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AINS 101 Questions With 100% Accurate Review Solution Answers
Which of the following is an example of a legal requirement for individuals that could be met through insurance?
a. contributing to the growth of the organization
b. paying for losses
c. obtaining personal auto insurance
d. providing a source of investment funds - ANS-c. obtaining personal auto insurance
A fire destroys the kitchen in Rob and Laurie's home. Which insurance policy would provide coverage for the damage?
a. Homeowners Policy (Personal Liability)
b. Homeowners Policy (Property)
c. Personal Umbrella Policy
d. Personal Auto Policy - ANS-b. Homeowners Policy (Property)
Which insurance policy could protect Rob and Laurie's sandwich shop against losses from employee theft?
a. Workers Compensation
b. Commercial Crime
c. Commercial Property
d. Commercial General Liability
e. Commercial Auto - ANS-b. Commercial Crime
The best indication of an insurer's overall financial health is the - ANS-policyholders surplus (It shows how much cash an insurer has on hand for emergencies, unexpected losses, and expansion of business)
Combined ratio = - ANS-loss ratio + expense ratio
expense ratio = - ANS-incurred underwriting expenses / written premiums
loss ratio = - ANS-incurred losses (including loss adjustment expenses) / earned premiums
Marco has been approved for a car insurance policy with a low premium because on his application he gave an address in a low-crime area. However, the actual address at which he lives and parks his car is in a high-crime area. What is this an example of?
a. Growing capacity
b. Adverse selection
c. Creating surplus
d. Following underwriting guidelines - ANS-b. Adverse selection
Emily is the underwriter for Marco's account. What is one way she could detect and minimize instances of adverse selection such as this?
a. Increase auto policy premiums
b. Ensure adequate policyholders' surplus
c. Monitor the book of business for unusual patterns of policy growth or losses
d. Alter the underwriting guidelines - ANS-c. Monitor the book of business for unusual patterns of policy growth or losses
These underwriters evaluate individual insurance applications and policy renewals and manage their own books of business. In many ways, they are the public face of the Underwriting Department - ANS- field underwriters
These underwriters make large-scale decisions about coverage, pricing, lines of business, and the overall risk selection process - ANS-corporate underwriters
______ is the claim's representative. - ANS-Javier
Maria accidentally rear-ended Kenneth at a stop light. After the two made sure they were both uninjured, they exchanged insurance information. Shortly afterward, Kenneth called Maria's insurer and talked to Javier to report the damages to his car.
_____ is the claimant. - ANS-Kenneth
Belinda is a claims professional who works outside her organization's office. She generally handles claims that require investigating the scene of a loss; resolving complex investigative issues; and meeting with insureds, claimants, lawyers, and others involved in a claim. What type of claims representative is she?
a. Telephone claims representative
b. Claims manager
c. Claims supervisor
d. Field claims representative - ANS-d. Field claims representative
If Tania needed to consult an accident-scene reconstruction specialist, she would have been engaged in which one of these claims hand
ling activities?
a. Investigating and documenting the claim.
b. Contacting the insured or the insured's representative
c. Identifying the policy that may cover the claim
d. Acknowledging a claim and assigning it to the claims representative - ANS-a. Investigating and documenting the claim.
Using the previous example, let's say the couch destroyed in the fire has a ten-year lifespan and replacement value of $800. If it was four years old and insured for its actual cash value, how much would the policyholder receive?
a. $
b. $
c. $
d. $600 - ANS-a. $
reimburses the insured for the cost of replacing the property, minus depreciation - ANS-actual cash value
The maximum amount that will be paid in the event of a loss is set by the insured and insurer at the time the policy is written. - ANS-agreed value
reimburses the insured for the cost of replacing the property - ANS-replacement value
_____ reimburse a victim for actual harm - ANS-compensatory damages
are awarded to punish a defendant for reckless, malicious, or deceitful acts - ANS-punitive damages
are awarded for specific, identifiable expenses associated with the injured person's loss - ANS-special damages
awarded to compensate a victim for losses such as pain and suffering - ANS-general damages
investing in the stock market is an example of _____ risk - ANS-speculative
driving a car is an example of ____ risk - ANS-pure
the principle that prevents an insured from profiting from owning an insurance policy - ANS-indemnity
C. Transfer
D. Risk - ANS-D. Risk
A homeowners policy is a type of
Select one:
A. Commercial insurance policy.
B. Personal umbrella policy.
C. Personal property-casualty insurance policy.
D. Life insurance policy. - ANS-C. Personal property-casualty insurance policy.
Coverage for money and other business property from various causes of loss such as burglary, robbery, theft, and employee dishonesty typically is provided by
Select one:
A. Inland marine insurance.
B. Ocean marine insurance.
C. Commercial crime insurance.
D. Professional liability insurance. - ANS-C. Commercial crime insurance.
All of the following are types of private insurers, EXCEPT:
Select one:
A. Reciprocal insurance exchanges
B. Stock insurers
C. State workers compensation funds
D. Mutual insurers - ANS-C. State workers compensation funds
In an effort to reduce expenses, increase profitability, and reduce human errors; ABC Insurance Company decided to automate most of its personal lines underwriting function. The company now uses standardized application forms that are submitted electronically to one of the company's regional offices. At each regional office, a computer with a scanner reads the applications. The computer has been programmed with acceptable answers to the questions. If the answers on the application are all acceptable, the policy is automatically issued. Rejected applications are automatically forwarded to a human underwriter who reviews them. The use of this technology has reduced the company's expense ratio by two and a half percent, and reduced the time it takes to issue a policy. ABC Insurance Company's use of computers to evaluate applications electronically is an application of
Select one:
A. Artificial intelligence.
B. Risk mana - ANS-A. Artificial intelligence
Mutual Fund Company (MFC) offers a wide array of mutual fund options to investors. Each mutual fund has a different fund objective and set of investment guidelines that apply to the fund. While MFC gives considerable freedom to its fund portfolio managers, they are required to abide by the fund's investment guidelines. To monitor compliance, MFC developed a computer algorithm. The computer algorithm continuously monitors each fund's compliance with investment guidelines. If a fund manager violates the investment guidelines, the computer immediately notifies MFC's internal control director, and corrective action is taken. MFC's use of the computer algorithm to monitor investment compliance and to provide notification when corrective action is necessary illustrates use of
Select one:
A. Mechanical sensors.
B. Transducer technology.
C. Artificial intelligence.
D. Computer vision. - ANS-C. Artificial intelligence.
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?
Select one:
A. Ciara needs her car to get to her job, and she needs her job to make car payments and pay for her car insurance.
C. Commercial package policy (CPP).
D. Commercial umbrella policy. - ANS-C. Commercial package policy (CPP).
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?
Select one:
A. Auto insurance is compulsory, and the program makes it possible for all drivers to have reasonably priced insurance.
B. Auto insurance for high-risk drivers is profitable, and the program enables the state to share in the profits.
C. Private insurers face limited competition, and the state increases competitive pressures by operating this type of plan.
D. Private insurers overcharge for auto insurance, and the state provides a low-cost alternative. - ANS-A. Auto insurance is compulsory, and the program makes it possible for all drivers to have reasonably priced insurance.
An insurer that was formed for the purpose of earning a profit for its stockholders is a
Select one:
A. Mutual insurer.
B. Stock insurer.
C. Captive insurer.
D. Reciprocal insurance exchange. - ANS-B. Stock insurer.
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?
Select one:
A. Strategic risk
B. Hazard risk
C. Operational risk
D. Financial risk - ANS-A. Strategic risk
Autonomous Vehicle Applications (AVA) is a start-up company that develops safety technologies that can be sold to companies that are producing autonomous vehicles. One technology AVA is developing allows an autonomous vehicle to detect, extract, and analyze images; and then to respond to the images. For example, the technology would detect a presence in a crosswalk, extract the image, and a computer would analyze the image. When the image was determined to be a human being, the vehicle would slow down or stop until the crosswalk was clear. This technology, which is designed to capture and analyze images, and to act on the recognition of the image; is called
Select one:
A. Transducer technology.
B. Accelerometer technology.
C. Computer vision.
D. Visual acuity. - ANS-C. Computer vision.
Which one of the following best describes the concept of pooling?
Select one:
A. Insurance benefits society as a whole.
B. Risk management is concerned with positive and negative risks.
C. The financial consequences of unanticipated losses are transferred to an insurer.
D. Insureds share the cost of each other's losses. - ANS-D. Insureds share the cost of each other's losses.
Which one of the following statements is correct regarding the benefits provided by insurance?
Select one:
A. The reduction in losses paid by insurers due to risk control measures benefits individual insureds but not society as a whole.
B. Insurance helps reduce the financial burden to society by compensating accident victims.
D. Assumes loss exposures from a primary insurer. - ANS-D. Assumes loss exposures from a primary insurer.
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?
Select one:
A. Pure risk
B. Hazard risk
C. Legal risk
D. Speculative risk - ANS-D. Speculative risk
Renegade Insurance prides itself on its upstanding reputation through its commitment to small communities' homeowners coverage needs over the past twenty years. Which one of Renegade's actions over this time would best illustrate its continued commitment to maintaining its solvency?
Select one:
A. Renegade's producers know policy language well so that they can easily and understandably answer policyholders' questions.
B. Renegade keeps enough cash assets on hand to cover claims on policies long after it collected the premiums from customers.
C. Renegade is committed to branching out in the near future to include more coverages for specialized small businesses.
D. Renegade emphasizes that its insurance is readily available and accessible to customers in its service area that need it. - ANS-B. Renegade keeps enough cash assets on hand to cover claims on policies long after it collected the premiums from customers.
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?
Select one:
A. The U.S. insurance industry is governed by federal laws that protect citizens by leveling the playing field for insurers and policyholders.
B. Insurance regulation protects customers by guaranteeing insurance is available and accessible to everyone who needs it.
C. Insurance regulation prevents insurers from covering catastrophic occurrences so insurers can remain solvent.
D. Insurance regulation speaks to the types of risks insurers may cover, but does not play a part in how they invest their profits. - ANS-B. 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?
Select one:
A. Capital
B. Capacity
C. Solvency
D. Reserves - ANS-C. Solvency
If an insurer's admitted assets stayed the same but its liabilities increased significantly, its policyholders' surplus would
Select one:
A. Increase.
B. Either stay the same or increase.
C. Either stay the same or decrease.
D. Decrease. - ANS-D. Decrease.
Which one of the following is a nonadmitted asset?
Select one:
A. Bonds
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?
Select one:
A. 20%
B. 40%
C. 50%
D. 75% - ANS-B. 40% (Hometown Insurer's expense ratio is its incurred underwriting expenses (2,000,000) divided by its written premiums (5,000,000), or 40%.)
As it continues to grow, Anchoy Insurance is examining other distribution channels to more effectively market its products. Through this experience, which of one the following will Anchoy most likely learn?
Select one:
A. Anchoy can use group marketing to target large numbers of recent local college graduates.
B. No matter what it selects, Anchoy must use a producer to effectively sell its products.
C. Using call centers will take away its need for customer service representatives or chatbots.
D. It will market through banks and financial services when utilizing the exclusive agency distribution channel. - ANS-A. Anchoy can use group marketing to target large numbers of recent local college graduates.
Spencer Insurance Associates is an independent agency selling primarily homeowners policies. This agency
Select one:
A. Is free to work with as many different insurers as it wants.
B. Cannot commit an insurer to write a policy, unlike a broker, who usually can.
C. Generally represents its customers rather than insurance companies.
D. Can use the policyholder expiration lists, but they are owned by insurers. - ANS-A. Is free to work with as many different insurers as it wants.
The key to the direct writer marketing system is that
Select one:
A. An agency is contracted to sell insurance for one insurer or group of insurers.
B. The insurer is using its own employees as producers.
C. Customers can get quotes for coverage through web-based portals.
D. Customers purchase insurance through call centers. - ANS-B. The insurer is using its own employees as producers.
One of the reasons for insurance regulation is to prevent destructive competition. In which one of the following scenarios would destructive competition be exhibited?
Select one:
A. North Insurance is trying to break into a specialized type of insurance market that is generally out of range for most customers; North decides to price its coverages commensurate with other insurers offering similar policies.
B. South Insurance purposely writes its policies with hard-to-understand terminology that only its agents can explain, so that its insureds will purchase its products without asking a lot of questions.
C. West Insurance has had three straight years of record-setting low claims and has accumulated more than expected profits; it plans on the trend continuing and overspends on new long-term investments.
D. East Insurance comes up with a new rate structure allowing "preferred customers" discounted policies when they con - ANS-D. 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. (Correct. D is correct as East is causing other insurers to withdraw from the market which is a result from destructive competition. A is not an example of destructive competition, but rather acceptable competition as North is not greatly undercutting the needed prices for the same types of coverages as otherwise offered. B is incorrect as
Earned premiums $8,000,000Written premiums $10,000,000Incurred losses $6,000,000Incurred underwriting expenses $4,000,
What is LMN Insurance's expense ratio?
Select one:
A. 40%
B. 50%
C. 60%
D. 100% - ANS-A. 40% (Expense Ratio = Incurred underwriting expenses ÷ Written premiums: $4 million ÷ $10 million = .40 (40%))
As it continues to grow, Anchoy Insurance is examining other distribution channels to more effectively market its products. Through this experience, which of one the following will Anchoy most likely learn?
Select one:
A. It will market through banks and financial services when utilizing the exclusive agency distribution channel.
B. Anchoy can use group marketing to target large numbers of recent local college graduates.
C. No matter what it selects, Anchoy must use a producer to effectively sell its products.
D. Using call centers will take away its need for customer service representatives or chatbots. - ANS-B. Anchoy can use group marketing to target large numbers of recent local college graduates.
The key to the direct writer marketing system is that
Select one:
A. An agency is contracted to sell insurance for one insurer or group of insurers.
B. Customers purchase insurance through call centers.
C. The insurer is using its own employees as producers.
D. Customers can get quotes for coverage through web-based portals. - ANS-C. The insurer is using its own employees as producers.
Which one of the following best explains why regulators do not permit insurers to include nonadmitted assets on their balance sheets?
Select one:
A. They are liquid.
B. They are intangible.
C. They cannot be readily converted to cash.
D. They potentially understate an insurer's true financial condition. - ANS-C. They cannot be readily converted to cash.
An insurer's balance sheet can best be described as a
Select one:
A. Relationship between revenue and liabilities.
B. Snapshot of its financial position.
C. Relationship between assets and expenses.
D. Summary of premiums written. - ANS-B. Snapshot of its financial position.
Which one of the following is part of written premiums?
Select one:
A. Policyholders' surplus
B. Investment income
C. Underwriting expenses
D. Unearned premiums - ANS-D. Unearned premiums
Admitted assets are types of property that regulators allow insurers to show as assets on their financial statements because they are
Select one:
A. Very stable in value.
