Chapter 3

mutual company

owned by policy holders

risk retention group

protects against product liability exposures

Producer

which of the following is a general term used to describe anyone who sells insurance?

Broker

Garraway Construction wants insurance to cover its multi-million dollar foreign construction project. The company contacts a professional to represent Garraway in finding the best coverage for the money._________ excess lines agent, consultant, solicitor, or broker

B.B-

Good

private vs government (residual market)

Government becomes involved when not readily available through the private sector

Accounting

Handles transactions related to the company's financial condition

Excess or surplus lines

Highly specialized lines of insurance are referred to as

Foreign

If an insurance company is chartered in Ohio, it would be what kind of company in Kentucky?

Excessive

In order for insurance rates to be approved by a state, the rates must meet all of the following requirements except: -adequate for the company to meet its obligations -nondiscriminatory among classes of insureds -not excessive -excessive

A solicitor has more limited authority than an agent

In the insurance business, how does a solicitor differ from an agent?

File and use states

In which of the following states may a company begin using forms and rates as soon as they have been filed?

Loss Ratio =

Incurred Losses / Earned Premiums

countersigning

Insurance agent Inez signs each new policy prepared by her company before its delivery to an insured, which of the following best describes this action?

Residual Market Insurance

Insurance coverage that is not ordinarily available from private insurers is sometimes called:

Any duly licensed property & casualty insurance agent

A policy which requires a countersignature must be signed by

Lloyd's Association

A voluntary association "syndicate"

E&O Coverage

Agent Aaron wants to protect himself against legal liability arising from making unintentional errors or omissions in his practice. Which of the following should Aaron purchase?

Misrepresentation

Agent Allen tells an applicant that her new policy covers earthquake damage, although it does not. twisting (T), rebating (R), failure of fiduciary responsibility (F), misrepresentation (M), or unfair discrimination (U).

failure of fiduciary responsibility

Agent Ann receives a check from the insurance company that is a refund to one of her insureds. She cashes the check herself and pockets the money. twisting (T), rebating (R), failure of fiduciary responsibility (F), misrepresentation (M), or unfair discrimination (U).

Twisting

Agent George persuades a prospect to let her current policy lapse and buy insurance through him. He tells the prospect that his company's policy provides more coverage at a lower premium, even though this is not true. twisting (T), rebating (R), failure of fiduciary responsibility (F), misrepresentation (M), or unfair discrimination (U).

Rebating

Agent Joe agrees to split the commissions he earns with his clients. He's able to sell more insurance this way. twisting (T), rebating (R), failure of fiduciary responsibility (F), misrepresentation (M), or unfair discrimination (U).

Unfair Discrimination

Agent May agrees to offer an insured a lower premium if the insured will agree to direct other family members to Agent May. twisting (T), rebating (R), failure of fiduciary responsibility (F), misrepresentation (M), or unfair discrimination (U).

Shares of stock represent ownership in the company

All of the following are characteristics of mutual insurance companies except:

They are insurance companies

All of the following are correct statements about Lloyd's association expect:

A fraternal benefit society is organized for profit

All of the following are correct statements about fraternal societies as insuring organizations except:

States must provide workers compensation coverage

All of the following are correct statements about insurance provided at the state level expect:

Loss ratio is calculated by dividing earned premiums by incurred losses

All of the following are correct statements about loss ratio except: -loss ratio compares company operations from year to year. -loss ratio shows the percentage of losses incurred for every earned premium dollar. -loss ratio is calculated by dividing incurred losses by earned premiums. -loss ratio is calculated by dividing earned premiums by incurred losses.

the association regulates the business of insurance

All of the following are correct statements about the national association of insurance commissions expect: -the association is made up of the insurance commissioners of each state. -the association coordinated regulatory measures for the individual states. -the association regulates the business of insurance. -the association makes recommendations about insurance laws.

advising customers to obtain additional coverage

All of the following are duties of an insurance agent expect: Selling insurance policies collecting premiums advising customers to obtain additional coverage providing a link between the insurer and insured

Independent agent

An agent who represents more than one company is called

fiduciary

An individual who is responsible for the financial affairs of another individual is referred to as a(n)

Captive Agency

Another term for exclusive agency is

property

Bart Tomkins lives in the midwest and wants to insure his home against damage by a tornado or windstorm. This is an example of a (property/ casualty)__________________ risk.

Excess lines agent

Bill Williams is licensed to handle highly specialized insurance coverages. He is authorized to obtain these coverages from insurance companies not admitted to do business in the state where he works._________ excess lines agent, consultant, solicitor, or broker

casualty

Bonnie Saylor drives a school bus. She drives very carefully because she knows she's responsible for the lives of the children on board. This is an example of a (property/casualty) _____________________ risk.

writes more than one line of insurance

A multi-line insurance company:

A mutual company

An insurance company, which is run primarily for the benefit of the policyowners is referred to as

D

Below minimum standards

Underwriting

Decides whether to accept or reject applications based on company standards

Actuarial And Statistical

Determines the rates to be charged for various types of insurance

A,A-

Excellent

C++,C+

Fair

F

In liquidation

Consultant

Janice McKinley provides advice about various insurance policies for a fee. She does not sell insurance.____________ excess lines agent, consultant, solicitor, or broker

Solicitor

Jim Jordan, an employee of the Goodwill Agency, spends his days collecting premiums and finding prospective clients. He has no authority to issue or countersign policies._____________ excess lines agent, consultant, solicitor, or broker

Personal A.; Commercial B.; Personal C.; Commercial D.

Label each of the following as a personal line (P) or commercial line (C). ____ A. Mabel wants insurance protection for her home. ____ B. Willoby Industries would like to purchase property insurance for its new warehouse. ____ C. The Jensens have insurance coverage for their two family cars. ____ D. Toyland, Inc. has insurance that protects it against liability arising out of the toys it manufactures.

Claims

Makes sure insureds are properly indemnified for losses

C,C-

Marginal

Investment

Oversees the company's investments to ensure there are adequate funds to pay claims

Policy Issue & Administration

Performs a variety of functions such as checking applications for accuracy and completeness, rating policies and printing and assembling policies

to give and to take

Reciprocate, ad in a reciprocal insurance company means:

Property insurance

Risk that will suffer financial loss because something owned is damaged or destroyed is covered by:

A++,A+

Superior—strongest position

E

Under state supervision

Expense Ratio =

Underwriting Expenses / Written Premium

B++,B+

Very good

B+w

Very good, but watch

Personal lines protects an individual or family and commercial lines protects businesses

What is the primary difference between personal and commercial lines of property/ casualty coverage?

These acts are considered to be the acts of the principal

When an agent acts under the powers granted by the principal, which of the following is correct?

Agency

When an agent is authorized to act on behalf of his or her principal, which of the following relationships exists?

Self Insurance

When part or all of a risk is borne without the benefit of insurance coverage, which of the following has taken place?

The insurance agent

When seeking acceptable business for an insurer, who is responsible for field underwriting each risk?

Exclusive agency, direct writer, direct response, independent agency

Which are the four basic distribution systems used to market insurance

Risk of financial loss as a result of actions toward others

Which of the following best describes liability risk?

Direct response system

Which of the following insurance distribution systems has no agents?

It sells interest to stockholders in order to operate

Which of the following is always a correct statement about an insurance company organized as a stock company?

Travel

Which of the following is not on the the four broad categories or lines of insurance?

Homeowners Insurance

Which of the following is not provided by the federal government?

Attorney-in-fact

Which of the following manages an insurance company organized as a reciprocal?

Insurance consultants, for a fee, offer advice on the advantages and disadvantages of various insurance policies

Which of the following statements best describes the work performed by insurance consultants and the way in which they are compensated?

twisting

agent jones convinces a client to cancel a current policy and purchase another, and this purchase is to the insured's detriment. which of the following illegal practices has taken place?

reinsurance

an insurance company's purchase of insurance to cover its own exposure to loss is called:

Misrepresentation

falsely advertising the terms or benefits of a policy is termed:

reciprocals

give and take attorney in fact

the cost of compensating insureds in the event of insolvency

insurance rates must be adequate to pay all of the following expect: -the cost of losses -the cost of conducting business -the cost of compensating insureds in the event of insolvency -a profit

fraternal benefit society

members only not for profit or non profit lodge system

rebating

offering a benefit other than those specified in an insurance policy is the illegal act of:

stock company

owned by stockholders

ratification

state approval of policy forms, endorsements, and rates used by the insurers doing business in the state in known as:

rater

the person in the policy issue process who computes the premium to be charged to a new insurance applicant is called the:

earned premium

the premium that an insurance company actually earns by providing insurance protection for a designated period of time is termed:

only after obtaining a state license

when may a person begin to sell insurance?

authority assumed by a reasonable person

which of the following best describes apparent authority?

authority not formally expressed or communicated

which of the following best describes implied authority?

the admitted company is authorized to do business in the state, and the non-admitted company is not.

which of the following best describes the difference between admitted and non-admitted insurance companies?

selecting and rejecting certain risks, bases on personal judgment and company standards, so that the company can produce desired results.

which of the following best describes the insurance underwriting process?

As product manufacturers, they are formed to self-insure against liability exposures

which of the following best describes the purpose of risk retention groups?

actuarial and statistical department

which of the following departments in an insurance company determines the rates to be charged for various types of insurance?

claims department

which of the following departments is responsible for seeing that an insurance company's insureds are adequately indemnified for their losses?

state insurance departments watch and regulate insurers to preserve company solvency and to protect insureds

which of the following is a correct statement about the financial health of insurance companies?

states have limited authority over insurance business conducted in their states.

which of the following is not a correct statement about insurance department enforcement? -state insurance departments must investigate reported violations and assess appropriate penalties. -state insurance departments are responsible for seeing that business within their states is compliant with codes and standards. -license suspension or revocation, fine or imprisonment may be in order for violators of state law. -states have limited authority over insurance business conducted in their states.

domestic, foreign, alien

which of the following represents the three types of insurance companies formed as corporations?

ISO

which of the following service bureaus is used to set rates and policy forms of property and casualty insurance companies?

fiduciary

which of the following terms represents a person holding a special relationship of trust to another?

Express Authority

which of the following types of authority is specifically given to an agent, either orally or in writing, by the principal?