ch 6 tb

Mark has been an underwriter for 20 years. An application he recently reviewed looked odd to him. The building value in the application seemed far too high, and Mark suspected the applicant might be planning to destroy the property after it is insured. Mark contacted an outside firm and hired someone to investigate the applicant and to prepare a report about the applicant. This report is called a(n) A) agent s report. B) binder. C) physical inspection. D) inspection report.

D

the underwriting process begins with the A) agent. B) desk underwriter. C) inspection report. D) acceptance of the application.

agent

3) Which of the following statements about underwriting policy is (are) true? I. A company must establish an underwriting policy consistent with company objectives. II. Underwriting policy is usually subjective and allows the underwriter considerable flexibility with respect to lines written and forms used. A) I only B) II only C) both I and II D) neither I nor II

a

All of the following are reasons for a primary insurer to use reinsurance EXCEPT A) to increase the unearned premium reserve. B) to increase underwriting capacity. C) to protect against catastrophic losses. D) to stabilize profits.

a

Which of the following statements about the investments of property and liability insurers is (are) true? I. Income from investments is important in offsetting any unfavorable underwriting experience. II. Because premium income is continually being received, the investment objective of liquidity is of little importance. A) I only B) II only C) both I and II D) neither I nor II

a

jan is employed by an insurance company. she reviews applications to determine whether her company should insure the applicant. if insurable, jan assigns the applicant to a rating category based on the applicants degree of risk. jan is a(n) A) underwriter. B) actuary. C) loss control engineer. D) claims adjustor.

a

huge insurance company is a property insurer that is interested in protecting itself against cumulative losses that exceed $200 million during the year. this protection can best be obtained using a quota share reinsurance treaty a surplus share reinsurance treaty an excess of loss reinsurance treaty a reinsurance pool

an excess of loss reinsurance treaty

Most insurance companies require their marketing representatives to submit an evaluation of the prospective insured. This important source of underwriting information is called the A) application. B) agent s report. C) inspection report D) physical inspection.

b

The unearned premium reserve of an insurer is A) an asset representing the investments made with premium income. B) a liability representing the unearned portion of gross premiums on outstanding policies. C) a liability representing claims that have been filed, but not yet paid. D) the portion of the insurer s net worth belonging to policyowners.

b

All of the following statements about the settlement of a claim are true EXCEPT A) The insurance policy usually has a provision specifying how a notice of loss is to be made to the insurance company. B) One step in the investigation of a claim is to determine whether the policy was in force when the loss occurred. C) the adjustor must file the proof of loss which is a sworn statement supporting his or her decision regarding a claim D) A policy provision may determine how disputes over claim settlements are resolved.

c

Antonio is a claims adjustor for LMN Insurance Company. After the insurer is notified that there has been a loss, Antonio meets with the insured. The first step in the claims process that Antonio should follow is to A) determine the amount of the loss. B) attempt to deny the claim regardless of whether he believes the claim is covered. C) verify that a covered loss has occurred. D) delay paying the claim if the claim is covered.

c

Factors that may result in more restrictive underwriting decisions include which of the following? I. Inadequate rates. II. The unavailability of reinsurance at favorable terms. A) I only B) II only C) both I and II D) neither I nor II

c

Which of the following statements about underwriting standards is (are) true? I. One purpose of underwriting standards is to reduce adverse selection against the insurer. II. Equitable rates should be charged so that each group of policyowners pays its own way in terms of losses and expenses. A) I only B) II only C) bothI and II D) neither I nor II

c

All of the following are functions of the marketing department of an insurance company EXCEPT A) to advertise the insurer s products. B) to develop new products. C) to identify production goals. D) to make final underwriting decisions.

d

All of the following statements about claims settlement are true EXCEPT A) Agents may have the authority to settle claims. B) Independent adjustors may be used in a geographic area where the volume of business is too low for an insurer to have its own adjustors. C) Company adjustors are salaried employees who work for one insurer. D) A public adjustor is usually paid a flat fee regardless of the size of a claim.

d

All of the following statements about life insurance company investments are true EXCEPT A) Funds for these investments are derived primarily from premium income, investment earnings, and maturing investments that must be reinvested. B) Income from these investments reduces the cost of insurance. C) A primary objective in making these investments is safety of principal. D) The majority of these investments are short-term investments.

d

One method through which reinsurance is provided is through an organization of insurers that underwrites insurance on a joint basis. Through the organization, financial capacity is available for large commercial risks. This reinsurance arrangement is a(n) A) quota-share treaty. B) surplus-share treaty. C) excess-of-loss treaty. D) reinsurance pool.

d

the function of an actuary is to

determine premium rates

a reinsurance contract that is entered into on a case by case basis after an application for insurance is received by a primary insurer is called A) a reinsurance pool. B) automatic treaty reinsurance. C) retrocession. D) facultative reinsurance.

facultative reinsurance

if an underwriter suspects moral hazard, the underwriter may ask an outside firm to investigate the applicant and make a detailed report to the insurer. this report is called A) inspection report. B) application. C) M.I.B. report. D) agent s report.

inspection report

all of the following statements about reinsurance are true except a reinsurer may also purchase reinsurance reinsurance is an arrangement by which the primary insurer that initially writes the insurance transfers to another i insurer part or all of the potential losses associated with such insurance the insurer transferring business to a reinsurer is called the ceding insurer the amount of insurance transferred to a reinsurer is called the net retention

the amount of insurance transferred to a reinsurer is called the net retention

common sources of underwriting info for life and health insurance include all of the following except: the application a physical examination the medical information bureau the applicants income tax return

the applicants income tax return

which of the following statements about treaty reinsurance is true? the reinsurer is required to underwrite each individual applicant that is reinsured the reinsurer must accept all business that falls within the scope of the treaty the ceding insurer can choose which business falling within the scope of the treaty it wishes to reinsure it protects the reinsurer by requiring the ceding insurer to charge adequate premiums

the reinsurer must accept all business that falls within the scope of the treaty

which of the following statements about treaty reinsurance is true? under a surplus share treaty, 100% of the ceding insurer's liability must be transferred to the reinsurer using a quota-share-treaty increases the ceding insurer's unearned premium reserve under an excess-of-loss treaty the reinsurer pays losses in full only if they are less than the ceding insurers retention limit using a reinsurance pool provides financial capacity to write large amounts of insurance

using a reinsurance pool provides financial capacity to write large amounts of insurance