General Insurance - chapter 1

Question 1

who protects the insuring population by regulating all insurers and insurance professionals doing business in the State.

Answer 1

The State Commissioner, Supervisor, or Director of Insurance is the chief insurance regulator

Question 2

Who issues non-participating policies and is owned by stockholders who
received taxable corporate dividends as a return of profit.

Answer 2

A stock insurance company

Question 3

Who issues participating policies and is owned by the policyholders
who receive non-taxable dividends as a return of unused premium.

Answer 3

A mutual insurance company

Question 4

What is Reinsurance

Answer 4

Reinsurance is the transfer of risk between insurance companies. The reinsurer assumes some or
all of the risk of the ceding, or primary, insurance company

Question 5

what is a domicile?

Answer 5

Domicile refers to the state in which an insurer is incorporated.

Question 6

what is a domestic insurer?

Answer 6

A domestic insurer is organized

under the laws of the resident state

Question 7

what is a foreign insurer?

Answer 7

foreign insurer is organized under the laws of another state

within the United States

Question 8

what is a alien insurer?

Answer 8

alien insurer is organized under the laws of a country outside
the U.S.

Question 9

who is authorized to do insurance business in the state and is issued a Certificate
of Authority by the state’s Department of Insurance.

Answer 9

An admitted insurer

Question 10

what department of an insurance company is responsible for the selection of risks to
insure and determines the rate to be charged.

Answer 10

Underwriting

Question 11

A person or agency appointed by an insurance company to represent it and to present
policies on its behalf.

Answer 11

Producer

Question 12

can be the employee of an insurance company that owns the agent’s book
of business, or an independent agent that enters into agency agreements with more than one
insurance company.

Answer 12

Agent/producer

Question 13

is a three-party relationship where a Principal authorizes an Agent to act on
its behalf to create a legal relationship with a Third Party.

Answer 13

The Law of Agency

Question 14

is written into the producer’s agency contract; implied authority is that which
the public assumes the agent possesses; and apparent authority is created when the agent
exceeds express authority and the insurer does not respond.

Answer 14

Express Authority

Question 15

protects consumer privacy by ensuring that any data
collected by an insurer remains confidential, and is accurate, relevant, and used for a proper and
specific purpose

Answer 15

Fair Credit Reporting Act (FCRA)

Question 16

the uncertainty of a loss.

Answer 16

A risk

Question 17

the cause of loss

Answer 17

A Peril

Question 18

increases the probability of a loss.

Answer 18

A hazard

Question 19

The 3 types of hazards are?

Answer 19

physical, moral, and

morale.

Question 20

does not allow the insured to profit from a loss; instead, it restores
the insured to the same financial or economic condition that existed prior to the loss.

Answer 20

The principle of indemnity

Question 21

what is Insurable interest?

Answer 21

property and casualty insurance must exist at the time of the loss

Question 22

is one of adhesion; one party (the insurer) prepares the contract and
presents it to the second party (the insured), who must accept it on a “take-it-or-leave-it” basis

Answer 22

insurance contract

Question 23

used to determine premium include the nature of the risk, hazards,
claims history, and other factors that vary depending upon the risk.

Answer 23

Underwriting Factors

Question 24

Contract of Adhesion is?

Answer 24

Insurer writes the contract, presents it to the applicant on a “take-it-or leave-
it” basis, without negotiation.

Question 25

Aleatory Contract

Answer 25

The exchange of value is unequal

Question 26

Valued Contract

Answer 26

A contract that pays a stated amount in the event of a loss ***Most insurance policies are NOT valued contracts unless they are endorsed.

Question 27

An agreement to pay on behalf of another party under specified circumstances, such as when a loss occurs

Answer 27

Indemnity Contract

Question 28

A policy form that alters or adds to the provisions of a property and casualty insurance contract.

Answer 28

Endorsement

Question 29

Personal Contract is when...

Answer 29

Owner cannot transfer or assign ownership of an insurance policy (property and casualty) to another person.

Question 30

A Non-Personal Contract is when

Answer 30

Owner may transfer or assign ownership of a life or health insurance policy to another person.

Question 31

what is assignment?

Answer 31

Policy owners may not assign or transfer their rights under an insurance contract without the written consent of the insurer.

Question 32

Unilateral Contract

Answer 32

Only one party is legally bound to the contractual obligations after the premium is paid to the insurer. ***Only the insurer makes a promise of future performance, and only the insurer can be charged with breach of contract.

Question 33

Conditional Contract

Answer 33

Both parties must perform certain duties and follow rules of conduct to make the contract enforceable. ***The insurer must pay claims if the insured has complied with all the policy’s terms and conditions.

Question 34

Reasonable Expectations Doctrine

Answer 34

What a reasonable and prudent policy owner would expect; the reasonable expectations of policyowners are honored by the Courts although the strict terms of the policy may not support these expectations.

Question 35

Representations

Answer 35

Statements made by the applicant on the application that are believed to be true to the best of the knowledge and belief of the applicant

Question 36

A false statement contained in the application

Answer 36

Misrepresentations

Question 37

The willful hiding or obscuring of material facts pertinent to the issuance of insurance (or a claim).

Answer 37

Concealment

Question 38

Statements in the application or stipulations in the policy that are guaranteed true in all respects

Answer 38

Warranties

Question 39

Intentional deception of the truth in order to induce another to part with something of value or to surrender a legal right

Answer 39

Fraud

Question 40

what are the 5 elements of fraud

Answer 40

■ False statement, made intentionally and that pertains to a material fact. ■ Disregard for the victim. ■ Victim believes the false statement. ■ Victim makes a decision and/or acts based on the belief in, or reliance upon, the false statement. ■ The victim’s decision and/or action results in harm.

Question 41

An agreement without legal effect because it was made illegally or it was declared void by the courts because it doesn’t contain all the elements of a legal contract.

Answer 41

Void Contract

Question 42

A valid contract that for reasons satisfactory to a court, may be set aside by one of the parties.

Answer 42

Voidable Contract

Question 43

company is owned by stockholders or shareholders.

Answer 43

Stock Insurance Company

Question 44

company is owned by policyholders (who may be referred to as members)

Answer 44

Mutual Insurance Company

Question 45

A group-owned insurer whose main activity is risk sharing.

Answer 45

Reciprocal Insurance Company

Question 46

This is not an insurance company, but consists of groups of underwriters called Syndicates, each of which specializes in insuring a particular type of risk.

Answer 46

Lloyds of London

Question 47

primarily social organizations that engage in charitable and benevolent activities that provide life and health insurance to their members **Membership typically consists of members of a given faith, lodge, order, or society.**

Answer 47

Fraternal Benefit Societies

Question 48

what does the risk retention group do

Answer 48

spreads the liability related risks of its members. ***Each member assumes a portion of the risks insured.

Question 49

A ______________ insurance company is owned by its policyholders. a. Stock b. Reciprocal c. Fraternal Benefits Society d. Mutual

Answer 49

D. Mutual

Question 50

Insurers agree to apportion among themselves those risks that are unable to obtain insurance through normal channels.

Answer 50

Risk Sharing Plan ***Residual Markets** A private coverage source of last resort for businesses and individuals who have been rejected by voluntary market insurers.

Question 51

types of reinsurance companies are?

Answer 51

Treaty Agreements – Reinsurance agreement that covers all risks contained in the subject line(s) of business automatically. and Facultative Agreements – Reinsurance agreement that allows ceding and reinsurance companies the opportunity to negotiate coverage for individual risks

Question 52

If an insurance company wants to transfer all or part of the risk it has accepted, it would buy which of the following types of insurance? a. Residual b. Reinsurance c. Reciprocal d. Insurer

Answer 52

B ) reinsurance

Question 53

``` Which of the following is an insurance company that is organized under the laws of another state within the United States? a. Domestic b. Alien c. Foreign d. Authorized ```

Answer 53

C. Foreign

Question 54

Insurer Management What do executives do?

Answer 54

Oversee the operation of the business.

Question 55

Insurer Management - Actuarial Department?

Answer 55

determines the probability of loss and sets premium rates.

Question 56

Insurer Management - Underwriting Department?

Answer 56

Responsible for the selection of risks ***and rating that determines actual policy premium

Question 57

Insurer Management- Marketing/Sales Department

Answer 57

Responsible for advertising and selling

Question 58

Insurer Management - Claims Department?

Answer 58

Assists the policyholder in the event of a loss

Question 59

Which insurance company department accepts the insurance risk? a. Executive b. Actuarial c. Claims d. Underwriting

Answer 59

D. Underwriting

Question 60

A licensed individual who negotiates insurance contracts with insurers, on behalf of the applicant.

Answer 60

Broker

Question 61

``` Which of the following individuals represents the insurance company when selling an insurance policy? a. Producer b. Broker c. Adjuster d. Insurer ```

Answer 61

a. Producer

Question 62

``` Which of the following types of authority does the public assume an agent has when quoting insurance? a. Authorized b. Express c. Implied d. Apparent ```

Answer 62

c. Implied

Question 63

A producer has each of the following responsibilities to the Insurer, except: a. A fiduciary duty b. Forwarding premiums to the insurer on a timely basis c. Reporting material facts that may affect underwriting d. A duty to recommend only high rate policies

Answer 63

D. A duty to recommend only high rate policies

Question 64

Protects consumer privacy

Answer 64

Fair Credit Reporting Act

Question 65

Imposes record keeping and government reporting requirements on banks, financial institutions and non-financial businesses for specific financial transactions and customer financial records (a part of the Bank Secrecy Act).

Answer 65

Financial Anti-Terrorism Act

Question 66

regulates maritime commerce in U.S. waters, transportation of cargo, and the rights of seamen.

Answer 66

Merchant Marine Act of 1920

Question 67

established the Financial Privacy Rule and | Safeguards Rule for the protection of consumers’ privacy.

Answer 67

Gramm-Leach-Bliley Act

Question 68

Enacted in direct response to the terrorist attacks

Answer 68

Terrorism Risk Insurance Act

Question 69

The Act made it a felony for a person to engage in the business of insurance after being convicted of a state or federal felony crime involving dishonesty or breach of trust.

Answer 69

Violent Crime Control and Law Enforcement Act of 1994

Question 70

A federal regulation called the ___________ protects consumer privacy. a. Consolidated Omnibus Budget Reconciliation Act b. Fraudulent Insurance Act c. Privacy Protection Act d. Fair Credit Reporting Act

Answer 70

D. Fair Credit Reporting Act

Question 71

What are the types of risk

Answer 71

Speculative Risk & Pure risk

Question 72

Situations where there is a chance for loss, gain, or neither loss nor gain to occur **example gambling** what type of risk is this?

Answer 72

Speculative Risk

Question 73

Situations where there is no chance for gain; the only outcome is for nothing to occur or for a loss to occur. what type of risk is this?

Answer 73

Pure Risk

Question 74

``` A physical condition that increases the probability of loss; use, condition, or occupancy of property. Example: Flammable material stored near a furnace. ``` what type of hazard is this?

Answer 74

Physical Hazard

Question 75

``` Dishonest tendencies that increase the probability of a loss; certain characteristics and behaviors of people. Example: An insured burns down his/her own house to collect the insurance payout. ```

Answer 75

Moral Hazard

Question 76

``` Attitude that increases the probability of a loss. Example: Indifference or carelessness of leaving one’s house or vehicle unlocked. ```

Answer 76

Morale Hazard

Question 77

The condition of being at risk for a loss. Purely by existing, property and people are at risk for loss.

Answer 77

Loss Exposure

Question 78

An imbalance created when risks that are more prone to losses than the average (standard) risk are the only risks seeking insurance within a specific marketplace. For example, only those living in earthquake-prone areas seek to buy earthquake insurance.

Answer 78

Adverse Selection

Question 79

Analyzing exposures that create risk and designing programs to minimize the possibility of a loss.

Answer 79

Managing Risk

Question 80

Ways of managing risk?

Answer 80

*STARR* SHARING - Investments TRANSFER -Transferring the risk from one party to another, such as from a consumer to an insurance company. ADVOIDANCE - Elimination of the risk. REDUCTION - Minimizing the chance of loss RETENTION -Assume the responsibility for loss

Question 81

Insurable risks must include

Answer 81

Large number of homogeneous units or groups with the same perils

Question 82

Law of Large Numbers

Answer 82

As the number of units in a group increases, the more likely | it is to predict a particular outcome.

Question 83

Dishonest tendencies that increase the probability of loss are what types of hazard? a. Physical b. Moral c. Emotional d. Legal

Answer 83

b. moral

Question 84

Each of the following must be included in an insurable risk, except: a. Calculable chance of loss b. Excluded catastrophic perils c. Large group with dissimilar members d. Accidental losses

Answer 84

C. Large group with dissimilar members

Question 85

Both parties bargain in good faith when forming and entering into the contract. The two parties rely upon the statements and promises of the other and assume no attempt to conceal or deceive has been made.

Answer 85

Contract of Utmost Good Faith

Question 86

what does estoppel do?

Answer 86

Prevents the denial of a fact, if the fact was admitted to be true previously

Question 87

All of the following are producer responsibilities, EXCEPT: A. Issue policies B. Represent the insurer C. Solicit and accept applications, and forward them to the insurer D. Provide quotes and collect premiums

Answer 87

A. Issue policies *** Producers do not issue policies. Insurers issue policies. Producers represent the insurer in soliciting, receiving, and forwarding applications, providing quotes, and collecting premiums.

Question 88

Which of the following powers describes the authority stated in an agent's agency contract? A Implied B Apparent C Assumed D Express

Answer 88

D. Express ***The agency contract, which exists between an insurer and a producer, sets forth the powers that are granted to the producer. These powers are referred to as express because they are directly stated in the contract.

Question 89

The principle of indemnity helps avoid which of the following? A. Loss exposure B. Underinsurance C. Overpayment of a claim D. Adverse selection

Answer 89

C. Overpayment of a claim ***The principle of indemnity restores the insured to the same financial status as before the loss, protecting against overpayment and making a profit from a loss.