Module 5

Question 1

Refers to the pricing of insurance and the calculation of insurance premiums.

Answer 1

Ratemaking

Question 2

price per unit of insurance

Answer 2

rating

Question 3

is the unit of measurement used in insurance pricing, which varies by line of insurance

Answer 3

Exposure unit

Question 4

the person who determines rates and premiums

Answer 4

actuary

Question 5

these organizations calculate the historical or prospective loss cost that individual companies can use in calculating their own rates

Answer 5

Insurance Services Office (ISO)

Question 6

refers to the process of selecting, classifying, and pricing applicants for insurance

Answer 6

underwriting

Question 7

underwriting starts with a clear statement of underwriting policy. An insurer must establish an underwriting policy that is consistent with company objectives

Answer 7

statement of underwriting policy

Question 8

Basic Underwriting Policy

Answer 8

1. attain an underwriting profit
2. select prospective insureds according to the company’s underwriting standards.
3. provide equity among the policyholders.

Question 9

agent is told what types of applicants are acceptable, borderline, or prohibited

Answer 9

Field Underwriting

Question 10

sources of underwriting information

Answer 10

1. application
2. agent’s report
3. inspection report
4. physical inspection
5. physical examination

Question 11

the type of information required depends on the type of insurance requested

Answer 11

application

Question 12

many insurers require the agent or broker to give an evaluation of the prospective insured

Answer 12

Agent’s report

Question 13

in property insurance, the company may require an inspection report by some outside agency, especially if the underwriter suspects moral hazard. In life insurance, the report may provide information on the applicant’s financial condition, marital status, outstanding debts or delinquent bills, felony convictions, any drinking or drug problems, whether the applicant has ever declared bankruptcy and additional information as well

Answer 13

inspection report

Question 14

in property insurance and casualty insurance, the underwriter may require a physical inspection before the application is approved

Answer 14

physical inspection

Question 15

in life insurance, a physical exam may be required to determine if the applicant is overweight; has high blood pressure; or has any abnormalities in the heart, respiratory system, urinary system, or other parts of the body

Answer 15

physical examination

Question 16

Basic underwriting decisions with respect to an initial application for insurance:

Answer 16

1. accept the application
2. accept the application subject to certain restrictions or modifications.
3. reject the application

Question 17

other factors are considered in underwriting.

Answer 17

1. Rate adequacy and underwriting
2. reinsurance and underwriting
3. renewal underwriting

Question 18

property and casualty insurers are more willing to underwrite new business for a specific line if rates are considered adequate

Answer 18

rate adequacy and underwriting

Question 19

availability of reinsurance may result in more liberal underwriting

Answer 19

reinsurance and underwriting

Question 20

in life insurance, policies are not cancellable

Answer 20

renewal underwriting

Question 21

refers to the sales and marketing activities of insurers.

Answer 21

production

Question 22

agents who sell insurance are frequently referred to as

Answer 22

producers

Question 23

This department is responsible for recruiting and training new agents and for the supervision of general agents, branch office managers, and local agents

Answer 23

agency departments

Question 24

Basic Objectives in Claims Settlement

Answer 24

1. verification of a covered loss
2. fair and prompt payment of claims
3. personal assistance to the insured

Question 25

the person who adjusts a claim is known as a

Answer 25

claim adjustor

Question 26

Types of Claims Adjustors

Answer 26

1. agent 2. company adjustor 3. independent adjustor 4. Public adjustor

Question 27

Steps in Settlement of a Claim

Answer 27

1. Notice of loss must be given 2. The claim is investigated 3. A proof of loss may be required 4. A decision is made concerning payment

Question 28

an arrangement by which the primary insurer that initially writes the insurance transfers to another insurer

Answer 28

reinsurance

Question 29

the primary insurer that initially writes the insurance

Answer 29

ceding company

Question 30

the insurer that accepts part or all of the insurance from the ceding company

Answer 30

reinsurer

Question 31

the amount of insurance retained by the ceding company for its own account

Answer 31

retention limit or net retention

Question 32

the amount of insurance ceded to the reinsurer

Answer 32

cession

Question 33

the reinsurer in turn may reinsure part or all of the risk with another insurer

Answer 33

retrocession

Question 34

the second reinsurer

Answer 34

retrocessionaire

Question 35

reasons for reinsurance

Answer 35

1. increase underwriting capacity 2. stabilize profits 3. reduce the unearned premium reserve 4. provide protection against a catastrophic loss

Question 36

types of reinsurance

Answer 36

Faculty reinsurance Treaty insurance

Question 37

an optional, case-by-case method that is used when the ceding company receives an application for insurance that exceeds its retention limit

Answer 37

faculty Reinsurance

Question 38

the primary insurer has agreed to cede insurance to the reinsurer, and the reinsurer has agreed to accept the business.

Answer 38

treaty reinsurance

Question 39

the ceding company and reinsurer agree to share losses and premiums based on some proportion.

Answer 39

pro rata method

Question 40

the reinsurer pays only when covered losses exceed a certain level

Answer 40

excess-of-loss method

Question 41

methods for sharing losses

Answer 41

1. quota-share treaty 2. surplus-share treaty 3. excess-of-loss reinsurance 4. reinsurance pool`

Question 42

an insurable risk is transferred to the capital markets through the creation of a financial instrument, such as catastrophe bond, futures contract, options contract, or other financial instrument

Answer 42

securitization of risk

Question 43

are made available to institutional investors in the capital market through an entity called a special purpose reinsurance vehicle (SPRV)

Answer 43

Catastrophe bonds

Question 44

when one party extends money to another party and does not expect repayment until after a circumstantial event

Answer 44

float

Question 44

is a corporation owned exclusively by the policyholders who are "contractual creditors" with a right to vote on the board of directors

Answer 44

mutual insurance company

Question 44

is a corporation owned by its stockholders or shareholders, and its objective is to make a profit for them

Answer 44

stock insurance company