Chapter 1

Question 1

A stock insurance company is owned by its?

Answer 1

Shareholders

Question 2

Which Term best describes the elimination of a hazard?

Answer 2

Risk Avoidance

Question 3

A_______ agent may represent several insurers

Answer 3

Independent

Question 4

Which of these statements regarding insurance is false?
A. One way insurers deal with catastrophic loss is through reinsurance.
B. As the number of insured units increases, the number of losses decreases.
C. Speculative risk cannot be insured.
D. Pure risk can be insured.

Answer 4

B. As the number of insured units increases, the number of losses decreases.

Question 5

Which of the following is a syndicate established by a group of insurers to share underwriting duties?

A. Reinsurer
B. Lloyd’s organization
C.NAIC
D. Multi-line insurers

Answer 5

B. Lloyd’s organization

Question 6

ABC Company is attempting to minimize the severity of potential losses within its company. The company is engaged in risk?

Answer 6

Reduction

Question 7

The authority given to the producer on behalf of the insurer?

Answer 7

Producer Contract

Question 8

Which of the following financial products creates an instant estate, no matter when the date of death?
A. Mutual Funds
B. Life Insurance
C. Certificate of Deposit
D. Deferred annuity

Answer 8

B. Life Insurance

Question 9

Calculates policy rates, Reserves, and dividends.

Answer 9

Actuarial Department

Question 10

A(n)_____ agent is an insurance agent who represents only ONE insurance company.

Answer 10

Captive

Question 11

Which one of these is NOT considered to be an element of an insurable risk?

A. Speculative Risk
B. Pure risk
C. Loss cannot be catastrophic
D. Loss must be due to chance

Answer 11

A. Speculative Risk

Question 12

What is the accounting measurement of an insurance company’s future obligations to its policyowners?

Answer 12

Reserves

Question 13

A reciprocal insurer typically has an administrator who manages the premiums collected from the group’s members. This administrator is called a(n)?

Answer 13

Attorney-in-fact

Question 14

An unincorporated association whose members provide coverage for one another?

Answer 14

Reciprocal

Question 15

A group-owned insurance company that is formed to assume and spread the liability risks of its members is known as?

Answer 15

Risk retention group

Question 16

Which of these statements is NOT a characteristic of the law of large numbers?

A. Individual losses can be practiced based on past experience.
B. Group losses can be predicted based on past experience
C. Losses can be predicted in large groups with a higher degree of accuracy
D. Rates can be calculated to compensate for losses.

Answer 16

D. Rates can be calculated to compensate for losses.

Question 17

In the Unites States is an insurer whose principal office and domiciled location is outside the country.

Answer 17

Alien insurer

Question 18

is an insurer who has received a certificate of authority from a state’s department of insurance authorizing them to conduct insurance business in that state.

Answer 18

Admitted Insurer: ( Authorized insurer)

Question 19

Represents themselves and the insured ( Client or customer)

Answer 19

Broker

Question 20

An issuer established and owned by a parent firm for the purpose of insuring the parent firm’s loss exposure

Answer 20

Captive insurer

Question 21

a license issued to an insurer by a department of insurance (or equivalent state agency), which authorizes that company to conduct insurance business in that particular state.

Answer 21

Certificate of Authority

Question 22

Is responsible for processing, investigating, and paying claims

Answer 22

Claims Department

Question 23

the amount of earning paid to policyowners as dividends after the insurance company sets aside funds required to cover reserves, operating expenses, and general business purposes.

Answer 23

Divisible Surplus

Question 24

an insurer with its principal or home office in a state where it is authorized

Answer 24

Domestic Insurer

Question 25

nonprofit benevolent organizations that provide insurance to its members.

Answer 25

Fraternal Benefit Society

Question 26

an insurer with its principal office or domicile location in a state different from the state it is transacting insurance business

Answer 26

Foreign Insurer

Question 27

a specialized branch of the industry, primarily providing policies with small face amounts with weekly premiums.

Answer 27

Industrial Insurer *Other names (home service or debit insurers)

Question 28

The transfer of risk through the pooling or accumulation of funds

Answer 28

Insurance

Question 29

Customer receiving insurance protection under an insurance policy

Answer 29

Insured

Question 30

the insurance company

Answer 30

Insurer

Question 31

a group of individuals and companies that underwrite unusual insurance

Answer 31

Lloyds of London

Question 32

an insurance company or independent agent that provides a one-stop-shop for businesses or individuals seeking coverage for all their insurance needs

Answer 32

Multi-line Insurer

Question 33

insurance companies characterized by having no capital stock, being owned by its policy owners, and usually issue participating insurance

Answer 33

Mutual Insurance

Question 34

an insurer who has not received a certificate of authority from a state's department of insurance authorizing them to conduct insurance business in that state

Answer 34

Non-admitted Insurer (unauthorized insurer)

Question 35

typically issued by stock companies, do not allow policyowners to participate in dividends or electing the board of directors.

Answer 35

Nonparticipating policy

Question 36

Companies owned by private citizens or groups that offer one or more insurance lines. NOT government-owned.

Answer 36

Private (Commercial) Insurer

Question 37

an insurance policy under which the policyowners share in the company's earnings through receipt of dividends and also elect the company's board of directors

Answer 37

Participating Plan

Question 38

an unincorporated organization in which all members insure one another

Answer 38

Reciprocal Insurer

Question 39

the acceptance by one or more insurers, of a portion of the risk underwritten by another insurer who has contracted for the entire coverage

Answer 39

Reinsurance:

Question 40

a company that provides financial protection to insurance companies. Handle risks that are too large for insurance companies to handle on their own and make it possible for insurers to obtain more business than they would otherwise be able to

Answer 40

Reinsurer

Question 41

a group-owned liability insurer which assumes and spread product liability and other forms of commercial liability risks among its members

Answer 41

Risk Retention Group

Question 42

establishes a self-funded plan to cover potential losses instead of transferring the risk to an insurance company.

Answer 42

Self-Insurers

Question 43

an insurance company owned and controlled by a group of stockholders (or shareholders) whose investment in the company provides the safety margin necessary in the issuance of guaranteed, fixed premium, nonparticipating policies.

Answer 43

Stock Insurance Company:

Question 44

They offer coverage for substandard or unusual risks not available through private or commercial carriers.

Answer 44

Surplus Lines Insurance *nontraditional insurance only available from a surplus lines insurer

Question 45

The department within an insurance company responsible for reviewing applications, approving or declining applications, and assigning risk classifications

Answer 45

Underwriting Department

Question 46

a principle of actuarial science that states that the higher the number of risks insured in the same risk pool; the more predictable losses become.

Answer 46

The Law of Large Numbers

Question 47

Accident, health, property, and casualty insurance contracts are all contracts of ?

Answer 47

indemnity

Question 48

something that can cause a financial loss.

Answer 48

A peril

Question 49

A condition that increases the possibility of financial loss is called a (n)?

Answer 49

Peril

Question 50

When a ceding insurer transfer a portion of its risk to an assuming insurer on a case by case basis, this process is referred to as?

Answer 50

Facultative reinsurance

Question 51

Type of insurers that limits the exposures to it writes to those of its owners?

Answer 51

Captive insurer

Question 52

Dividends from a mutual insurance company are paid to whom

Answer 52

Policyholders

Question 53

Dividends from a mutual insurance company are paid to whom

Answer 53

Policyholders

Question 54

Sharing an uncertain risk with another similar group

Answer 54

Transfer

Question 55

A hold harmless clause is an example of risk

Answer 55

Transfer

Question 56

Who regulates an insurer's claim settlement practices?

Answer 56

State insurance Departments

Question 57

A syndicate established by a group of insurers to share underwriting duties?

Answer 57

Lloyd's Organization

Question 58

For insurance purposes, similiar objects which are exposed to the same group of perils are referred to as?

Answer 58

Homogenous exposure units

Question 59

What reinsurance contract between two insurers involves an automatic sharing of the risks assumed?

Answer 59

Treaty Reinsurance

Question 60

Can be defined as (the potential for loss) ?

Answer 60

Risk

Question 61

Individually lists perils that they cover?

Answer 61

Specified or Named Perils

Question 62

Do not name the perils they cover but instead begin by saying they cover all direct causes of loss.

Answer 62

Special or Open Peril insurance policies

Question 63

An unintentional decrease in the value of an asset due to a peril.

Answer 63

A loss

Question 64

When a person or property is damaged, destroyed, or killed by a peril, without any intervening cause.

Answer 64

Direct loss results

Question 65

Also known as Consequential Loss.

Answer 65

An indirect loss

Question 66

Any event that causes a loss.

Answer 66

An Occurrence

Question 67

A condition or situation that creates or increases a chance of loss.

Answer 67

A hazard

Question 68

Types of hazards

Answer 68

Physical Hazard Moral Hazard Morale Hazard

Question 69

physical or tangible conditions existing in a manner that makes a loss more likely to occur.

Answer 69

Physical hazards

Question 70

make the loss more likely to occur due to the dishonest or villainous character of the insured.

Answer 70

Moral hazards

Question 71

is created based as a result of the personal or subjective thought process of the insured.

Answer 71

Morale hazard

Question 72

There are two types of risks:

Answer 72

Speculative Risk Pure Risk

Question 73

considered to have an average potential for loss.

Answer 73

Standard risks

Question 74

considered to be a poor risk for the insurance company and have a higher potential for loss.

Answer 74

Substandard risks

Question 75

spreads risk by sharing the possibility of loss over a large number of people.

Answer 75

Risk Pooling, also known as loss sharing,

Question 76

is defined as the tendency for poorer than average risks to seek out insurance.

Answer 76

adverse selection *Insurers must minimize

Question 77

may reduce the chance of adverse selection.

Answer 77

Sound and competent underwriting

Question 78

The process of analyzing exposures that create risk and designing programs to handle them is called?

Answer 78

risk management

Question 79

Treatment of risk includes implementing the following strategies:

Answer 79

Risk Avoidance Risk Reduction Risk Retention Risk Transfer Risk Sharing

Question 80

can be avoided by eliminating a hazard.

Answer 80

Risk

Question 81

can be reduced by minimizing the severity of a potential loss.

Answer 81

Risk

Question 82

can be retained through self-insurance

Answer 82

Risk

Question 83

can be transferred or passed from one party to another through an insurance contract.

Answer 83

Risk

Question 84

can be shared by multiple parties.

Answer 84

Risk

Question 85

the spreading of risk from one insurer to one or more other insurers.

Answer 85

Reinsurance

Question 86

involves taking actions to eliminate damage or loss.

Answer 86

Loss prevention

Question 87

In a reinsurance agreement, the insurance company that transfers its loss exposure to another insurer is called?

Answer 87

primary insurer.