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The two main sectors of the insurance industry are Property-casualty insurance and life-health insurance. Because insurance contracts impose an obligation for ethical practices and behaviors on the parties while dealing with one another, an insurance contract is called a Contract of utmost good faith. Earned premiums are shown on an insurer's income statement because they are Revenues Destructive competition in the insurance industry could result in Insurance Shortages 3 multiple choice options Sean was driving and caused an injury to a pedestrian named Wilbur. In the context of the resulting claim made to Sean's insurance company and assigned to Andrea in the claims department, Sean and Wilbur and Andrea are, respectively Insured and claimant and claims representative Which one of these is most directly associated with a satisfied customer?
Leads and referrals that can be used to generate new business 3 multiple choice options When conducting an advance audit, which of these tasks are performed to assist underwriting? Classify the various exposures 3 multiple choice options 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 Smart products used to perform repetitive tasks Robots 3 multiple choice options What is the correct order for these steps in the claims process? Calculating a loss reserve, preparing a loss statement, identifying the policy, determining the cause of loss Identifying the policy, calculating a loss reserve, determining the cause of loss, preparing a loss statement What is another name for a field underwriter? Line Underwriter
What is an operational risk? A risk that arises from people or a failure in processes, systems, or controls, including those involving information technology What is a financial risk? A risk that arises from the effect of market forces on financial assets or liabilities, including market risk, credit risk, liquidity risk, and price risk. What is strategic risk? A risk that arises from trends in the economy and society, including changes in the economic, political, and competitive environments What is Pure Risk? A category of risk that cannot be controlled, and only has 2 outcomes: complete loss or no loss What type of risk has no change for gain or profit? Pure Risk Michael is a commercial lines underwriter. He received a risk control report on a new business that he had recently written with Laura, one of his producers. After reviewing the report, Michael contacted Laura to let her know that they needed to process a policy change request adding a new classification and some exposures to the general liability policy. These activities are occurring during which one of the following steps of the underwriting process? Monitor the underwriting decision 3 multiple choice options
What is the difference between an independent agency and an exclusive agency? An exclusive agency is contracted to sell insurance for one insurer or group of insurers. The processing of almost every claim involves which one of the following activities? Determining the amount of damages or extent of loss 3 multiple choice options Windsor Insurance has sold more personal auto policies in the recent quarter than ever before in its history, thanks to new commission incentives for ambitious staff members. Even though Windsor is collecting more money upfront, it is actually making less per policy after remitting the higher commissions. Some claim payments are also now being delayed, resulting in many complaints against the company. Which one of the following objectives of insurance regulation is not being realized through this scenario? Maintaining insurer solvency 3 multiple choice options What type of personal property-casualty insurance policy protects someone with high potential for large liability losses? Personal umbrella Why are insurance regulators concerned about the effects of large catastrophes? Insurers may become insolvent What is insurer solvency?
What are the six characteristics of an ideally insurable loss exposure? Fortuitous, Definite and Measurable, Pure Risk, Independent and not Catastrophic, One of a large number of similar exposure units, Affordable What does fortuitous mean? The insured has no control over whether or when the loss will occur What is the cost of risk? The total cost of all aspects of the organization that relate to managing risk Riley Turner is performing a comprehensive evaluation of Hardwick Enterprises to make sure its insurance and risk management efforts are serving the organization appropriately. Which one of the following will be true in regard to this effort? Besides risk management goals being attainable, they should also pose a challenge 3 multiple choice options What is ACV (actual cash value)? Replacement cost - Depreciation What is replacement cost valuation? Does not consider depreciation, but what it would cost to replace the item
What is Agreed Value? This method is used to insure property that is difficult to value (fine arts, antiques, collections) What is a moral hazard? Questionable business practices or a failing business What is a morale hazard? Indifference to properly maintaining property or poor financial recordkeeping What is a physical hazard? Construction, hazardous materials, poor safety and hygiene practices What is risk? Uncertainty about outcomes Explain the concept of transfer Transferring the financial consequences of unanticipated events to an insurer Explain the concept of pooling all insureds share the costs of each other's losses
Unearned Premium Written Premium - Earned Premium (the portion of written premiums corresponding to the part of the policy period that has not yet occured) Oscar's 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. Oscar is surprised to learn that 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 exposure units 3 multiple choice options 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 activity 3 multiple choice options Maria is a new producer who wears many hats when forming relationships and then serving her established customers. In this capacity, which one of the following scenarios most accurately describes her ongoing work wearing the hat of "claims handler"? Veronica directly contacts Maria for guidance on how to report a stolen car, Maria provides that, and claims rep Sean takes over after an introduction from Maria. 3 multiple choice options What is combined ratio? loss ratio + expense ratio
What is the loss ratio? incurred losses / earned premiums What is the expense ratio? Underwriting expenses/Written premiums What does a staff (corporate) underwriter do? Research the market, formulate underwriting policy, revise underwriting guidelines, develop coverage forms, review rates, educate and train field underwriters, arrange reinsurance, assist with complex accounts, conduct underwriting audits What does field (line) underwriter do? Select insureds, ensure accurate classification and pricing, recommend or provide coverage, manage a book of business, support producers and insureds, support marketing objectives What activities are performed by producers? Sales, risk management review, policy issuance, premium collection, customer service, claims handling What does a risk management review look like for an individual? Interview or questionnaire about property and activities What does a risk management review look like for a business? producers devote significant time to analyzing
What are general damages? Damages awarded for losses that do not have a specific economic value (pain & suffering, disfigurement) What are punitive damages? Damages awarded to victims to punish defendants for reckless, malicious, or deceitful acts What are the duties of a premium auditor? Ensure accurate classification of exposures, Comparing anticipated and actual loss exposures, Identifying new exposures, assessing an account's desirability, identifying physical, moral, and morale hazards If an insured wants to receive "new for old" in the event of a property loss, they would purchase (valuation method) Replacements cost What type of insurance company shares its profits and may return a portion of the premium to its policyholders? Mutual insurer
