. B. Lost income. C. A reduction in value. D. An extra expense.
D
An insurer's financial statement shows a loss reserve and an unearned premium reserve. These reserves are part of the insurer's Select one: A. Nonadmitted assets B. Admitted assets. C. Policyholders' surplus. D. Total liabilities.
D
An underwriter receives a renewal application for a property quote from his producer. The applicant has had a series of small losses in the recent past. The underwriter is debating whether to reject the submission or quote it with a property deductible of $5,000. During which one of the following steps in the underwriting process is the underwriter involved? Select one: A. Evaluating the submission B. Implementing the underwriting decision C. Monitoring underwriting decisions D. Developing underwriting alternatives
D
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 expiration. Bill is a producer in the Select one: A. Exclusive agency marketing system. B. Independent agency marketing system. C. Captive agency marketing system. D. Direct writer marketing system.
D
Facultative reinsurance is arranged by underwriting for Select one: A. Groups of policies. B. All eligible policies. C. Policies covered by the treaty. D. Individual policies.
D
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. 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. B. Harry understands his policy is modular one, combining various coverage forms and other documents especially tailored to his needs. 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. An insurance contract, like the ISO policy Harry purchased, has certain additional characteristics other than those of typical valid contracts.
D
In an insurance agency relationship, the agent's fundamental responsibility is to act for the benefit of the Select one: A. Policyholder. B. Broker. C. Insured D. Insurer.
D
Insurers do not use the law of large numbers to predict future losses from hurricanes because Select one: A. Hurricanes affect too many policyholders to achieve accurate predictions. B. Hurricanes do not affect enough policyholders to achieve accurate predictions. C. Exposure units are not homogeneous. D. Exposure units are not independent.
D
Marvin suffered a fire loss at his residence. The claim representative valued several antiques at a very low price. Marvin refuses to settle his claim with his insurer. Which one of the following is Marvin's recourse? Select one: A. Marvin's only recourse is to sue the insurer for coverage and damages to the property. B. Marvin may choose to arbitrate the value of the antiques before a judge. C. Marvin may obtain a quote from a certified antique dealer to determine the value the insurer must pay. D. Marvin may follow the appraisal provision in the policy to settle the dispute over the value of the damaged property.
D
On November 1, Peafowl Insurance Company issued a one-year business auto policy to Tri-State Painting Company with a premium of $24,000. What was the written premium for this policy as of December 31? Select one: A. $ 4,000 B. $ 6,000 C. $20,000 D. $24,000
D
Principals often authorize another party to act on their behalf. This relationship is called Select one: A. Fiduciary B. Attorney in fact. C. Broker. D. Agency.
D
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. Decrease the deductible to $500 D. Implement loss prevention programs
D
The authority that the principal specifically grants to the agent is contained in the agency contract. This authority is known as Select one: A. Implied authority. B. Apparent authority. C. Contractual authority D. Express authority.
D
The financial report for Hometown Insurer contains the following information: Earned premiums$4,000,000 Written premiums$5,000,000 Net investment income$1,000,000 Incurred losses$3,000,000 Incurred underwriting expenses$2,000,000 What was the Hometown Insurer's combined ratio? Select one: A. 75% B. 95% C. 105% D. 115%
D
Underwriting management arranges treaty reinsurance to reinsure Select one: A. Individual accounts. B. Insureds that do not meet underwriting guidelines. C. All insurance of the primary insurer. D. A group or group of insureds.
D
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. How quickly can inquiries and transactions be processed in the channel? B. Are customers willing to pay a premium for personalized products and services through the channel? C. What are customers' expectations regarding accessibility to the channel? D. Does the selected channel capitalize on its core capabilities?
D
Which one of the following best explains why underwriting expenses are divided by written premiums rather than earned premiums in order to calculate an insurer's expense ratio? Select one: A. The expense ratio does not take into account an insurer's investment income. B. Insurance coverage is provided evenly throughout the policy period C. Loss adjustment expenses are incurred evenly throughout the policy period. D. Many underwriting expenses are incurred at the beginning of the policy period.
D
Which one of the following describes the effect underwriting standards can have on premium? Select one: A. If more causes of loss are covered, premiums will increase. B. Reduced cash flow drives up premium interest charges. C. The more services provided, the more premiums will increase. D. Insurers can lower premiums for better-than-average risks.
D
Which one of the following is the best measure of the amount of insurance provided for a given period? Select one: A. Paid premium B. Unearned premium C. Written premium D. Earned premium
D
Which one of the following is the fundamental measure of loss exposure used in insurance rating? Select one: A. Risk B. Rate C. Premium D. Exposure unit
D
Which one of the following is true about the participation of the head of the underwriting department in the insurer's management? Select one: A. Is generally restricted to enforcing underwriting guidelines B. Reviews all underwriting decisions for adherence to underwriting guidelines C. Is heavily involved in the day-to-day claims, finance, and actuarial decisions, as well as other decisions D. May participate in selecting the type of marketing system to be used
D
Which one of the following statements is correct? Select one: A. It is illegal for producers to reduce their consulting fees in recognition of commissions received. B. Producers are restricted to only providing services to their current insureds. C. When consulting services are provided, insurance premiums, commissions, and fees are billed together. D. Many producers offer consulting services for which they are paid on a fee basis.
D
Formula for calculating on underwriters gain or loss
Earned premiums - (losses + underwriting expenses)
Facultative Reinsurance
Reinsurance of individual loss exposures in which the primary insurer chooses which loss exposures to submit to the reinsurer, and the reinsurer can accept or reject any loss exposures submitted.
Apparent Authority
The appearance or the assumption of authority based on the actions, words, or deeds of the principal or because of circumstances the principal created.
Line Underwriter
Underwriter who is primarily responsible for implementing the steps in the underwriting process. - Front Lines UW
Staff underwriter
Underwriter who is usually located in the home office and who assists underwriting management with making and implementing underwriting policy. - Behind the Scenes
Tort
a wrongful act or an infringement of a right (other than under contract) leading to civil legal liability.
Independent Agency System
agencies that are independent contractors contract with several different companies to represent and sell insurance for those companies.
Implied Authority
an agent's authority to do things not specifically authorized in order to carry out express authority
Captive Agent ( Exclusive Agent)
an insurance agent who represents only one insurance company and who is, in effect, an employee of that company
Direct Writer
an insurer in which the salesperson is an employee of the insurer, not an independent contractor
What is a profitable operating ratio
less than 1.00 but greater than or equal to .9
Combined Ratio
loss ratio + expense ratio
Loss Ratio
losses / earned premium
Investment Income Ratio
net investment income / earned premiums
Exposure Unit
the unit of MEASUREMENT used in insurance pricing
Expense Ratio Formula
underwriting expenses/written premium
What is a profitable loss ratio
~ 60%