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Which one of the following best describes the concept of pooling? - ✔✔The concept of pooling is that insureds share the cost of each other's losses 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 Shelton Industries experienced a fire in its manufacturing plant. Several employees suffered burns and smoke inhalation injuries as they tried to escape the building. Which one of Shelton Industries' commercial property-casualty policies would pay for the employees' injuries and illnesses? - ✔✔Workers compensation insurance Coverage for money and other business property from various causes of loss such as burglary, robbery, theft, and employee dishonesty typically is provided by - ✔✔Commercial crime insurance All of the following are types of private insurers, EXCEPT: - ✔✔State workers compensation funds The state of Maryland operates a residual auto plan (the Maryland Auto Insurance Fund—MAIF) that provides coverage for drivers who are unable to obtain coverage from private insurers. Which one of the following is the best rationale for the MAIF program? - ✔✔Auto insurance is compulsory, and the program makes it possible for all drivers to have reasonably priced insurance ABC Company experienced a dramatic ideological shift in corporate policies after a national election. This is an example of which one of the following quadrants of risk? - ✔✔Strategic risk Jimmy decided to buy a house in his neighborhood that had been foreclosed on by the bank that held the mortgage. He is hoping to do some renovation and repair work on the house, and then sell it for a quick profit. Which one of the following types of risk is this for Jimmy? - ✔✔Speculative risk
Carlos is new to the insurance business and is learning about insurance regulation and what he, now working with Grady Insurance, will need to be aware of regarding the subject of compliance. Which one of the following will Carlos find is accurate as he better understands why insurance is regulated? - ✔✔Insurance regulation protects customers by guaranteeing insurance is available and accessible to everyone who needs it. What term refers to the ability of an insurer to meet its obligations as they become due? - ✔✔Solvency One of the reasons for insurance regulation is to prevent destructive competition. In which one of the following scenarios would destructive competition be exhibited? - ✔✔East Insurance comes up with a new rate structure allowing "preferred customers" discounted policies when they continually renew year after year; East eventually loses needed revenue but is rewarded by its competitors leaving the market All of the following are categories of liabilities found on an insurer's balance sheet, EXCEPT: - ✔✔Policyholders' surplus Which one of the following is part of written premiums? - ✔✔Unearned premiums An insurer's balance sheet can best be described as a - ✔✔Snapshot of its financial position. The financial report for Hometown Insurer contains the following information:
- Earned premiums $4,000,
- Written premiums $5,000,
- Net investment income $1,000,
- Incurred Losses $3,000,
- Incurred underwriting expense $2,000, What is Hometown Insurer's expense ratio? - ✔✔40% The financial report for LMN Insurance contains the following information: Earned premiums $8,000,000Written premiums $10,000,000Incurred losses $6,000,000Incurred underwriting expenses $4,000,
developing coverage forms, arranging reinsurance, conducting underwriting audits, researching the market, and revising underwriting guidelines. Anna was reviewing an all-lines submission for SP Markets. SP Markets owns and operates 5 small grocery stores located in the suburbs of Boston. The stores all seem to be well maintained and clean. While the overall loss experience on the account is good relative to the indicated premium, the loss runs show a frequency of small general liability claims from customer slips and falls. Rather that reject the application for SP Markets, Anna would like to make suggest a modification to the producer that could make the application acceptable and possibly add value for the insured. Which one of the following is a good modification for Anna to suggest? - ✔✔Propose the general liability coverage at a lower premium level, but apply a small deductible. As an experienced underwriter, Rick has learned to make every effort to avoid a mistake that can produce insufficient premium to cover losses, or pricing that isn't competitive. Which one of the following underwriting mistakes can often cause these issues? - ✔✔Misclassifying exposures Shelton manufacturing has $1 million in annual sales, its liability insurance is priced per 1,000 of sales, and the per-unit rate is $0.50. What is Shelton Manufacturing's liability insurance premium? - ✔✔Calculated at 1,000 units ($1 million sales ÷ price per $1,000) × $0.50 rate = $ The size of an employer's loss exposure for workers compensation insurance is based on - ✔✔The amount of its payroll. Johann is an insurance company employee who investigates the scene of a loss and meets with insureds, claimants, lawyers, Johann is most accurately called - ✔✔A claims supervisor. Willis, a claims representative, is collaborating with his colleague Suzanna from his insurance company's risk control department. How will Suzanna help Willis? - ✔✔Provide laboratory analysis when Willis is investigating a claim. Understanding the steps in the claims handling process is important to new claims reps. Which one of the following steps generally comes after investigating and documenting the claim and before concluding the claim? - ✔✔Determining cause of loss and loss amount
Work on a new claim begins for claim representative Anita upon receipt of a claim notice. Anita gathers initial information and verifies coverage. From the list of activities below, the next step Anita would take in the process is - ✔✔Set a loss reserve. After the claim representative receives notice of a loss, obtains initial information, and verifies coverage, a loss reserve for that claim should be established. Actual cash value (ACV) is - ✔✔replacement cost minus depreciation After Marvin's car was stolen, and he was reimbursed for the loss by Greatson Insurance, the police found and returned the vehicle, which was dented and spray-painted, but still had parts that could be usable. Greatson's rights to recover and sell or otherwise dispose of insured property on which it has paid a total loss are called - ✔✔Salvage rights Salvage rights allow the insurer to recover and sell or otherwise dispose of insured property on which the insurer has paid a total loss. Compensatory damages represent - ✔✔actual harm suffered Adjuster Toni is evaluating damages in a bodily injury liability claim where she has determined that the insured is completely at fault for the accident. The claimant suffered a sprain and strain injury to his neck. His special damages total $1,500. He was out of work for a week, was disabled and prevented from performing some regular activities for a month, and attended physical therapy for six weeks. In assessing general damages, Toni should - ✔✔Use past cases which are similar as a guide Which one of the following lists provides the optimum order of responsibilities that a producer may engage with any customer on a continual basis? - ✔✔Meeting a prospective customer, doing a needs and activities analysis, preparing a coverage proposal, closing the sale Tony is a producer working with several different insurers. Which one of the following most accurately describes Tony's activities for reaching and serving customers? - ✔✔Tony will generally need to spend less time insuring a family's activities than a business' services and liabilities Which one of the following accurately describes activities related to customer service representatives? - ✔✔Profitability in the insurance business is directly linked to customer retention
The Insurance Services Office, Inc. (ISO) commercial package policy is an example of a - ✔✔Modular policy. The big differences between property and liability policies are found in their - ✔✔Insuring Agreements Which one of the following most accurately describes one of the policy provisions in an insurance policy?
- ✔✔The exclusions are in place to reduce duplicate coverage Allian Insurance Company is a growing regional insurer selling policies in three states, specializing in personal auto and homeowners policies. Which one of the following is most likely true regarding Allian and the policies it sells? - ✔✔Allian issues more preprinted policies than manuscript forms. 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 Rachel is a new employee of Westley Insurance, and has been asked to review some existing policies to become familiar with the types of policies she will be working with. Which one of the following will Rachel find is true as she conducts her review? - ✔✔Rachel finds the policy begins with a coverage overview and then goes into more coverage details. Which one of the following is the correct formula for calculating an insurer's combined ratio? - ✔✔Loss ratio + expense ratio For a loss exposure to be ideally insurable it must be definite in - ✔✔Time, cause, and location. Erin has recently graduated from college and relocated to Chicago. She has purchased a car and rented an apartment and now needs to purchase insurance. She is comfortable buying from social media recommendations and recently was impressed with an insurer sending her coverage details online with a minimum of forms and salesperson interactions. Which one of the following is likely the best distribution channel to meet Erin's needs? - ✔✔Group marketing
Joel is the underwriter for Stanton Industries. He received a notice from the premium auditor on the account. After a recent visit to the insured's location, the auditor wanted to make Joel aware of a decline in the business and some questionable business practices. Which one of the following types of hazards is the auditor identifying? - ✔✔Moral hazards Many auto manufacturers have automated a portion of their assembly lines by introducing a smart product. The smart product performs repetitive tasks, such as making the same weld on each vehicle frame as it passes the smart product. These smart products, which can be fixed or mobile, reduce repetitive motion injuries. They can also be used to perform dangerous tasks and for heavy-lifting jobs. These smart products, enabled by artificial intelligence, are called - ✔✔Robots. 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. Sports, Inc. is looking to obtain a commercial property policy on its building for $400,000. If their insurer decides to charge them a rate of $0.50 per $100 of building insurance, what premium must Sports, Inc. pay? - ✔✔$2,000 [$400,000 (insured value) ÷ $100 (exposure unit size)] x $0.50 (rate per unit) = $2,000. Jessie is a new customer service representative (CSR) at the Winfield Agency. Jessie usually engages in all the following activities, EXCEPT: - ✔✔Determining coverage quotes Sota's Superstore has recently become an insured of Keithly Insurance Company. Kaito, Keithly's premium auditor, is being sent to conduct an advance audit. Which one of the following tasks will Kaito do to assist underwriting? - ✔✔Classify the various exposures The processing of almost every claim involves which one of the following activities? - ✔✔Determining the amount of damages or extent of loss Risk control can assist the claims department by - ✔✔Providing laboratory analyses. Risk control can assist the claims department by - ✔✔Providing laboratory analyses.
Why are insurance regulators concerned about the effects of large catastrophes? - ✔✔Insurers may become insolvent. The two main sectors of the insurance industry are - ✔✔Property-casualty insurance and life-health insurance. Donna is an insurance producer. She makes an appointment with potential policyholder Sandie to review her loss exposures. She asks Sandie to complete a questionnaire to assist her in this effort. Donna is conducting a - ✔✔Risk management review. 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 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. If an insured wants to receive "new for old" in the event of a property loss, he or she would purchase - ✔✔Replacement cost. James West is a claims rep with Hatters Insurance. As he learns how to handle a claim from start to finish, which one of the following best describes the correct order for him to follow during this process? - ✔✔Identifying the policy, calculating a loss reserve, determining the cause of loss, preparing a loss statement 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
Joe and Helene are married with two teenage children and two dogs. They own three cars and a large house with a swimming pool in the back yard. Their insurance agent advised them that the pool, teenage drivers, and dogs put them at risk for large liability losses. Which one of the following personal property- casualty insurance policies would provide them with protection for their high potential for large liability losses? - ✔✔Personal umbrella Earned premiums are shown on an insurer's income statement because they are - ✔✔Revenues. Which one of the following best explains why producers should be alert to changes in clients' loss exposures? - ✔✔Implemented risk management techniques may prove to be ineffective or become obsolete. When the Smiths purchased their first home, they were required to purchase a homeowners insurance policy in order to get a mortgage. Because they did not have a lot of extra money in their budget, they wanted to buy as little insurance coverage as possible. The Smiths' insurance agent advised them that if they purchase an insurance policy that adequately covers damage to their home and personal property, they only have to budget for the insurance premium, rather than the full cost of rebuilding the house and replacing its contents. Which one of the following key components of insurance is the insurance agent explaining to the Smiths? - ✔✔Transfer 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. The financial report for Hometown Insurer contains the following information: Earned premiums $4,000,000 Written premiums $5,000,000 Net investment income $1,000,000Incurred losses $3,000,000Incurred underwriting expenses $2,000, What is Hometown Insurer's loss ratio? - ✔✔75%. Hometown Insurer's loss ratio is its incurred losses ($3,000,000) divided by its earned premiums ($4,000,000), or 75 percent. 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
A stock insurer differs from a reciprocal insurance exchange in which one of the following ways? - ✔✔Stockholders own a stock insurer. Members own a reciprocal insurance exchange. 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. Which two of the four quadrants of risk are classified as pure risks? - ✔✔Hazard risks and operational risks Margaret was severely injured and scarred due to a recent accident. Which one of the following is an example of general damages Margaret received? - ✔✔Compensation for disfigurement Which one of the following is the amount of business an insurer can write based on regulatory guidelines, usually a comparison of the insurer's written premiums to the policyholders' surplus? - ✔✔Capacity John's two-year-old bicycle was stolen. The bicycle's purchase price was $700, its current replacement cost is $800, and depreciation was estimated at $450. What was the bicycle's actual cash value? - ✔✔ACV=Replacement cost - Depreciation. The bicycle's actual cash value is $350: $800 − $450 = $350.
