logo image

PRACTICE FINAL EXAM

Documents that can become part of an insurance policy include all of the following, EXCEPT:

A. Summary of available coverage options
B. Relevant statutory terms and provisions
C. Completed application
D. Insurer’s bylaws

A. Summary of available coverage options

All of the answer choices are documents that can become part of a policy, except for summary of available coverage options, which generally does not become part of the policy.

A company turnover rate well above company and industry averages could be a sign of

A. Employee slacking.
B. Financial problems that need to be addressed.
C. Claims-consciousness.
D. Personnel problems that need to be addressed.

D. Personnel problems that need to be addressed.

A company turnover rate well above company and industry averages could be a sign of personnel problems that need to be addressed.

Traditionally, the risk management professional’s role has been associated with loss exposures related to

A. Business risk.
B. Operational risk.
C. Pure risk.
D. Speculative risk.

C. Pure risk.

Traditionally, the risk management professional’s role has been associated with loss exposures related to pure risk.

The financial report for Hometown Insurer contains the following information:
Earned premiums $4,000,000
Written premiums $5,000,000
Net investment income $1,000,000
Incurred losses $3,000,000
Incurred underwriting expenses $2,000,000
What is Hometown Insurer’s loss ratio?

A. 20%
B. 30%
C. 50%
D. 75%

D. 75%

Hometown Insurer’s loss ratio is its incurred losses ($3,000,000) divided by its earned premiums ($4,000,000), or 75 percent.

A stock insurer is distinguished from a mutual insurer by the fact that

A. Owners are not necessarily insureds.
B. It seeks to generate a profit.
C. It is governed by a board of directors.
D. Owners have voting rights.

A. Owners are not necessarily insureds.

A stock insurer is distinguished from a mutual insurer by the fact that owners are not necessarily insureds.

A decrease in incurred losses will generally cause a decrease in all of the following, EXCEPT:

A. Combined ratio
B. Expense ratio
C. Overall ratio
D. Loss ratio

B. Expense ratio

A decrease in incurred losses would decrease the loss ratio, which is included in the combined ratio and the overall operating ratio. The expense ratio would not decrease.

A loss exposure is

A. The same thing as a peril.
B. Any condition that presents the possibility of a loss.
C. The same thing as a hazard.
D. Any condition that precludes the chance of loss.

B. Any condition that presents the possibility of a loss.

A loss exposure is any condition or situation that presents the possibility of a loss.

A group of policies with a common characteristic, such as a territory or type of coverage, or all policies written by a particular insurer, producer, or agency is referred to as

A. A book of business.
B. A coverage pool.
C. A line of business.
D. A policy group.

A. A book of business.

A group of policies with a common characteristic, such as a territory or type of coverage, or all policies written by a particular insurer, producer, or agency is referred to as a book of business.

Which one of the following is an example of material misrepresentation by Albert, a businessman applying for property insurance on a building he owns?

A. Albert does not tell the insurance agent he is about to file for bankruptcy.
B. Albert does not tell the insurance agent his building has a defective heating system that could explode at any time.
C. Albert tells the insurance agent he has owned the building for seventeen years, but he has actually owned it for eighteen years.
D. Albert tells the insurance agent the building is used to store steel, but it is actually used to store steel drums containing flammable liquids.

D. Albert tells the insurance agent the building is used to store steel, but it is actually used to store steel drums containing flammable liquids.

Albert tells the insurance agent the building is used to store steel, but it is actually used to store steel drums containing flammable liquids.

A policy provides coverage starting on April 1 with an annual premium of $800. How much premium is earned as of June 30?

A. $100
B. $200
C. $600
D. $800

B. $200

The earned premium is $200 because three months of coverage have been provided. 3/12 X $800 = $200

All commercial package policies begin with two components, namely, common policy conditions and common

A. Coverages.
B. Manuscripts.
C. Modules.
D. Declarations.

D. Declarations.

All commercial package policies begin with two components, namely, common policy conditions and common declarations. Adding the necessary forms to make up an individual coverage part that meets the insured’s specific needs completes the policy.

An agency bill process in which the producer is usually not required to pay the insurer until the premium is collected from the policyholder is known as

A. The statement basis.
B. The account current basis.
C. The item basis.
D. The direct bill basis.

C. The item basis.

An agency bill process in which the producer is usually not required to pay the insurer until the premium is collected from the policyholder is known as the item basis.

Which one of the following statements is correct?

A. Insurance agents are not subject to licensing requirements in most states.
B. Licensing requirements for insurance brokers are standardized among all the states.
C. Some states require insurance consultants, who give advice or opinions about polices, to be licensed.
D. Public adjusters, who represent insureds for a fee, are not subject to licensing requirements.

C. Some states require insurance consultants, who give advice or opinions about polices, to be licensed.

Some states require insurance consultants, who give advice or opinions about polices, to be licensed.

When a newspaper’s printing press is damaged, the company may spend extra money to have the newspaper printed on another company’s press. The additional cost of printing the newspaper is an example of which one of the following?

A. Reduction in value
B. Lost income
C. Extra expense
D. Altered condition

C. Extra expense

The additional cost of printing the newspaper is an example of an extra expense.

Earned premium for XYZ Insurance (XYZ) for the year was $500 million and incurred losses were $400 million. Incurred underwriting expenses were $60 million. XYZ had a net investment gain of $40 million for the year. Which one of the following is XYZ’s overall gain or loss from operations?

A. $80 million gain
B. $80 million loss
C. $200 million gain
D. $200 million loss

A. $80 million gain

XYZ’s overall gain or loss from operations is $500 million earned premium minus $400 million incurred losses minus $60 million underwriting expenses plus $40 million net investment gain, for an $80 million gain.

Which one of the following is a typical adjuster activity during the claim handling process?

A. Controlling the loss.
B. Contacting the insured.
C. Determining policy terms and conditions
D. Notify underwriters of larger loss exposures than were originally contemplated.

B. Contacting the insured.

Contacting the insured is a typical adjuster activity during the claim handling process.

Destructive competition in the insurance industry could result in

A. Oversupply of insurance.
B. Excess regulation.
C. Insurance shortages.
D. Inadequate regulation.

C. Insurance shortages.

Destructive competition in the insurance industry could result in insurance shortages.

Waking up on a cold February morning, Amy discovers the roads are icy and snow covered. Concerned about driving to work and possibly having an accident, she decides to take the day off. Amy’s decision is an example of which one of the following risk management techniques?

A. Loss prevention
B. Loss reduction
C. Avoidance
D. Separation

C. Avoidance

Amy’s decision is an example of avoidance.

Sometimes the existence of insurance encourages losses. The result of this phenomenon is that it

A. Increases competition in the industry.
B. Reduces agents’ commissions.
C. Increases the total cost of insurance.
D. Reduces the term of many policies.

C. Increases the total cost of insurance.

Sometimes the existence of insurance encourages losses. The result of this phenomenon is that it increases the total cost of insurance.

Insureds must share enough characteristics with each other to be grouped together when using

A. Class rating.
B. Judgment rating.
C. Experience rating.
D. Retrospective rating.

A. Class rating.

Insureds must share enough characteristics with each other to be grouped together when using class rating.

In good-faith claim handling, the insurer should give consideration to the insured’s interests

A. That are less than that given to a third party claimant’s interests.
B. That are no less than the government-mandated threshold for the government in which the litigation occurs.
C. While remaining impartial to all aspects.
D. That are greater than that given to the insurer’s interests.

C. While remaining impartial to all aspects.

The insurer should give consideration to the insured’s interests while remaining impartial to all aspects.

Liability coverage to individuals and families for bodily injury and property damage arising from the insured’s personal premises or activities is typically provided by

A. Personal liability insurance.
B. Auto liability insurance.
C. Professional liability insurance.
D. Commercial general liability insurance.

A. Personal liability insurance.

Liability coverage to individuals and families from bodily injury and property damage arising from the insured’s personal premises or activities is typically provided by personal liability insurance.

Chuck and Sally discovered they have flaking lead paint on the walls and trim inside their recently purchased house. They researched lead paint hazards and abatement techniques on the Internet and discovered the best action they can take is to remove loose paint chips and dust, replace the windows, and seal the walls with a paint designed for that purpose. Which one of the following risk management techniques does this activity involve?

A. Avoidance
B. Loss control
C. Retention
D. Noninsurance transfer

B. Loss control

Chuck and Sally are implementing risk control procedures.

Which one of the following is an example of general damages?

A. Hospital expenses
B. Lost wages
C. Prescription costs
D. Compensation for disfigurement

D. Compensation for disfigurement

An example of general damages is compensation for disfigurement.

Pravalt Construction Company pays less than its competitors for workers’ compensation insurance because Pravalt has had substantially fewer employee injuries than other firms in its class. This illustrates which one of the following benefits of insurance?

A. Comply with legal requirements
B. Efficient use of insured’s resources
C. Promote loss control activity
D. Reduce social burden

C. Promote loss control activity

Premium savings provide an incentive for an insured to control losses.

Jim’s Computer Repair will often take customers’ computers into the shop for repairs and service. While Jim has a customer’s computer in his possession, he is in the role of

A. A bailee.
B. A bailor.
C. A secured lender.
D. An agent.

A. A bailee.

A bailee is a person who holds property entrusted to them by others.

An essential element of a contract is that the parties to the contract are in agreement, which is

A. The name of the insurer issuing the policy.
B. A general agreement stating that the insurer is providing the coverage subject to payment of premium and to the terms of the policy.
C. The name and mailing address of the insured.
D. A general agreement stating the insurer’s duty to pay damages and defense costs subject to the terms of the policy.

B. A general agreement stating that the insurer is providing the coverage subject to payment of premium and to the terms of the policy.

An agreement includes a general agreement stating that the insurer is providing the coverage subject to payment of premium and to the terms of the policy.

Manufacturing Company experienced a loss on its premises when expensive equipment was destroyed by fire. A provision in its insurance contract maintains that the insurer has a right to enter the premises in the event of a reported loss to inspect the damaged property. Manufacturing Company has refused to grant entry to the insurer’s claim representative. Consequently, the insurer is considering whether it can deny coverage for the claim. Which one of the following best explains why Manufacturing Company’s insurer may be able to deny coverage under the principle that an insurance policy is a conditional contract?

A. The insured has no power to alter the written requirement to allow inspection.
B. The insurer may not be able to validate a covered loss and the actual value of the loss without inspection.
C. The insured must fulfill its duty to allow an inspection before a claim is paid.
D. The insurer may not be able to satisfy itself that the fire was not caused by arson without an inspection.

C. The insured must fulfill its duty to allow an inspection before a claim is paid.

The concept of a contract of indemnity requires the insured only to pay an amount directly related to the amount of a loss. An insurance policy is a conditional contract because parties only have to perform under certain conditions. One of these conditions is that the insured must allow an inspection before a claim is paid.

A taxi firm maintains a few spare vehicles to keep all drivers on the road even if one vehicle needs repair. Which one of the following identifies the risk management technique being used in this example?

A. Diversification
B. Avoidance
C. Duplication
D. Separation

C. Duplication

Duplication is the risk management technique used in this example.

A goal of the claims function is to support the profit goal of the

A. Insured.
B. Claimant.
C. Insurer.
D. Policyholder.

C. Insurer.

A goal of the claim function is to support the profit goal of the insurer.

A type of insurance rate that reflects the unique characteristics of an insured or the insured’s property is known as

A. A judgment rate.
B. An individual rate.
C. A class rate.
D. An experience rate.

B. An individual rate.

A type of insurance rate that reflects the unique characteristics of an insured or the insured’s property is known as an individual rate.

One way for claim managers to help maintain an insurer’s underwriting profit is to

A. Retain high-priced experts whenever possible.
B. Achieve the lowest settlements possible.
C. Establish appropriate spending policies.
D. Grant claim staff complete autonomy as to spending decisions.

C. Establish appropriate spending policies.

One way for claim managers to help maintain an insurer’s underwriting profit is to establish appropriate spending policies.

Individuals and families benefit from effective risk management in which one of the following ways?

A. Increasing their personal cash flows by retaining rather than insuring their property exposures
B. Continuing activities following an accident or other loss, and thus reducing inconvenience.
C. Stimulating economic growth because fewer losses mean that more funds are available for other uses
D. Creating a positive effect on an insurer’s underwriting results

B. Continuing activities following an accident or other loss, and thus reducing inconvenience.

Individuals and families benefit from effective risk management by continuing activities following an accident or other loss, and thus reducing inconvenience.

One of the roles of underwriting management is arranging reinsurance. Which one of the following statements explains how treaty reinsurance helps an insurer meet its obligations?

A. The reinsurer automatically assumes a portion of all of the primary insurer’s insurance that is eligible under the treaty.
B. The reinsurer delegates underwriting authority to the primary insurer, helping the primary insurer achieve consistent results.
C. The reinsurer monitors the results of the primary insurer’s underwriting guidelines to ensure compliance.
D. The reinsurer assumes a portion of the losses from all policies that have been specifically listed and insured under the treaty.

A. The reinsurer automatically assumes a portion of all of the primary insurer’s insurance that is eligible under the treaty.

By assuming a portion of all of the primary insurer’s insurance, treaty reinsurance helps an insurer meet its obligations.

Which one of the following is an operating cost of insurers?

A. An insured’s funds that could be invested elsewhere if purchasing insurance were not necessary
B. Producers’ commissions
C. Increased property losses because people have insurance
D. Increased liability loss payments because people have insurance

B. Producers’ commissions

Producers’ commissions are among the operating costs of insurers.

Sho Ching is risk manager for Market Sales Company. Market Sales owns a large fleet of autos used by the sales employees. The fleet is insured with $1,000 physical damage deductibles. Sho Ching is concerned about an increasing frequency of auto accidents in recent years. Which one of the following is the best risk management option for addressing the increased frequency of accidents from the fleet of autos?

A. Decrease the deductible to $500
B. Increase the deductible to $2,000
C. Implement loss reduction programs
D. Implement loss prevention programs

D. Implement loss prevention programs

The best management option for addressing the increased frequency of accidents is to implement a loss prevention program.

Sean drove his vehicle even though his doctor advised him not to drive because the medication he was taking caused drowsiness. While driving his vehicle, Sean was involved in an accident causing serious injury to himself and others. In this situation, Sean committed a

A. Criminal act.
B. Breach of contract.
C. Tort.
D. Assault.

C. Tort.

In this situation, Sean committed a tort.

The size of an employer’s loss exposure for workers compensation insurance is based on

A. The extent of its operations.
B. The number of its employees.
C. The final premium audit.
D. The amount of its payroll.

D. The amount of its payroll.

The size of an employer’s loss exposure for workers compensation insurance is based on the amount of its payroll.

All of the following correctly describe reasons for the use of independent adjusters, EXCEPT:

A. Insurers may use independent adjusters when special skills and expertise are needed, for example to investigate aircraft accidents.
B. In the case of a catastrophic loss such as a hurricane, an insurer may not have sufficient staff to manage the large number of claims, and may use independent adjusters.
C. In some areas it is not economically feasible to set up claim offices, and insurers may contract with independent adjusters to handle claims in these remote areas.
D. The insured may retain an independent adjuster if settlement negotiations with the insurer are not progressing satisfactorily.

D. The insured may retain an independent adjuster if settlement negotiations with the insurer are not progressing satisfactorily.

The insured would not retain an independent adjuster if settlement negotiations with the insurer were not progressing satisfactorily. (Independent adjusters handle claims for insurers for a fee, not for insureds.)

Analyzing loss exposures requires

A. Understanding how a household or organization operates.
B. Estimating how large the losses may be and how often they may occur.
C. A physical inspection of all locations, operations, and maintenance routines.
D. Interviews and the analysis of a flowchart.

B. Estimating how large the losses may be and how often they may occur.

Analyzing loss exposures requires estimating how large the losses may be and how often they may occur.

Because the agent represents the insurer, the law presumes that

A. Agents are employees of the insurer.
B. Knowledge acquired by the insurer is knowledge acquired by the agent.
C. Knowledge acquired by the agent is knowledge acquired by the insurer.
D. All communications between the agent and the insurer will be in writing.

The law presumes that knowledge acquired by the agent is knowledge acquired by the insurer.
Telephone Company installs fiber-optic cable using a trenching machine that digs a trench, buries the cable, fills in the trench, and reseeds, all in one pass. The trenching machine can install cable in a fifty-home neighborhood in one day. Soon after the trenching machine passes by, a member of the community steps on the trenched area, sinks in, and breaks his leg. This is an example of a liability loss exposure arising out of

A. Premises.
B. Products.
C. Completed operations.
D. Mobile equipment.

C. Completed operations.

This is an example of a liability loss exposure arising out of completed operations.

The Bakery, an applicant for commercial property insurance, has experienced a series of property losses over the past three years. In order to find this applicant viable, the underwriter agrees to increase the property deductible. This type of underwriting modification is known as

A. Requiring loss control measures.
B. Using schedule rating modifications.
C. Amending policy terms and conditions.
D. Using facultative reinsurance.

C. Amending policy terms and conditions.

This type of underwriting modification is known as amending policy limits and conditions.

Which one of the following is an element of a loss exposure?

A. The verification of risk
B. A cause of loss
C. The probability of a loss
D. The occurrence of a loss

B. A cause of loss

A cause of loss is an element of a loss exposure.

All of the following are types of private insurers, EXCEPT:

A. Stock insurers
B. Mutual insurers
C. State workers compensation funds
D. Reciprocal insurance exchanges

C. State workers compensation funds

A state workers compensation fund is not a private (nongovernmental) insurer.

The death of a shareholder in a close corporation is often a significant event for the corporation for which one of the following reasons?

A. Ownership in a close corporation is typically concentrated in just the few major shareholders, most of whom are also managers.
B. The death or disability of one of the shareholders generally results in payment of dividends to the remaining shareholders.
C. Key shareholders are paid high salaries and are difficult to replace.
D. Shareholders in a close corporation also serve on the board of directors resulting in a disparity of shareholder votes.

A. Ownership in a close corporation is typically concentrated in just the few major shareholders, most of whom are also managers.

Ownership in a close corporation is typically concentrated in just the few major shareholders, most of whom are also managers.

Which one of the following statements is correct regarding characteristics of ideally insurable loss exposures?

A. Ideally, loss exposures should be spread across a large number of similar exposure units within the same period.
B. Intertemporal risk transfer, the spreading of risk through time, requires a large number of similar exposure units.
C. One requirement of the law of large numbers is that past events occur under different circumstances in the future.
D. Loss exposures such as homes and automobiles generally will not meet the ideally insurable requirement that the exposure be of a large number of similar exposure units.

A. Ideally, loss exposures should be spread across a large number of similar exposure units within the same period.

Ideally, loss exposures should be spread across a large number of similar exposure units within the same period.

Which one of the following is true regarding enterprise-wide risk management (ERM)?

A. ERM is an approach to risk management that focuses primarily on loss exposures associated with pure risk.
B. In practice, implementation of ERM occurs at the departmental or business unit level.
C. Implementation of ERM is fairly consistent among organizations, regardless of their size, nature, or complexity.
D. ERM is an approach to managing all of an organization’s key risks and opportunities.

D. ERM is an approach to managing all of an organization’s key risks and opportunities.
All for-profit organizations are exposed to net income losses. Net income is defined as

A. Total assets minus total liabilities.
B. Total revenue minus total expenses.
C. Total profit minus total expenses.
D. Total income minus indirect losses.

B. Total revenue minus total expenses.

Net income is defined as total revenue minus total expenses.

A reservation of rights letter

A. Lists all of the rights that an insurer has under an insurance policy.
B. Advises the insurer that the insured has made a claim, but retains the right to withdraw the claim later.
C. Lists all of the rights that an insured has under an insurance policy.
D. Advises the insured that the insurer is investigating the claim but retains the right to deny coverage later.

D. Advises the insured that the insurer is investigating the claim but retains the right to deny coverage later.

A reservation of rights letter advises the insured that the insurer is investigating the claim, but retains the right to deny coverage later.

A producer will generally review a company’s loss run report while performing which one of the following functions?

A. Claims handling
B. Sales
C. Risk management review
D. Customer service

C. Risk management review
The property casualty insurance policy provisions that indicate who or what is covered, and where and when coverage applies, are found in the

A. Definitions.
B. Declarations.
C. Insuring agreements.
D. Miscellaneous provisions.

B. Declarations.

The Declarations indicates when or what is covered and when and where coverage applies.

In liability claims, the claimant is referred to as the

A. Primary party.
B. First party.
C. Second party.
D. Third party.

D. Third party.

In liability claims, the claimant is referred to as the third party.

Which one of the following statements is correct with respect to characteristics of insurable loss exposures?

A. If the insured has control over whether or when a loss will occur, the risk is attractive to insure.
B. If losses are not fortuitous, premiums could increase for all policyholders.
C. If a loss is fortuitous, the chance of loss could increase as soon as a policy is issued.
D. Private insurance is suitable for risks where the probability and timing of loss is known.

B. If losses are not fortuitous, premiums could increase for all policyholders.

If losses are not fortuitous, premiums could increase for all policyholders.

Households and organizations should review their current insurance programs with their agent or broker each year. This is done as part of which one of the following steps in the risk management process?

A. Identifying loss exposures
B. Analyzing loss exposures
C. Monitoring results and revising the risk management program
D. Selecting the appropriate risk management techniques

C. Monitoring results and revising the risk management program

Reviewing current insurance programs with an agent or broker each year is performed during Step 6:—Monitoring results and revising the risk management program.

Which one of the following describes the effect underwriting standards can have on premium?

A. If more causes of loss are covered, premiums will increase.
B. Insurers can lower premiums for better-than-average risks.
C. The more services provided, the more premiums will increase.
D. Reduced cash flow drives up premium interest charges.

B. Insurers can lower premiums for better-than-average risks.

Underwriting standards refer to selectivity in choosing who to insure. Insurers can lower premiums for better-than-average risks.

Which one of the following is generally exempt from state insurance regulations pertaining to policy forms and rates?

A. Surplus line insurers
B. Workers compensation insurers
C. Commercial property insurers
D. Health insurers

A. Surplus line insurers
In commercial insurance policies, several different individuals and businesses may be listed as named insureds.Which one of the following is the term used to refer to the party that is responsible for paying premiums and that has the right to receive any return premiums and cancel the policy?

A. The named insured
B. The contact person
C. The first named insured
D. The authorized agent

C. The first named insured

The first named insured is responsible for paying premiums and has the right to receive any return premiums and to cancel the policy.

Produce, such as apples or grapes, may be priced by the unit or by the pound. In insurance, these measures are similar to

A. Exposure units.
B. Rates.
C. Premiums.
D. Construction cost index.

A. Exposure units.

Units, pounds, and exposure units are all multiplied by the rate to arrive at the cost (premium).

Bonnie operates a small produce store that sells a lot of grapes and bananas. The store has a long history of slip-and-fall claims against it. Bonnie may look to the E&S market for liability coverage because

A. Of the store’s poor loss experience..
B. She needs high limits of coverage.
C. Her exposure is unique.
D. She needs unusually broad coverage.

A. Of the store’s poor loss experience..

Bonnie’s insurance needs are nonstandard because her poor loss experience makes her unattractive to the standard insurance market. An excess and surplus lines insurer may be willing to write her insurance with a substantially higher premium than a standard insurer would charge.

An independent business owner or firm that sells insurance by representing customers rather than insurers is

A. An insurance broker.
B. A managing general agency.
C. An exclusive agent.
D. A direct writer.

A. An insurance broker.

An independent business owner or firm that sells insurance by representing customers rather than insurers is an insurance broker.

Unfair trade practices acts involve which one of the following insurance company operations?

A. Rate filings
B. Coverage form design
C. Underwriting
D. Financial reporting

C. Underwriting

Unfair trade practices acts involve the insurance company operations of sales, underwriting, and claim handling.

One of the greatest challenges for an insurer dealing with a catastrophe is staffing. All of the following are likely responses to this challenge, EXCEPT:

A. Identifying and training staff from non-claim areas to assist.
B. Establishing relationships with independent adjusters to help manage overflow.
C. Purchasing catastrophe reinsurance.
D. Bringing in catastrophe teams of claim representatives from other regions.

C. Purchasing catastrophe reinsurance.

Purchasing reinsurance is not a means to meet staffing needs for catastrophe claims.

The state of Maryland operates a residual auto plan (the Maryland Auto Insurance Fund—MAIF) that provides coverage for drivers who are unable to obtain coverage from private insurers. Which one of the following is the best rationale for the MAIF program?

A. Auto insurance for high-risk drivers is profitable, and the program enables the state to share in the profits.
B. Auto insurance is compulsory, and the program makes it possible for all drivers to have reasonably priced insurance.
C. Private insurers face limited competition, and the state increases competitive pressures by operating this type of plan.
D. Private insurers overcharge for auto insurance, and the state provides a low-cost alternative.

B. Auto insurance is compulsory, and the program makes it possible for all drivers to have reasonably priced insurance.

Maryland is involved in insurance to facilitate compulsory insurance purchases.

A neighbor has sued Andy for property damage that is potentially covered under Andy’s homeowners liability coverage. Even if this lawsuit is found to be groundless, Andy’s insurer will still probably be obligated to pay

A. Special damages.
B. General damages.
C. Defense costs.
D. Compensatory damages.

C. Defense costs.

The insurer will still end up paying defense costs.

Many homeowners policies include an appraisal provision that describes a dispute resolution process involving two appraisers and an umpire. Which one of the following statements concerning this appraisal process is true?

A. The amount of a loss in dispute is established if both appraisers agree on the amount.
B. Only the insured can demand an appraisal in the event of a disagreement.
C. The appraisal process determines whether coverage applies to a loss.
D. The insurer pays all expenses associated with the appraisal process.

A. The amount of a loss in dispute is established if both appraisers agree on the amount.
On November 1, Peafowl Insurance Company issued a one-year business auto policy to Tri-State Painting Company with a premium of $24,000. What was the written premium for this policy as of December 31?

A. $ 4,000
B. $ 6,000
C. $20,000
D. $24,000

D. $24,000

The written premium was $24,000, the amount the insured was billed at the beginning of the policy period.

Amy has decided to apply a retention risk management technique to reduce her automobile insurance premium. She is deleting the physical damage coverage (collision and other-than-collision) on her car. Her car is currently worth $3,000. She will be able to save $250 every six months. Based on informal guidelines for selecting risk management techniques, is this a good decision?

A. Yes, Amy will save $500 per year.
B. Yes, if Amy can afford to lose $3,000.
C. No, because the plan does not include loss control.
D. No, this type of coverage is required in most states.

B. Yes, if Amy can afford to lose $3,000.

Based on informal guidelines for selecting risk management techniques, is this a good decision? Yes, if Amy can afford to lose $3,000.

Which one of the following is true regarding loss histories?

A. Changing environments have little effect on the quality of loss histories.
B. Changes in an organizations operations have little effect on the quality of loss histories.
C. Loss histories are not commonly used to identify loss exposures.
D. The quality of loss histories depends on whether they are organized and consistent.

D. The quality of loss histories depends on whether they are organized and consistent.
Erin has recently graduated from college and relocated to Chicago. She has purchased a car and rented an apartment, and now needs to purchase insurance. Erin is looking for minimum coverages and the lowest price available. Which one of the following is likely the best distribution system to meet Erin’s needs?

A. Financial institution
B. Regional broker
C. Independent agent
D. Direct writer Internet search

D. Direct writer Internet search
The capital of a stock insurance company comes primarily from

A. Sale of insurance policies.
B. Return on invested premium reserves.
C. Sale of company stock.
D. Leveraging the difference from when a premium is paid in and when a claim is paid out.

C. Sale of company stock.

The capital of a stock insurance company comes primarily from the sale of company stock.

The insurer’s rights to recover and sell or otherwise dispose of insured property on which the insurer has paid a total loss are called

A. Fiduciary rights.
B. Salvage rights.
C. Constructive rights.
D. Catastrophe rights.

B. Salvage rights.

Salvage rights allow the insurer to recover and sell or otherwise dispose of insured property on which the insurer has paid a total loss.

Almost all property insurance policies exclude coverage for losses from war and nuclear hazard because

A. There might not be enough claim adjusters available in the event of a loss.
B. It is against public policy to cover losses from war and nuclear hazard.
C. Insurance industry funds might not be adequate to pay all losses caused by war or nuclear hazard.
D. It is illegal to cover losses from war and nuclear hazard.

C. Insurance industry funds might not be adequate to pay all losses caused by war or nuclear hazard.

Almost all property insurance policies exclude coverage for losses from war and nuclear hazard because the insurance industry funds might not be adequate to pay all losses caused by war or nuclear hazard.

Which one of the following types of financial statements shows the financial position of an insurance company at any particular point in time?

A. Income statement
B. Balance sheet
C. Sales report
D. Cash flow report

B. Balance sheet

The balance sheet shows an insurer’s financial position at a particular point in time.

Agencies, such as the Federal Trade Commission, state public utility commissions, and local zoning boards, derive their authority from

A. Criminal law.
B. Constitutional law.
C. Common law.
D. Statutory law.

D. Statutory law.

Agencies, such as the Federal Trade Commission, state public utility commissions, and local zoning boards, derive their authority from statutory law.

How does a stock insurer differ from a reciprocal insurance exchange?

A. Stockholders own a stock insurer. Subscribers own a reciprocal insurance exchange.
B. A stock insurer provides insurance to its policyholder-owners. A reciprocal insurance exchange provides insurance to investors.
C. Both are owned by stockholders. However, the reciprocal insurance exchange provides coverage to investors.
D. Both are formed to provide profit to investors. However, the stock insurer is managed through a board of directors.

A. Stockholders own a stock insurer. Subscribers own a reciprocal insurance exchange.
The focus of line underwriter is

A. Managing the risk selection process.
B. Conducting education and training.
C. Evaluating new submissions and renewal underwriting.
D. Securing and maintaining treaty reinsurance.

C. Evaluating new submissions and renewal underwriting.

The focus of line underwriter is evaluating new submissions and renewal underwriting.

Brad is a claim representative and has received a claim from an insured. The insured backed his car into a post and slightly damaged the bumper. Brad does a quick estimate and sees that the damage probably does not even exceed the insured’s deductible, so he puts the claim aside to work on a larger more complicated claim. After four weeks of hearing nothing, the insured eventually gets upset and contacts Brad’s manager and the state insurance department. Which one of the following best addresses the question of whether Brad’s actions likely constitute a violation of the states unfair claims practices act?

A. Yes, because most of these laws generally prohibit failure to acknowledge and promptly respond to communications about a claim.
B. Yes, because most of these laws require that insurers contact the insured about a claim within one week of first receiving the claim report.
C. No, because Brad has not officially declined the claim or told the insured that the amount of the claim is less than the insured’s deductible and therefore is not subject to these laws.
D. Yes, because most of these laws prohibit claim representatives from making their own estimates as to the damage incurred and require that a licensed estimator make the estimate.

A. Yes, because most of these laws generally prohibit failure to acknowledge and promptly respond to communications about a claim.
Jerry is an experienced claim adjuster who handles claims for Jackson Insurance Company during hurricane season when Jackson’s staff adjusters need assistance. Jerry is

A. A public adjuster.
B. A third-party adjuster.
C. An independent adjuster.
D. A hurricane adjuster.

C. An independent adjuster.

Jerry is an independent adjuster who handles claims for insurers for a fee.

Given the complexity of commercial insurance, which one of the following is best suited for its distribution?

A. Internet
B. Direct response
C. Group marketing
D. Independent agencies

D. Independent agencies
A rating plan available to commercial insurance applicants that awards debits and credits to a submission based on specific categories is known as a(n)

A. Experience rating plan.
B. Financial rating plan.
C. Retrospective rating plan.
D. Schedule rating plan.

D. Schedule rating plan.

A rating plan available to commercial insurance applicants that awards debits and credits to a submission based on specific categories is known as a schedule rating plan.

Subrogation is the insurer’s right to

A. Recover its claim payment from the responsible party.
B. Drop a claim in exchange for an agreed amount of money.
C. Estimate the value of the damaged property.
D. Transfer coverage to a third party.

A. Recover its claim payment from the responsible party.

Subrogation is the insurer’s right to recover its claim payment from the responsible party.

Insurers handling catastrophe claims should be prepared for

A. Claimants who are not eager to assert their rights.
B. Mortgagees that are eager to abbreviate their procedures.
C. News media eager to promote aggressive behavior.
D. Claimants who are aggressive in their pursuit of settlement.

D. Claimants who are aggressive in their pursuit of settlement.

Insurers handling catastrophe claims should be prepared for claimants who are aggressive in their pursuit of settlement.

Which one of the following is a federal insurance plan in which the government acts as a partner with a private insurer that sells insurance and pays the claims, and then reimburses the insurer for the portion of losses that exceeds premiums and investment income?

A. Beach and Windstorm Plan
B. National Flood Insurance Program (NFIP)
C. Terrorism Risk Insurance Program (TRIP)
D. Residual Auto Plan

B. National Flood Insurance Program (NFIP)

In the National Flood Insurance Program (NFIP), the government acts as a partner with a private insurer that sells insurance and pays the claims, and then reimburses the insurer for the portion of losses that exceeds premiums and investment income.

All of the following are true statements about restrictions on cancellation or nonrenewal of insurance, EXCEPT:

A. Most states require that insurers provide notification of cancellation or nonrenewal to the insured within a specified period.
B. Restrictions on cancellation and nonrenewal help insurance serve its purpose of providing protection for policyholders.
C. Most states require that insureds wait until the end of the policy period to cancel their policies.
D. Restrictions on cancellation and nonrenewal limit the speed with which underwriters can stop providing coverage for insureds who become undesirable.

C. Most states require that insureds wait until the end of the policy period to cancel their policies.

State laws regarding cancellation and nonrenewal apply to insurers, not insureds.

Need essay sample on "PRACTICE FINAL EXAM"? We will write a custom essay sample specifically for you for only $ 13.90/page

Can’t wait to take that assignment burden offyour shoulders?

Let us know what it is and we will show you how it can be done!
×
Sorry, but copying text is forbidden on this website. If you need this or any other sample, please register

Already on Businessays? Login here

No, thanks. I prefer suffering on my own
Sorry, but copying text is forbidden on this website. If you need this or any other sample register now and get a free access to all papers, carefully proofread and edited by our experts.
Sign in / Sign up
No, thanks. I prefer suffering on my own
Not quite the topic you need?
We would be happy to write it
Join and witness the magic
Service Open At All Times
|
Complete Buyer Protection
|
Plagiarism-Free Writing

Emily from Businessays

Hi there, would you like to get such a paper? How about receiving a customized one? Check it out https://goo.gl/chNgQy