Fundamentals Of Insurance (Ins 21): Chapters 1-3 Quiz​

Liability insurance is the correct answer because it provides protection for individuals who may be held responsible for causing harm or damage to others. This type of insurance covers the costs associated with legal claims and compensations that may arise from such incidents. It is designed to safeguard individuals from financial losses that may result from lawsuits or claims filed against them for injuries or property damage caused by their actions.

The primary objectives of insurance regulation include rate regulation, solvency surveillance, and consumer protection. Rate regulation ensures that insurance companies charge fair and reasonable rates to policyholders. Solvency surveillance focuses on monitoring the financial stability of insurance companies to protect policyholders from insolvency. Consumer protection aims to safeguard the interests and rights of insurance consumers, ensuring they receive fair treatment and have access to accurate information. Therefore, the correct answer is "All of the Above."

The National flood insurance program is an example of a Federal government program that provides coverage for loss exposures that private insurers have avoided due to the potential for catastrophic loss. This program specifically focuses on providing insurance coverage for flood-related damages, which are often excluded from standard homeowners' insurance policies. By offering this coverage, the program aims to protect homeowners and communities from the financial burden of flood damage, which can be devastating and costly.

An insurance policy is a legal agreement between the insured and the insurer. It outlines the rights and responsibilities of both parties involved in the insurance contract. The insured is the individual or entity that purchases the insurance policy, while the insurer is the company that provides the coverage and assumes the risk. The insured pays premiums in exchange for the insurer's promise to provide financial protection in the event of covered losses or damages. Therefore, the correct answer is "The insured and the insurer."

The correct answer is "All of the above." Insurance provides benefits such as satisfying legal requirements, reducing social burdens, and reducing the insured's financial uncertainty. By having insurance, individuals can meet legal obligations, such as having car insurance. Insurance also helps to alleviate the burden on society by providing financial support in case of accidents or emergencies. Moreover, insurance reduces financial uncertainty by providing coverage for unexpected events, giving individuals peace of mind and protection against potential financial losses.

Insurance rates should reflect the insured's loss exposure because the purpose of insurance is to provide financial protection against potential losses. Insurance companies determine rates based on the level of risk a policyholder presents. If the insured has a higher likelihood of experiencing losses, such as living in an area prone to natural disasters or having a history of accidents, the insurance rates will be higher to compensate for the increased risk. Conversely, if the insured has a lower risk of losses, such as a good driving record or living in a safe neighborhood, the rates will be lower.

The premium can be calculated by multiplying the rate by the number of exposure units. In this case, the rate is $15 and there are 10 exposure units. Therefore, the premium would be $15 x 10 = $150.

If there were no exposures to loss, then there would be no need to transfer the costs of losses to an insurer. Exposures to loss refer to situations or circumstances that could potentially result in a loss or damage. Without any exposures to loss, there would be no risk or need for insurance coverage. Therefore, transferring costs to an insurer would be unnecessary in this scenario.

Commercial General Liability Insurance covers liability loss exposures arising from a business organization's premises and operations, its products, or its completed work. This type of insurance provides coverage for bodily injury, property damage, personal injury, and advertising injury claims. It protects businesses from potential lawsuits and financial losses resulting from accidents or injuries that occur on their premises or as a result of their operations. Professional Liability Insurance, on the other hand, covers liability related to professional services, while Auto Liability Insurance covers liability for accidents involving vehicles. None of the above options provide the same comprehensive coverage as Commercial General Liability Insurance.

The process of making and implementing decisions to handle loss exposure is known as risk management. This involves identifying potential risks, assessing their impact, and developing strategies to mitigate or transfer those risks. By effectively managing risks, organizations can minimize financial losses and protect their assets. Loss reduction and loss prevention measures are part of risk management, but they do not encompass the entire process. Therefore, the correct answer is risk management.

Lloyd's of London is not related to State Government Insurance Programs because it is not a government-run insurance program. Lloyd's of London is an insurance market located in London, England, where various insurance syndicates underwrite different types of insurance policies. It is not specific to any state or government jurisdiction. On the other hand, workers compensation, unemployment insurance programs, and automobile insurance plans are all examples of state government insurance programs that provide coverage for specific situations or risks within a particular state.

The correct answer is National Association of Insurance Commissioners. The NAIC is an organization that is responsible for regulating the insurance industry in the United States. They work to ensure that insurance companies are operating in a fair and ethical manner, and they also provide resources and support to insurance commissioners in each state. The NAIC plays a crucial role in maintaining the stability and integrity of the insurance market.

Net Income Loss is called as "Reduction in Revenue, an increase in expenses" because when a company experiences a net income loss, it means that their revenue has decreased while their expenses have increased. This leads to a negative net income, indicating that the company is not generating enough revenue to cover its expenses.

Stock insurers are private insurers because they are owned by shareholders and operate for profit. They sell insurance policies to individuals and businesses and assume the risk of potential losses in exchange for premium payments. Unlike government insurance programs, stock insurers are not operated or regulated by the federal or state government. Instead, they are governed by their own management and are subject to industry regulations and oversight. Therefore, the correct answer is Private Insurers.

Unemployment insurance programs are operated by state governments. These programs provide financial assistance to individuals who have lost their jobs and meet certain eligibility criteria. Each state has its own unemployment insurance program, which is funded through taxes paid by employers. State governments are responsible for administering these programs, determining benefit amounts, and ensuring that individuals receive the assistance they need during periods of unemployment. While federal and local governments may have their own employment-related programs, the primary responsibility for unemployment insurance lies with state governments.

An actuary is a person who uses complex mathematical methods and technology to analyze loss data and other statistics and to develop systems for determining insurance rates. They play a crucial role in the insurance industry by assessing risks and determining appropriate premiums for policies. Actuaries use their expertise in mathematics, statistics, and financial theory to evaluate the likelihood of future events and their potential financial impact. They help insurance companies make informed decisions and ensure the financial stability of the industry.

Claimants are not likely to monitor an insurer's financial performance because they are individuals or entities who have filed an insurance claim and are seeking compensation for a loss. Their primary concern is to receive the appropriate payout for their claim, rather than monitoring the financial health of the insurer. On the other hand, regulators, agents, and shareholders have a vested interest in monitoring the insurer's financial performance for various reasons such as ensuring compliance with regulations, assessing business opportunities, and protecting their investment, respectively.

Demutualization is the process by which a mutual insurer, owned by its policyholders, converts into a stock company that is then owned by its stockholders. This process involves the transformation of the ownership structure from a mutual form to a stock form, allowing the company to issue shares to outside investors and potentially raise additional capital. Demutualization typically occurs when a mutual insurer wants to access the public capital markets, enhance its financial flexibility, or improve its competitiveness in the industry.

Private insurers are reluctant to provide coverage for food and crop losses due to the large number of exposure units. This means that there are a significant number of potential risks or events that could result in losses, making it difficult for insurers to accurately assess and price the coverage. With a large number of exposure units, insurers may face challenges in managing and predicting the potential losses, leading to their reluctance in providing coverage for such risks.

Lloyds belongs to one of the major groups called syndicates. Syndicates at Lloyds are groups of underwriters who come together to share the risk and underwrite insurance policies. Each syndicate is managed by a managing agent and has its own capital and underwriting capacity. Lloyds syndicates play a crucial role in the insurance market by providing coverage for various risks and contributing to the overall stability and competitiveness of the industry.

Disability Insurance is primarily income replacement insurance that pays out either weekly benefits or monthly benefits. This means that if a person becomes disabled and is unable to work, they can receive regular payments to help replace their lost income. The specific payment schedule, whether weekly or monthly, would depend on the terms of the insurance policy.

Excess and surplus lines insurance is usually written by non-admitted insurers. These insurers are not licensed or authorized to conduct business in a particular state, but they are allowed to provide coverage for risks that are considered too high or unusual for admitted insurers. Non-admitted insurers provide coverage for unique or specialized risks that may not be covered by traditional insurance companies. This type of insurance allows businesses and individuals to obtain coverage for risks that may be difficult to insure through standard insurance channels.

An insurer's income statement shows the financial performance of the company over a specific period. It includes earned premiums, which are the premiums collected from policyholders during that period. It also includes incurred losses, which are the losses the insurer has experienced due to claims made by policyholders. Underwriting expenses, such as administrative costs and commissions, are also included in the income statement. However, policyholders surplus is not included in the income statement. Policyholders surplus represents the excess of assets over liabilities and is a measure of the insurer's financial strength, but it is not directly related to the income statement.

File and Use Laws refer to the requirement that insurance companies must file their rates with the regulatory authority, but they do not need to wait for approval before implementing those rates. This means that insurance companies have the flexibility to set their own rates and use them immediately, without having to wait for regulatory approval. This allows for a more efficient and streamlined process in setting insurance rates.

The unearned premium for Mammoth Insurance as of March the next year is $18,000. This is because the policy was issued on November 1 and has a one-year period. Since the premium is agreed to be paid at the end of each quarter, by March the next year, only 3 out of the 4 quarters have been completed. Therefore, the unearned premium is equal to the premium for one quarter, which is $6,000, multiplied by the remaining number of quarters, which is 3. This gives us a total unearned premium of $18,000.

Unearned premiums are a part of written premiums because they represent the portion of the premium that has been received by the insurance company but has not yet been earned. This typically occurs when the insurance coverage extends beyond the current accounting period. Unearned premiums are considered a liability on the company's balance sheet until they are earned over time as the coverage is provided.

The investment income ratio is calculated by dividing the investment income by the earned premiums. In this case, the investment income is $1,000,000 and the earned premiums are $4,000,000. Dividing $1,000,000 by $4,000,000 gives a ratio of 0.25 or 25%. Therefore, the correct answer is 25%.

Term insurance does not provide cash values. It only provides coverage for a specified period, such as ten or twenty years. Unlike permanent life insurance policies, term insurance does not accumulate any cash value over time. Therefore, the correct answer is false.

The finance department is responsible for managing the financial operations of the insurance company, including budgeting, financial planning, and investment decisions. Making a profit is a key objective for any company, and the finance department plays a crucial role in achieving this goal. They analyze the company's financial performance, identify opportunities for cost savings, and make strategic decisions to maximize profitability. By effectively managing the company's finances, the finance department contributes to the overall success and profitability of the insurance company.

A stock insurer is an insurance company owned by shareholders who invest in the company by purchasing its stock. The primary purpose of a stock insurer is to generate profit for its shareholders while providing insurance coverage to policyholders. Stock insurers aim to create value for their shareholders by offering competitive products, managing risk effectively, and operating efficiently. They prioritize shareholder interests and can raise capital through stock or debt issuance, enabling growth and expansion. Thus, a stock insurer's main goal is to earn profit for its investors while serving its policyholders.

Personnel Loss Exposures refer to any condition or situation that may result in financial loss for a business. This could include risks such as employee injuries, lawsuits, or loss of key personnel. Therefore, the correct answer is "Business" because it is the entity that faces potential financial losses in such situations.

Loss Exposure is subject to accidental loss from the insured's standpoint. This means that the potential financial consequences of the loss exposure are due to accidental events that the insured may face. This is an important characteristic for insurers to consider when providing insurance coverage, as it helps determine the likelihood and severity of potential losses that the insured may experience. By understanding this aspect, insurers can assess the risk involved and determine appropriate coverage and premiums for the insured.

Universal life insurance provides both life insurance protection and a savings component. It is a type of permanent life insurance that offers flexible premiums and death benefit options. The policyholder can adjust the premium payments and the death benefit amount as their financial needs change over time. Additionally, a portion of the premium paid goes towards building cash value, which can be used for various purposes such as borrowing against it or supplementing retirement income. Therefore, universal life insurance combines the benefits of life insurance coverage with the potential for accumulating savings.

Stock insurance companies are the correct answer because they are private companies that are owned by shareholders and their primary purpose is to provide property and liability insurance. These companies sell insurance policies to individuals and businesses, covering them against various risks such as property damage, liability claims, and personal injury. Stock insurance companies have the financial resources and expertise to underwrite and manage a wide range of insurance policies, making them the largest providers of property and liability insurance in the US. Mutual insurance companies, on the other hand, are owned by policyholders and may not offer as extensive coverage options. Reciprocal insurance exchanges are typically smaller and more specialized in their coverage offerings.

The combined ratio is calculated by dividing the sum of incurred losses and incurred underwriting expenses by the earned premiums. In this case, the sum of incurred losses and incurred underwriting expenses is $4,000,000, and the earned premiums are $4,000,000. Dividing the two gives us 1, which when multiplied by 100 gives us 100%. Hometown Insurer's combined ratio is 100%. This indicates that for every dollar collected in earned premiums, they paid out $1 in incurred losses and underwriting expenses.