Ins Quiz - 2

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Insurance Quizzes & Trivia

INS Quiz 2


Questions and Answers
  • 1. 

    An example for Alternative distribution channels 

    • A.

      Financial Institutions

    • B.

      Personal Contact

    • C.

      Internet

    • D.

      Both A & C

    Correct Answer
    D. Both A & C
    Explanation
    Both financial institutions and the internet can be considered alternative distribution channels. Financial institutions such as banks and credit unions can offer products and services to customers through their physical branches or online platforms. The internet, on the other hand, allows businesses to reach customers directly through e-commerce websites or online marketplaces. Therefore, both options A (financial institutions) and C (internet) are valid examples of alternative distribution channels.

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  • 2. 

    Through ______________ and development activities, insurers provide producers with the products needed to produce business for the insurer 

    • A.

      State Regulators

    • B.

      Product Management

    • C.

      Marketing Management

    • D.

      Rebating

    Correct Answer
    B. Product Management
    Explanation
    Insurers provide producers with the products needed to produce business for the insurer through product management. Product management involves the planning, development, and marketing of insurance products. This includes determining the features and benefits of the products, pricing them appropriately, and ensuring they meet the needs of the target market. By effectively managing their products, insurers can provide producers with the necessary tools and resources to sell insurance policies and generate business for the company.

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  • 3. 

    Insurers using alternative distribution channels rely heavily on advertising to bring customers to them 

    • A.

      True

    • B.

      False

    Correct Answer
    A. True
    Explanation
    Insurers using alternative distribution channels, such as online platforms or direct mail, heavily rely on advertising to attract customers. These channels often do not have physical locations or agents who can actively promote their products, so advertising becomes crucial in reaching potential customers and generating interest in their offerings. By investing in advertising, insurers can increase their visibility and brand awareness, ultimately driving customer acquisition and sales. Therefore, it is true that insurers using alternative distribution channels heavily rely on advertising to bring customers to them.

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  • 4. 

    Person who sells insurance products for an insurance company or companies 

    • A.

      Brokers

    • B.

      Agents

    • C.

      Producer

    • D.

      Principal

    Correct Answer
    C. Producer
    Explanation
    A producer is a person who sells insurance products for an insurance company or companies. They act as intermediaries between the insurance company and the customer, helping customers understand their insurance needs and recommending suitable policies. Producers may work independently or for an insurance agency. They are responsible for generating leads, meeting with potential clients, and closing sales. They may also provide ongoing customer service and support, such as helping clients file claims or make policy changes.

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  • 5. 

    Party that authorizes the agent to act on its behalf 

    • A.

      Principal

    • B.

      Insurer

    • C.

      Agency

    • D.

      None Of the above

    Correct Answer
    A. Principal
    Explanation
    The term "principal" refers to the party that authorizes an agent to act on its behalf. This means that the principal grants the agent the authority to make decisions and take actions on their behalf. The agent is essentially representing the principal and acting in their best interest. The principal-agent relationship is a fundamental concept in agency law, where the principal entrusts the agent with certain powers and responsibilities.

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  • 6. 

    IIAA stands for 

    • A.

      Independent Insurance Agents Association

    • B.

      Independent Insurance Association of Agents

    • C.

      Independent insurance Agents of America

    • D.

      Independent Insurance American Association

    Correct Answer
    C. Independent insurance Agents of America
    Explanation
    The correct answer is "Independent insurance Agents of America". This is because the acronym IIAA is commonly used to refer to the Independent Insurance Agents of America, which is a national association representing independent insurance agents and brokers in the United States.

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  • 7. 

    Authority for Brokered Business is  specified in 

    • A.

      Agency Agreement

    • B.

      Employment Contract

    • C.

      Insurer Contract

    • D.

      Broker Contract

    Correct Answer
    B. Employment Contract
    Explanation
    The correct answer is Employment Contract because the authority for brokered business is typically outlined in the terms and conditions of the employment contract between the broker and the employer. This contract establishes the rights and responsibilities of both parties, including the broker's authority to conduct business on behalf of the employer. The employment contract may specify the types of transactions the broker is authorized to handle, the limits of their authority, and any necessary approvals or permissions required.

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  • 8. 

    E & O stands for  

    • A.

      Errors and Omissions

    • B.

      Error and Observations

    • C.

      Errors and Obligations

    • D.

      Error and Observation

    Correct Answer
    A. Errors and Omissions
    Explanation
    E & O stands for Errors and Omissions. This term is commonly used in the insurance industry to refer to a type of professional liability insurance that protects companies and individuals against claims made by clients for inadequate work or negligent actions. It covers errors (mistakes) and omissions (failure to perform a duty) that may occur during the provision of professional services.

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  • 9. 

    Large brokerage firms provides 

    • A.

      Extensive Loss control

    • B.

      Appraisal

    • C.

      Actuarial

    • D.

      All the above

    Correct Answer
    D. All the above
    Explanation
    Large brokerage firms provide extensive loss control, appraisal, and actuarial services. Loss control involves implementing measures to prevent or minimize losses for clients. Appraisal services involve determining the value of assets for insurance purposes. Actuarial services involve analyzing and assessing risks and determining appropriate insurance premiums. Therefore, the correct answer is "All the above".

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  • 10. 

    Employees can be transferred from job to job from office to office to meet the overall needs of the insurer - T/F

    • A.

      True

    • B.

      False

    Correct Answer
    A. True
    Explanation
    Employees can be transferred from job to job and from office to office to meet the overall needs of the insurer. This means that the insurer has the flexibility to move employees around within the organization as needed in order to ensure that all tasks and responsibilities are adequately covered. This can help to optimize resources and ensure that the insurer is able to effectively meet its goals and objectives.

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  • 11. 

    MGA stans for 

    • A.

      Managing General Agencies

    • B.

      Managing Govt Agencies

    • C.

      Management General Agencies

    • D.

      Management Gove Agencies

    Correct Answer
    A. Managing General Agencies
    Explanation
    MGA stands for Managing General Agencies. This term refers to independent insurance agents or brokers who are authorized to represent multiple insurance companies. They act as intermediaries between insurance carriers and policyholders, providing a range of services such as underwriting, policy issuance, and claims handling. MGA's play a crucial role in the insurance industry by managing the distribution and administration of insurance policies on behalf of insurance companies.

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  • 12. 

    Generally, an inside claim representative 

    • A.

      Meets with parties involved with the loss

    • B.

      Handles claims by phone or mail from the insurer's office

    • C.

      Visits the scene of the loss to investigate damages

    • D.

      Offers claim settlement service for a fee to insurers

    Correct Answer
    B. Handles claims by phone or mail from the insurer's office
    Explanation
    An inside claim representative handles claims by phone or mail from the insurer's office. This means that they are responsible for processing and managing insurance claims without physically visiting the scene of the loss or meeting with the parties involved. They primarily communicate with the claimants and gather all necessary information to assess the damages and determine the appropriate settlement.

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  • 13. 

    Subrogation is the insurer's right to  

    • A.

      Recover its claim payment from the party responsible

    • 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

    Correct Answer
    A. Recover its claim payment from the party responsible
    Explanation
    Subrogation is the legal right of an insurer to recover the amount it has paid for a claim from the party responsible for the loss or damages. This allows the insurer to recoup their costs and prevent the responsible party from avoiding their financial responsibility.

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  • 14. 

    What is the largest and most important liability of property and liability insurers? 

    • A.

      Acquisition costs

    • B.

      Administration costs

    • C.

      Loss reserves

    • D.

      Unearned premium reserves

    Correct Answer
    C. Loss reserves
    Explanation
    Loss reserves are the largest and most important liability of property and liability insurers. Loss reserves refer to the estimated amount of money that insurers set aside to cover future claims that have been reported but not yet settled. These reserves are crucial for insurers to ensure that they have enough funds to fulfill their obligations to policyholders and pay out claims in the future. By accurately estimating and maintaining sufficient loss reserves, insurers can manage their financial stability and meet their contractual obligations.

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  • 15. 

    What is an example of general damages? 

    • A.

      Hospital expenses

    • B.

      Lost wages

    • C.

      Prescriptions

    • D.

      Disfigurement

    Correct Answer
    D. Disfigurement
    Explanation
    Disfigurement is an example of general damages because it refers to the physical or aesthetic changes that a person experiences as a result of an injury or accident. It includes permanent scars, amputations, or any other visible changes that may affect a person's appearance or self-esteem. Unlike specific damages, which are quantifiable and have a clear monetary value, general damages are subjective and aim to compensate for non-economic losses such as pain and suffering, emotional distress, and loss of enjoyment of life.

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  • 16. 

     An insurer might send a reservation of rights letter to the insured following a claim that involves which of the following? 

    • A.

      An occurrence that might have happened outside the policy period

    • B.

      An intentional action of the insured

    • C.

      More than one insurer and there is a question of which insurer pays first

    • D.

      All of the above

    Correct Answer
    D. All of the above
    Explanation
    A reservation of rights letter is sent by an insurer to the insured when there is a claim that involves any of the mentioned situations. It is sent when there is a possibility that the occurrence happened outside the policy period, when the insured intentionally caused the claim, or when there are multiple insurers involved and it is unclear which insurer should pay first. In all these cases, the insurer wants to inform the insured that they are reserving their rights to investigate the claim further and potentially deny coverage if it is determined that the claim falls outside the policy terms.

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  • 17. 

    Granting draft authority to agents will generally increase

    • A.

      Claim settlement expenses.

    • B.

      Time to settle claims.

    • C.

      Cost of insurance.

    • D.

      Customer satisfaction.

    Correct Answer
    D. Customer satisfaction.
    Explanation
    Granting draft authority to agents allows them to settle claims quickly and efficiently, leading to a higher level of customer satisfaction. When agents have the authority to make decisions and issue payments without having to go through multiple layers of approval, they can expedite the claims process and provide a more seamless experience for customers. This not only improves customer satisfaction but also enhances the overall reputation and trustworthiness of the insurance company.

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  • 18. 

    What is the major purpose of claim handling? 

    • A.

      To determine whether coverage exists

    • B.

      To obtain adequate information

    • C.

      To satisfy the insurance company's obligation under the policy

    • D.

      To respond promptly to claimant requests

    Correct Answer
    C. To satisfy the insurance company's obligation under the policy
    Explanation
    The major purpose of claim handling is to satisfy the insurance company's obligation under the policy. This means that the insurance company is responsible for fulfilling their contractual duties and providing the necessary compensation or services to the policyholder in the event of a covered claim. By handling claims effectively and efficiently, the insurance company ensures that they are meeting their obligations and maintaining customer satisfaction.

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  • 19. 

    What is the purpose of Unfair Claim Practices laws? 

    • A.

      To justify legal claim practices

    • B.

      To determine the value of the loss

    • C.

      To punish insurers

    • D.

      To specify illegal claim practices

    Correct Answer
    D. To specify illegal claim practices
    Explanation
    The purpose of Unfair Claim Practices laws is to specify illegal claim practices. These laws are in place to define and prohibit unfair practices by insurance companies when handling claims. They aim to protect consumers by ensuring that insurers act in a fair and ethical manner when processing and settling claims. These laws provide guidelines and regulations that insurers must follow to prevent them from engaging in deceptive or dishonest practices that may harm policyholders.

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  • 20. 

    All of the following describe an independent adjuster, EXCEPT: 

    • A.

      Self-employed

    • B.

      Contracted by an insurer

    • C.

      Employee of an insurer

    • D.

      Employee of an adjusting firm

    Correct Answer
    C. Employee of an insurer
    Explanation
    An independent adjuster is someone who is not an employee of an insurer but is contracted by an insurer to handle and settle insurance claims on their behalf. Therefore, the correct answer is "Employee of an insurer" as it contradicts the definition of an independent adjuster.

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  • 21. 

    Sue's homeowner's policy covers her camera against theft. While on vacation, Sue's camera is stolen. In which step in the claim settlement process would the claim representative determine the camera's replacement cost?

    • A.

      Valuation

    • B.

      Settlement

    • C.

      Negotiation

    • D.

      Investigation

    Correct Answer
    A. Valuation
    Explanation
    In the claim settlement process, the claim representative would determine the camera's replacement cost in the valuation step. This step involves assessing the value of the stolen camera to determine how much it would cost to replace it. The claim representative would consider factors such as the brand, model, age, and condition of the camera to determine its replacement cost.

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  • 22. 

    Jim notifies ABC Insurer of an accident with an ABC insured in a state in which ABC does not do business.  What type of claim staff will ABC Insurer generally use to investigate this claim?

    • A.

      Inside claim representative

    • B.

      Outside claim representative

    • C.

      Independent adjuster

    • D.

      Independent agent

    Correct Answer
    C. Independent adjuster
    Explanation
    When Jim notifies ABC Insurer of an accident with an ABC insured in a state in which ABC does not do business, ABC Insurer will generally use an independent adjuster to investigate this claim. Independent adjusters are professionals who are not employed by the insurance company but are hired on a case-by-case basis to handle claims. They are typically used in situations where the insurance company does not have a presence or licensed adjusters in a particular state or region. The independent adjuster will assess the accident, gather information, and make recommendations to the insurer based on their findings.

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  • 23. 

     A 50,000 square foot building of standard construction is totally destroyed by fire. The construction cost for medium quality in that location is $70 per square foot.  What is the best estimate of the building's replacement cost?

    • A.

      $2,000,000

    • B.

      $3,500,000

    • C.

      " $4,000,000

    • D.

      " $5,500,000

    Correct Answer
    B. $3,500,000
    Explanation
    Based on the information provided, the best estimate of the building's replacement cost can be calculated by multiplying the square footage of the building (50,000 square feet) by the cost per square foot for medium quality construction in that location ($70 per square foot). Therefore, the calculation would be 50,000 square feet * $70 per square foot = $3,500,000.

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  • 24. 

      A liability loss has the following damages:  Medical expenses    $10,000  Damages for disfigurement   $50,000  Damages for pain and suffering   $100,000 What is the amount of special damages?

    • A.

      $10,000

    • B.

      $50,000

    • C.

      " $100,000

    • D.

      " $160,000

    Correct Answer
    A. $10,000
    Explanation
    The amount of special damages in this case is $10,000. Special damages refer to the specific financial losses incurred as a result of the liability loss, such as medical expenses. In this scenario, the medical expenses amount to $10,000, which is the correct answer.

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  • 25. 

     A collision damages Sue's car. The car's actual cash value is $2,000.  Repair costs are estimated at $1,800. Salvage value is estimated at $500. What is the insurer's loss payment?

    • A.

      $1,500

    • B.

      $1,800

    • C.

      $2,000

    • D.

      $2,300

    Correct Answer
    C. $2,000
    Explanation
    The insurer's loss payment would be equal to the actual cash value of the car, which is $2,000. This means that the insurer would pay $2,000 to Sue to cover the damages to her car.

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  • 26. 

     XYZ Company has established a self-insurance plan to treat its loss exposures. Other than its internal staff, what resources would XYZ Company generally use to settle claims?

    • A.

      Independent adjusters

    • B.

      Public adjusters

    • C.

      Third party administrators

    • D.

      Outside claim representatives

    Correct Answer
    C. Third party administrators
    Explanation
    XYZ Company would generally use third party administrators to settle claims. Third party administrators are external entities that are contracted by XYZ Company to handle the administrative tasks associated with settling claims. These administrators are responsible for processing and managing claims, including investigating the claims, determining coverage, and making payments to the claimants. They help ensure that the claims process is efficient and that the company's self-insurance plan is effectively managed.

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  • 27. 

    It has been argued that if insurance companies would simplify the selection process and accept almost all applicants that costs would be dramatically reduced for the consumer.Insurance companies say that this would not be the case because there would be an increase in  

    • A.

      Diverse selection.

    • B.

      Inverse selection.

    • C.

      Adverse selection

    • D.

      Reverse selection.

    Correct Answer
    C. Adverse selection
    Explanation
    If insurance companies were to simplify the selection process and accept almost all applicants, it would lead to adverse selection. Adverse selection refers to the situation where individuals with a higher risk of making a claim are more likely to apply for insurance. This would result in a higher proportion of high-risk individuals in the insurance pool, leading to increased costs for the insurance company. Therefore, accepting almost all applicants would not lead to a reduction in costs for the consumer.

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  • 28. 

     Insurers screen applicants to determine which ones they desire to insure. If insurers do not properly select policyholders

    • A.

      Their profits will be excessive in comparison to the premiums collected.

    • B.

      Some insureds might be allowed to purchase insurance at prices that do not adequately reflect their loss exposures.

    • C.

      They will have an excessive number of new policies, and their expenses related to writing the new policies will be excessive.

    • D.

      The entire group of policyholders written will be substandard.

    Correct Answer
    B. Some insureds might be allowed to purchase insurance at prices that do not adequately reflect their loss exposures.
    Explanation
    Insurers screen applicants to determine which ones they desire to insure. If insurers do not properly select policyholders, some insureds might be allowed to purchase insurance at prices that do not adequately reflect their loss exposures. This means that these policyholders may be paying lower premiums than they should based on the level of risk they present. As a result, insurers may end up paying out more in claims than they collect in premiums, leading to excessive losses and potentially impacting their profitability.

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  • 29. 

     As insurers select insureds they attempt to avoid adverse selection. Adverse selection occurs when

    • A.

      Applicants purchase insurance with the intent of submitting fraudulent claims.

    • B.

      An insurer does not select a cross-section of applicants that range from low to high probability of loss.

    • C.

      Competitors select the better applications, leaving the remainder to the insurer.

    • D.

      People with the greatest probability of loss are the ones most likely to purchase insurance

    Correct Answer
    D. People with the greatest probability of loss are the ones most likely to purchase insurance
    Explanation
    Insurers attempt to avoid adverse selection, which is when people with the greatest probability of loss are the ones most likely to purchase insurance. This is because these individuals are more likely to submit claims, leading to higher costs for the insurer. To mitigate adverse selection, insurers try to select a cross-section of applicants that range from low to high probability of loss, rather than only attracting those with a high probability. Additionally, competitors may select the better applications, leaving the riskier ones to the insurer.

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  • 30. 

    CASE STUDY(For the questions 19 to 22): Maxfield Insurance The Maxfield Mutual Insurance Company writes only homeowners insurance for homes that range in value from $100,000 to $200,000 in one state in the central plains of the United States. Maxfield has written insurance profitably for 75 years. This long period of profitability has developed a considerable available capacity for MaxfieldMutual. However, in the last five years Maxfield's executive staff has become increasingly concerned about the increasing number of tornado losses Maxfield's policyholders have experienced. Losses paid during these years have been higher than any other period in Maxfield's history. In addition, competitors have aggressively marketed in the state and Maxfield has lost policyholders to the competitors for lower premiums Maxfield is considering expanding its policy writings to other types of insurance and different geographic areas. How could this activity help Maxfield protect its available capacity?

    • A.

      By meeting regulatory requirements to provide coverage to a wide range of policyholders, the insurer will be less likely to engage in unfair discrimination.

    • B.

      By reducing the chances that the company's overall results will be affected by a large number of losses from one loss event

    • C.

      The insurer will reduce its reinsurance premiums by reducing its exposure to any one catastrophic event

    • D.

      Diversification will allow the insurer to create a more visible image in the market, attracting more potential applicants from which it can select

    Correct Answer
    B. By reducing the chances that the company's overall results will be affected by a large number of losses from one loss event
    Explanation
    Expanding its policy writings to other types of insurance and different geographic areas would help Maxfield protect its available capacity by reducing the chances that the company's overall results will be affected by a large number of losses from one loss event. This means that if Maxfield only offers homeowners insurance in one state, it is more vulnerable to a large number of losses from a single event, such as a tornado. By diversifying its offerings and geographic areas, Maxfield can spread its risk and minimize the impact of any one loss event on its overall results.

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  • 31. 

    Which one of the following is an example of how Maxfield can optimize its available resources in order to protect its available capacity?

    • A.

      Maxfield chooses not to solicit applications for automobile insurance.

    • B.

      Maxfield shops its reinsurance contracts for better pricing and coverage.

    • C.

      Maxfield outsources its claims handling functions.

    • D.

      Maxfield's management staff takes classes to learn how to provide reasonable accommodations for physically challenged employees.

    Correct Answer
    A. Maxfield chooses not to solicit applications for automobile insurance.
  • 32. 

     Maxfield Mutual's executive staff is considering lowering its standards in the selection of policyholders. In this way, Maxfield can maintain the same rate level, but add more policyholders that have slightly higher exposures to loss. What is the likely result of this decision?

    • A.

      Maxfield might be accused of unfair discrimination.

    • B.

      Maxfield must reduce the amount of reinsurance it purchases.

    • C.

      Maxfield must spread its risks at the same time to be profitable.

    • D.

      Maxfield's premiums will not be commensurate with the exposures.

    Correct Answer
    D. Maxfield's premiums will not be commensurate with the exposures.
    Explanation
    If Maxfield lowers its standards in the selection of policyholders and adds more policyholders with slightly higher exposures to loss, it means that the premiums charged by Maxfield will not accurately reflect the level of risk associated with these policyholders. This can result in the premiums being lower than they should be, leading to inadequate funds to cover potential losses. As a result, Maxfield's premiums will not be commensurate with the exposures, which can negatively impact the company's financial stability and profitability.

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  • 33. 

    Which of the following types of insurance rates would be appropriate for the type of insurance and loss exposures that Maxfield Mutual writes?

    • A.

      Merit rates

    • B.

      Individual rates

    • C.

      Class rates

    • D.

      Judgement rates

    Correct Answer
    C. Class rates
    Explanation
    Class rates would be appropriate for the type of insurance and loss exposures that Maxfield Mutual writes. Class rates are determined based on the characteristics of a group or class of insureds rather than individual factors. This type of rating is commonly used for property and casualty insurance where the insureds have similar risk profiles. By using class rates, Maxfield Mutual can simplify the rating process and ensure that premiums are fair and consistent within each class of insureds.

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  • 34. 

    The amount of business an insurer is able to write based on a comparison of the insurer's written premium to the size of its policyholders' surplus is

    • A.

      Capacity

    • B.

      Adverse selection

    • C.

      Risk selection

    • D.

      Combined ratio

    Correct Answer
    A. Capacity
    Explanation
    Capacity refers to the amount of business an insurer is able to write based on a comparison of its written premium to the size of its policyholders' surplus. It represents the insurer's financial ability to take on risks and pay claims. A higher capacity indicates that the insurer has sufficient resources to handle a larger volume of policies and potential losses. Therefore, capacity is the correct answer in this context.

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  • 35. 

    Which one of the following statements is true regarding types of rates used by insurers?

    • A.

      Class rates apply to all insureds in the same rating category.

    • B.

      Merit rating plans are also called manual rating plans.

    • C.

      Class rates are not based on loss statistics.

    • D.

      Class rates reflect loss characteristics of a particular insured.

    Correct Answer
    A. Class rates apply to all insureds in the same rating category.
    Explanation
    Class rates apply to all insureds in the same rating category. This means that all individuals or entities within a specific rating category will be charged the same rate for insurance coverage. This is a fair and consistent method of determining premiums, as it ensures that similar risks are treated equally. It also allows insurers to simplify the rating process by grouping insureds with similar characteristics together.

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  • 36. 

     In insurance terminology, which of the following refers to a book of business?

    • A.

      All policies sold by an insurance company or agency

    • B.

      All policies in a particular territory

    • C.

      All policies providing a particular type of insurance

    • D.

      All the above

    Correct Answer
    D. All the above
    Explanation
    A book of business in insurance refers to all the policies sold by an insurance company or agency. It includes all the policies in a particular territory and also encompasses all the policies providing a particular type of insurance. Therefore, the correct answer is "All the above" as it includes all the mentioned options.

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  • 37. 

    One of the responsibilities of underwriting management is to arrange reinsurance. One type of reinsurance is arranged to automatically reinsure a portion of all eligible risks of the primary insurer. This arrangement is called

    • A.

      Treaty reinsurance

    • B.

      Temporary reinsurance

    • C.

      Facultative reinsurance

    • D.

      Facilitative reinsurance

    Correct Answer
    A. Treaty reinsurance
    Explanation
    Underwriting management is responsible for arranging reinsurance, which is a way for insurance companies to transfer a portion of their risk to other insurers. Treaty reinsurance is a type of reinsurance where the primary insurer automatically reinsures a portion of all eligible risks. This means that the primary insurer doesn't have to individually negotiate and underwrite each risk with the reinsurer. Instead, the reinsurance agreement covers a specific type or class of risks, providing automatic coverage for any eligible risk that falls within that category. Treaty reinsurance helps the primary insurer spread its risk and ensure that it can handle a large volume of policies without having to individually assess and reinsure each one.

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  • 38. 

     How do underwriting guidelines help an insurer achieve its objectives? 

    • A.

      By establishing the criteria required for treaty reinsurance to apply

    • B.

      By creating a channel for communication for the insurer's vision, mission, and objectives

    • C.

      By providing a uniform set of rules that guide underwriters toward consistent decisions

    • D.

      By maintaining a consistently applied set of behavioral measurements against which an individual's performance will be measured

    Correct Answer
    C. By providing a uniform set of rules that guide underwriters toward consistent decisions
    Explanation
    Underwriting guidelines help an insurer achieve its objectives by providing a uniform set of rules that guide underwriters toward consistent decisions. These guidelines ensure that underwriters make decisions based on a standardized set of criteria, which helps maintain consistency in the underwriting process. Consistent decisions help the insurer manage risk effectively, ensure fair and equitable treatment of policyholders, and maintain profitability. By following these guidelines, the insurer can achieve its objectives of managing risk, providing quality insurance products, and maintaining a strong financial position.

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  • 39. 

     When the underwriter read the inspection report from his loss control department about a risk that was recently submitted, it indicates that the management team seemed to be indifferent about the inspector's recommendations. The underwriter's primary concern is probably the

    • A.

      Moral hazard.

    • B.

      Physical hazard.

    • C.

      Legal hazard.

    • D.

      Attitudinal hazard.

    Correct Answer
    D. Attitudinal hazard.
    Explanation
    The underwriter's primary concern is probably the attitudinal hazard because the inspection report indicates that the management team seemed to be indifferent about the inspector's recommendations. This suggests that the management team may not take the necessary actions to mitigate risks and prevent losses, indicating an attitudinal hazard.

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  • 40. 

     How does an expert system assist underwriters in the underwriting process? 

    • A.

      It automatically assembles the necessary information to underwrite an application.

    • B.

      It helps ensure that no necessary information is overlooked.

    • C.

      It provides management reports to ensure underwriters' compliance with guidelines.

    • D.

      It monitors the results of the decisions made and suggests changes in underwriting guidelines

    Correct Answer
    B. It helps ensure that no necessary information is overlooked.
    Explanation
    An expert system assists underwriters in the underwriting process by helping ensure that no necessary information is overlooked. This means that the system is designed to analyze the application and identify any missing or incomplete information that may be crucial in making an accurate underwriting decision. By doing so, the system helps underwriters avoid potential errors or omissions that could result in inaccurate assessments or decisions.

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  • 41. 

     Some insurers now use expert systems in the underwriting process. The primary purpose of these expert systems is to

    • A.

      Reduce claim expenses and loss adjustment expenses.

    • B.

      Replace underwriting decision-making and enhance accuracy.

    • C.

      Emulate the underwriting decision-making process as it would be performed by expert underwriters.

    • D.

      Modernize insurance company information systems.

    Correct Answer
    C. Emulate the underwriting decision-making process as it would be performed by expert underwriters.
    Explanation
    The correct answer is "Emulate the underwriting decision-making process as it would be performed by expert underwriters." This means that the primary purpose of using expert systems in the underwriting process is to replicate the decision-making process of experienced underwriters. Expert systems are designed to mimic the knowledge and expertise of human experts, allowing for more accurate and consistent underwriting decisions. This helps to improve the overall efficiency and effectiveness of the underwriting process.

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Quiz Review Timeline +

Our quizzes are rigorously reviewed, monitored and continuously updated by our expert board to maintain accuracy, relevance, and timeliness.

  • Current Version
  • Mar 21, 2023
    Quiz Edited by
    ProProfs Editorial Team
  • Sep 07, 2011
    Quiz Created by
    Urnarendra007
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