OTL

Question 1

What is insurance?

Answer 1

Sharing the losses of a few among the many.

A contract, where the insurer for monetary consideration agrees to cover the insured for loss or liability as defined.

Question 2

_______is based on the existence of a Risk.

Answer 2

Insurance

Question 3

Insurance is a contract in which one party (_________). for monetary consideration agree to reimburse another (________) , for loss or liability for a loss on a defined subject caused by specified ________ or _______

Answer 3

Insurer
Insured
Hazard
Perils

Question 4

The essential concepts of insurance are based upon the ___________________ of Risk.

Answer 4

Chance

Question 5

Name two types of risk:__________ & ____________________.

Answer 5

Pure

Speculative

Question 6

The insurance relating individuals in their private capacity. For example, private dwellings, private automobiles, seasonal dwellings, boats, jewelry, etc. are lines

Answer 6

Personal

Question 7

Which is insurable, and which is not:
Insurable:___________________________________
NOT Insurable:_______________________________

Answer 7

Yes - Pure

Not - Speculative

Question 8

Risks are classified into categories of risks: ___________________, __________________ , _______________________.

Answer 8

Personal, property, liability

Question 9

The insurance relating to operations, such as stores, professional offices, trucking operations, and many other similar businesses are _______________________ lines.

Answer 9

Commercial

Question 10

A contract in which one party, the insurer, for monetary consideration agrees to reimburse another, the insured, for loss or liability for a loss on a defined subject caused by specified hazards or perils.

Answer 10

Insurance

Question 11

Means the chance of a loss. Insurance deals only with the pure risks, which entails a chance of loss but no chance of profit. Speculative risks exist where there is a chance of loss but there is also a chance of profit, and because of the chance of profit these are uninsurable risks.

Answer 11

Risk

Question 12

An insurance term for a situation where the possibility of either a financial loss or a financial gain exists, such as purchasing shares, or betting on horses.

Answer 12

Speculative Risk

Question 13

An event, which may cause a loss to occur

Answer 13

Peril

Question 14

A condition, which may cause a peril to occur or make the loss more severe. A hazard can be either a physical hazard, which deals with nature of the actual risk, or a moral hazard, in that it relates to the human element of the risk.

Answer 14

Hazard

Question 15

Paul buys a pair of rare sneakers and hopes to re-sell them online for a big profit. What is this an example of?

a. Illegal risk
b. Speculative risk
c. Pure risk
d. Moral risk

Answer 15

B

Question 16

Insurance is based on the existence of

a. Risk
b. Loss
c. Indemnity
d. Consideration

Answer 16

a. Risk

Question 17

Which type of risk can be insured?

a. Illegal risk
b. Pure risk
c. Speculative risk
d. Moral risk

Answer 17

b. Pure risk

Question 18

Which of the following factors is an example of a physical hazard associated with a property risk?

a. Dishonest employee actions
b. Personal habits of the insured
c. Financial and labor problems
d. Poorly maintained heating units

Answer 18

d. Poorly maintained heating units

Question 19

What is proximate cause?

a. Imagined cause of loss
b. The last link in a chain of events
c. Predetermined cause of damages
d. Immediate and effective cause of a loss

Answer 19

d. Immediate and effective cause of a loss

Question 20

What is a defining attribute of speculative risk?

a. It is insurable
b. It is pure in nature
c. There is a chance of profit
d. There are no loss exposures

Answer 20

c. There is a chance of profit

Question 21

What type of insurance salesperson sells policies on behalf of several insurers?

a. Adjuster
b. Broker
c. Underwriter
d. Employee of a direct writer

Answer 21

B - broker

Question 22

Which of the following is an example of a moral hazard?

a. A building with an outdated, overloaded electric panel and exposed wiring.
b. A business with a good credit score.
c. A landlord with an excellent maintenance record for her rental units.
d. A manager with a careless attitude toward health and safety issues

Answer 22

d. A manager with a careless attitude toward health and safety issues

Question 23

What is a peril?

a. An event that caused the loss to occur
b. An action that caused a loss to be more severe
c. A situation that increased the frequency of loss
d. A condition related to the physical features of a risk

Answer 23

a. An event that caused the loss to occur

Question 24

What term is defined as the last link in a chain of events leading to the loss?

a. Remote cause
b. Effective cause
c. Proximate cause
d. Immediate Cause

Answer 24

d. Immediate Cause

Question 25

A high-risk industrial operation is an example of what type of risk? a. Niche risk b. Special risk c. Personal risk d. Commercial risk

Answer 25

b. Special risk

Question 26

Which of the following situations has the correct proximate cause of loss identified? a. An individual trips and falls on loose carpet on stairs; the individual’s footwear is the proximate cause. b. A cigarette tossed from an upper balcony lands on a lower balcony, causing a fire that damages the apartment unit; fire is the proximate cause. c. Water damage to the interior of a home during a severe storm with an old/unmaintained roof; the proximate cause is the storm. d. A negligent property owner does not clear snow from her sidewalks, and a visitor slips and falls; the fall is the proximate cause.

Answer 26

b. A cigarette tossed from an upper balcony lands on a lower balcony, causing a fire that damages the apartment unit; fire is the proximate cause.

Question 27

Insurance means the undertaking by one person or organization to ______ another person or organization against loss, or liability for loss, for a certain risk or peril as described in a policy, or to pay a sum of money or another thing of value when a specified event happens

Answer 27

Indemnify

Question 28

In addition to the Spread The Risk, list five supplementary functions of insurance:

Answer 28

Aid to: Security Aid to: Credit Promoting: Loss Prevention Activities Providing: Capital Providing: Employment

Question 29

An insurer must make good the amount of the insured’s financial loss – no more and no less” is a definition of

Answer 29

Indemnity

Question 30

People need to have what in a in property when they stand in such a legal relationship to it that they would be financially prejudiced by its loss or damage and is financially benefitted from its continued existence.

Answer 30

Insurable Interest

Question 31

Defined as the value of an equivalent piece of property of the same age and condition and subject to the same wear and tear as the property that was lost or destroyed. This takes into account for depreciation.

Answer 31

ACV Actual Cash Value

Question 32

Means that the insurer pays the cost of replacing the building, without any reduction for depreciation even of the value of the building was underestimated when the policy was set up.

Answer 32

Guaranteed Replacement Cost

Question 33

Also known as replacement cost, is the current market value of the cost to replace the lost or damaged insured property.

Answer 33

Replacement Value

Question 34

General Insurance is often referred to as _____ & ____ Insurance:

Answer 34

Property & Casualty

Question 35

Actual cash value is calculated in one of three ways

Answer 35

The cost to repair or replace less any depreciation Fair market value Consideration of all relevant evidence of the value of the damaged property

Question 36

Insurers can be divided into three basic groups:

Answer 36

Organizations operating for the profit of their owners Stock Companies Co-operative organizations operating for the benefit of their members only Government insurance organizations which can take the form of a government department or a crown corporation. Captive Insurers: provides insurance to and is controlled by its owners

Question 37

Under a ____ system of insurance, insured pay a fixed premium as their contribution to the communal fund. If the contributions of all policy holders are not sufficient to cover the losses of all policy holders, the shortfall is provided from the contributed capital of the investors.

Answer 37

stock company

Question 38

Stock Insurance companies achieve profit from two main sources

Answer 38

Underwriting gain Interests on investments

Question 39

What is an assessment or premium note mutual?

Answer 39

assessment is paid in the event that there is not enough money to cover losses.

Question 40

What is a factory mutual?

Answer 40

operate for the benefits of the members. Initially, it was only for factories. specializes in the field of fire prevention

Question 41

What is a stock mutual?

Answer 41

originally a mutual, now has shareholders and operates for a profit.

Question 42

What is Lloyds?

Answer 42

investors can be individuals/corporations that form a “syndicate”. syndicates hire uw specialists.

Question 43

What is a co-operative stock mutual?

Answer 43

Charges for operating expenses/profit. Can’t ask for premium until renewal. Premium set at the start of the policy period. Can issue dividend checks.

Question 44

With respect to an insurance company’s organization, list departments that are common to all companies:

Answer 44

Accounting and Finance Administration Marketing

Question 45

With respect to an insurance company’s organization, list departments that are common to INSURANCE companies:

Answer 45

Actuarial Claims Underwriting

Question 46

______ are responsible for analyzing the data and performing the calculations that determine the price of the various classes of insurance; they are responsible for the basic ________

Answer 46

Actuaries Ratemaking

Question 47

To insure again by transferring to another insurance company all or part of a liability assumed.

Answer 47

Reinsure

Question 48

When a company reinsures its liabilities with another, it ______ business. The amount ceded is called the ________.

Answer 48

Cedes Cession

Question 49

When a reinsurer cedes part of its business to another reinsurer, that is a ______ and the second reinsurer is the _____.

Answer 49

retrocession retrocessionaire

Question 50

There are two types of reinsurance with a brief explanation:

Answer 50

Treaty – an agreement between the insurer and reinsurer that provides for automatic reinsurance without the insurer having to submit every risk Facultative – reinsurance placed on an individual case by case basis

Question 51

To provide compensation for loss or expenses incurred

Answer 51

Indemnify

Question 52

An agreement or promise between two or more persons that is intended to be legally enforceable and is constituted by the acceptance by one party of an offer made to him by the other party, to do or to abstain from doing a specific act. The offer and acceptance may either be expressed or be inferred through the conduct of the parties.

Answer 52

Contract

Question 53

A person who is employed or authorized to act on behalf of another. Agents can be independent or direct writers.

Answer 53

Agent

Question 54

One who contracts with at least two or more insurance companies to sell their insurance policies to the public and is paid a commission based on the percentage of each premium paid. This includes a fee for each policy serviced.

Answer 54

Independent Agent

Question 55

is a person who represents only one company and sells for only one company, and is also paid on a commission basis similar to the independent agent

Answer 55

Direct Agent

Question 56

A licensed independent person or firm who acts on behalf of an insured placing business with insurance companies

Answer 56

Broker

Question 57

one who investigates insurance claims, makes recommendations regarding the payment of benefits from insurance policies, and negotiates payments and settlements

Answer 57

Adjuster

Question 58

the part of the premium that has not been used or earned; premium representing the unexpired portion of the policy.

Answer 58

Unearned Premium

Question 59

that portion of premium earned or charged for the period of time a policy remained effective.

Answer 59

Earned Premium

Question 60

A reserve fund of an insurance company or reinsurance company, representing the unearned premiums

Answer 60

Unearned Premium Reserve

Question 61

An interest that the insured must have in the subject matter of the insurance purchased so that if the event insured against occurs, the insured will suffer a pecuniary loss

Answer 61

Insurable Interest

Question 62

A contract, expressed or implied, to repay in the event of a loss. The insured neither gains or loses.

Answer 62

Indemnity

Question 63

The fair market value of property, taking into account factors that might augment or reduce the value of the property in question.

Answer 63

Actual Cash Value

Question 64

A clause that pays replacement costs even if these exceed the amount of insurance on the dwelling building if all conditions are met

Answer 64

Guaranteed Replacement Cost

Question 65

First party insurance that indemnifies the owner or user of property for its loss, or loss of its income producing ability, when the loss or damage is caused by a covered peril.

Answer 65

Property Insurance

Question 66

Loosely used to describe an area of insurance not particularly or directly concerned with life insurance, fire insurance. It most frequently refers to liability, burglary and plate glass insurance but may include fidelity and surety.

Answer 66

Casualty Insurance

Question 67

IBNR

Answer 67

funds set aside to pay for losses that have been incurred but not yet reported.

Question 68

an insurance company that is owned and operated by its policyholders, who assume the risks of profit and loss and establish a corporation for the purposes of insuring one another against the possibility of fortuitous loss.

Answer 68

Mutual Insurance Company

Question 69

Insurance Companies of the mutual type (as distinct from stock companies) that specialize in industrial risks and in loss prevention.

Answer 69

Factory Mutuals

Question 70

The amount of stock sold by a corporation.

Answer 70

Subscribed Stock

Question 71

Represents that part of the subscribed capital that has been paid in full by shareholders.

Answer 71

Paid-Up Capital

Question 72

The amount of money an insurance company gains as a result of its insurance operations. Excess of earned premiums collected over loss payments and expenses.

Answer 72

Underwriting Profit

Question 73

Funds that are set aside by an insurance company for the purpose of meeting obligations as they fall due. Such obligations would include liabilities for unearned premiums and the estimated costs of unpaid claims.

Answer 73

Reserves

Question 74

An amount carried as a liability in an insurers balance sheet representing, in respect of each claim, an amount equal to the estimated final settlement cost less any amounts already paid

Answer 74

Loss Reserve

Question 75

compensation based upon the amount of production; for example, independent insurance agents are compensated on the basis of a percentage of the premium.

Answer 75

Compensation

Question 76

One who specializes in the mathematics of insurance, mortality rates and the like

Answer 76

Actuary

Question 77

The process of compiling and analyzing data to establish rates that accurately reflect the level of risk.

Answer 77

Ratemaking

Question 78

The assertion of a demand made by one party against another for indemnity or restitution for personal injury or property damage

Answer 78

Claim

Question 79

One who adjusts losses on behalf of the insurance companies but is not employed by any one insurer.

Answer 79

Independent Adjuster

Question 80

Insurance purchased by an insurance company from another insurance company to provide it protection against large losses on cases it has already insured. Essentially, an insurance for insurance companies.

Answer 80

Reinsurance

Question 81

The measure of an insurers ability to issue contracts of insurance. Measured usually by the largest amount it will accept on a given risk or in certain situations, but the maximum volume of business that the company is prepared to accept.

Answer 81

Capacity

Question 82

What does insurance provide? a -A way to profit after a loss b- A way of sharing the losses of a few people among the many c- Something for people to complain about d- A financial burden for car owners

Answer 82

b - A way of sharing the losses of a few people among the many C81 Chapter 3 pg. 3-5

Question 83

Which of the following situations is an example of insurable interest in property? a. A homeowner whose personal property is damaged as a result of the fire in his home. b. The homeowner’s employer who provided the homeowner with a laptop that was damaged as a result of the fire. c. The homeowner’s neighbour who couldn’t work in his home for the day as a result of the next-door fire-fighting activities d. The neighbour’s car that was accidentally damaged by fire-fighters as they were putting away their fire-fighting equipment.

Answer 83

a. A homeowner whose personal property is damaged as a result of the fire in his home.

Question 84

Which of the following methods are commonly used to calculate the indemnity owed for property insurance policies? a. Market value and manufacturer’s suggested retail price (MSRP) b. Actual cash value (ACV) and replacement value c. Actual cash value (ACV) and purchase price d. Consumer Price Index (CPI) and replacement cost

Answer 84

b. Actual cash value (ACV) and replacement value

Question 85

What is a valued contract? a. A contract that provides business interruption insurance up to a specified limit per loss b. A contract that provides up to fifty percent of the total loss to the insured property c. A contract that provides a pre-agreed amount if there is a total loss of the property insured d. A contract that provides life insurance for an amount equal to the insured’s loss

Answer 85

c. A contract that provides a pre-agreed amount if there is a total loss of the property insured

Question 86

Which of the following perils is covered under an Extended Coverage (EC) Endorsement? a. Riot b. Flood c. Vandalism d. Earthquake

Answer 86

a. Riot & c. Vandalism

Question 87

Which party acts as an intermediary in arranging the insurance contract? a. Broker b. Lawyer c. Insurer d. Insured

Answer 87

a. Broker

Question 88

Which of the following terms is defined as a contract, expressed or implied, to repay in the event of a loss? a. Indemnity b. Subrogation c. Replacement d. Compensation

Answer 88

a. Indemnity

Question 89

When are valued contracts typically used? a. To insure items that do not require an appraisal to pre-determine their value. b. When an insurer has a history of good experience with a particular insured and wishes to reward the insured’s loyalty c. To insure items for which it would be difficult to determine a true value after a loss has occurred. d. When the principle of indemnity does not apply to a particular contract and needs to be overridden

Answer 89

c. To insure items for which it would be difficult to determine a true value after a loss has occurred - Valued contracts are used when it is otherwise difficult to determine a value after a loss. The predetermined value is agreed to and documented in the policy before a loss.

Question 90

Who deals with federal licensing and supervision of insurance companies? a. The Insurance Companies Act through the Office of the Superintendent of Financial Institutions b. The lieutenant-governor in council c. The minister of transportation d. The superintendent of insurance

Answer 90

a. The Insurance Companies Act through the Office of the Superintendent of Financial Institutions - The Canadian government has enacted the Insurance Companies Act, which deals with the federal licensing and supervision of insurance companies and solvency standards for insurers. The act is enforced through the Office of the Superintendent of Financial Institutions

Question 91

What is a valued contract? a. A contract that provides business interruption insurance up to a specified limit per loss b. A contract that provides up to fifty percent of the total loss to the insured property c. A contract that provides a pre-agreed amount if there is a total loss of the property insured d. A contract that provides life insurance for an amount equal to the insured’s loss

Answer 91

c. contract that provides a pre-agreed amount if there is a total loss of the property insured

Question 92

A person who may be financially prejudiced by damage to a property he owns is said to have a. Legal liability in the property b. Legal capacity in the property c. Insurable interest in the property d. Right of subrogation in the property

Answer 92

c. Insurable interest in the property

Question 93

An ___________ is a request for insurance. It introduces the applicant to the insurance company and recognizes the broker of record. It can be made ______ or in _______.  Some forms of Insurance do not require an application to be completed to issue a policy.  

Answer 93

Application Orally or Writing

Question 94

The duty of __________ is fundamental to the principle of Utmost Good Faith that underlies all insurance transactions. 

Answer 94

Disclosure

Question 95

A factual statement about the risk is known as a _________

Answer 95

Representation

Question 96

There are eight sections to an application: 

Answer 96

``` Name Insured Policy Term Subject of Insurance Loss Payees Loss History Prior Insurance Brokers Report Signatures ```

Question 97

The generic term for someone other than the named insured to whom the proceed of insurance will be paid.

Answer 97

Loss Payee

Question 98

A _________ is a special class of loss payee. Their interests are protected by a separate insuring clause, known as ta _________.

Answer 98

Mortgagee Mortgagee Clause

Question 99

With respect to prior insurance, what may indicate a potential concern for underwriters? (2)

Answer 99

- An unexplained gap in coverage | - Previous insurers declining, denying or refusing to renew insurance could indicate a moral hazard.

Question 100

The process of establishing rates for each class or insurance.

Answer 100

Ratemaking

Question 101

The ______ is the price of a unit of insurance. The _______ is arrived at multiplying the ______ times the amount of insurance purchased.

Answer 101

Rate Premium Rate

Question 102

Primarily, the determination of premiums required is an application of the principles derived from the Law of _________, __________ and ________. The probability of an event happening is spoken of as the chance an event may happen but cannot tell you which specific risks will suffer a loss.

Answer 102

Large Numbers Probability Theory Loss Probability