SEGMENT B: AINS Property and Liability Insurance Principles

Fictitious Consultants Inc. (FCI) has been hired by a local insurance company located in Claremont, CA to introduce The Omnichannel Marketing System (OMS) as a sales tool. Knowing that Claremont is a college town with five undergraduate colleges alone, FCI believes that targeting the young demographic in the city will pay dividends in sales traffic for the insurance company. Given the young demographic, what three channels of the OMS would FCI expect to bring in the most hits for the insurance company? A. Catalog, Mobile App, Call Center B. Mobile App, In-store, Call Center C. Social Media, Online, In-store D. Online, Mobile App, Social Media

D. Online, Mobile App, Social Media

The primary duty of a principal to its agent is to A. Hire and train sales people. B. Generate sales leads for the agent. C. Be obedient. D. Pay the agent for services performed.

D. Pay the agent for services performed.

Which one of the following methods of prospecting is more likely to be used by an experienced producer than a new insurance producer? A. Interactive web sites B. Direct mail C. Cold canvass D. Referrals from present clients

D. Referrals from present clients

Which one of the following tasks is the responsibility of a staff underwriter as opposed to a line underwriter? A. Prepare premium quotations B. Assist producers and insureds in determining appropriate coverage C. Verify that policies are issued with appropriate forms D. Review and revise rating plans

D. Review and revise rating plans

Donna is an insurance producer. She makes an appointment with a potential policyholder to review the prospect's loss exposures. She asks the prospect to complete a questionnaire to assist her in this effort. Donna is conducting a A. Sales closing call. B. Customer service analysis. C. Cold canvas review. D. Risk management review.

D. Risk management review.

The selection of a distribution channel for an insurer's products and services depends, partly, on customer preferences. Which one of the following statements is true regarding customer preferences that should be considered when selecting a distribution channel? A. Customers value a challenging experience when conducting business with insurers. B. Speed is not an important consideration for customers. C. Customers are always willing to pay more for good service. D. The channel should be consistent with the customer's expectations for service.

D. The channel should be consistent with the customer's expectations for service.

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

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

Which one of the following statements is true regarding traditional marketing systems for insurance? A. A principal characteristic that distinguishes one traditional marketing system from another is the ownership of policy expirations. B. The three traditional marketing systems are the independent agency system, the captive agency system, and the exclusive agency system. C. A single producer cannot operate as both an agent and a broker in a given state. D. An insurer operating through a managing general agent can expect higher fixed costs.

A. A principal characteristic that distinguishes one traditional marketing system from another is the ownership of policy expirations.

Which one of the following sells insurance by representing customers rather than insurers? A. A regional broker B. An independent agent C. An exclusive agent D. A direct writer sales representative

A. A regional broker

A business manufactures a product that is harmful to the public if used improperly. More than three licensed insurance companies have refused to provide commercial general liability coverage for the business. The producer should contact which one of the following to attempt to arrange coverage? A. A surplus lines broker B. An independent agent C. A managing general agent D. A direct writer

A. A surplus lines broker

When an insurance company appoints an insurance agent to serve as its representative, what specifies the scope of authority given to the agent in this relationship? A. An agency contract B. Implied authority C. Binding authority D. A unilateral contract

A. An agency contract

Northtown Agency has an agency contract with Withers Insurance Company for personal lines coverages only. Anita, one of Northtown's existing personal lines customers is starting a floral delivery business that will require commercial insurance. Horace, one of the agents, accepted Anita's application, bound coverage and said he would pass the paperwork on to Withers, as Withers had handled all her other needs. As soon as he remembered the agency contract with Withers, he planned to send the request to a different insurance company that could accept the new business. Before he could do this, Anita submitted a claim. The claim would be covered because the coverage is bound based on the concept of A. Apparent authority. B. Express agency. C. Independent agency. D. Implied authority.

A. Apparent authority.

Rhonda is a personal lines insurance producer. Under the terms of her agency contracts, the insurers forward policies promptly to Rhonda's customers and send a premium invoice with the policy. Insureds are instructed to remit premium payments to their insurer. The insurers calculate Rhonda's commissions and forward those commission payments to her monthly. Rhonda is operating under which one of the following payment procedures? A. Direct bill basis B. Item basis C. Statement basis D. Account current basis

A. Direct bill basis

The common distinction between line underwriters and staff underwriters is that line underwriters A. Implement the steps in the underwriting process. Staff underwriters assist underwriting management with formulating underwriting policy. B. Conduct underwriting audits. Staff underwriters prepare files for the data entry department. C. Develop underwriting guides. Staff underwriters provide service to policyholders. D. Research the market. Staff underwriters verify that policies are issued with the appropriate forms and endorsements.

A. Implement the steps in the underwriting process. Staff underwriters assist underwriting management with formulating underwriting policy.

Gulford Insurance Company (Gulford) is a direct writer of commercial insurance in Pennsylvania. The management team is frustrated by the continued lack of success in the more rural western part of the state. It is difficult to penetrate the market without a local presence, but the cost of assigning agents to this territory is not justified by the returns. Which one of the following distribution systems would best allow Gulford the local presence in a cost-effective manner? A. Independent agents B. National brokers C. Surplus lines brokers D. Exclusive agents

A. Independent agents

An insurance company needs to hire an employee with knowledge of insurance policy forms and the ability to relate policy provisions to the loss exposures of individual policyholders. The person will also prepare premium quotes and process cancellations. This company is currently in need of a A. Line underwriter. B. Producer. C. Staff underwriter. D. Premium auditor.

A. Line underwriter.

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

A. Many producers offer consulting services for which they are paid on a fee basis.

Fictitious Consultants Inc. (FCI) has been hired by a local insurance company located in Claremont, CA to introduce The Omnichannel Marketing System (OMS) as a sales tool. Knowing that Claremont is a college town with five undergraduate colleges alone, FCI believes that targeting the young demographic in the city will pay dividends in sales traffic for the insurance company. Given the young demographic, what three channels of the OMS would FCI expect to bring in the most hits for the insurance company? A. Online, Mobile App, Social Media B. Catalog, Mobile App, Call Center C. Social Media, Online, In-store D. Mobile App, In-store, Call Center

A. Online, Mobile App, Social Media

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

A. Prospecting

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 A. That increases the likelihood that a person will intentionally cause or exaggerate a loss. B. That increases the likelihood that a person will break the law. C. Of property, persons, or operations to be insured that increases loss frequency or severity. D. Of carelessness or indifference that increases loss frequency or severity.

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

All of the following are true about the insurance distribution system, EXCEPT: A. Insurance brokers are independent business owners or firms that place insurance by representing the customers, not insurers. B. An agency expiration list is the record of policies that have lapsed or been canceled due to overdue premiums. C. Managing general agencies appoint and supervise independent agents for insurers that operate in the system. D. The direct response system advertises to encourage potential customers to contact the insurer to purchase insurance.

B. An agency expiration list is the record of policies that have lapsed or been canceled due to overdue premiums.

Northtown Agency has an agency contract with Withers Insurance Company for personal lines coverages only. Anita, one of Northtown's existing personal lines customers is starting a floral delivery business that will require commercial insurance. Horace, one of the agents, accepted Anita's application, bound coverage and said he would pass the paperwork on to Withers, as Withers had handled all her other needs. As soon as he remembered the agency contract with Withers, he planned to send the request to a different insurance company that could accept the new business. Before he could do this, Anita submitted a claim. The claim would be covered because the coverage is bound based on the concept of A. Express agency. B. Apparent authority. C. Implied authority. D. Independent agency.

B. Apparent authority.

Among other things, a binder provides A. Insured's financial profile. B. Applicable coverages and limits. C. Operations of the insured. D. Policy conditions and exclusions.

B. Applicable coverages and limits.

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

B. Completing a risk management review for the prospect.

Juan received a phone call from an angry policyholder. The insured received a bill as a result of a workers compensation premium audit. The individual does not understand why premium has increased when his total payroll is lower than originally projected. Juan advises the insured that he will contact the auditor, review the audit, and call back with an explanation. Which one of the following producer functions is Juan performing? A. Premium collection B. Customer service C. Consulting D. Risk management review

B. Customer service

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

B. Direct bill process

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? A. Regional brokerage B. Direct writer C. Exclusive agency D. Independent agency

B. Direct writer

T. Roy Insurance Company is selecting a distribution system and channel for its products. Which one of the following best describes the type of consideration that T. Roy should give to its operations? A. What are customer's expectations regarding accessibility? B. Does it have the necessary financial resources? C. Can customers navigate easily within the channel? D. Will customers be willing to pay a premium for services?

B. Does it have the necessary financial resources?

All of the following are examples of insurance distribution channels, EXCEPT: A. Call centers B. Exclusive agency C. Group marketing D. Direct response

B. Exclusive agency

The terms of the agency contract define the agent's A. Apparent authority. B. Express authority. C. Implied authority. D. Exclusive authority.

B. Express authority.

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

B. Financial resources

An important question for an insurer to ask when examining customers' needs and characteristics to select a distribution channel is A. Who is the target market? B. How quickly can inquiries and transactions be processed? C. Does cost outweigh the benefit? D. Is the expertise of the current staff adequate?

B. How quickly can inquiries and transactions be processed?

The Miller Agency has an agency agreement with Big Insurance Company. The agency collects premiums from Big Insurance insureds even though the agency agreement lacks a clause specifically granting authority to do so. Miller's agents collect premiums upon Select one: A. Apparent authority. B. Implied authority. C. Express authority. D. Absolute authority.

B. Implied authority.

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 A. Express authority B. Implied authority. C. Apparent authority. D. Contractual authority.

B. Implied authority.

Which one of the following statements is correct? A. Cold calling, or cold canvas, is generally not used by insurance producers because it is an ineffective method of prospecting. B. In the exclusive agent and direct writer marketing systems, insurers might assist producers with prospecting. C. All insurance producers perform the same functions, which are specified in state insurance regulations. D. Insurance producers are prohibited from accepting referrals from strategic partners, such as banks or real estate brokers.

B. In the exclusive agent and direct writer marketing systems, insurers might assist producers with prospecting.

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? A. Exclusive agent B. Independent agent C. Express agent D. Implied agent

B. Independent agent

Insurers using direct response marketing A. Use personal contact rather than the Internet for sales. B. Often advertise heavily, which can be costly. C. Use a select group of agents. D. Do not target market.

B. Often advertise heavily, which can be costly.

Which one of the following is the primary duty that a principal legally owes to an agent? A. Loyalty to the agent B. Paying the agent for services performed C. Accounting of the agent's money D. Reasonable care in action on behalf of the agent

B. Paying the agent for services performed

Which one of the following is the primary duty that a principal legally owes to an agent? A. Loyalty to the agent B. Paying the agent for services performed C. Reasonable care in action on behalf of the agent D. Accounting of the agent's money

B. Paying the agent for services performed

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

B. Profitability

The most difficult time for an insurer to change distribution systems is when A. Expanding to a larger territory. B. Renewing an existing book of business. C. Entering a new target market. D. Launching a new insurance product.

B. Renewing an existing book of business.

An applicant for commercial property insurance is found unacceptable by an underwriter due to the nature of its operations and the construction of the building it occupies. If the applicant installs an automatic fire-extinguishing sprinkler system, the underwriter will approve the application. This type of underwriting modification is known as A. Amending the policy terms and conditions. B. Requiring risk control measures. C. Changing insurance rates, rating plans, or policy limits. D. Using facultative reinsurance.

B. Requiring risk control measures.

All of the following are underwriting activities typically performed by staff underwriters, EXCEPT: A. Conduct underwriting audits B. Support producers and insureds C. Research the market D. Formulate underwriting policy

B. Support producers and insureds

Which one of the following statements about insurance distribution systems and channels is true? A. Exclusive agents are usually free to represent as many or as few insurers as they want. B. Surplus lines brokers can place coverage that is not available through standard market insurers. C. Managing general agents (MGAs) serve as employees of direct writer companies. D. Direct writer marketing systems use sales persons who are independent contractors.

B. Surplus lines brokers can place coverage that is not available through standard market insurers.

Which one of the following statements is true regarding the agency contract? A. An agency contract is also known as an agency endowment. B. The agency contract states the scope of the agency's authority to conduct business for the insurer. C. Insurance agency contracts usually have a fixed expiration date, at which time the parties negotiate the renewal. D. The agent is the principal in the agency contract relationship

B. The agency contract states the scope of the agency's authority to conduct business for the insurer.

Which one of the following statements is correct with respect to insurance distribution systems? A. Insurers specializing in large commercial accounts should select a direct response distribution system. B. The expertise of current staff and producers must be sufficient to manage the selected system. C. Multiple distribution systems cannot be used simultaneously because they do not generally complement each other. D. All insurance distribution systems are equally effective in accomplishing both sales and service activities.

B. The expertise of current staff and producers must be sufficient to manage the selected system.

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

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

Which one of the following is the principal's primary duty to the agent? A. To act on behalf of the agent in court proceedings B. To pay the agent for services performed C. To act as the agent's legal representative D. To educate and train the agent

B. To pay the agent for services performed

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

B. Trust.

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? A. Mass marketing B. Worksite marketing C. Direct response marketing D. Affinity marketing

B. Worksite marketing

Omicron Manufacturing has approached Delta Insurance Brokerage to develop and implement a voluntary insurance program for life, health, and disability insurance for Omicron's employees. Delta puts together a program in which employees receive the coverage at discounted rates, and premiums are deducted from the employees' paychecks. Omicron and Delta are using which one of the following types of group marketing to offer this program? A. Mass marketing B. Worksite marketing C. Affinity marketing D. Direct response marketing

B. Worksite marketing

An independent business owner or firm that sells insurance by representing customers rather than insurers is which one of the following? A. An independent adjuster B. An insurance broker C. An independent agent D. An underwriter

C. An independent agent

In terms of their legal relationships, which one of the following statements accurately describes insurance agents and insurance brokers? A. Both insurance agents and insurance brokers represent the insurer. B. Both insurance agents and insurance brokers represent the customer. C. An insurance agent represents the insurer while a broker represents the customer. D. An insurance agent represents the customer while a broker represents the insurer.

C. An insurance agent represents the insurer while a broker represents the customer.

All of the following are similarities between agents and brokers, EXCEPT: A. Both collect premiums from insureds and remit to insurers. B. Both are intermediaries between insurers and insurance buyers. C. Both are legal representatives of insurers. D. Both sell insurance appropriate to customers' insurance needs.

C. Both are legal representatives of insurers.

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

C. Call centers

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? A. Regional broker B. Financial institution C. Direct writer Internet search D. Independent agent

C. Direct writer Internet search

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 A. Captive agency marketing system. B. Independent agency marketing system. C. Direct writer marketing system. D. Exclusive agency marketing system.

C. Direct writer marketing system.

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

C. Distribution channels act as a conduit for establishing communication with current customers.

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

C. Expiration lists.

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

C. Express authority.

In which one of the following types of insurance marketing systems does the agency or agent usually own the expiration lists? A. Exclusive agency system B. Direct writing system C. Independent agency system D. Alternative distribution system

C. Independent agency system

In an insurance agency relationship, the agent's fundamental responsibility is to act for the benefit of the A. Broker. B. Policyholder. C. Insurer. D. Insured.

C. Insurer.

Which one of the following is true concerning the direct response distribution channel to market insurance? A. Commission costs are generally increased. B. There is less contact between the insurer and the customer with its use. C. It relies heavily on advertising. D. It relies heavily on producer interaction.

C. It relies heavily on advertising.

Because the agent represents the insurer, the law presumes that A. Knowledge acquired by the insurer is knowledge acquired by the agent. B. All communications between the agent and the insurer will be in writing. C. Knowledge acquired by the agent is knowledge acquired by the insurer. D. Agents are employees of the insurer.

C. Knowledge acquired by the agent is knowledge acquired by the insurer.

Which one of the following statements is correct with respect to insurers' use of the Internet and insurance portals? A. The primary goal of the use of insurance portals is to reduce staffing costs. B. The use of insurance portals eliminates insurers' need to screen and fully underwrite the leads generated. C. The Internet provides lead-generation and cross-selling opportunities for all products. D. Maintaining an Internet presence increases an insurer's underwriting and claim processing costs.

C. The Internet provides lead-generation and cross-selling opportunities for all products.

Which one of the following best describes the elements of authority and control in an agency relationship? A. Neither the agent nor the principal have authority or control over each other's actions. B. The agent and principal both have authority and control over each other's actions. C. The agent has authority to act for the principal; the principal has control over the agent's actions on the principal's behalf. D. The principal has authority to act for the agent; the agent has control over the principal's actions on the agent's behalf.

C. The agent has authority to act for the principal; the principal has control over the agent's actions on the principal's behalf.

After investing significant resources to develop a Web-based system, a personal lines insurer has decided to expand its territory by assuming the role of a direct writer and using the Internet as a distribution channel. What is the insurer's greatest concern with the existing book which used independent agents as the distribution system? A. Clear communication with existing customers B. The quality of the existing book compared to the new book C. The agents own the expirations for the existing book D. The service needs of the existing book

C. The agents own the expirations for the existing book

The Wellborn agency represents only Coastal Insurance Company. Wellborn is an independent contractor but its contract with Coastal specifies that all insurance it sells will be placed with Coastal. Wellborn is operating under which one of the following marketing systems? A. The direct writer system B. The managing general agency system C. The exclusive agency system D. The independent agency system

C. The exclusive agency system

All of the following are true about the insurance agency relationship, EXCEPT: A. The agency agreement is a written agreement between the insurer and an agent. B. The agency agreement gives the agent the right to represent the insurer and sell insurance on the insurer's behalf. C. The principal is the party the agent authorizes to bind coverage. D. The agent is the party authorized by the principal to act on the principal's behalf.

C. The principal is the party the agent authorizes to bind coverage.

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

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

Managing general agencies A. Typically use the direct response system. B. Typically use the exclusive agency system. C. Do not represent more than one insurer. D. Commonly represent several insurers.

D. Commonly represent several insurers.

A producer is usually paid a fee for performing which one of the following functions? A. Policy issuance B. Premium collection C. Prospecting D. Consulting

D. Consulting

Which one of the following insurance distribution channels usually cuts compensation costs greatly but has higher advertising costs? A. Exclusive agency B. Independent agency C. Direct writing D. Direct response

D. Direct response

When a firm is selecting a distribution channel, which one of the following is an important consideration with regard to its operations? A. Are customers willing to pay a premium for personalized products and services through the channel? B. What are customers' expectations regarding accessibility to the channel? C. How quickly can inquiries and transactions be processed in the channel? D. Does the selected channel capitalize on its core capabilities?

D. Does the selected channel capitalize on its core capabilities?

Binding authority is a form of A. Implied authority. B. Apparent authority. C. Absolute authority. D. Express authority.

D. Express authority.

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 A. Reviewing and revising rating plans. B. Providing assistance to policyholders. C. Developing underwriting guides. D. Formulating underwriting policy.

D. Formulating underwriting policy.

An important question for an insurer to ask when examining customers' needs and characteristics to select a distribution channel is A. Is the expertise of the current staff adequate? B. Who is the target market? C. Does cost outweigh the benefit? D. How quickly can inquiries and transactions be processed?

D. How quickly can inquiries and transactions be processed?

Given the complexity of commercial insurance, which one of the following is best suited for its distribution? A. Internet B. Direct response C. Group marketing D. Independent agencies

D. Independent agencies

Which one of the following types of agent is usually paid the same commission rate for new business and renewals? A. Exclusive agent B. Managing agent C. Direct writer sales agent D. Independent agent

D. Independent agent

From an insured's point of view, relative to the concept of agency, little distinction exists between the A. Insurance agent and the insurance department. B. Insurer and the insurance department. C. Broker and the claimant. D. Insurance agent and the insurer.

D. Insurance agent and the insurer.

Which one of the following statements is correct regarding consulting services? 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.

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

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

A. $ 10,000

Bob is shopping for auto insurance. Insurance Company A's rating system determines that Bob should be charge $800 per auto. If Bob is looking to insure four autos, what premium will he be charged by Insurance Company A? A. $3,200 B. $200 C. $800 D. $2,400

A. $3,200

If a manufacturer has $1 million in annual sales, its liability insurance is priced per 1,000 of sales, and the per-unit rate is $0.50, what is the manufacturer's liability insurance premium? A. $500 B. $1,000 C. $5,000 D. $10,000

A. $500

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

A. A staff claim representative.

Compensatory damages represent A. Actual harm suffered. B. Out-of-pocket expenses. C. Non-economic loss. D. Damages to deter others from committing wrongful acts.

A. Actual harm suffered.

How does the law of large numbers assist insurers? A. Allows reliable estimates of future loss amounts B. Assures a profit, given sufficient number of policies C. Prevents catastrophic losses from any single event D. Predicts who will likely suffer losses

A. Allows reliable estimates of future loss amounts

A person or entity that would suffer a financial loss if property were damaged has A. An insurable interest. B. A discretionary interest. C. A renewable interest. D. A contractual interest.

A. An insurable interest.

Which one of the following allegations in insurance claims handling result from criticisms of claim representatives' actions, sometimes regardless of validity? A. Bad faith allegations B. Contract or policy manipulation allegations C. Unfair rating practices allegations D. Use of improper valuation techniques allegations

A. Bad faith allegations

Loss reserves are funds held by an insurer to pay claims for losses that have occurred but have not yet been settled. Such funds assigned to an individual claim create a Select one: A. Case reserve. B. Suit reserve. C. Claim reserve. D. Damage reserve.

A. Case reserve.

All of the following are correct with respect to fair evaluation of a claim, EXCEPT: A. Claim representatives are prohibited from discussing the evaluation of a claim with anyone not directly connected with that claim. B. Legislation often specifies a time limit within which evaluations of coverage and damages must be completed. C. A fair approach to evaluating liability claims is to evaluate them as if no coverage limit existed. D. Information about settlements or trial results from similar cases can help claim representatives knowledgably evaluate a claim.

A. Claim representatives are prohibited from discussing the evaluation of a claim with anyone not directly connected with that claim.

Which one of the following concerning claim status reports is true? A. Claim status reports are vital to an insurer because the reports advise the insurer how the claim is progressing on a periodic basis. B. Claim status reports are vital to an insurer because the reports provide work for the claim representatives, rounding out their written and verbal skills. C. Claim status reports are not vital to an insurer because the reports are usually read only by insurance department employees. D. Claim status reports are not vital to an insurer because the reports are used only as a method of illustrating work that needs to be done by the claims adjuster.

A. Claim status reports are vital to an insurer because the reports advise the insurer how the claim is progressing on a periodic basis.

Anyone who submits a claim to an insurer may be called a A. Claimant. B. First-party claimant. C. Claim producer. D. Third-party claimant.

A. Claimant.

Sofie, a property underwriter for Cintriell Insurance Company is reviewing a new homeowners application. Sofie has changed the protection class to unprotected, as the fire protection class listed by the producer is an eight and is incorrect. Which one of the following line underwriter activities is Sofie performing? A. Classifying and pricing accounts B. Recommending correct coverage C. Selecting insureds D. Coordinating with producer efforts

A. Classifying and pricing accounts

The processing of almost every claim involves which one of the following activities? A. Determining the amount of damages or extent of loss B. Salvaging C. Subrogating D. Sending a reservation of rights letter to the insured

A. Determining the amount of damages or extent of loss

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? A. Developing underwriting alternatives B. Evaluating the submission C. Monitoring underwriting decisions D. Implementing the underwriting decision

A. Developing underwriting alternatives

Which one of the following methods of premium collection is generally used for personal insurance policies and small commercial accounts? A. Direct bill B. Account current basis bill C. Agency bill D. Item basis bill

A. Direct bill

All of the following insurance distribution channels use personal contact as a sales method, EXCEPT: A. Direct response B. Independent agency C. Direct writing D. Exclusive agency

A. Direct response

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? A. Evaluating the submission B. Determining underwriting alternatives C. Implementing the underwriting decision D. Monitoring the loss exposures

A. Evaluating the submission

The authority that the principal specifically grants the agent is called A. Express authority. B. Implied authority. C. Apparent authority. D. Conditional authority

A. Express authority.

In an insurance transaction, the insured is designated the A. First party. B. Second party. C. Third party. D. Fourth party.

A. First party.

Damages for disfigurement are a form of A. General damages. B. Out-of-pocket damages. C. Punitive damages. D. Special damages.

A. General damages.

Which one of the following statements is correct with regard to the submission evaluation step in the underwriting process? 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. 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. Government records that provide underwriting information include motor vehicle reports, criminal records, and civil court records.

An independent agency A. Has the right to switch a customer's coverage to another insurer. B. Typically only handles commercial insurance accounts. C. Represents customers rather than insurers and shops insurers to find the best coverage and value for its customers. D. Generally represents only one insurer.

A. Has the right to switch a customer's coverage to another insurer.

The next step in the rate development process, after insurance advisory organizations and/or insurers gather historical loss costs, is A. Insurers establish prospective loss costs. B. Insurers enter loss cost data into a rating system. C. Insurers determine the final rate. D. Insurers adjust for expenses, profits, and contingencies.

A. Insurers establish prospective loss costs.

Some courts hold insurers liable only if their behavior is found to be intentional or to constitute gross misconduct. To prove intentional misconduct, a complainant must show that the claim representative A. Intended both the misconduct and the consequences. B. Attempted to deceive the complainant. C. Was wanton and willful in acts of gross misconduct. D. Had unequal bargaining power.

A. Intended both the misconduct and the consequences.

Insurance Services Office, Inc. A. Is an insurance advisory organization. B. Calculates expense allowances to determine rates. C. Manages workers compensation information. D. Is responsible for rate determination in the property-casualty industry.

A. Is an insurance advisory organization.

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? A. Is the damaged property covered by the policy? B. How old is the chicken coop? C. Was the chicken coop constructed within the standards of the local building code? D. How many chickens died in the fire?

A. Is the damaged property covered by the policy?

The best description of a first-party claim is a claim A. Made by the policyholder against the insurer. B. Made by the insurer against the policyholder. C. Made by the policyholder against someone to whom the policyholder may be liable. D. Made by the liable party against the policyholder.

A. Made by the policyholder against the insurer.

Which one of the following is a negotiation process in which a neutral outside party helps participants examine the issues and develop a mutually agreeable settlement? A. Mediation B. Arbitration C. Appraisal D. Mini-trial

A. Mediation

In individual rating, A. Points are added or subtracted to arrive at a rate. B. Individual insureds are assigned to a specific class. C. Underwriters are often forced to make an arbitrary judgment. D. The law of large numbers allows accurate premium determination.

A. Points are added or subtracted to arrive at a rate.

Subrogation is the insurer's right to A. Recover its claim payment from the responsible party. B. Drop a claim in exchange for an agreed amount of money. C. Estimate the value of the damaged property. D. Transfer coverage to a third party.

A. Recover its claim payment from the responsible party.

If a third party sues the agent in connection with activities performed on behalf of the principal, the principal must A. Reimburse the agent for any liability incurred, if the agent was not at fault. B. Provide legal defense for the agent. C. Bring a countersuit against the third party. D. Reimburse the agent for any liability incurred, whether or not the agent was at fault.

A. Reimburse the agent for any liability incurred, if the agent was not at fault.

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

A. Replacement cost minus depreciation.

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 A. Salvage rights. B. Constructive rights. C. Catastrophe rights. D. Fiduciary rights

A. Salvage rights.

Work on a new claim begins for the claim representative upon receipt of the notice of loss. The representative obtains initial information and verifies coverage. Next, the representative should A. Set a loss reserve. B. Make an offer to settle the claim. C. Retain causation experts. D. Assign the claim to defense counsel.

A. Set a loss reserve.

Which one of the following is true regarding the delegation of underwriting authority by underwriting management? A. The extent of underwriting authority granted to an agent generally depends on premium volume and loss experience. B. Front-line underwriters operate primarily from the home office. C. Highly centralized insurers restrict underwriting authority to both the home and field offices. D. Most insurers' underwriting decisions are either highly centralized or highly decentralized.

A. The extent of underwriting authority granted to an agent generally depends on premium volume and loss experience.

Schedule rating plans allow insurers to reflect which one of the following in the final premium charged on a risk? A. The factors not reflected in the class rates B. The insurer's loss experience C. The insured's own loss experience D. The underwriter's experience

A. The factors not reflected in the class rates

All of the following correctly describe reasons for the use of independent adjusters, EXCEPT: A. The insured may retain an independent adjuster if settlement negotiations with the insurer are not progressing satisfactorily. B. In the case of a catastrophic loss such as a hurricane, an insurer may not have sufficient staff to manage the large number of claims, and may use independent adjusters. C. In some areas it is not economically feasible to set up claim offices, and insurers may contract with independent adjusters to handle claims in these remote areas. D. Insurers may use independent adjusters when special skills and expertise are needed, for example to investigate aircraft accidents.

A. The insured may retain an independent adjuster if settlement negotiations with the insurer are not progressing satisfactorily.

Anyone who is not a party to an insurance contract who submits a claim against an insured is known as the A. Third party. B. First party. C. Second party. D. Claimant party.

A. Third party.

People who handle claims fall into a number of categories. Those who handle claims, keep claim records, and perform statistical analysis on behalf of self-insureds are called A. Third-party administrators. B. Independent adjusters. C. Staff claim representatives. D. Claim managers.

A. Third-party administrators.

Underwriting management monitors underwriting results A. Through a process called an underwriting audit. B. By issuing periodic bulletins to field offices. C. To determine if coverage changes will increase sales. D. To allow the insured to adjust goals if results are not as expected.

A. Through a process called an underwriting audit.

Lou is a claim manager at a small property-casualty insurance company. Lou takes pride in the fact that because of his leadership, his company has gained a public reputation for resisting legitimate claims. Ultimately, this reputation A. Undermines the effectiveness of his company's advertising. B. Supports his company's profit goals. C. Makes the company's policies more marketable. D. Satisfies the mandate of regulators.

A. Undermines the effectiveness of his company's advertising.

When individual fire insurance rates are established for commercial insureds, the rate is published and the published rate is applied A. "Per $100 of risk." B. "Per $100 of insurance." C. "Per $1,000 of risk." D. "Per $1,000 of insurance."

B. "Per $100 of insurance."

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

B. $2,000

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

B. $350

At year-end, SBC Insurance Company posted the following results: Incurred losses - $18 million Loss adjustment expenses - $2 million Underwriting expenses - $5 million Written premiums - $26 million Earned premiums - $24 million Based upon the company's year-end results, which one of the following represents SBC's loss ratio? A. 75% B. 83% C. 96% D. 104%

B. 83%

A type of insurance rate that applies to all insureds in the same rating category is known as A. A judgment rate. B. A class rate. C. A schedule rate. D. An experience rate.

B. A class rate.

In property insurance claims, there is sometimes a question of whether coverage exists or not. In these situations the insurer will send a reservation of rights letter. The purpose of this letter is to advise the insured that A. The claim will be handled by an independent adjuster. B. A coverage problem may exist. C. The policy may not be renewed due to loss frequency. D. The claim is in excess of the deductible.

B. A coverage problem may exist.

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

B. A group or group of insureds.

When a loss exposure is so unique that the insurer has no established system to determine a premium, an insurer will use A. A class rate. B. A judgment rate. C. A schedule rate. D. An individual rate.

B. A judgment rate.

Juanita is the senior claim officer for Worthy Insurance Company, which uses the claim audit as a performance measure for its claim operations. Claim audits usually evaluate both quantitative and qualitative factors. Which one of the following factors is qualitative for Juanita and her staff? A. Percentage of recovery from subrogation B. Accurate evaluation of insured's liability C. Accuracy and completeness of data entry D. Average claim settlement value by claim type

B. Accurate evaluation of insured's liability

An agency in New Jersey has decided to market personal insurance to accountants. It is offering a 10 percent discount to all Certified Public Accountants in the state. This is an example of which one of the following types of group marketing? A. Sponsorship marketing B. Affinity marketing C. Franchise marketing D. Worksite marketing

B. Affinity marketing

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 A. Implied authority. B. Apparent authority. C. Contractual authority. D. Express authority

B. Apparent authority.

Which one of the following is a common alternative dispute resolution (ADR) technique. A. Interrogatories B. Arbitration C. Motion for summary judgment D. Pleadings

B. Arbitration

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

B. Case reserve.

Insurers and their representatives are called upon to handle claims with utmost good faith. However, allegations of bad faith in insurance claims remain one of the most troublesome and controversial issues for insurers and claim representatives. Which one of the following statements related to bad-faith in the insurance arena is true? A. Third-party bad-faith claims generally arise in property insurance. B. Claim representatives must be familiar with the bad-faith laws in jurisdictions in which they handle claims. C. The single widely-accepted definition of bad faith used by insurers is from the Black's Law Dictionary. D. Bad-faith allegations can only be brought by second-party or third-party claimants.

B. Claim representatives must be familiar with the bad-faith laws in jurisdictions in which they handle claims.

Homeowners insurance is rated using A. Experience rates. B. Class rates. C. Individual rates. D. Judgment rates.

B. Class rates.

Personal auto insurance is most likely rated using A. Unit rates. B. Class rates. C. Judgment rates. D. Individual rates.

B. Class rates.

Insureds must share enough characteristics with each other to be grouped together when using A. Retrospective rating. B. Class rating. C. Experience rating. D. Judgment rating.

B. Class rating.

Claim representative Beth adjusted a property damage claim in which the insured's loss totaled $2,500. She knew that the insured had suffered some financial hardships and was eager to receive some cash as soon as possible. Optimistic that the insured could be persuaded to take less than the full value of the claim if a draft was delivered right away, she offered $1,500 to settle the claim. The insured surprised Beth by filing a small claims suit against the insurer in which he recovered the full $2,500 value of the claim. This is not the first time this tactic has backfired on Beth. Beth may be in violation of which one of the following unfair claim practices regulations? A. Misrepresenting insurance policy provisions B. Compelling an insured to sue to recover amounts due under an insurance policy C. Failing to reasonably investigate claims for damages under insurance policies D. Failing to respond to demands to settle under an insurance policy

B. Compelling an insured to sue to recover amounts due under an insurance policy

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

B. Compensation for disfigurement

Rating agencies such as Dun & Bradstreet (D&B) provide A. Aggregate loss experience data. B. Data on credit ratings of businesses. C. Information about business operations' safety records. D. Data on motor vehicle reports.

B. Data on credit ratings of businesses.

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

B. Depreciation.

Which one of the following statements is true regarding laws prohibiting unfair claims practices? A. The federal government has enacted an unfair claims practices law to which all states must adhere, unless their law is more stringent. B. Each state that has such a law will usually list insurer or claim representative practices that are prohibited. C. The laws apply only to actions by the insurer and not by individual claim representatives. D. The laws specifically list acceptable actions or processes that insurers may take.

B. Each state that has such a law will usually list insurer or claim representative practices that are prohibited.

The focus of a line underwriter is A. Securing and maintaining treaty reinsurance. B. Evaluating new submissions and renewal underwriting. C. Conducting education and training. D. Managing the risk selection process.

B. Evaluating new submissions and renewal underwriting.

In a liability claim, damages awarded for pain and suffering incurred by the claimant are referred to as A. Special damages. B. General damages. C. Secondary damages. D. Punitive damages.

B. General damages.

Under certain circumstances, an insurer may authorize the adjustment of claims by producers. One of the benefits of providing producers with draft authority is that A. It gives agents the option of providing coverage for smaller claims that staff adjusters might deny. B. If an agent can issue a draft directly to the insured, it reduces the time an insured waits for payment. C. Claim payments by producers are not included in loss ratio calculations. D. Claim handling by producers is immune to regulatory scrutiny.

B. If an agent can issue a draft directly to the insured, it reduces the time an insured waits for payment.

Which one of the following lines of business is most likely to be rated using judgment rates? A. Personal auto insurance. B. Inland marine insurance. C. Workers Compensation insurance. D. Homeowners insurance.

B. Inland marine insurance.

Most insurers give some producers the authority to pay claims up to a certain amount. In this role, producers function much like an A. Independent adjuster. B. Inside claim representative. C. Insurance appraiser. D. Outside claim representative.

B. Inside claim representative.

If a line of insurance is class rated, with all insureds possessing similar characteristics and paying the same rate, which one of the following determines the difference in premiums insureds pay? A. Credits and debits for changes in exposures B. Number of exposure units C. Data from insurance advisory organizations D. Considerations for profits and expenses

B. Number of exposure units

Staff underwriters share research of the market responsibilities with actuarial and marketing departments. Research includes an ongoing evaluation of which one of the following? A. Revision to coverage forms B. Optimal product mix in the book of business C. Average loss ratio for a book of business D. The hit ratios by underwriter

B. Optimal product mix in the book of business

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

B. Replacement cost.

A producer will generally review a company's loss run report while performing which one of the following functions? A. Sales B. Risk management review C. Claims handling D. Customer service

B. Risk management review

Underwriting management develops underwriting guidelines, which A. Ensure that unprofitable business will be offset by profitable business. B. Specify the insurer's attitude toward applicants exhibiting certain characteristics. C. Vary from one underwriter to another. D. Set firm standards that rarely, if ever, are modified.

B. Specify the insurer's attitude toward applicants exhibiting certain characteristics.

In a bad-faith lawsuit, claimant Jerry alleges improper conduct on the part of claim representative, Twila, who works for a large insurance company. As is generally the case in such bad-faith allegations, which one of the following parties would be the defendant? A. Jerry B. The insurer C. Twila D. The insurance producer

B. The insurer

Prospective loss costs indicate A. The additional costs an insurer can expect to pay over historical loss costs with the addition of considerations for profits and expenses. B. The money the insurer can expect to need to pay for future claims for each exposure unit. C. The increase in loss costs that the insurer can expect to pay for each $100 of insurance purchased. D. The aggregate loss in dollars that an insurer can expect to need to pay from a particular book of business.

B. The money the insurer can expect to need to pay for future claims for each exposure unit.

The law of large numbers states that as the number of similar but independent exposure units increases, A. Divergence from the norm will be in direct proportion to the increase in size of the sample. B. The relative accuracy of predictions about future outcomes increases. C. The relative accuracy of predictions about future outcomes decreases. D. Divergence from the norm will be in inverse proportion to the increase in size of the sample.

B. The relative accuracy of predictions about future outcomes increases.

The foundation of good faith claim handling is A. Training. B. Thorough, timely, and unbiased investigations. C. Prompt and courteous service. D. Efficiency.

B. Thorough, timely, and unbiased investigations.

In good-faith claim handling, the insurer should give consideration to the insured's interests A. That are less than that given to a third party claimant's interests. B. While remaining impartial to all aspects. C. That are no less than the government-mandated threshold for the government in which the litigation occurs. D. That are greater than that given to the insurer's interests.

B. While remaining impartial to all aspects.

A liability loss has the following damages: Medical expenses: $10,000 Damages for disfigurement: $50,000 Damages for pain and suffering: $100,000 What is the amount of general damages? A. $ 60,000 B. $110,000 C. $150,000 D. $160,000

C. $150,000

Bill's three-year-old stereo was completely destroyed in a covered loss. Its expected useful life was ten years. Its replacement cost is $600. Its actual cash value (ACV) is A. $ 60. B. $180. C. $420. D. $600.

C. $420.

Which one of the following insurance customers is most likely to obtain coverage through a surplus lines broker? A. A homeowner seeking flood insurance B. An 18-year-old seeking personal auto insurance C. A drug manufacturer seeking umbrella liability insurance D. A contractor seeking workers compensation insurance

C. A drug manufacturer seeking umbrella liability insurance

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 A. An adjusting agent. B. A third-party administrator. C. A field claim representative. D. An independent adjuster.

C. A field claim representative.

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

C. Actual cash value of the property

A reservation of rights letter A. Lists all of the rights that an insured has under an insurance policy. B. Advises the insurer that the insured has made a claim, but retains the right to withdraw the claim later. C. Advises the insured that the insurer is investigating the claim but retains the right to deny coverage later. D. Lists all of the rights that an insurer has under an insurance policy.

C. Advises the insured that the insurer is investigating the claim but retains the right to deny coverage later.

Independent agent networks are known as Select one: A. Agent forces. B. Exclusive agents. C. Agent clusters. D. Direct writers.

C. Agent clusters.

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 A. Requiring loss control measures. B. Using facultative reinsurance. C. Amending policy terms and conditions. D. Using schedule rating modifications.

C. Amending policy terms and conditions.

Jerry is an experienced claim adjuster who handles claims for Jackson Insurance Company during hurricane season when Jackson's staff adjusters need assistance. Jerry is A. A hurricane adjuster. B. A public adjuster. C. An independent adjuster. D. A third-party adjuster.

C. An independent adjuster.

How do underwriting guidelines help an insurer achieve its goals? A. By maintaining a consistently applied set of behavioral measurements against which an individual's performance will be measured B. By establishing the criteria required for treaty reinsurance to apply C. By providing rules that guide underwriters toward consistent decisions D. By creating a channel for communication for the insurer's vision, mission, and objectives

C. By providing rules that guide underwriters toward consistent decisions

Which one of the following statements is true regarding elements of good-faith claim handling? A. A claim file's medical bills, doctors' reports, and other information on each claimant should be in chronological order. B. Generally, the first activity of the insurer in the claim handling process involves two functions—investigating the claim and concluding the claim. C. Claim representatives should use policy provisions, such as arbitration clauses, when applicable, to resolve disputes over the settlement amount. D. Once contact with the insured is made, the claim representative should acknowledge and assign the claim.

C. Claim representatives should use policy provisions, such as arbitration clauses, when applicable, to resolve disputes over the settlement amount.

If an insured's house burns to the ground due to faulty wiring, the most difficult part of the claim handling process will probably be A. Determining the cause of loss. B. Verifying coverage. C. Determining the amount of damages. D. Determining insurable interest.

C. Determining the amount of damages.

The state advisory organization has developed a new homeowners form, which increases the personal property limits for guns, silverware, jewelry, and boats. Jancy Insurance Company is considering modifying this form for its own use. Which one of the following of Jancy's staff would be involved in this research and development of this new form? A. Clara, the underwriting manager B. Merve, the claims manager C. Emma, the staff underwriter D. Antonia, the accounting manager

C. Emma, the staff underwriter

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

C. Exposure units.

All of the following are claim practices that are usually prohibited under unfair claim practices laws, EXCEPT: A. Compelling an insured to sue by offering less to settle a claim than what is ultimately recovered in a legal action by the insured B. Failing to respond to communications regarding a claim C. Failing to pay a claim that is not covered even when the insured depends on such payment D. Refusing to pay claims without first conducting a reasonable investigation

C. Failing to pay a claim that is not covered even when the insured depends on such payment

Prospective loss costs that have become adjusted for expenses, profits, and contingencies are A. Judgment rates. B. Class rates. C. Final rates. D. Summary rates.

C. Final rates.

Damages for the loss of the ability to bear children are a form of A. Special damages. B. Out-of-pocket damages. C. General damages. D. Punitive Damages

C. General damages.

Which line of business may be rated using judgment rates? A. Workers Compensation insurance. B. Personal auto insurance. C. Inland marine insurance. D. Homeowners insurance.

C. Inland marine insurance.

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

C. Insurer.

Incurred losses (including loss adjustment expenses) divided by earned premium is the formula for A. Underwriting profit ratio. B. Combined ratio. C. Loss ratio. D. Expense ratio.

C. Loss ratio.

The best description of a third-party claim is a claim A. Made by the policyholder against the insurer. B. Made by the insurer against the policyholder. C. Made against the policyholder by someone to whom the policyholder may be liable. D. Made by the liable party against the policyholder.

C. Made against the policyholder by someone to whom the policyholder may be liable.

Which one of the following is true about the participation of the head of the underwriting department in the insurer's management? A. Is heavily involved in the day-to-day claims, finance, and actuarial decisions, as well as other decisions B. Reviews all underwriting decisions for adherence to underwriting guidelines C. May participate in selecting the type of marketing system to be used D. Is generally restricted to enforcing underwriting guidelines

C. May participate in selecting the type of marketing system to be used

Which one of the following would have an insurable interest in real property? A. Bank that has provided a personal credit card to the owner of the property B. Someone expressing interest in purchasing the property C. Mortgagee that has provided a mortgage loan on the property D. Former owner of the property

C. Mortgagee that has provided a mortgage loan on the property

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) A. Retrospective rating plan. B. Experience rating plan. C. Schedule rating plan. D. Financial rating plan.

C. Schedule rating plan.

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

C. Special damages.

Maja's, a professional liability underwriter, primary responsibilities involve formulating underwriting policy and revising underwriting guides for various lines of professional liability insurance that will be used by personnel in the company's field offices. Maja is functioning as a A. Field underwriter. B. Line underwriter. C. Staff underwriter. D. Chartered underwriter.

C. Staff underwriter.

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

C. The ease of accessibility within the channel

One of the roles of underwriting management is arranging reinsurance. Which one of the following statements explains how treaty reinsurance helps an insurer meet its obligations? A. The reinsurer delegates underwriting authority to the primary insurer, helping the primary insurer achieve consistent results. B. The reinsurer monitors the results of the primary insurer's underwriting guidelines to ensure compliance. C. The reinsurer automatically assumes a portion of all of the primary insurer's insurance that is eligible under the treaty. D. The reinsurer assumes a portion of the losses from all policies that have been specifically listed and insured under the treaty.

C. The reinsurer automatically assumes a portion of all of the primary insurer's insurance that is eligible under the treaty.

Which one of the following would likely be an unacceptable practice under most states' unfair claims practices act? A. A claim representative reviewing a claim is unsure of the coverage and waits until the following day to respond to the insured so that he has time to check the coverage with his supervisor. B. A claim representative receives two estimates on the damage to an insured's vehicle and pays the higher of the two estimates because he believes the lower estimate might not be correct. C. A claim representative realizes that a homeowners property claim will be large and also that the insured needs funds immediately to buy necessities, so he gives the insured a partial advance payment on the claim. D. A claim representative is asked by an insured if a claim is covered by the policy's liability coverage and the claim representative responds "no" even though he knows it is covered elsewhere in the insured's policy.

D. A claim representative is asked by an insured if a claim is covered by the policy's liability coverage and the claim representative responds "no" even though he knows it is covered elsewhere in the insured's policy.

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 A. A schedule rate. B. An experience rate. C. A retrospective rate. D. A judgment rate.

D. A judgment rate.

An insurance contract is designed to be all of the following in the event of a claim, EXCEPT: A. A means to afford peace of mind to the insured B. A way to restore a claimant to pre-loss condition C. A financial mechanism that can benefit policyholders and other claimants D. A means to provide a profit to the insured

D. A means to provide a profit to the insured

If a claim is complex or if settlement negotiations are not progressing with the insurer, the insured may hire A. A senior claim representative. B. A public defender. C. An independent adjuster. D. A public adjuster.

D. A public adjuster.

Worthley Insurance Company uses claim audits to ensure compliance with best practices. These audits evaluate both quantitative and qualitative factors. Which one of the following factors that Worthley evaluates is a qualitative factor? A. Average claim settlement value by claim type B. Accuracy of data entry C. Timeliness of reserving D. Accurate evaluation of insured's liability

D. Accurate evaluation of insured's liability

One who offers claim handling services to insurance companies for a fee is A. A staff claim representative. B. A public adjuster. C. An outside claim representative. D. An independent adjuster.

D. An independent adjuster.

A type of insurance rate that reflects the unique characteristics of an insured or the insured's property is known as A. A judgment rate. B. An experience rate. C. A class rate. D. An individual rate.

D. An individual rate.

Judgment rates are used A. Because wide variations in actual losses occur from one insured to the next. B. Because the underwriter has experience with comparable exposures. C. Because no two risks are identical. D. Because there is no established premium-determination system.

D. Because there is no established premium-determination system.

Fair evaluation of claims is an element of good-faith claim handling. All of the following are true regarding fair evaluation of a claim, EXCEPT: A. Unfair claims settlement practices acts often specify a time limit within which evaluations of coverage and damages must be completed. B. A fair approach to evaluating liability claims is to evaluate them as if no coverage limit existed. C. Information about settlements or trial results from similar cases can help claim representatives knowledgably evaluate a claim. D. Claim representatives are prohibited from discussing the evaluation of a claim with anyone not directly connected with that claim.

D. Claim representatives are prohibited from discussing the evaluation of a claim with anyone not directly connected with that claim.

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

D. Commercial property.

If a claim representative's investigation determines that no coverage applies for a liability claim, the insurer will A. Pay for the defense but not the settlement of the claim. B. Try to quickly settle the claim. C. Settle the claim and then seek reimbursement from the insured. D. Deny the claim.

D. Deny the claim.

Besides using the law of large numbers to predict the amount of future losses, insurers also rely on it to A. Select insureds. B. Plan for catastrophic events. C. Select exposure units. D. Determine average loss costs.

D. Determine average loss costs.

If a consumer or policyholder had a preference for dealing with sales representatives who are employees of the insurer, which one of the following marketing systems would they choose? A. Managing general agency B. Insurance broker C. Exclusive agent D. Direct writer

D. Direct writer

One way for claim managers to help maintain an insurer's underwriting profit is to A. Grant claim staff complete autonomy as to spending decisions. B. Achieve the lowest settlements possible. C. Retain high-priced experts whenever possible. D. Establish appropriate spending policies.

D. Establish appropriate spending policies.

Which one of the following is the fundamental measure of loss exposure used in insurance rating? A. Rate B. Risk C. Premium D. Exposure unit

D. Exposure unit

Insurers do not use the law of large numbers to predict future losses from hurricanes because A. Hurricanes affect too many policyholders to achieve accurate predictions. B. Exposure units are not homogeneous. C. Hurricanes do not affect enough policyholders to achieve accurate predictions. D. Exposure units are not independent.

D. Exposure units are not independent.

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

D. Express authority.

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

D. General damages.

An important question for an insurer to ask when examining customers' needs and characteristics to select a distribution channel is A. Does cost outweigh the benefit? B. Is the expertise of the current staff adequate? C. Who is the target market? D. How quickly can inquiries and transactions be processed?

D. How quickly can inquiries and transactions be processed?

Most bad-faith claims arising out of contracts are insurance-related. All of the following explains why this is the case, EXCEPT: A. Insurance contracts involve the public interest and unequal bargaining power. B. Insurers generally control claim investigation, evaluation, negotiation, and settlement. C. Insurers have an implied duty of good faith based on the special relationship they have with their insureds. D. In comparison to other contracts, insurance contracts require a low standard of conduct.

D. In comparison to other contracts, insurance contracts require a low standard of conduct.

The value of an insurance contract in the event of a claim A. Includes the opportunity to profit. B. Is purely remedial. C. Is purely financial. D. Includes peace of mind.

D. Includes peace of mind.

For the law of large numbers to function properly, exposure units must be A. Equal. B. Accurate. C. Random. D. Independent.

D. Independent.

Facultative reinsurance is arranged by underwriting for A. Groups of policies. B. Policies covered by the treaty. C. All eligible policies. D. Individual policies.

D. Individual policies.

Class rating relies on A. All insureds being charged the same rate. B. A highly refined classification. C. Similar frequency and severity of loss. D. Insureds with similar characteristics.

D. Insureds with similar characteristics.

In the legal relationship known as agency, which one of the following is the principal? A. Third party B. Agent C. Insured D. Insurer

D. Insurer

Which one of the following describes the effect underwriting standards can have on premium? A. The more services provided, the more premiums will increase. B. If more causes of loss are covered, premiums will increase. C. Reduced cash flow drives up premium interest charges. D. Insurers can lower premiums for better-than-average risks.

D. Insurers can lower premiums for better-than-average risks.

For an insurer to succeed in the long run, A. Its investment income must be adequate to generate profit for investors. B. Its investment income must exceed claims and expenses. C. Its premium income must be adequate to pay claims. D. Its premium and investment income must be adequate to pay claims and expenses.

D. Its premium and investment income must be adequate to pay claims and expenses.

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? A. Marvin may choose to arbitrate the value of the antiques before a judge. B. Marvin's only recourse is to sue the insurer for coverage and damages to the property. 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. Marvin may follow the appraisal provision in the policy to settle the dispute over the value of the damaged property.

Which one of the following is generally paid a negotiated fee, rather than a fixed commission rate? A. Independent agent B. Direct writer sales representative C. Exclusive agent D. National broker

D. National broker

An important aspect of acknowledging a claimant's bodily injury liability claim, upon first contact, is to try to obtain information on the A. Claimant's medical history. B. Claimant's sources of additional income. C. Claimant's accident history. D. Nature and extent of the injury.

D. Nature and extent of the injury.

People who handle claims may be staff claim representatives, independent adjusters, employees of third-party administrators, or A. Special claims representatives. B. Self-insurer claim representatives. C. Private claims representatives. D. Producers who sell policies to insureds.

D. Producers who sell policies to insureds.

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

D. Providing rules that guide underwriters toward consistent decisions

Claim representative Jan is reviewing an auto liability claim concerning a two-car collision that has just been assigned to her. She notes that the insured was clearly 100 percent at fault for the accident. No one was injured. The estimate for the costs of the repair to claimant's car and a substitute auto for the week it will take to perform the repairs is $3,000. Which one of the following best describes the approach Jan should take in setting the case reserve? A. Set it at zero dollars, because the claim is expected to resolve within a week. B. Set it at a predetermined percentage above $3,000, in case the original estimate is lower than the actual costs. C. Set it at a predetermined percentage below $3,000, in the expectation that some money can be saved on the claim. D. Set it at $3,000, representing an estimate of what Jan expects to pay to settle the claim.

D. Set it at $3,000, representing an estimate of what Jan expects to pay to settle the claim.

A liability adjuster must be concerned with specific, out-of-pocket expenses when evaluating the damages being claimed. The technical term for such expenses is A. Punitive damages. B. Measurable damages. C. General damages. D. Special damages.

D. Special damages.

Rating systems rely on A. Assigning all insureds to classes. B. Investment earnings supplementing premiums. C. Grouping insureds with similar loss characteristics. D. Statistical analysis of past losses.

D. Statistical analysis of past losses.

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

D. The agency expiration list.

All of the following explain when the use of independent adjusters might be advantageous, EXCEPT: A. In some areas it is not economically feasible to set up remote claim offices and in these areas insurers may depend on independent adjusters to handle their insureds' losses. B. In the case of a catastrophic loss such as a hurricane, an insurer may not have sufficient staff to manage the claim volume and may temporarily depend upon independent adjusters to handle the excess. C. Insurers may use independent adjusters for specific types of losses, for example, aircraft accidents, in which specialized expertise is required to settle the claim. D. The insured may retain an independent adjuster after becoming dissatisfied with the pace of negotiations with the insurer.

D. The insured may retain an independent adjuster after becoming dissatisfied with the pace of negotiations with the insurer.

Tobias, a successful producer with Barnley's Insurance Company, is struggling with an intricate quote on homeowners coverage for his insured, Hanna. Hanna not only has substantial collections of guns and silverware, but also has a small farm located at her premises. Which one of the following individuals from Barnley Insurance Company could provide assistance and support to Tobias? A. The actuary B. The claims representative C. Staff underwriter D. The line underwriter

D. The line underwriter

In liability claims, the claimant is referred to as the A. Primary party. B. First party. C. Second party. D. Third party.

D. Third party.

One of the responsibilities of underwriting management is to arrange reinsurance. One type of reinsurance is arranged to automatically reinsure a portion of all eligible risks of the primary insurer. This arrangement is called A. Underwriting reinsurance. B. Temporary reinsurance. C. Facultative reinsurance. D. Treaty reinsurance.

D. Treaty reinsurance.

All of the following are principal sources of underwriting information, EXCEPT: A. Financial rating services B. Producers C. Applications D. Underwriting authority reports

D. Underwriting authority reports

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

D. Use past cases which are similar as a guide.

Brad is a claim representative and has received a claim from an insured. The insured backed his car into a post and slightly damaged the bumper. Brad does a quick estimate and sees that the damage probably does not even exceed the insured's deductible, so he puts the claim aside to work on a larger more complicated claim. After four weeks of hearing nothing, the insured eventually gets upset and contacts Brad's manager and the state insurance department. Which one of the following best addresses the question of whether Brad's actions likely constitute a violation of the states unfair claims practices act? A. Yes, because most of these laws prohibit claim representatives from making their own estimates as to the damage incurred and require that a licensed estimator make the estimate. B. No, because Brad has not officially declined the claim or told the insured that the amount of the claim is less than the insured's deductible and therefore is not subject to these laws. C. Yes, because most of these laws require that insurers contact the insured about a claim within one week of first receiving the claim report. D. Yes, because most of these laws generally prohibit failure to acknowledge and promptly respond to communications about a claim.

D. Yes, because most of these laws generally prohibit failure to acknowledge and promptly respond to communications about a claim.

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

D. Agency contract.

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

D. Agency.