Business Quiz: Insurance Company Organization And Regulation
There are several types of insurance organizations and arrangements that provide insurance coverage. Not all of them are corporations (or companies) that are in business to make a profit, but most of them are. The various categories of insurers represent the different ways they raise the money necessary to begin a business and enroll their prospects for insurance. Although you need to understand the nature and structure of for-profit insurance companies, you should also know that there are other markets and providers of insurance, including non-incorporated private organizations and the federal and state governments.
- 1.
A nonexclusive agent:
- A.
Represents a single insurance company.
- B.
Works for a direct writer.
- C.
Is an independent businessperson.
- D.
Does not collect commissions.
Correct Answer
C. Is an independent businessperson.Explanation
C is correct. A nonexclusive, or independent, agent represents more than one company. This type of agent collects commissions on the policies sold, but collects no salary from the companies he or she represents.Rate this question:
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- 2.
Solicitors may not:
- A.
Issue or countersign policies.
- B.
Sell insurance.
- C.
Collect premiums.
- D.
Sign an application.
Correct Answer
A. Issue or countersign policies.Explanation
A is correct. A solicitor, who often works with or for an agent, has more limited authority than the agent. A solicitor sells insurance and might even be authorized to collect premiums. However, a solicitor cannot issue or countersign policies.Rate this question:
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- 3.
At DEF Insurance Company, agents are employees of the company who are paid a salary plus commissions. This is an example of what type of insurance marketing system?
- A.
Captive
- B.
Independent
- C.
Direct writer
- D.
Direct response
Correct Answer
C. Direct writerExplanation
C is correct. In the direct writer system, the insurer's agents are actually employees. They can receive a salary, be paid on commission, or both.Rate this question:
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- 4.
Which insurance company department is responsible for accepting and rejecting applications based on company standards?
- A.
Underwriting
- B.
Loss Control
- C.
Claims
- D.
Agency
Correct Answer
A. UnderwritingExplanation
A is correct. Underwriting is the process of selecting certain types of risks and rejecting others so that the insurer will have a profitable book of business.Rate this question:
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- 5.
Which insurance company department is responsible for paying insureds' covered losses?
- A.
Audit
- B.
Claims
- C.
Underwriting
- D.
Reinsurance
Correct Answer
B. ClaimsExplanation
B is correct. The claims department sees that the company's insureds are adequately indemnified for their losses. Claim adjusters determine the cause of loss, whether the loss is covered by the policy, the value of the loss, and the amount of loss payable by the policy.Rate this question:
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- 6.
Who is responsible for licensing insurance agents?
- A.
Lloyd's Associations
- B.
State insurance department
- C.
Interstate Commerce Commission
- D.
Insurance Services Office
Correct Answer
B. State insurance departmentExplanation
B is correct. State insurance departments devote much of their time to working with insurance agents. One of their most important duties is agent licensing.Rate this question:
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- 7.
Agent Blondell is offering a free television to every applicant who agrees to buy insurance through his agency. In most states, this is an illegal practice known as:
- A.
Rebating
- B.
Twisting
- C.
Misrepresentation
- D.
Failure of fiduciary responsibility
Correct Answer
A. RebatingExplanation
A is correct. Rebating is giving or offering some benefit other than those specified in the policy, such as cash, gifts, or securities, to induce a customer to buy insurance. Rebating is illegal in all but two states.Rate this question:
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- 8.
Which of the following is not one of the duties of an agent?
- A.
Making appropriate coverage recommendations to prospective customers
- B.
Writing the provisions of a customer's policy
- C.
Helping prospective customers complete the application
- D.
Assuring that customers understand the coverage they are purchasing
Correct Answer
B. Writing the provisions of a customer's policyExplanation
B is correct. Agents have a responsibility to interact effectively with customers in regard to the insurance transaction, but they do not determine the provisions of the policies the insurer issues.Rate this question:
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- 9.
The Excel Insurance Company is incorporated in the state of Tennessee. It is also authorized to do business in Georgia. In Georgia, Excel is known as what type of company?
- A.
Alien
- B.
Foreign
- C.
Domestic
- D.
Non-admitted
Correct Answer
B. ForeignExplanation
B is correct. Insurance companies are known as domestic companies in their home states, foreign companies in other states in which they are admitted to do business, and alien companies if their home office is located in a country other than the United States.Rate this question:
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- 10.
Can states require insurance companies to use certain forms or rates in connection with certain types of insurance?
- A.
No, that would be a violation of the principle of open competition.
- B.
No, they can only require that forms and rates be subject to prior approval.
- C.
No, insurers can always begin using forms and rates as soon as they are properly filed with the state.
- D.
Yes, some states have mandatory forms or rates for certain coverages.
Correct Answer
D. Yes, some states have mandatory forms or rates for certain coverages.Explanation
D is correct. In addition to open competition, prior approval, and file-and-use rules, some states mandate the forms or rates for certain coverages.Rate this question:
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Mar 20, 2023Quiz Edited by
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Feb 24, 2009Quiz Created by
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