AINS 21 practice exam
Which one to the following correctly describes a reason for government involvement in property causality insurance
Government programs can meet legitimate public demands unmet by privates insurers
Which oone of the following insurance customers may be compelled to meet it's liability insurance needs through the excess and surplus lines market
Hazardous waste facility
Private insurers are reluctant to provide windstorm insurance on coastal properties. This is because the loss exposures fail to meet the criteria that ideally insurable exposures must be
Independent and not catastrophic
Which one of the following measures the amount an insurer would owe its policyholders in premium refunds if it were to immediately cease operations
Unearned premium reserve
Coverage for money, securities, and other property from various causes of loss such as burglary, robbery, theft, and employee dishonesty typically is provided by
commercial crime insurance
The type of insurance that provides periodic income payments to an insured who is unable to work because of sickness or injury is
Disability income insurance
A small business owner concerned about something happening and not being able to work or earn a living for extended period of time due to an accident should purchase
Disability insurance
Some insurance rating laws allow rates to be put into use immediately bit require insurers to file the rates with the state within a specific period of time. these types of laws are known as
File and use laws
Some insurance rating laws allow rates to put into use immediately but require insurers to file the rates with the state within a specific period of time these types of laws are
flex rating laws
Insurance is not the only risk management transfer technique. when circumstances are appropriate, transfer can be accomplished through
non insurance transfer technique
Insurance is not the only risk management transfer technique . when circumstances are appropriate, transfer can be accomplished through
non insurance transfer techniques
Insurance is not the only risk management transfer technique. When circumstances are appropriate, transfer can be accomplished through
noninsurance transfer technique
A stock insurer is distinguished from a mutual insurer by the fact that
owners are not necessarily insureds
On November 1, Peafowl insurance company issued a one year business auto policy to Tristate painting company with a premium of 24,000. What was the written premium for this policy as of December 31?
24,000 the written premium was 24,000 the amount the insured was billed at the beginning of the policy period
On January 1, 2005, the xyz insurance company issued a policy with a one year policy period. the premium for this policy was 1,200. What was the unearned premium for this policy as of may 1, 2005
800$ 5th may=5th month so 4 months earned and 8 unearned, 8 times 100/month= 800 of unearned premium
Loss reserves are amounts designated by insurers to pay claims for losses that have
Already occurred but are not yet settled
Which of the following is an opportunity cost of insurance
An insureds funds that could be invested elsewhere if purchasing insurance were not necessary
Which one of the following is an example of a fortuitous loss
An unknown vandal spray-paints graffiti on the insured's garage
A loss exposure is
Any condition that presents the possibility of a loss
Though premiums are an obvious cost of insurance, many insureds believe that are too high because
Benefits are intangible until loss occurs
A company interested in improving cash flow should consider meeting its insurance needs through which one of the following types of insurance organizations
Captive insurers
The premium charged for an insurance policy should be
Commensurate with the exposure
Liability coverage for loss exposures arising from a business organizations premises and operations, its products, or its completed work is typically provided by
Commercial general liability insurance
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
Expense ratio
Which one of the following statements concerning government insurance program is true
Fair access to insurance requirements FAIR plans make basic property insurance
Which one of the following statements is correct regarding characteristics of ideally insurable los exposures
Ideally, loss exposures should be spread across a large number of similar exposure units within the same period
How do flex rating laws work
Insurers may adjust rates within a range without prior approval
How does flex rating law work
Insurers may adjust rates within a range without prior approval
Why are insurance regulators concerned about effects of large catastrophes
Insurers may become insolvent
Which one of the following statements is correct regarding the benefits that insurance provides
Investment income helps keep insurance premiums at a reasonable level
Oscars custom built vehicle looks like a sausage sandwich on wheels. he plans to drive it to special events at schools around the country where it will serve as a mobile billboard to promote his product, is oscar is surprised to learn insurers are reluctant to insure his vehicle because it fails to meet one of the ideal characteristics of an insurable risk. which characteristic is Oscar's vehicle least likely to meet
Large number of similar exposures
Which one of the following insurance customers might be compelled to meet its liability insurance needs through excess and surplus lines market
Major airline requiring multi-billion limits
Which one of the following is true regarding a homeowners policy
Most include coverage for theft of contents within the home
which one of the following statements is true
Mutual insurance include some large national insurers
which one of the following is a federal insurance plan in which the government acts as a partner with a private insurer that sells insurance and pay the claims, and then reimburses the insurer for the portion of losses that exceeds premiums and investment income
National flood insurance
if an insurers losses and expenses exceed its written premiums and investment income, which one of the following must the insurer use to meet its obligations
Policyholders surplus which represents a cushion for absorbing adverse results
Which one of the following is an operating cost of insurers
Producers commissions
Sally is a recent college graduate who lives in the suburbs and drives to work daily in the city. She recognizes that owning a car creates both property damage and liability exposures for her and the same time she has the burden of student loans. for someone in sally's circumstance the most practical risk management technique for dealing with her auto related loss exposure is
Risk transfer
Sally is a recent college graduate who lives in the suburbs and drives to work daily in the city. she recognizes that owning a car creates both property damage and liability exposures for her and at the same time she has the burden of student loans. For someone in Sally's circumstances the most particular risk management technique for dealing with her auto related loss exposures is
Risk transfer
The capital of a stock insurance company comes primarily from
Sale of company stock
Market conduct regulation focuses on insurers treatment of applicants for insurance insureds and others who present claims for coverage. Market conduct regulation affects which one of the following areas of operations?
Sales
the capital of stock insurance company primarily comes from
Sales of company stock
Riko's insurance agent was caught embezzling several insured's premiums, which involves what area of insurance company operations and what punishment by state regulators
Sales, agent license revoked
One of the costs of insurance is said to be opportunity costs. this means that if capital and labor were not being used in the insurance business, they could be used elsewhere and making other productive contributions to
Society
What term refers to the ability of an insurer to meet it's obligations as they become due
Solvency
Insurers are required to submit annual financial statements to
State insurance departments
An insurer that was formed for the purpose of earning a profit for its stockholders is a
Stock insurer
Owners of reciprocal insurance exchanges are also known as
Subscribers
Kyle is a professional athlete who has had several successful seasons. he earns 10 million a year, and is hopeful that his salary will double when he renegotiates his contract next year. His financial adviser recommends that he purchase an umbrella policy with multimillion dollar limits to provide an excess layer of protection above his primary personal insurance policies . Kyle's insurance broker has approached many of the large, well-known insurance companies and they have balked at writing limits as high as those needed by Kyle. the broker is likely to find the coverage that kyle needs in the
Surplus line insurance market
Which one of the following is generally exempt from state insurance regulations pertaining to policy forms and rates
Surplus line insurers
which of the following is generally exempt from state insurance regulations pertaining to policy forms and rates
Surplus line insurers
What is solvency?
The ability of an insurer to meet its obligations as the become due
Prompt and professional loss adjustment services are a responsibility of what part of an insurer's organizations
The claims function
adhering to the characteristics of an ideally insurable loss exposure in selling insurance help assure that
The insurer is able to change a premium that the insured can afford to pay
Adhering to the characteristics of an ideally insurable loss exposure in selling insurance help assure that
The insurer is able to charge a premium that the insured can afford to pay
Retention is often used in combination with insurance as a way of treating loss exposures. One of the major downsides of individuals using retention alone is
The potential for financial ruin
As a single mother on a very tight budget, Ciara is tempted to skimp on her insurance. However, her friend Mehmet tells her not to skimp on insurance, because it will help manage her cash flows. Which one of the following examples best illustrates Mehmet's point
When her car's windshield breaks, Ciara has to pay only $100 of the $600 cost of replacing it
which one of the following best describes what is determined by the insurers staff review of applications from prospective insureds?
Whether the characteristics of the customer match the insurers eligibility and selection guidelines
State governments can be involved in insurance at various levels. Some states provide which one of the following types of insurance in competition with private insurers?
Workers compensation
an Ohio insurer that is licensed to sell insurance in Michigan is known as what in Michigan
a foreign insurer
A flex rating law is
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
A flex rating law is
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 filed
What is an opportunity cost of insurance
an insurers funds that could be invested elsewhere if purchasing insurance were not necessary
Generally how often must a foreign insurer's license be renewed
annually
a reinsurance company
assumes loss exposures from a primary insurer
A homeowners insurance policy typically includes
both property and liability coverage
the two objectives of insurance policy form regulation are to ensure that policies are clear and readable and to
detect and address any policy provisions that are unfair
which one of the following statements is correct regarding government insurance programs
government programs can operate as reinsurers, reinsuring 100 percent of the risk or that part in excess of the private insurers retention
Which of the following statements is correct regarding characteristics of ideally insurable loss exposures
ideally, loss exposures should be spread across a large number of similar exposure units within the same period
Which one of the following is true regarding the administration of insurance regulatory information system iris
if regulators determine that an insurer is insolvent, the state insurance department places it in receivership
Claim buildup is considered to be among which of the following costs of insurance
increased losses
Claim buildup is considered to be among which one of the following costs of insurance
increased losses
Sometimes the existence of insurance encourages losses. the result of this phenomenon is that in
increases the total cost of insurance
Which one of the following categories of loss expenses can an insurer use to compare its revenue
incurred losses
Which of the following statements is correct with regard to risk and ideally insurable characteristics of loss exposures
indemnification is the process of restoring an insured to pre-loss financial condition
The primary role of insurance is to
indemnify individuals and organizations for covered losses
For insurers to utilize pooling most effectively and prevent catastrophic losses, the insured exposure units need to be
independent
Coverage for miscellaneous types of property such as movable property, goods in domestic transit, and property use in transportation and communication, typically is provided by
inland marine insurance
Which one of the following statements is true
insurance regulators review policies to determine if they benefit consumers
destructive competition in the insurance industry could result in
insurance shortages
Which one of the following statements is correct
insurers investment income helps keep premiums at reasonable level
A reciprocal insurance exchange
is an unincorporated association providing insurance coverage to its subscribers
A mutual insurance company is owned by
policyholders
Pravalt Construction Company pays less than its competitors for workers compensation insurance because Pravalt has had substantially fewer employee injuries than other firms in its class. this illustrates which one of the following benefits of insurance
promote risk control
Insurance company wrote a commercial liability policy for a manufacturer of off-road motorcycles. The potential cost of the insureds loss exposure exceed insurance co capacity. Insurance co could consider which type of contractual transferring agreement to meet its need
reinsurance
Insurance company wrote a commercial liability policy for a manufacturer of off-road motorcycles. the potential costs of the insureds loss exposure exceed insurance company's capacity. Insurance company could consider which type of contracture transferring agreement to meet its needs?
reinsurance
Market conduct regulation focuses on insurers treatment of applicants for insurance, insureds, and others who present claims for coverage. market conduct regulation affects which one of the following areas of operation
sales
insurers are required to submit annual financial statements to
state insurance departments
Owners of reciprocal insurance exchanges are also known as
subscribers
When deciding to approve or disapprove an insurers request for a rate, a state insurance commissioner must determine of the rates are adequate. Adequate means that the rates should be
sufficient to pay all claims and the expenses related to those claims
the size of an employers loss exposure for workers compensation insurance is based on
the amount of it's payroll
What is the most common reason premium audits are conducted
the amount of the loss exposure is unknown at the start of the policy period
Another name for liability insurance is
third party insurance
Some loss exposures are not easy to retain, avoid, or control. What risk management techniques is frequently used to treat such exposures
transfer
Some loss exposures are not easy to retain, avoid, or control. what risk management technique is frequently used to treat such exposures?
transfer
From a risk management view point, insurance is used to
transfer the cost of losses
From a risk management viewpoint, insurance is used to
transfer the cost of losses
Unity insurance company has an operating ratio of 0.98, a combined ratio of 1.02, and a loss ratio of 0.77. Considering these ratios, which one of the following statements is true for uic
uic's investment income is offsetting losses and expenses from its underwriting operations
Which one of the following is part of the written premium
unearned premiums
