attempt 21
Wear and tear, rust, marring, and scratching are examples of maintenance perils that are usually excluded by property insurance policies because
Losses arising from these perils are certain to occur
Other than some type of merger, layoff, or organizational change, which one of the following is an example of a situation
When employees follow a manager to a new organization
The last step in the risk management process is too
monitor results
Traditionally, the risk management professional's role has been associated with loss exposures related to
pure risk
Which one of the following identifies the two broad categories of risk management techniques
risk control
Which one of the following is considered to be an acquisition expense for an insurance company
sales commissions
Outdoor designs company makes cedar patio furniture, odcs lumber supplier, l and l wood products, is the largest and most competitive supplier of lumber in the area. ocds risk manager is concerned that a disruption in the supply of lumber from l and l due to a large fire loss would adversely affect its production. which one of the following would best minimize the adverse effect odx of large loss experienced by l and l
separation
Which one of the following statements is correct
insurer's investment income helps keep premiums at a reasonable level
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 is
$420
A payment by a liability insurer to the insured for travel expenses incurred at the insurer's request would be categorized as
A supplementary payment
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 surplus lines broker
Loss reserves are amounts designated by insurers to pay claims for losses that have
Already occurred but are not yet settled
Most insurers give some producers the authority to pay claims up to a certain amount. In this role, producers function much like
An inside claim representative
A reinsurance company
Assumes loss exposures from a primary insurer
Which one of the following statements about good faith negotiations is correct
Claim representative can use arbitration clauses to resolve disputes over the settlement amount
Which one of the following concerning claim status report is true
Claim status reports are vital to an insurer because the reports advise the insurer how the claim is progressing on periodic basis
Which one of the following statements describes the monitoring and revising step in the risk management process
Check to make sure the decisions made are still valid, and make changes as needed
A policy that combines property, crime and liability coverages into one policy is referred to as a
Commercial umbrella policy
Individuals and families benefit from effective risk management in which one of the following ways
Continuing activities following an accident or other loss, and thus reducing inconvenience
Because the insurance company usually determines policy wording and the insured has little choice but to take it or leave it an insurance contract is a
Contract of adhesion
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
Depreciation
Which one of the following insurance customers may be compelled to meet its liability insurance needs through the excess and surplus lines market
Hazardous waste facility
Ships and their cargoes represent a special category of property insurance. Which one of the following statements is correct with respect to this category?
Even more than other property, ocean cargoes fluctuate in value according to their location
An increase in earned premiums with no charge 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 is correct regarding government involvement in insurance
Federal and state government are involved in insurance to facilitate compulsory insurance purchases
Which one of the following correctly describes a reason for government involvement in property-casualty insurance
Government programs can meet legitimate public demands unmet by private insurers
Which one of the following is the correct formula for net investment income?
Investment income-investment expenses
Rachel is an insurance broker. she has received a sales referral from another broker concerning an airport management company, airport ltd. The company plans to operate a large, national airport in a major city and has requested a quote for airport liability coverage. Rachel will probably recommend the use of which one of the following types of policy forms?
Manuscript
Edna, who participates in a homeowners reciprocal exchange knows that the members of the exchange insure members loss exposures. A policy issued by the reciprocal insurer specifies the attorney in facts authority to implement its powers on behalf of Edna and the other members of the exchange. Since this information regarding the powers of the attorney in face affects coverage but does not have the force of conditions, it is found under policy's
Miscellaneous provision
in insurance terminology, equipment such as tractors, bulldozers, road graders, front end loaders, and forklifts designed primarily for off road use are considered to be
Mobile equipment
Which one of the following would have an insurable interest in real property
Mortgagee that has provided a mortgage loan on the property
Which one of the following statements is true
Mutual insurance companies include some large national insurers
Many insurers marketing through the independent agency system use
National advertising programs intended to enhance the company image
An analyst in the financial department for an insurer has calculated the loss ratio to be 1.03 this result indicates that the insurer is
Paying out approximately 1.03 in claim related expenses for every 1.00 collected
Joe owns a building covered by a property insurance policy. Joe intentionally sets fire to and destroys this building. He then files a claim with his insurance company. Which one of the following statements best describes why Joe would be precluded from recovering under his policy for this loss?
Payment of the claim would be a violation of public policy
Interest that may accrue on damages before a judgment has been rendered is
Prejudgment interest
Property insurance policies usually exclude coverage for damage from water seepage, insects, or rodents because these types of damages are
Preventable through proper care and maintenance
One of the greatest challenges for an insurer dealing with a catastrophe is staffing. All of the following are likely responses to this challenge, Except
Purchasing catastrophe reinsurance
the most difficult time for an insurer to change distribution systems is when
Renewing an existing book of business
Donna is a insurance producer. She makes an appointment with a potential policyholder to review the prospects loss exposures. She asks the prospect to complete a questionnaire to assist her in this effort. Donna is conducting a
Risk management review
What term refers to the ability of an insurer to meet its obligation as they become due
Solvency
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
All of the following correctly describe reasons for the use of independent adjusters, except
The insured may retain an independent adjuster if settlement negotiations with the insurer are not progressing satifactorily
prospective loss costs indicate
The money the insurer can expect to need to pay for future claims for each exposure
The law of large numbers states that as the number of similar but independent exposure units increases
The relative accuracy of predictions about future outcomes increases
Which one of the following statements is correct with respect to selecting a distribution channel
The types of insurance products and services to be the insurer must fit the marketing
one of the benefits to a business of retaining a loss exposure instead of insuring it is
a reduction in expenses
Compensatory damages represent
actual harm suffered
An independent business owner or firm that sells insurance by representing customers rather than insurers is which one of the following
an insurance broker
Ideally insurable loss exposures are subject to losses that
are definite in time, cause and location
One of the four elements required for a finding of negligence is that the breach of duty must
be the proximate cause of the injury or damage
Products liability loss exposures arise out of injuries or damage that result from an organization's
defective product
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
the processing of almost every claim involves which one of the following activities?
determining the amount of damages or extent of loss
Many property insurance policies contain a provision that reduces the amount of recovery for loss if the property is underinsured. this provision is known as
coinsurance
When a business suffers loss of income following a liability suit that causes customers to lose confidence in the business products, what type of loss has the business suffered?
damage to reputations
Under a liability policy, the maximum an insurer will pay for injury to any one person is known as the
each person limit
A net income loss exposure is a condition that presents the possibility of loss caused by a reduction in net income. In a given time period, net income equals revenue minus
expenses and income taxes
The scope of an agents 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
implied authority
Most bad faith claims arising out of contracts are insurance related. All of the following explains why this is the case except
in comparison to other contracts, insurance contracts require a low standard of conduct
Which one of the following statements is correct
in the exclusive agent and direct writer marketing systems, insurers might assist producers with prospecting
The value of an insurance contract in the event of a claim
includes peace of mind
Sometimes the existence of insurance encourages losses. The result of this phenomenon is that it
increasing the total cost of insurance
Coverage for miscellaneous types of property such as movable property, goods in domestic transit, and property used in transportation and communication, typically is provided by
inland marine insurance
Exposures with the potential of low frequency but high severity should generally be
insured because they are highly unpredictable
An insurance policy is considered a contract of adhesion when it is drafted by the
insurer
In the legal relationship known as agency, which one of the following is the principal?
insurer
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
set it as 3000 representing an estimate of what Jan expects to pay settle the claim
While Wanda was mowing her lawn, the lawn mower made a popping noise and suddenly exploded. Engine parts flew through the air and struck Wanda's grandfather in the eye. As a result of losing his vision, Wanda's grandfather, homer, sued the lawnmower manufacture. Homers best approach in the lawsuit is to assert
strict liability
An insuring agreement may state the insurer's promise to do all of the following in the event of a covered loss, except
surcharged the insured
Retention is often used in combination with insurance as a way of treating
the potential for financial ruin
From a risk management viewpoint, insurance is used to
transfer the cost of losses
For an insurer to be solvent, states require it to have financial reserves
well in excess of its ordinary expenses
