INS21: Mock Exam Quiz! MCQ

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1. Implementation of the chosen Risk management technique requires that risk manager make decisions concerning:

Explanation

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.

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INS21: Mock Exam Quiz! MCQ - 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.

2. The claim handling process includes

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

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:

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

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  

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

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. N D Tiwari has been stopped by LAPD for speeding and a ticket has been issued. Which statement is true?

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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9. Marketing management

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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10. A ________ is a diagram that depicts the flow of a particular operation or set of related operations within an organization.

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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11. What is an SR-22 Document?

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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12. Insurance is a risk management techinque called

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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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

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:

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? 

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

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:

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?

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:

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. If you don’t understand all of the terms in your auto insurance policy, what should you do?

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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21. 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?  

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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22. Compensatory damages are intended to compensate a victim for harm actually suffered and can include

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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23. Out-of-court settlements are

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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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?

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)

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. A Captive Insurance company is ______________ .

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

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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28. 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

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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29. What is IRDA and which country does it belong to?

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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30. Select the Correct statement with respect to Auto Insurance in America.

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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31. 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.

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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32. Which of the following is one of the largest Mutual P & C Insurance companies operating in North America?

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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33. If the insurer cancels the policy, the return premium will be calculated usually on a:

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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34. A guaranty fund is:

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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35. Binding authority

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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36. 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

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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37. Under tort law, an individual or organization can face a claim for legal liability on the basis of

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 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 .

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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39. 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?

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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40. Which is an example of the reduction in value of property?

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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41. A dispute between neighbours can turn into a never-ending feud. Which form of law provides a forum for hearing disputes between private parties?

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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42. Which are the third-party coverages in the below?

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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43. Loss reserves are

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. 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

Explanation

not-available-via-ai

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

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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46. 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

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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47. Why would an underwriter modify the rate charged for the coverage provided when evaluating an application for insurance? 

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?

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

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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50. Which of the following is a Federal Government Insurance Program?

Explanation

The Social Security Program is a Federal Government Insurance Program that provides financial support to eligible individuals and their families. It is designed to provide income security to retired, disabled, and elderly individuals, as well as to surviving spouses and children of deceased workers. The program is funded through payroll taxes and provides benefits such as retirement income, disability benefits, and survivor benefits.

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51. The two major types of liabilities found on the financial statements of insurers are:

Explanation

The correct answer is "Unearned premium reserve and loss reserve". Unearned premium reserve refers to the portion of insurance premiums that have been collected but have not yet been earned by the insurer. Loss reserve, on the other hand, is the estimated amount of money that an insurer sets aside to cover future claims. These two liabilities are significant for insurers as they represent the financial obligations they have towards policyholders and potential claimants.

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52. A policy in which the insurer pays a stated amount in the event of a specified loss (usually a total loss), regardless of the actual value of the loss is known as a

Explanation

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.

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53. All of these statements about unfair claim practices are correct, EXCEPT:

Explanation

The given answer is incorrect because unfair claim practices are not necessarily specified as illegal according to federal law. Unfair claim practices can vary from state to state, and while some may be illegal under federal law, others may only be illegal under state law. Therefore, it cannot be stated that all unfair claim practices are illegal according to federal law.

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54. Claims-made coverage

Explanation

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.

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55. Basic form coverage

Explanation

The correct answer is "Lists covered causes of loss." This statement suggests that the basic form coverage includes a list of causes of loss that are covered by the policy. This implies that the policyholder will be protected against the specific perils or events listed in the policy. It is important to note that this coverage is not open peril, as it only covers the causes of loss that are explicitly mentioned in the policy. Additionally, it does not cover losses that are specifically excluded from the policy.

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56. David Beckham wants to Insure his feet to the tune of 10 million dollars each. Which of the following Insurance company will he most likely go to?

Explanation

David Beckham would most likely go to Lords Excess and Surplus Insurance ltd. to insure his feet for 10 million dollars each. This is because Lords Excess and Surplus Insurance ltd. specializes in providing coverage for high-value assets and unique risks, such as insuring body parts of celebrities or athletes. The other insurance companies mentioned may not have the expertise or experience in offering such specialized coverage.

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57. In evaluating an application, an underwriter thinks that the class of business is not one that the company wishes to write, but he would need to physically inspect it to be certain.  He also realizes that the business is located in an undesirable section of the city.  Based on the location alone, the underwriter decides not to issue the policy.  According to many state insurance laws, this would be an example of:

Explanation

The underwriter's decision to not issue the policy based solely on the location of the business is considered unfair discrimination. Unfair discrimination refers to the practice of treating individuals or businesses differently based on certain characteristics that are not relevant to the risk being insured. In this case, the underwriter is discriminating against the business solely based on its location, which is not a fair or valid reason to deny coverage. State insurance laws often prohibit unfair discrimination to ensure that insurance companies do not unfairly deny coverage to certain individuals or businesses.

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58. If an Insured is Sued(Dragged to court) does the Insurance Company defend the Insured in court?

Explanation

The correct answer is that the insurance company defends the insured until the limits of the coverage are expended for the defense. This means that the insurance company will provide legal representation and cover the costs associated with defending the insured in court, as long as it falls within the limits of the coverage provided by the insurance policy. Once those limits are reached, the insured may be responsible for any further defense costs.

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59. An insurer’s capacity ratio is:

Explanation

The insurer's capacity ratio is calculated by dividing its written premiums by its policyholders surplus. This ratio helps determine the insurer's ability to cover potential losses and liabilities with its available surplus. A higher capacity ratio indicates a stronger financial position and ability to handle risks, while a lower ratio may suggest a potential vulnerability.

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60. Humongous Insurance Company is considering the purchase of Itty-Bitty Insurance Company. Following is financial data of Itty-Bitty Insurance Company.
    Expense ratio 39%     Loss ratio 57%     Investment income ratio 18%

The combined ratio for Itty-Bitty Insurance Company is:

Explanation

The combined ratio is calculated by adding the expense ratio, loss ratio, and investment income ratio. In this case, the expense ratio is 39%, the loss ratio is 57%, and the investment income ratio is 18%. Adding these ratios together, we get a combined ratio of 114%. However, since the combined ratio represents the percentage of premiums used to cover expenses and losses, a higher ratio indicates a less profitable company. Therefore, the correct answer is 96%, which indicates a more favorable financial position for Itty-Bitty Insurance Company.

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61. Which of the below is NOT a step in Risk management process

Explanation

Implementing the Risk is not a step in the Risk management process. Risk management process involves identifying and analyzing loss exposures, examining risk management techniques, and selecting the most appropriate techniques. Implementing the Risk refers to the actual implementation of the chosen risk management techniques after they have been selected.

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62. What is the significance of 1994 Northridge Earthquake?

Explanation

The significance of the 1994 Northridge Earthquake is that it nearly bankrupted 21st Century Insurance due to the claims resulting from the earthquake. As a result, the company stopped selling Homeowners insurance policies. This event highlights the financial impact that natural disasters can have on insurance companies and their ability to provide coverage to homeowners. It also emphasizes the need for comprehensive disaster insurance programs, as evidenced by the addition of California and Florida to the list of covered states under the US Federal Insurance authority's National Disaster Insurance programs. Additionally, the earthquake prompted the California State Insurance department to join the NAIC committee, further emphasizing the importance of collaboration and coordination in managing insurance and disaster response.

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63. Being a owner of house in US

Explanation

The correct answer is "It is not mandatory to buy homeowner's Insurance." This means that as a owner of a house in the US, it is not a requirement to purchase homeowner's insurance. While it is highly recommended to have homeowner's insurance to protect against potential damage or loss, it is not legally mandated. The decision to purchase homeowner's insurance is left to the discretion of the homeowner.

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64. Loss frequency is

Explanation

The correct answer is "a term used to indicate how often losses occur." Loss frequency refers to the frequency or rate at which losses happen. It is used to measure and indicate the occurrence of losses over a specific period of time. By understanding loss frequency, organizations can assess the likelihood and potential impact of future losses, allowing them to make informed decisions and take preventive measures to mitigate risks.

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65. Which of the following is not one of the primary objectives of Insurance regulation?

Explanation

Insurance regulation primarily focuses on ensuring the stability and integrity of the insurance industry, protecting consumers, and maintaining solvency of insurance companies. Market capitalization of insurance companies, on the other hand, is not a primary objective of insurance regulation. Market capitalization refers to the total value of a company's outstanding shares in the stock market, and is influenced by various factors including market conditions, investor sentiment, and company performance. While insurance regulation may indirectly impact market capitalization, it is not a direct objective of insurance regulation.

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66. All of the following are true of insurance company financial statements, EXCEPT:

Explanation

Insurance companies do not add expenses from investment income to show the net income from investments on their financial statements. Instead, investment income is reported separately from underwriting income. The net income from investments is calculated by subtracting investment expenses from investment income.

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67. Rebating is

Explanation

The correct answer is "Offering anything of value, other than the insurance itself, to an applicant as an inducement to buy or maintain insurance." This is because rebating refers to the practice of giving something of value, such as cash or gifts, to an applicant as an incentive to purchase or continue an insurance policy. This is considered illegal in many jurisdictions as it can create unfair competition and undermine the integrity of the insurance market.

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68. Insurance companies are exempted from Consumer protection laws in some states.

Explanation

Insurance companies are exempted from consumer protection laws in some states because insurance is not considered a consumable product. Unlike tangible goods that can be used up or consumed, insurance is a service that provides financial protection in the event of certain risks or losses. Therefore, it is treated differently under the law and may not be subject to the same consumer protection regulations as other products or services.

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69. 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.
Bill’s claim will most likely be handled for IIA Insurance Company by a(n)

Explanation

Since Bill's claim is related to the accident caused by Clara, who is insured by IIA Insurance Company, it is most likely that his claim will be handled by an outside staff claim representative. This representative would be responsible for assessing the damage to the pickup and the injury to Bill, and processing the claim on behalf of IIA Insurance Company.

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70. All of the following are correct, EXCEPT:

Explanation

The correct answer is "Property loss exposures include negligence, real property, and personal property." This statement is incorrect because property loss exposures do not include negligence. Property loss exposures refer to the potential risks or hazards that can result in damage or loss to real property (land and buildings) or personal property (possessions or belongings). Negligence, on the other hand, refers to the failure to exercise reasonable care, which can lead to liability loss exposures.

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71. Which of the following statements best describes the way in which "support for credit" is a benefit of insurance?

Explanation

not-available-via-ai

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72. Humongous Insurance Company is considering the purchase of Itty-Bitty Insurance Company. Following is financial data of Itty-Bitty Insurance Company.
    Expense ratio 39%     Loss ratio 57%     Investment income ratio 18%

The overall operating ratio is:

Explanation

The overall operating ratio is calculated by adding the expense ratio, loss ratio, and investment income ratio. In this case, the expense ratio is 39%, the loss ratio is 57%, and the investment income ratio is 18%. Adding these ratios together gives us a total of 114%. However, the question asks for the overall operating ratio, which is the complement of the total ratio. Therefore, subtracting 114% from 100% gives us 86%. Since the answer choices are in percentages, we can convert 86% to 78%. Therefore, the correct answer is 78%.

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73. The World Insurance Report 2008 explores current distribution models and changes in channel usage, and also takes an in-depth look at successful versus at-risk multi-channel strategies. Find out what’s driving multi-channel usage in mature markets and how changing customer profiles and behaviors are impacting today’s insurance practices. The report identifies growth opportunities for leading insurance companies and features insightful approaches for transforming current insurance practices into tomorrow’s winning strategies. 
Which of the below organizations publish this report?

Explanation

Capgemini and the European Financial Management & Marketing Association (EFMA) publish the World Insurance Report 2008. This report explores current distribution models, changes in channel usage, successful versus at-risk multi-channel strategies, and the impact of changing customer profiles and behaviors on insurance practices. It also identifies growth opportunities for leading insurance companies and provides insightful approaches for transforming current practices into winning strategies.

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74. Kelly Blue Book is ________________ .

Explanation

Kelly Blue Book is an automotive vehicle valuation company in the United States.

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75. All of the following are true, EXCEPT:

Explanation

The excess and surplus lines market is subject to state regulation.

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The claim handling process includes
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Out-of-court settlements are
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A policy in which the insurer pays a stated amount in the event of a...
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Claims-made coverage
Basic form coverage
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Rebating is
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Which of the following statements best describes the way in which...
Humongous Insurance Company is considering the purchase of Itty-Bitty...
The World Insurance Report 2008 explores current distribution models...
Kelly Blue Book is ________________ .
All of the following are true, EXCEPT:
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