Ch. 1 Introduction to Insurance

Question 1

Transfer of risk

Answer 1

Insurance

Question 2

A reduction, decrease, or disappearance in value that affects someone’s property or financial position

Answer 2

Loss

Question 3

Condition with a chance, likelihood, or probability of a potential loss

Answer 3

Risk

Question 4

A risk that will result in either a loss or no change in status

Answer 4

Pure Risk

Question 5

A risk that may result in a loss, a gain, or no change in status

Answer 5

Speculative Risk

Question 6

The condition of being at risk for a loss, whether or not an actual loss occurs

Answer 6

Exposure

Question 7

Cause of loss

Answer 7

Peril

Question 8

A specific condition that increases the probability or likelihood that a loss will occur

Answer 8

Hazard

Question 9

What are the three types of hazards

Answer 9

Physical, moral, and morale

Question 10

A physical condition that increases the probability of loss, including the use, condition, or occupancy of property

Answer 10

Physical Hazard

Question 11

Dishonest tendencies that increase the probability of a loss

Answer 11

Moral Hazard

Question 12

An attitude of indifference toward a risk of loss that increases the probability of loss occurring

Answer 12

Morale Hazard

Question 13

What are the methods to managing risk (STARR)

Answer 13

Sharing, Transfer, Avoidance, Reduction, and Retention

Question 14

A probability theory states that the larger the number (sample size) of units with the same exposures, the greater the accuracy in predicting losses

Answer 14

Law of Large Numbers

Question 15

The principle that people will seek insurance more frequently for risks that are hard to insure

Answer 15

Adverse Selection

Question 16

A device used by insurers to spread their risk and limit the loss they will face in the event of a large claim or catastrophic loss, which helps stabilize profits, increase the insurer’s ability to underwrite risks and build confidence with consumers and investors

Answer 16

Reinsurance

Question 17

Non-governmental entities that typically write insurance on a for-profit basis

Answer 17

Private Insurer

Question 18

Provide basic property insurance on real property, state-required personal auto liability coverage, or Workers’ Compensation coverage

Answer 18

Residual Markets

Question 19

An insurer organized under the laws of this state

Answer 19

Domestic Insurer

Question 20

An insurer not organized under the laws of the state but in one of the other states or jurisdictions within the United States

Answer 20

Foreign Insurer

Question 21

An insurer organized under the laws of any jurisdiction outside of the United States

Answer 21

Alien Insurer

Question 22

An insurer who is authorized to transact insurance in a given state, and will be granted a certificate of authority

Answer 22

Admitted Insurer

Question 23

An insurer that is not authorized to transact insurance in a given state, either by failing to comply with state requirements or by not seeking permission

Answer 23

Non-admitted Insurer

Question 24

Gathers and interprets statistical information to determine probability of loss

Answer 24

Actuary

Question 25

Responsible for selecting risks and selecting the specific rate that applies to those risks

Answer 25

Underwriter

Question 26

Distributing or pooling risk among several risk-takers with similar loss exposures who agree to cover each other for their losses

Answer 26

Risk Sharing

Question 27

Shifting a risk to another party

Answer 27

Risk Transfer

Question 28

Elimination of risk by not participating in activities that involve a chance of loss

Answer 28

Risk Avoidance

Question 29

Minimizing the risks we cannot completely avoid

Answer 29

Risk Reduction

Question 30

Assuming responsibility for a loss, like with self-insurance, whereby an organization sets aside funds to pay potential losses

Answer 30

Risk Retention

Question 31

What does an underwriter do

Answer 31

Select risks whose future losses fall into the normal range of expected losses

Question 32

Defines the relationship between an insurance company, known as the principal, and a producer operating as its agent

Answer 32

Law of Agency

Question 33

Authority indicates the capacity in which an agent legally represents an insurer

Answer 33

Agent's Authority

Question 34

What are the three different types of authority?

Answer 34

Expressed, implied, and apparent

Question 35

Authority that is written into the producer’s agency contract

Answer 35

Expressed Authority

Question 36

Authority that is not specifically stated in the contract, but is necessary, reasonable, and usual for the producer to perform stated duties

Answer 36

Implied Authority

Question 37

Authority that is created when the producer exceeds the authority expressed in the agency contract

Answer 37

Apparent Authority

Question 38

What are an agents responsibilities to the insurer

Answer 38

Agents are responsible for soliciting, negotiating, selling, and cancelling insurance policies with the insurer

Question 39

An agent who handles insurer funds in a trust capacity

Answer 39

Fiduciary Duty

Question 40

A licensed individual or firm who negotiates insurance contracts with insurers on behalf of the insurance applicant

Answer 40

Broker

Question 41

The Fair Credit Reporting Act protects the consumer’s right to the privacy of credit and financial information, ensuring that all collected data is confidential, accurate, relevant, and properly used for a specific purpose

Answer 41

Protection

Question 42

The Gramm-Leach-Bliley Act of 1999's purpose is to ensure the confidentiality of consumer information and protect that information from security threats

Answer 42

Prevention