INS21: Mock Exam Quiz! MCQ

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Implementation of the chosen Risk management technique requires that risk manager make decisions concerning:
- What should be done
- Who should be responsible
- How to allocate the costs of the program
- All the above

About This Quiz

The INS21: Mock Exam Quiz! MCQ assesses knowledge on insurance policy nuances such as coverage implications, rate calculations, and policy types. It's essential for understanding consistent policy interpretation and practical applications in real-world insurance scenarios.

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2.

The claim handling process includes
- Investigating.
- Evaluating.
- Negotiation.
- All of the above.
Correct Answer

A. All of the above.

Explanation

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.

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3.

The parties that might be affected by a property loss include
- Users of the property
- The property owner.
- Secured lenders of money to the property owner.
- All of the above.
Correct Answer

A. All of the above.

Explanation

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.

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4.

Ideally, insurable loss exposures include:
- Losses those are accidental.
- Losses those are definite and measurable
- A large number of similar exposure units.
- All of the above.
Correct Answer

A. All of the above.

Explanation

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.

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5.

Producers can be compensated by
- Salary.
- Commissions.
- Contingency commissions.
- All of the above.
Correct Answer

A. All of the above.

Explanation

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.

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6.

Valuation provisions may include
- Replacement cost.
- Actual cash value.
- Agreed value.
- All of the above.
Correct Answer

A. All of the above.

Explanation

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.

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7.

An independent agent
- Usually represents several unrelated insurance companies
- Is salaried by the insurance company.
- Uses only mail, telephone, or Internet to solicit business
- Usually does not own its expiration list.
Correct Answer

A. Usually represents several unrelated insurance companies

Explanation

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.

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8.

Marketing management
- Provides producer supervision.
- Provides producer motivation.
- Provides product management and development
- All of the above.
Correct Answer

A. All of the above.

Explanation

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.

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9.

A ________ is a diagram that depicts the flow of a particular operation or set of related operations within an organization.
- Process char
- Flow Chart
- Data Chart
- Sequence Chart
Correct Answer

A. Flow Chart

Explanation

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.

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10.

N D Tiwari has been stopped by LAPD for speeding and a ticket has been issued. Which statement is true?
- Tiwari's insurance company will automatically be notified by the state.
- Tiwari's insurance company will review his driving record and learn about the violation when his policy comes up for renewal.
- Tiwari's insurance company will automatically raise his rates.
- Nothing will happen. The insurance company cannot find out about the ticket issued to Tiwari.
Correct Answer

A. Tiwari's insurance company will review his driving record and learn about the violation when his policy comes up for renewal.

Explanation

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.

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11.

Insurance is a risk management techinque called
- Avoidance
- Transfer
- Loss Control
- Retention
Correct Answer

A. Transfer

Explanation

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.

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12.

What is an SR-22 Document?
- In the United States, an SR-22 is a vehicle liability insurance document used by some state Department of Motor Vehicles (DMV) offices. It provides proof that a driver has the minimum required liability insurance coverage for that particular state.
- An SR-22 document is a signed statement from a driver convicted of Driving Under Influence (DUI) declaring that he/she will not drink again.
- An SR-22 document is a written consent given by the Primary Insured on a policy to the Insurer stating that the Insurer can initiate liquidation of the Insured's property in case of any claims raised against the Insured, amount to more than the covered limits.
- An SR-22 is an alternative to the drivers license issued by the state's DMV.
Correct Answer

A. In the United States, an SR-22 is a vehicle liability insurance document used by some state Department of Motor Vehicles (DMV) offices. It provides proof that a driver has the minimum required liability insurance coverage for that particular state.

Explanation

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.

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13.

A business installs a sprinkler system to reduce the amount of fire damage from potential fires. What kind of Risk management technique is this
- Loss Reduction
- Loss Retention
- Loss Prevention
- None of the above
Correct Answer

A. Loss Reduction

Explanation

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.

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14.

The use of standard forms by insurers leads to a more:
- Consistent interpretation of insurance policies
- Creative interpretation of insurance policies.
- Conservative interpretation of insurance policies.
- Coordinated interpretation of insurance policies.
Correct Answer

A. Consistent interpretation of insurance policies

Explanation

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.

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15.

Which one of the following statements is true regarding the types of rates used by insurers?
- Class rates apply to all insureds in the same rating category.
- Merit rating plans are also called manual rating plans.
- Class rates are not based on loss statistics.
- 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 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.

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16.

Roadside assistance plans provide services EXCEPT
- 24 Hours emergency towing services
- 24 Hours lost key and lockout services
- 24 Hours battery services
- 24 Car higene services
Correct Answer

A. 24 Car higene services

Explanation

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.

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17.

Reinsurance is a contractual agreement:
- In which one insurer transfers some or all of its loss exposures to another insurer.
- That is formed as a subsidiary of its parent company for the purpose of writing insurance on the parent company.
- That ideally insures large numbers of similar exposure units.
- That insures through an attorney-in-fact.
Correct Answer

A. In which one insurer transfers some or all of its loss exposures to another insurer.

Explanation

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.

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18.

Brown Company's Policy includes a liberalization clause. Brown's insurer introduces a policy change that broadens coverage at no additional premium. How will this change apply to Brown's existing policy?
- The broadened coverage does not apply to Brown Company's policy.
- The broadened coverage automatically applies to Brown Company's policy.
- The broadened coverage will apply to Brown Company's policy with an endorsement.
- The broadened coverage will apply to Brown Company's new policies as they are issued.
Correct Answer

A. The broadened coverage automatically applies to Brown Company's policy.

Explanation

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.

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19.

State insurance departments:
- Regulate insurance rates to protect consumers from inadequate, excessive, or unfairly discriminatory rates.
- Are located in most but not all states
- Provide a source of investment funds.
- Answer to the federal government insurance department.
Correct Answer

A. Regulate insurance rates to protect consumers from inadequate, excessive, or unfairly discriminatory rates.

Explanation

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.

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20.

You have bought a flame-red high-performance engine car. You were surprised that despite your car has so many great safety features similar to other brand cars, your insurance company charged you more than what it was charging for other brand cars. What could be the reason?
- The red color cars are alway percieved to recieved more traffic tickets
- The high performance engine makes your car engine more prone to theft
- The Insurance company battling a case against your car brand company
- The Insurance company had some secret dealings with the rival company
Correct Answer

A. The high performance engine makes your car engine more prone to theft

Explanation

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.

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21.

Compensatory damages are intended to compensate a victim for harm actually suffered and can include
- Punitive damages
- Special damages.
- Hold harmless costs.
- Contractual obligations.
Correct Answer

A. Special damages.

Explanation

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.

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22.

Out-of-court settlements are
- Settled by the court system.
- Advantageous to the insurer because they eliminate uncertainty about the outcome of the claim.
- Not covered by liability coverage policies.
- Included in punitive damages.
Correct Answer

A. Advantageous to the insurer because they eliminate uncertainty about the outcome of the claim.

Explanation

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.

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23.

If you don’t understand all of the terms in your auto insurance policy, what should you do?
- Contact your insurance agent, who is responsible for servicing your policy.
- Wait until you need to file a claim to contact anyone.
- Contact your state’s department of insurance.
- Both A and C.
Correct Answer

A. Both A and C.

Explanation

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.

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24.

Jim canceled his auto policy 315 days after the inception date. The one-year premium is $1,095. Assuming that a year is 365 days, what is Jim's pro-rata premium refund?
- $50
- $150
- $780
- $945
Correct Answer

A. $150

Explanation

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.

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25.

Clara is insured by IIA Insurance Company. One night, on the way home from work, shewas involved in an auto accident. Clara ran a red light when her brand new Mazda did not have any brakes, and her car struck the pickup driven by Bill, an employee of Big Bob’s Produce Company. Bill was injured, and a claim was filed with IIA Insurance Company for injury to Bob and damage to the pickup. If there had been no injuries and damage to both vehicles had been minor, the claim would most likely be handled by a(n)
- Inside staff claim representative.
- Outside staff claim representative.
- Public adjuster.
- Independent adjuster.
Correct Answer

A. Inside staff claim representative.

Explanation

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.

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26.

In insurance terminology, which of the following refers to a book of business?
- All policies sold by an insurance company or agency
- All policies in a particular territory
- All policies providing a particular type of insurance
- All the above
Correct Answer

A. All the above

Explanation

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.

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27.

A ratemaking concept through which actuaries base rates on actuarially calculated loss experience and place insureds with similar characteristics into the same rating class is
- Social equity
- Flex rating laws
- Actuarial equity
- Open competition
Correct Answer

A. Actuarial equity

Explanation

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.

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28.

A Captive Insurance company is ______________ .
- The insurance company that accepts the loss exposure of the primary Insurer.
- The insurer that is formed as a subsidiary of its own parent company, organization or group, for the purpose of writing all or part of the insurance on the parent company or companies.
- An insurer that is owned by its policy holders and formed as a corporation for the purpose of providing insurance to its policy holder-owners.
- A federal government funded, state controlled insurance organization providing insurance to unusual Insurance needs.
Correct Answer

A. The insurer that is formed as a subsidiary of its own parent company, organization or group, for the purpose of writing all or part of the insurance on the parent company or companies.

Explanation

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.

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29.

Select the Correct statement with respect to Auto Insurance in America.
- Men Pay more for Insurance than Women due to their aggessiveness behind wheels
- Women Pay more for Insurance than men due to their soft behind wheels
- Premium cannot be different for men and women
- None of the above
Correct Answer

A. Men Pay more for Insurance than Women due to their aggessiveness behind wheels

Explanation

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.

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30.

A "___________" 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.
- Preservation of rights
- Reservation of rights
- Denial of rights
- None of the above
Correct Answer

A. Reservation of rights

Explanation

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.

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31.

What is IRDA and which country does it belong to?
- International Regulatory and Development authority, USA
- Insurance Rates and development Association, Canada.
- Insurance Regulatory and Development Authority (IRDA), India.
- Internal Revenue Department of America, USA.
Correct Answer

A. Insurance Regulatory and Development Authority (IRDA), India.

Explanation

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.

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32.

If the insurer cancels the policy, the return premium will be calculated usually on a:
- Short-rate basis.
- Flat Basis.
- Pro-rata basis.
- Penalty basis.
Correct Answer

A. Pro-rata basis.

Explanation

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.

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33.

A guaranty fund is:
- Created by the federal government for the purpose of providing insurance for the social good.
- The primary funding for the Fair Access to Insurance Requirements program.
- A state fund that provides a system to pay the claims of insolvent insurers.
- Managed by the National Association of Insurance Commissioners.
Correct Answer

A. A state fund that provides a system to pay the claims of insolvent insurers.

Explanation

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.

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34.

Binding authority
- Is usually granted in the agency contract
- Is granted by the agent to the principal.
- Is always oral.
- Is granted by the reinsurance treaty.
Correct Answer

A. Is usually granted in the agency contract

Explanation

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.

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35.

A ________ is a risk management tool in the form of a checklist or questionnaire listing potential loss exposures that a household or an organization might face
- Exposure Checklist
- Loss exposure survey
- Loss Questionnaire
- Risk check list
Correct Answer

A. Loss exposure survey

Explanation

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.

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36.

Which of the following is one of the largest Mutual P & C Insurance companies operating in North America?
- State Farm Insurance
- Citi Group Insurance
- 21st Insurance
- Allianz AG
Correct Answer

A. State Farm Insurance

Explanation

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.

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37.

Under tort law, an individual or organization can face a claim for legal liability on the basis of
- Negligence.
- Intentional torts.
- Absolute liability.
- All of the above.
Correct Answer

A. All of the above.

Explanation

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.

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38.

Which is an example of the reduction in value of property?
- A camera that was worth $200 is run over by the truck; the camera is now worthless.
- Because a business owner had a fire, he has lost income.
- A homeowner must live in a motel while his burned home is repaired.
- Inflation causes a home to appreciate in value.
Correct Answer

A. A camera that was worth $200 is run over by the truck; the camera is now worthless.

Explanation

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.

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39.

A dispute between neighbours can turn into a never-ending feud. Which form of law provides a forum for hearing disputes between private parties?
- Criminal law
- Statutory law
- Constitutional law
- Civil law
Correct Answer

A. Civil law

Explanation

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.

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40.

Which are the third-party coverages in the below?
- Collision (COLL), Comprehensive coverage (COMP)
- Bodily Injury(BI), Property damage (PD)
- Medical Payments (Med Pay), Personal Injury Protection (PIP)
- Uninsured and Underinsured Motorist Coverage (UM, UIM)
Correct Answer

A. Bodily Injury(BI), Property damage (PD)

Explanation

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.

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41.

Which one of the following in the risk management process is inaccurate? 1. Identifying and analyzing loss exposures. 2. Gathering information to support assumptions about the loss exposures. 3. Selecting the most appropriate risk management techniques. 4. Implementing the chosen techniques in a risk management program .
- 1
- 2
- 3
- 4
Correct Answer

A. 2

Explanation

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.

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42.

Tom Hanks has been insured by Farmers Insurance company for more than 60 days. Farmers insurance cannot cancel Tom's policy under which of the following circumstances?
- Tom gets his first speeding ticket.
- Tom does not pay the premiums.
- Tom lied on his insurance application.
- Tom's license has been suspended.
Correct Answer

A. Tom gets his first speeding ticket.

Explanation

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.

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43.

Loss reserves are
- The largest and most important liabilities of property and liability insurance companies.
- An estimate of the amount of claims payments that an insurer will make in the future
- Always an estimate.
- All of the above.
Correct Answer

A. All of the above.

Explanation

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.

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44.

Some insurers now use expert systems in the underwriting process. The primary purpose of these expert systems is to:
- Reduce claim expenses and loss adjustment expenses.
- Replace underwriting decision-making and enhance accuracy.
- Emulate the underwriting decision-making process as it would be performed by expert underwriters.
- Modernize insurance company information systems.
Correct Answer

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

Explanation

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.

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45.

If an insurance company refuses to pay a claim that should be paid or offers to settle a claim for less than it knows the claim is worth or denies a claim without adequate investigation, this could give rise to
- Bad faith claim against the Insurance company
- Unfair descrimination by Insurance company
- Long term profit for the Insurance company
- Cancellation of Liscence doing business by the Insurance company
Correct Answer

A. Bad faith claim against the Insurance company

Explanation

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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46.

Match the Column A elements with Column B elements? Column A Column B 1. Mutual Insurance Company A. Salaried employees of the Insurance companies. 2. Direct Writing Agents B. Owned by the policy holders. 3. Independent Adjusters C. Handle claims for the Insurance companies for a fee. 4. Choicepoint D. Investors own the association 5. Lloyd's of London E. CLUE report
- 1C, 2E, 3A, 4B, 5D
- 1B, 2E, 3C, 4A, 5D
- 1B, 2A, 3C, 4E, 5D
- 1D, 2A, 3D, 4E, 5C
Correct Answer

A. 1B, 2A, 3C, 4E, 5D
47.

Why would an underwriter modify the rate charged for the coverage provided when evaluating an application for insurance?
- Because treaty reinsurance in unavailable for the exposures indicated
- To address the moral hazards the underwriter identified during investigation
- To better match the rate to the characteristics of the risk
- Because the applicant is not acceptable for coverage
Correct Answer

A. To better match the rate to the characteristics of the risk

Explanation

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.

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48.

Most liability insurance policies exclude coverage for losses intentionally caused by the insured because such losses do not meet which one of the following characteristics of an ideally insurable exposure?
- Large number of similar exposure units
- Accidental
- Not catastrophic
- Not economically feasible to insure
Correct Answer

A. Accidental

Explanation

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.

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49.

A bailment is
- Holding the property of another.
- An exclusion in the property policy.
- A named peril.
- A lender that loans money on a home, building, or other real property.
Correct Answer

A. Holding the property of another.

Explanation

The correct answer is "Holding the property of another." A bailment refers to the legal relationship where one person (the bailee) holds the personal property of another person (the bailor) for a specific purpose. The bailee has temporary possession and control over the property but does not gain ownership. This can occur through agreements such as renting a storage unit or borrowing a friend's car. The bailee is responsible for taking reasonable care of the property and returning it to the bailor once the purpose of the bailment is fulfilled.

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Quiz Edited by
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Sep 29, 2015

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