INS21: Mock Exam Quiz! MCQ

The implementation of the chosen risk management technique requires the risk manager to make decisions regarding what actions should be taken to mitigate the risks, who should be responsible for carrying out those actions, and how the costs of the risk management program should be allocated. All of these decisions are crucial in effectively managing and addressing the identified risks.

The correct answer is "All of the above" because the claim handling process involves investigating the details of the claim to gather all necessary information, evaluating the validity and extent of the claim, and negotiating with the parties involved to reach a resolution. All three steps are crucial in effectively handling claims and ensuring a fair and satisfactory outcome for all parties involved.

All parties mentioned in the options - users of the property, the property owner, and secured lenders of money to the property owner - can be affected by a property loss. Users of the property may lose access to it or face inconveniences, the property owner may suffer financial loss or damage to their investment, and secured lenders may face the risk of not recovering their loaned money. Therefore, all of the above parties can be affected by a property loss.

Insurable loss exposures refer to situations where an individual or entity faces the risk of suffering a loss that can be covered by an insurance policy. The given options suggest that ideally, insurable loss exposures should meet certain criteria. Firstly, the losses should be accidental, meaning they occur unexpectedly and unintentionally. Secondly, the losses should be definite and measurable, allowing for accurate assessment and quantification. Lastly, a large number of similar exposure units should be present, as this helps spread the risk and ensures a more stable insurance pool. Therefore, the correct answer is "All of the above" as all three criteria are important for insurable loss exposures.

Producers can be compensated through various means, including salary, commissions, and contingency commissions. Salary refers to a fixed amount paid to producers for their work, while commissions are a percentage-based payment based on the sales they generate. Contingency commissions are additional payments given to producers based on achieving specific targets or goals. Therefore, the correct answer is "All of the above" as producers can receive compensation through any combination of these methods.

Valuation provisions refer to the methods used to determine the value of an asset or property. Replacement cost is the cost required to replace the asset with a similar one. Actual cash value is the current value of the asset, taking into account depreciation. Agreed value is a predetermined value agreed upon by the parties involved. Therefore, all of these options are examples of valuation provisions.

An independent agent usually represents several unrelated insurance companies, meaning they have the ability to offer a variety of insurance options to their clients. This allows them to provide a more personalized and tailored approach to insurance coverage, as they can compare and recommend policies from different companies. Unlike agents who are salaried by a specific insurance company, independent agents work on a commission basis and have the flexibility to choose the best policies for their clients' needs. They may use various methods such as mail, telephone, or the Internet to solicit business, and they typically do not own the expiration list, which refers to the list of policyholders whose policies are set to expire.

The correct answer is "All of the above" because marketing management involves overseeing and coordinating various aspects of the marketing process. It includes supervising producers to ensure they meet the desired standards and goals, motivating producers to perform their best, and managing and developing the product to meet customer needs and preferences. Therefore, all of these options accurately describe the role and responsibilities of marketing management.

A flow chart is a diagram that depicts the flow of a particular operation or set of related operations within an organization. It visually represents the sequence of steps or activities involved in a process, showing the direction of flow and decision points. Flow charts are commonly used in various fields such as project management, software development, and business process analysis to illustrate the workflow and identify potential bottlenecks or inefficiencies. They provide a clear and concise representation of the process, making it easier for stakeholders to understand and analyze.

When N D Tiwari is stopped by the LAPD for speeding and a ticket is issued, his insurance company will review his driving record and learn about the violation when his policy comes up for renewal. Insurance companies regularly review their policyholders' driving records to assess their risk and determine if any changes need to be made to their rates. Therefore, it is likely that Tiwari's insurance company will become aware of the violation and may adjust his rates accordingly.

An SR-22 document is a vehicle liability insurance document that is used by some state Department of Motor Vehicles (DMV) offices in the United States. It serves as proof that a driver has the minimum required liability insurance coverage for their specific state. This document is typically required for drivers who have been involved in certain violations or incidents, such as driving under the influence (DUI) or driving without insurance. By obtaining an SR-22, the driver demonstrates their compliance with the state's insurance requirements.

Transfer is the correct answer because insurance is a risk management technique that involves transferring the financial burden of potential losses from an individual or organization to an insurance company. By purchasing insurance, individuals or organizations pay premiums to the insurance company, which then assumes the responsibility of compensating for any covered losses that may occur. This transfer of risk allows individuals or organizations to protect themselves financially and mitigate the potential impact of unexpected events.

The use of standard forms by insurers leads to a consistent interpretation of insurance policies. Standard forms provide a uniform set of terms and conditions that are widely recognized and understood within the insurance industry. This helps to minimize ambiguity and ensure that policies are interpreted in a consistent manner by insurers and policyholders. By using standard forms, insurers can avoid creative or conservative interpretations and instead provide a clear and consistent understanding of policy terms and coverage.

Class rates apply to all insureds in the same rating category. This means that individuals or businesses with similar characteristics or risk profiles are grouped together and assigned the same rate. Class rates are not based on individual loss statistics but rather on the overall loss characteristics of the group. This allows insurers to simplify the rating process and ensure fairness by charging similar premiums to insureds with similar risks. Merit rating plans, on the other hand, are not the same as manual rating plans and do not necessarily apply to all insureds in the same rating category.

State insurance departments regulate insurance rates to protect consumers from inadequate, excessive, or unfairly discriminatory rates. This means that they have the authority to review and approve insurance rates to ensure that they are fair and reasonable for consumers. By doing so, they prevent insurance companies from charging excessively high premiums or denying coverage based on discriminatory factors. This regulation helps to ensure that consumers are not taken advantage of by insurance companies and promotes a fair and competitive insurance market.

The correct answer is "In which one insurer transfers some or all of its loss exposures to another insurer." This option accurately describes reinsurance as a contractual agreement where one insurer transfers its loss exposures to another insurer. Reinsurance allows the primary insurer to mitigate its risk by sharing it with another insurer, thereby reducing the potential financial impact of large losses.

The business installing a sprinkler system is an example of loss reduction as it aims to minimize the amount of fire damage that could occur. By having a sprinkler system in place, the business is taking proactive measures to reduce the potential losses associated with fires. This technique focuses on mitigating the impact of risks by implementing measures that minimize the severity or frequency of losses.

If you don't understand all of the terms in your auto insurance policy, you should contact your insurance agent, who is responsible for servicing your policy. Additionally, you can contact your state's department of insurance for further clarification. Both A and C are correct because your insurance agent and the department of insurance are both resources available to help you understand your policy.

The correct answer is that the broadened coverage automatically applies to Brown Company's policy. This means that the policy change introduced by the insurer will immediately and automatically provide the expanded coverage to Brown Company's existing policy, without the need for any additional steps or endorsements.

Jim's pro-rata premium refund would be $150. The pro-rata premium refund is calculated by dividing the number of unused days by the total number of days in the policy period (365) and then multiplying it by the total premium paid. In this case, Jim canceled his policy after 315 days, so he has 50 days remaining. Therefore, the refund would be (50/365) * $1,095 = $150.

Roadside assistance plans typically offer services such as emergency towing, lost key and lockout assistance, and battery services. These services are aimed at providing immediate help to drivers who encounter problems on the road. However, car hygiene services are not typically included in roadside assistance plans. Car hygiene services would involve cleaning and maintaining the cleanliness of the vehicle, which is not a service typically provided by roadside assistance plans.

The high performance engine in your car makes it more attractive to thieves, which increases the risk of theft. Insurance companies take into consideration the risk factors associated with a particular car when determining the premium. In this case, the insurance company charged you more because the high performance engine increases the likelihood of theft, thereby increasing the risk for the insurance company.

Out-of-court settlements are advantageous to the insurer because they eliminate uncertainty about the outcome of the claim. When a claim is settled outside of court, both parties agree on a specific amount to be paid by the insurer to the claimant, thus avoiding the risk of a potentially larger payout if the case were to go to court. By settling, the insurer can control the amount of money paid out and avoid the unpredictability of a court decision. This allows the insurer to better manage their financial risk and plan accordingly.

A book of business in insurance terminology refers to all policies sold by an insurance company or agency, as well as all policies in a particular territory and all policies providing a particular type of insurance. This means that the correct answer is "All the above" as it encompasses all three options mentioned in the question.

Actuarial equity is a ratemaking concept where rates are determined based on actuarially calculated loss experience. This means that actuaries analyze past data on losses and use statistical methods to predict future losses. Insureds with similar characteristics, such as age, location, and driving record, are placed into the same rating class. This ensures that rates are fair and reflect the risk associated with each insured. Actuarial equity helps to maintain fairness and accuracy in setting insurance rates.

In this scenario, since there were no injuries and the damage to both vehicles was minor, the claim would most likely be handled by an inside staff claim representative. This is because inside staff claim representatives typically handle smaller and less complex claims that do not require extensive investigation or negotiation. They work directly for the insurance company and are responsible for evaluating and settling claims efficiently and effectively.

Compensatory damages are awarded to compensate a victim for the actual harm suffered. Special damages, also known as economic damages, are a type of compensatory damages that aim to reimburse the victim for specific financial losses incurred as a result of the harm. This can include medical expenses, property damage, lost wages, and other measurable costs directly related to the incident. Punitive damages, on the other hand, are meant to punish the defendant for their misconduct, while hold harmless costs and contractual obligations are not types of compensatory damages but rather legal terms related to liability and contractual agreements.

A Captive Insurance company is formed as a subsidiary of its parent company, organization, or group with the intention of underwriting insurance for the parent company or companies. In other words, it is an insurer that is created specifically to provide insurance coverage for its own parent company or companies. This arrangement allows the parent company to have more control over its insurance policies and potentially reduce costs.

The correct answer is Insurance Regulatory and Development Authority (IRDA), India. IRDA is a regulatory body in India that oversees the insurance industry. It is responsible for promoting and regulating the insurance sector to protect the interests of policyholders and ensure the growth and development of the industry.

When an insurer cancels a policy, the return premium is typically calculated on a pro-rata basis. This means that the premium refund is proportionate to the amount of time remaining on the policy. For example, if a policy is canceled halfway through its term, the insured would receive a refund of half of the premium paid. This method ensures that the insured is only charged for the time the policy was in effect and is a fair way to calculate the return premium.

In America, men pay more for insurance than women due to their aggressiveness behind the wheels. This is because statistically, men are more likely to engage in risky driving behaviors such as speeding, reckless driving, and DUI, which increases the likelihood of accidents and insurance claims. Insurance companies base their premiums on risk assessment, and since men are considered higher risk drivers, they are charged higher premiums compared to women.

Binding authority refers to the authority given to an agent by the principal in an agency contract. This authority allows the agent to bind the principal legally and make decisions on their behalf. While it is not always guaranteed to be granted in every agency contract, it is typically included as a standard provision. It is important for the agent to have binding authority in order to effectively carry out their duties and responsibilities on behalf of the principal.

Under tort law, an individual or organization can face a claim for legal liability on the basis of negligence, intentional torts, or absolute liability. Negligence refers to the failure to exercise reasonable care, resulting in harm to another person or property. Intentional torts involve deliberate actions that cause harm or injury to another person, such as assault, battery, or defamation. Absolute liability holds individuals or organizations responsible for any harm or damage caused, regardless of fault or intent. Therefore, all three options - negligence, intentional torts, and absolute liability - can be grounds for legal liability under tort law.

Option 2, gathering information to support assumptions about the loss exposures, is not inaccurate in the risk management process. Gathering information is an essential step in understanding and assessing potential risks and loss exposures. It helps in making informed decisions and developing effective risk management strategies.

A "Reservation of rights" letter from your insurer is a notice that even though the company is proceeding to handle your claim, depending on what happens, certain losses might not be covered by the terms of the policy. By such a letter, the company preserves its right to deny coverage at a later date based on the terms of the policy.

State Farm Insurance is one of the largest mutual P & C insurance companies operating in North America. This can be inferred from the given options, as the other three options (Citi Group Insurance, 21st Insurance, Allianz AG) are not known for being large mutual P & C insurance companies operating in North America.

A guaranty fund is a state fund that provides a system to pay the claims of insolvent insurers. This means that if an insurance company becomes insolvent and is unable to fulfill its obligations to policyholders, the guaranty fund steps in to ensure that policyholders are still able to receive their claims. The fund is designed to protect policyholders and provide them with a safety net in case their insurer goes bankrupt. It is not created by the federal government for the purpose of providing insurance for the social good, nor is it the primary funding for the Fair Access to Insurance Requirements program, nor is it managed by the National Association of Insurance Commissioners.

Civil law provides a forum for hearing disputes between private parties. Unlike criminal law, which deals with offenses against society, civil law focuses on resolving conflicts between individuals or organizations. It encompasses various areas such as contract disputes, property disputes, and personal injury claims. In civil law cases, the objective is to provide compensation or resolve the dispute rather than punish the wrongdoer. Therefore, civil law is the appropriate form of law to address disputes between neighbors and potentially resolve their never-ending feud.

A loss exposure survey is a risk management tool in the form of a checklist or questionnaire that lists potential loss exposures that a household or organization might face. This survey helps identify and assess potential risks or hazards that could result in financial loss or damage. By conducting a loss exposure survey, individuals or organizations can proactively manage and mitigate risks by implementing appropriate risk control measures and insurance coverage.

Farmers Insurance cannot cancel Tom's policy if he gets his first speeding ticket because the policy does not have a provision for cancellation based on a single speeding ticket. However, Farmers Insurance can cancel the policy if Tom does not pay the premiums, if Tom lied on his insurance application, or if Tom's license has been suspended.

Expert systems are designed to mimic the decision-making process of human experts in a specific domain. In the context of insurance underwriting, expert systems are used to emulate the decision-making process of expert underwriters. This means that the expert systems analyze the data and information provided, evaluate the risk factors, and make underwriting decisions based on the same criteria and considerations that expert underwriters would use. By emulating the underwriting decision-making process, these expert systems aim to enhance accuracy and consistency in underwriting, ultimately leading to better risk assessment and reduced claim expenses and loss adjustment expenses.

The correct answer is an example of the reduction in value of property because the camera was worth $200 but after being run over by a truck, it is now worthless. This demonstrates a clear decrease in the value of the property.

Bodily Injury (BI) coverage provides protection for injuries caused to others in an accident for which the insured is at fault. It covers medical expenses, lost wages, and legal expenses. Property Damage (PD) coverage provides protection for damages caused to other people's property in an accident for which the insured is at fault. This coverage pays for the repair or replacement of the damaged property. These two coverages are considered third-party coverages because they provide protection for damages or injuries caused to others, rather than the insured themselves.

Loss reserves are the largest and most important liabilities of property and liability insurance companies. They represent an estimate of the amount of claims payments that an insurer will make in the future. Since loss reserves are based on estimates, they are always subject to change. Therefore, the correct answer is "All of the above" because all of the given statements are true about loss reserves.

When an insurance company refuses to pay a claim that should be paid, offers a lower settlement amount than what the claim is worth, or denies a claim without conducting a proper investigation, it can be considered as acting in bad faith. This means that the insurance company is not fulfilling its duty to act honestly and fairly towards its policyholders. A bad faith claim can be brought against the insurance company by the policyholder who believes they have been treated unfairly, seeking compensation for any damages caused by the company's actions.

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The underwriter may modify the rate charged for the coverage provided when evaluating an application for insurance in order to better match the rate to the characteristics of the risk. This means that the underwriter wants to ensure that the premium charged for the insurance policy accurately reflects the level of risk associated with the applicant. By adjusting the rate, the underwriter can ensure that the premium is neither too high nor too low for the risk involved, thus maintaining a fair and balanced pricing structure for the insurance coverage.

Liability insurance policies typically exclude coverage for losses intentionally caused by the insured because such losses do not meet the characteristic of being accidental. Accidental losses are events that occur unexpectedly or unintentionally, while intentional losses are deliberately caused by the insured. Insurance is designed to protect against unforeseen events and risks, not intentional actions. Therefore, intentional losses do not align with the purpose of insurance and are excluded from coverage.

A valued policy is a type of insurance policy where the insurer agrees to pay a predetermined amount in the event of a specified loss, regardless of the actual value of the loss. This means that the insured will receive a fixed amount of compensation, which is determined at the time the policy is issued. This is in contrast to an actual cash value policy, where the insurer pays the current market value of the loss. A valued policy provides a guaranteed payout to the insured, providing them with a sense of security in the event of a total loss.

Claims-made coverage is a type of insurance policy that is based on a retroactive date. This retroactive date determines when the coverage starts. Under this type of coverage, liability claims that are made to the insurer before the retroactive date are covered. Unlike occurrence-based coverage, claims-made coverage does not limit the time period for which a claim may be submitted. Additionally, claims-made coverage includes a provision for claims occurring after the policy period, meaning that claims that arise after the policy has expired may still be covered as long as they are reported within a specified timeframe.