Associate in Insurance (AINS) 21 Practice Exam

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• One of the costs of using capital and labor in the insurance industry is called opportunity costs. This means that these resources could be used elsewhere to make other productive contributions to
• Insurance is not the only risk management transfer technique. When circumstances are appropriate, transfer can be accomplished through which of the following?
• Private insurers are reluctant to provide windstorm insurance on coastal properties because the loss exposures fail to meet the criteria that ideally insurable exposures must be
• Which activity best describes prospecting in the context of insurance sales?
• Which statement best describes the primary function of case reserves within loss reserves?
• Which of the following are types of property insurance except?
• In the bank discount example, the practice of offering a discount on loans for purchasing insurance is best described as
• For a large airport liability quote, which form is likely appropriate?
• Which statement is true regarding distribution systems and channels for insurers?
• Exclusions generally serve all of the following basic purposes, except:
• Sometimes the existence of insurance encourages losses. The result of this phenomenon is that it increases
• The premium charged for an insurance policy should be
• Which statement best describes disability insurance in risk management for a person who is worried about income loss after an accident?
• A stock insurer is owned by whom?
• Which statement about good-faith claim handling is true?
• In risk management, what is the primary purpose of insurance?
• Which risk management concept involves transferring the financial burden of a risk to another party, typically through insurance?
• Market conduct regulation focuses on insurers' treatment of applicants for insurance, insureds, and others who present claims for coverage. It affects which area of operations?
• Under Part One of workers compensation and employers liability insurance, which condition must be met for coverage to apply?
• Which type of insurer is most likely to include its bylaws as part of its policy documents?
• Which party typically pays commissions to the producer in an insurance transaction?
• Property losses can lead to a variety of financial consequences. Which description most completely describes those consequences?
• Which of the following is used to identify loss exposures?
• Which statement correctly describes government involvement in property and casualty insurance?
• Which liability exposure would be associated with service contractors whose completed work can cause damage after completion?
• Bill is an insurance producer for ABC Insurance Company. She represents only ABC when marketing insurance products, is compensated primarily by salary, and has no ownership rights to policy expirations. Bill is a producer in the
• Abc insurance company's combined ratio is 102 and its operating ratio is 98. These ratios indicate that
• Which one of the following is a common alternative dispute resolution technique?
• What is an opportunity cost of purchasing insurance?
• Which term is included in the bodily injury definition under a CGL policy along with bodily injury, sickness, and death?
• In property insurance, what term refers to personal property inside a building, such as furniture, machinery, raw materials, and finished goods?
• Damages for pain and suffering are a form of which damages?
• Oscar's custom-built vehicle is used as a mobile billboard. It fails to meet one ideal insurable risk characteristic. Which characteristic is it least likely to meet?
• Which factor makes a business more likely to seek E&S market liability coverage?
• A company interested in improving cash flow should consider meeting its insurance needs through which type of insurance organization?
• Which entity is primarily responsible for licensing insurers, approving policy forms, and overseeing solvency within a state?
• The cause of loss that occurs more frequently than death, causing personnel losses, is
• In loss costing, which category includes both paid losses and reserves for unpaid claims?
• What is a potential result of using standard forms in insurance policies?
• Which of the following is a required element for a valid contract offer?
• Indemnification is the process of restoring an insured to pre-loss financial condition.
• Fortuitous losses are best described as losses that are
• A mutual insurer is owned by which group?
• One of the costs of insurance is opportunity costs. This means capital and labor could be used elsewhere to contribute to society.
• Why do liability insurance policies typically exclude war risks?
• What is the purpose of liability insurance?
• Which measure represents the amount an insurer would owe its policyholders in premium refunds if it were to immediately cease operations?
• Based on earned premiums of 4,000,000 and incurred losses of 3,000,000, what is the loss ratio?
• Which insurance customer may be compelled to meet its liability insurance needs through the excess and surplus lines market?
• Which of the following best defines a loss exposure?
• Which statement about the direct response distribution channel to market insurance is true?
• Bonnie operates a small produce store and may look to the E&S market for liability coverage because
• Liability coverage that protects an accident occurring during the policy period, regardless of when the claim is submitted, is which type of coverage?
• When selecting a distribution system, what is a critical factor?
• What is the most common reason premium audits are conducted?
• Medical Payments to Others in a homeowners policy covers which of the following?
• An essential element of a contract is that the parties are in agreement, which is
• On November 1, Peafowl insurance company issued a one year business auto policy with a premium of 24,000. What was the written premium as of December 31?
• Which statement about bad-faith laws in insurance claims is true?
• Which statement best defines written premium?
• Liability insurance primarily covers claims brought by which group?
• Which example best illustrates Mehmet's point about insurance helping manage cash flows?
• In a large fire loss investigation, the insured's representations regarding property description are typically found in which document?
• Which type of liability exposure is associated with releasing environmental contaminants?
• Which feature is most associated with a direct writer model?
• A trenching machine installs fiber-optic cable and a community member injures themselves after the trench is left. This illustrates which liability loss exposure?
• Premium audits are used primarily to?
• Which item is not included on the Declarations page of an insurance policy?
• Which scenario best illustrates insurance helping manage cash flows?
• Some loss exposures are not easy to retain, avoid, or control. Which risk management technique is frequently used to treat such exposures?
• People who handle claims may be staff claim representatives, independent adjusters, employees of third party administrators or which of the following?
• Which of the following is an example of a fortuitous loss?
• Sometimes a policy is canceled or non-renewed even though the agent was paid its commission. In these situations the agent will be requested to return the
• From a risk management perspective, insurance is used to do which of the following?
• Which statement correctly describes the net investment income ratio?
• Who owns a stock insurer?
• A producer will generally review a company's loss run report while performing which function?
• Loss reserves are amounts designated by insurers to pay claims for losses that have
• Which describes a financial consequence of personal losses to an organization?
• Regulators monitor an insurer’s financial condition by requiring
• An Ohio insurer licensed to sell in Michigan is considered what in Michigan?
• Loss reserves assigned to an individual claim create what?
• Insurers are required to submit annual financial statements to
• If an insurance agent embezzles premiums, what area of operations is affected and what is a typical regulator punishment?
• Commercial crime insurance typically provides coverage for losses due to which act?
• Lou's company has a public reputation for resisting legitimate claims. What is the most likely effect on its advertising?
• Which concept is used by insurers to estimate the expected cost of claims over a large sample, assisting premium calculations?
• A loss exposure is best described as
• Prompt and professional loss adjustment services are the responsibility of which part of an insurer's organization?
• To transact insurance with insurers, what must a licensed state agent do?
• Which liability exposure is associated with work that has been completed and later causes damage?
• Alien insurers must satisfy the requirements of domestic insurers, and must usually establish a branch office and have funds on deposit in the United States. Which statement is correct?
• Producers are prohibited from paying a portion of the premiums for a policy or giving any commission to a policyholder. Actions of this type are called
• Net income losses refer to indirect losses tied to property damage; which option best describes this concept?
• How does flex rating law work?
• Contract law is a form of which kind of law?
• Which compensation arrangement is NOT typical for a producer who is an employee of a direct writer?
• In the described agency arrangement, which option correctly identifies who pays commissions to the agent when the insurer calculates them monthly?
• Which measurement isolates underwriting and claims performance from investment results?
• The term net income losses is usually associated with which category?
• Which liability exposure would most likely apply to a janitorial service whose completed work later causes damage?
• Some loss exposures are not easy to retain, avoid, or control. What risk management technique is frequently used to treat such exposures?
• Which loss exposure best describes a scenario where completed work could cause injury after the job is finished?
• Which distribution system is most appropriate for Martin Insurance Company's goal of emphasizing producer expertise, responsiveness, and confidentiality in international markets?
• In insurance distribution, appointment refers to which of the following?
• In designing an insurance distribution system, which statement is correct?
• Which scenario best illustrates separation as a risk management technique?
• If an insurer's potential losses exceed its capacity, which contract type transfers risk to another insurer?
• In a direct writing marketing system, compensation to the producer is primarily through
• Under a Personal Auto Policy, does a foster child who lives in the same household qualify as a 'family member'?
• The Insurance Services Office (ISO) is best described as which of the following?
• Tort law is still based mainly on which legal principle?
• In insurance, the law of large numbers is used to estimate which of the following?
• Which distribution channel is characterized by insurers relying on salaried employees rather than independent agents?
• Which function is performed by virtually all insurance producers?
• For a one-year policy covering losses that take several years to develop, which ratio is likely to be revised for several years following the policy period?
• Written premiums represent the total premium charged for policies issued during a period, regardless of whether the coverage has begun.
• Claim buildup is considered among which costs of insurance?
• Insureds must share enough characteristics to be grouped for pricing in a class rating. What is this grouping called?
• In an insurance contract, who is the party that promises to pay claims?
• Which type of agent is usually paid the same commission rate for new business and renewals?
• In commercial insurance, which distribution channel is particularly suitable for handling complex risks?
• Beth's situation indicates that most courts would?
• In which market would Kyle likely obtain the umbrella policy with multimillion-dollar limits when standard carriers balk at writing high limits?
• People who handle claims, keep claim records, and perform statistical analysis on behalf of self-insureds are called
• Most homeowners policies provide coverage for relatives of the named insured who
• Insurers are unwilling to provide professional liability insurance under the CGL because which of the following?
• Which statement best describes consideration in contract law?
• Insurance is not the only risk management transfer technique. When circumstances are appropriate, transfer can be accomplished through
• Which term describes the party who borrows money in a mortgage?
• Which action is least likely to improve an insurer's underwriting results in the near term?
• Which of the following statements best describes coverage for the personal property of others under a homeowners policy?
• Which distribution channel is an efficient way to handle claim reporting and billing inquiries?
• Which statement best describes enterprise-wide risk management (ERM)?
• A commercial package policy is best described as?
• In regulatory practice, solvency is demonstrated by an insurer's ability to
• Some loss exposures are not easy to retain, avoid, or control. What risk management technique is frequently used to treat such exposures?
• Besides predicting the amount of future losses, the law of large numbers is also used by insurers to
• In the agency relationship, who is the principal?
• Earned premiums represent what?
• An increase in earned premiums with no change in written premiums or any other financial figures will generally cause a decrease in all of the following, except
• Which statement is true regarding elements of good-faith claim handling?
• A bank offers a discounted auto loan rate to customers who also buy auto insurance from the bank. This discount is an example of
• In a product liability case involving a defective lawnmower, what is the best legal theory to pursue?
• Which of the following identifies a benefit of applying sound risk management?
• Third party administrators typically perform which of the following roles?
• When choosing a distribution channel, which customer-related factor is important to consider?
• Why is net underwriting gain or loss considered a better measure of underwriting performance than the overall gain or loss from operations?
• Which would have an insurable interest in real property?
• In an exclusive agency system, independent agents represent the insurer and place all business with that insurer. Which of the following best describes this arrangement?
• Defense costs coverage in most liability policies is what relative to the liability limit?
• Coverage for miscellaneous types of property such as movable property, goods in domestic transit, and property use in transportation and communication is typically provided by
• An increase in earned premiums with no change in written premiums or any other financial figures will generally cause a decrease in all of the following except
• In property insurance, to which category does definite and accidental losses apply?
• A reinsurance company
• In a negligence case, the plaintiff must prove that the defendant
• Martin Insurance Company targets international manufacturers of specialty products. Which distribution system is most appropriate for Martin to expand into similar markets?
• A reservation of rights letter from an insurer indicates which of the following?
• What is the purpose of loss reserves with respect to past losses?
• All commercial package policies usually begin with two components. Which pair are they?
• What is the Insurance Services Office (ISO) best described as?
• Which distribution system best describes a producer who represents the insured rather than the insurer?
• What section of an insurance policy helps clarify real or perceived ambiguity?
• In property insurance, the term personal property refers to which of the following?
• After investing significant resources to develop a web based system, a personal lines insurer expands its territory by assuming the role of a direct writer and using the Internet as a distribution channel. What is the insurer's greatest concern with the existing book which used independent agents as the distribution system?
• Leadership continuity risk is best described as which type of risk?
• The actions described by coordinating insurance coverage during installation of a new alarm system illustrate which step of the risk management process?
• Which statement about perils in property insurance is correct?
• In claims handling, insurers and their representatives are expected to act with what standard?
• Which condition best describes why a risk would be placed in the surplus lines market?
• The two objectives of insurance policy form regulation are to ensure that policies are clear and readable and to
• If premiums increase by a greater percentage than increases in losses, what happens to the loss ratio?
• Wellborn operates under which marketing system, given its contract with Coastal requires all insurance it sells be placed with Coastal?
• Tort law is primarily based on which source?
• Why are insurance regulators concerned about effects of large catastrophes?
• The segment of the market known for placing high-risk or unusual risks that admitted carriers will not insure is called?
• In a stock insurer, profits are primarily distributed to whom?
• Which function is performed by virtually all insurance producers?
• Which statement best describes the coverage usually provided under commercial property insurance?
• Which term describes the authority to bind coverage within specified limits created by the contract?
• Private insurers are reluctant to provide windstorm insurance on coastal properties because the loss exposures fail to meet the criteria that ideally insurable exposures must be
• A fundamental characteristic of insurable loss exposures is that losses must be
• With respect to insurable loss exposures, which statement is correct?
• Which of the following would be considered business personal property under a commercial property policy?
• For a contract to be enforceable, something of value must be exchanged. The thing of value exchanged is called
• A small business owner worried about not being able to work after an accident should purchase which type of insurance?
• Which cost category is most associated with claim buildup in insurance costs?
• Which of the following would be an unacceptable practice under most states unfair claims practices acts?
• An operating cost of insurers is?
• One major downside of individuals using retention alone in risk management is
• In underwriting, presenting a false statement that would influence underwriting is known as what?
• The authority the principal grants to the agent in the agency contract is known as what?
• When selecting a distribution system, what type of consideration should t.roy insurance give to its operations?
• Which is a federal insurance plan where the government acts as a partner with a private insurer that sells insurance and pays the claims, then reimburses the insurer for losses beyond premiums and investment income?
• What term describes coverage that pays to replace damaged property with new items at replacement cost?
• What is the principal method of determining a prospect's insurance needs?
• Which item is NOT one of the two components that all commercial package policies begin with?
• What triggers coverage under an occurrence basis liability policy?
• If losses are not fortuitous, which outcome is most likely for premiums?
• Which type of insurer is formed to earn profit for its stockholders?
• Insurance is not the only transfer technique; when appropriate, risk transfer can be accomplished through what?
• A homeowners insurance policy typically includes which coverages?
• The capital of a stock insurance company primarily comes from
• Self-contained policies
• A flex rating law is
• Which party calculates commissions based on policy premiums?
• The primary source of capital for a stock insurance company is
• Who uses standard terminology for precision and clarity in insurance?
• Fair Access to Insurance Requirements (FAIR) plans are designed to provide basic property insurance to property owners who ...
• Direct writer distribution systems are characterized by?
• Completed operations liability coverage primarily covers claims arising from which source?
• On an insurer's financial statement, loss reserve and unearned premium reserve are part of which category?
• Opportunity costs in insurance refer to the idea that if capital and labor were not used in the insurance business, they could be used elsewhere to make other productive contributions to
• Which statement correctly describes occurrence basis coverage?
• A corporate succession plan primarily benefits which stakeholders by ensuring leadership continuity?
• Which statement describes the function of a policy condition?
• A completed operations liability loss exposure differs from products liability loss exposure in that the completed operations exposure arises out of what?
• Which of the following best describes the difference between insurance transfer and non-insurance transfer methods?
• Adhering to the characteristics of an ideally insurable loss exposure helps assure that the insurer is able to charge a premium that the insured can afford to pay.
• Which statement is true about distribution channels and messaging?
• In a mortgage transaction, the party who borrows money is the mortgagor.
• Which is generally fee-based rather than a fixed commission rate?
• Which measure might help assuage analysts' concerns about leadership continuity after a long-serving CEO?
• Which statement describes the exclusive agency marketing system?
• In a mortgage transaction, the mortgagee is the party that provides the loan.
• Sally is a recent college graduate who lives in the suburbs and drives to work daily in the city. She recognizes that owning a car creates both property damage and liability exposures for her and at the same time she has the burden of student loans. For someone in Sally's circumstances the most particular risk management technique for dealing with her auto related loss exposures is
• Which tool is used to map processes when identifying loss exposures?
• In a mortgage loan, the borrower is the Mortgagor. (Which party holds the promissory note and receives payments?)
• Which type of policy is designed to address an insured's complete coverage needs in a single document?
• What term refers to the ability of an insurer to meet its obligations as they become due?
• Bailee must consider not only their own property loss exposures but also the exposures of property held for others.
• After verifying coverage, what is the next step for the claim representative?
• Which statement is correct regarding government insurance programs?
• In rate regulation, what is required for adequacy?
• In personal insurance, what term designates a residential structure typically covered by homeowners policies?
• Tort law is primarily based on which legal tradition?
• A personal lines insurer shifts from using independent agents to direct writing and uses the internet as the distribution channel. What is the insurer's distribution approach in this scenario?
• Which statement accurately describes homeowners policies regarding personal property coverage?
• A stock insurer is distinguished from a mutual insurer by the fact that?
• What term describes the funds set aside by an insurer to cover claims arising from losses that have already occurred?
• What method protects a secured lender's interest in financed property under an owner's policy?
• Property losses are generally easier to gauge than liability losses because property losses have what characteristic?
• Which of the following is NOT a duty owed by an insurance agent under the laws of agency?
• Which statement about state-developed rates is true?
• Insurance is not the only risk management transfer technique. When circumstances allow, risk transfer can be accomplished through non-insurance transfer techniques. Which of the following is a non-insurance transfer technique?
• Unity insurance company has an operating ratio of 0.98, a combined ratio of 1.02, and a loss ratio of 0.77. Which statement is true for the company?
• The primary function of a reinsurer is to
• Which statement about the expense ratio is true?
• Which statement about the agency contract is true?
• Actual cash value (ACV) is defined as
• Donna, an insurance producer, asks a prospective policyholder to complete a questionnaire to assist her in reviewing loss exposures. She is conducting a
• An independent business owner or firm that sells insurance by representing customers rather than insurers is called what?
• Which contract type describes an insurance provision that pays only if the insured fulfills specified duties after a loss?
• Which policy category includes the cost of bail bonds as a supplementary payment?
• Defense costs coverage is what relative to the liability limit?
• Owners of reciprocal insurance exchanges are also known as
• In the Iowa scenario, which activity would be illegal?
• An ideally insurable loss exposure is priced at a level that the insured can reasonably afford. Which statement reflects this principle?
• In a stock insurance company, ownership is by
• A seller promises that a product is fit for a specific purpose is called a
• If an insured wants to receive new for old in the event of a property loss, they would purchase which type of coverage?
• Which statement about policy sections is true?
• Which statement describes an adhesion contract?
• A loss exposure's liability coverage for losses arising from a business organization's premises and operations, its products, or completed work is typically provided by
• Which one of the following correctly describes a reason for government involvement in property casualty insurance?
• Which scenario best illustrates completed operations exposure?
• Compared to a basic form, a broad form property policy generally provides more coverage of risks by including more perils.
• Under the liability section of a homeowners policy, which activity is a typical insured duty after an occurrence?
• Which statement about mutual insurance companies is true?
• Do customer service representatives (CSRs) at insurance agencies need to obtain an agent's license in some states?
• Embezzlement by an insurance agent is primarily an issue in which area of company operations?
• A homeowners insurance policy typically includes which two major types of coverage?
• FAIR plans provide basic property insurance to
• Under Section II - Liability Coverage of a homeowners policy, which item is NOT a duty of the insured after an occurrence?
• Which statement concerning government insurance program is true
• Under government insurance programs, the government can reinsure how much of the risk?
• Most property policies exclude coverage for losses caused by which of the following?
• Which form is typically reserved for a high-value account and may be tailored (manuscript) rather than standard?
• Which type of damages is typically non-economic and relates to pain and suffering?
• Tort law is based mainly on what legal framework?
• Regarding insurers’ use of the internet and insurance portals, which statement is correct?
• Which distribution system will best allow ICD to achieve control over the targeted number of monthly applications and advertising campaigns?
• Reasons why a startup biotech company's liability insurance might be placed in the surplus lines market include which of the following?
• Underwriting income or loss is calculated by subtracting losses and expenses from what measure?
• When a minor disaffirms a contract, the typical remedy is?
• Surplus line insurers are generally exempt from state regulation pertaining to policy forms and rates. Which of the following statements is correct?
• When deciding to approve or disapprove an insurer's rate request, a state insurance commissioner must determine that the rates are adequate. Adequate means that the rates should be
• Which of the following is NOT an element of negligence?
• What is the primary purpose of establishing a loss reserve?
• Who is responsible for disclosing material facts to the insured during policy issuance?
• Which clause protects the lender's interest in a property insurance policy?
• In contract law, which element denotes that something of value is exchanged?
• Which statement describes a direct writer in insurance marketing?
• In the context of state mandatory rate laws, what must an insurer do when developing insurance rates?
• The medical payments coverage in the Personal Auto Policy (PAP) applies to?
• Which statement best describes what is typically covered as business personal property under commercial property policies?
• State governments can be involved in insurance at various levels. Some states provide which type of insurance in competition with private insurers?
• In commercial lines, which insured role is responsible for paying premiums and eligible to receive return premiums?
• Which of the following is part of the written premium?
• A flex rating law is
• From an economic perspective, which statement about purchasing insurance is most accurate?
• Which type of insurer is generally exempt from state regulation of policy forms and rates?
• Which term describes an insurer's sales force consisting of employees of the insurer rather than independent agencies?
• Which family member generally qualifies for coverage under a homeowners policy while the student attends school?
• What is the most common reason premium audits are conducted?
• The CGL policy's definition of bodily injury specifically includes bodily injury, sickness, death and
• Which distribution system is typically associated with representing the customer rather than the insurer?
• The primary role of insurance is to
• Martin Insurance Company aims to expand into similar markets. Which insurance marketing distribution system is most appropriate?
• Which of the following is an opportunity cost of insurance?
• Which of the following is an example of a supplementary payment under the liability coverage of the Personal Auto Policy (PAP)?
• What are the two broad categories of risk management techniques?
• In PAP, where is the name of a lender, loss payee, or lienholder usually shown?
• Which statement correctly describes the purpose or outcome of a risk management review?
• In policy terminology, which best describes a condition?
• Fortuitous losses may justify premium increases across policyholders.
• When an insurer appoints an agent to serve as its representative, what specifies the scope of authority for the agent?
• Many producers offer consulting services for which they are paid on a fee basis. This arrangement is described as what?
• A business buys multiple small warehouses to minimize the effects of a single loss. This is an example of which risk management technique?
• In a policy, the building definition usually includes which of the following?
• The contract between Jack and Jerry is?
• A commercial property policy providing coverage on the named insured's personal property can also provide limited coverage for
• What is a key benefit of using a controlled distribution system?
• Which option illustrates a non-insurance risk transfer technique?
• Which term best describes the event that causes a property loss?
• Claim buildup is a cost of insurance associated with increased losses. Which of the following best represents this cost category?
• Which statement correctly describes the representation role of insurance agents and brokers?
• Which option best defines Replacement Cost New?
• An insurance policy is best described as what type of contract?
• A loss exposure is
• No fault auto laws and workers' compensation laws create legal liability on the basis of which?
• A broad statement of an insurer's promises to the insured may be found in?
• Which statement best defines solvency?
• Which statement about insurers' investment income is correct?
• Which of the following is a financial consequence of personnel losses to an organization?
• Which risk management technique applies to Sally's increased burglaries?
• Spreading loss exposures across a large number of similar exposure units within the same period primarily helps to
• The size of an employer's loss exposure for workers' compensation insurance is based on
• What type of liability exposure arises when a retailer uses a customer's photo in a sales brochure without permission?
• The phenomenon where insurance increases the total cost of insurance is described as
• What best describes a reason for government involvement in property and casualty insurance?
• Which department within an insurer is primarily responsible for adjusting losses and determining claim payments?
• The authority that allows an agent to perform tasks customary to the agency relationship beyond explicit contract terms is called what?
• The primary role of insurance is to
• Loss prevention is best described as which type of risk management technique?
• Which is the best measure of the amount of insurance provided for a given period?
• Which business forms are examples in discussing potential financial consequences of a property loss?
• Which statement about alien insurers operating in the United States is correct?
• Ideally, loss exposures should be spread across a large number of similar exposure units within the same period.
• Which distribution system is most appropriate for Martin Insurance Company's goal of prioritizing producer expertise, responsiveness, and confidentiality?
• A broad statement of the insurer's promises to the insured is typically found in which part of the policy?
• The possibility that a plumbing contractor might start a fire at a customer's house while soldering is what type of liability loss exposure for the plumber?
• A stock insurer is distinguished from a mutual insurer by the fact that
• Time element losses are best described as which of the following?
• Owners of reciprocal insurance exchanges are also known as
• A promise made by a seller that a product is fit for a specific purpose is called a
• In a real estate loan scenario, who typically has an insurable interest in the property?
• Based on earned premiums of 8,000,000 and incurred underwriting expenses of 4,000,000, what is the expense ratio?
• For Sally's auto exposure, the most appropriate risk management technique is
• A contractor's completed work leads to later injuries or property damage due to defective parts provided with the work. This is an example of which exposure?
• In a reciprocal insurance exchange, participants are called
• How do flex rating laws work?
• When an insurance agent embezzles premiums, a regulator penalty commonly is
• Which category of loss expenses is used to compare an insurer's revenue and expenses?
• Which statement correctly describes the characteristics of ideally insurable loss exposures?
• Which describes what is determined by the insurer's staff review of applications from prospective insureds?
• Which term is defined as the portion of written premium that has not yet been earned?
• Which statement about claim status reports is true?
• Besides using the law of large numbers to predict the amount of future losses, insurers also rely on it to:
• Which statement is NOT a similarity between insurance agents and brokers?
• For insurers to utilize pooling most effectively and prevent catastrophic losses, the insured exposure units need to be
• A completed operations liability loss exposure differs from a products liability loss exposure in that the completed operations exposure
• Solvency is defined as
• Which distribution channel is typically best for broad market reach through many independent agents?
• In agency law, which term describes authority that arises from the principal's actions that a third party reasonably believes the agent has?
• Which function is performed by virtually all insurance producers?
• Insurance policies are written so that the parties perform only under certain conditions because the contract is a
• Which insurance customer would most likely obtain coverage through the excess and surplus lines market?
• Most states regulate the excess and surplus lines market by requiring that surplus lines brokers transact business with whom?
• Another name for liability insurance is which?
• Destructive competition in the insurance industry could result in which outcome?
• Which type of insurer is most likely to include bylaws as part of its policy documents?
• Bailees need to consider not only their owned property loss exposures, but also the exposures of property held for others. Which option best states this requirement?
• The scope of an agent's authority can go beyond the terms of the agency contract and may include authority to perform other tasks customary to the agency relationship. This authority is referred to as
• What is the goal of enterprise-wide risk management?
• Offering cash payment or something of value to an applicant as an inducement to buy or maintain insurance is called
• Why are professional liability policies, under a standard commercial general liability policy, generally not offered?
• During hurricane season, which type of adjuster is typically brought in to handle the surge in claims?
• If admitted assets stay the same but liabilities decrease significantly, what happens to policyholders' surplus?
• In a property/casualty policy, which element specifies who or what is covered and where and when coverage applies?
• Which of the following is considered an acquisition expense for an insurer?
• The umbrella policy described in the scenario is designed to provide?
• Which method of premium collection is generally used for personal insurance policies and small commercial accounts?
• Which statement best describes rebating in the context of insurance and financial services?
• In selecting risk management techniques, financial management decisions typically aim to:
• The pay less than competitor example demonstrates which benefit of insurance?
• Bill's three-year-old stereo was destroyed in a covered loss. Its expected useful life was 10 years, and its replacement cost is 600. What is the actual cash value?
• A liability loss has the following damages: Medical expenses 10,000; Disfigurement 50,000; Pain and suffering 100,000. What is the amount of special damages?
• Which feature would you expect in a direct writer model?
• What is a common regulator penalty for an insurance agent who misappropriates premiums?
• A reserve established for tracking an individual claim is called what?
• Which of the following best describes 'offer' in the context of contract elements?
• Enterprise-wide risk management (ERM) is best described as
• The type of insurance that provides periodic income payments to an insured who is unable to work due to sickness or injury is called
• What is the primary goal of affinity marketing?
• A stock insurer is distinguished from a mutual insurer by the fact that
• Which statement is correct regarding government involvement in insurance?
• The term net income (loss) is usually associated with which type of losses?
• What is the purpose of the definitions section in an insurance policy?
• The compensation arrangements of direct writer insurers tend to
• Which statement is true regarding a homeowners policy?
• The portion of the premium that has not yet been earned is recorded as which reserve?
• What is the typical regulator response when a firm is suspected of insolvency?
• A company known for resisting legitimate claims is likely to experience which effect on its marketing and advertising?
• For Sally's auto-related loss exposure, which risk management technique is most practical?
• All of the following are factors in determining replacement cost of real property except which?
• When property is lost or damaged, there could be indirect losses to the business. This later type of loss is known as
• A decrease in incurred losses will typically reduce all of the following except which item?
• Gulford Insurance Company is a direct writer of commercial insurance in Pennsylvania. Which distribution system would best provide the local presence needed at a lower cost?
• Which document in an insurance policy identifies the insured, the policy period, and the coverage limits?
• Which term describes an insurance contract that is drafted by one party and accepted by the other, with little to no negotiation?
• The scope of an agent's authority that goes beyond the agency contract and includes tasks customary to the relationship is known as what?
• In an insurance agency relationship, the agent's fundamental responsibility is to act for the benefit of the
• Which item is an example of an underwriting expense?
• The ownership structure that distinguishes mutual insurers from stock insurers is that mutuals are owned by?
• An insurer will make a loss payment if an insured loss occurs and if the insured performs certain duties. This describes which type of contract?
• What kind of liability exposure does a manufacturer face if it emits contaminants that cause environmental impairment?
• If a liability policy has a limit of 100,000 and the insured's claim involves 85,000 in damages and 25,000 in defense costs, what is the total payment by the insurer?
• Direct writers are characterized by which of the following?
• What is the most common reason premium audits are conducted?
• What is the authority that the principal specifically grants to the agent and is contained in the agency contract called?
• Under a liability policy, the maximum payment for injury to any one person is known as the
• Which formula defines the loss ratio?
• A licensed electrician completes the job of rewiring a house and returns to his shop. With regard to this job, the electrician has a
• Which term describes the act of assuming the financial consequences of another party's legal liability?
• The insuring agreements section of a policy primarily contains?
• What is true about government involvement in insurance?
• To meet capacity when risk exposure exceeds an insurer's capacity, the contract used is called?
• All of the following are correct with respect to the elements of good-faith claim handling, except
• Which category of loss expenses can an insurer use to compare its revenue?
• A commercial building's contents include furniture, machinery, raw materials, and finished products. What term is generally used in property insurance to refer to all these types of property?
• What describes the main purpose of reinsurance?
• From the perspective of opportunity cost, paying insurance premiums means the funds could have been invested elsewhere. Which description captures this concept?
• The declarations page of a personal auto policy (PAP) shows
• Which document defines the scope of authority granted to an insurance agent?
• Destructive competition in the insurance industry could result in
• In the elements of a contract, which instrument counts as an offer in an insurance transaction?
• Which loss exposure addresses injuries or damages caused by products manufactured or sold by the insured?
• In agency relationships, if a third party sues the agent for activities performed on behalf of the principal, the principal must reimburse the agent for liability incurred if:
• Which of the following describes an operating cost incurred by insurers?
• In a mortgage loan secured by real estate, the borrower is called the
• Inland marine insurance covers which type of property?
• These types of insurance rating laws allow rates to be put into use immediately but require insurers to file the rates with the state within a specific period. They are known as
• Which statement describes the role of investment income in keeping insurance premiums reasonable?
• A berm built to divert water away from a house is an example of which risk management technique?
• A decrease in incurred losses will generally cause a decrease in all of the following except
• Which statement best describes coverage for relatives of the named insured who live in the same household under a typical homeowners policy?
• Where are the declarations that indicate the insured, policy period, and coverage limits typically located within a policy?
• What does the agency contract specify in an insurance distribution arrangement?
• Which statement describes file-and-use laws?
• A producer who is an employee of a direct writer insurer generally receives:
• A flex rating law is best described as
• Claim buildup is among which cost of insurance?
• An insurance policy is described as which type of contract because payment depends on the insured performing certain duties?
• Which statement about the benefits that insurance provides is correct?
• A reciprocal insurance exchange is described as
• From an insured's point of view, relative to the concept of agency, there is little distinction between the
• Which metric is commonly used to assess underwriting profitability?
• A contract of adhesion in an insurance policy is typically drafted by which party?
• What term describes lost income and extra expenses resulting from direct loss to property?
• Which statement describes the property exposure considerations for bailees?
• If an insurer's losses and expenses exceed its written premiums and investment income, which must the insurer use to meet its obligations?
• Premium audits adjust premiums based on which factor?
• Market conduct regulation focuses on insurers' treatment of applicants for insurance, insureds, and others who present claims for coverage. It affects which area of operation?
• Another name for liability insurance is
• Which statement about policy limits is not typically explained by the limit itself?
• Which term describes the authority that a third party believes an agent has because of the principal's actions?
• Which statement correctly describes what happens if regulators determine an insurer is insolvent?
• Which scenario best illustrates government involvement in insurance markets?
• Which of the following is an element of negligence?
• Given earned premiums of 4,000,000 and net investment income of 1,000,000, what is the investment income ratio?
• Which distribution system is characterized by the insurer employing its own sales staff and controlling marketing and branding?
• A captive insurer is most often used by a parent company to achieve which goal?
• Which of the following contracts has a legal purpose?
• Which type of policy provides the broadest coverage for personal property in terms of covered locations?
• Product liability loss exposures arise from injuries that result from which of the organization's activities?
• Which of the following illustrates material misrepresentation in a property insurance application?
• Which term describes a clause that clarifies an insurer's promise or an insured's duty?
• In commercial insurance, who is responsible for paying premiums and who has the right to receive any return premiums?
• All of the following are types of private insurers, except:
• The capital of a stock insurance company comes primarily from?
• Generally how often must a foreign insurer's license be renewed?
• Which market is best for high-risk or unusual exposures not readily insured in standard markets?
• An agency in New Jersey offering a 10 percent discount to all certified public accountants is an example of which type of group marketing?
• Which statement best describes why regulators review policy forms?
• To whom are insurers typically required to submit annual financial statements?
• Which description best fits a risk management review conducted by an insurance producer?
• The amounts designated by insurers to pay claims for losses that have already occurred are called
• Which reserve is used to cover outstanding losses from past events?
• Which statement about government insurance programs is true?
• A mutual insurance company is owned by?
• The difference between total revenues and total expenses is known as which of the following?
• The liability that someone could incur because of an inherently dangerous activity, such as building demolition, is called
• The authority the principal explicitly grants the agent is called what?
• Which policy provides liability coverage for losses arising from a business's premises, its operations, products, or completed work?
• In exclusive agency systems, which statement is correct?
• Affinity marketing is best described as:
• On January 1, 2005, the xyz insurance company issued a policy with a one year policy period. The premium was 1,200. What was the unearned premium as of May 1, 2005?
• Which one identifies a benefit that a business can receive by applying sound risk management?
• Which loss would be covered under a typical broad form property policy but not under a basic form policy?
• Policyholders' surplus serves what purpose?
• If a consumer prefers dealing with sales representatives who are employees of the insurer, which marketing system would they choose?
• Given a loss ratio of 0.77 and a combined ratio of 1.02, what is the expense ratio?
• When a customer purchases insurance through a bank in conjunction with a loan, this practice is an example of which distribution strategy?
• Why do many insureds perceive insurance premiums as high?
• Which of the following is the correct formula for net investment income?
• Which category of loss expenses can an insurer use to compare its revenue and expenses?
• When an insured borrows money to purchase a car, the lender is usually added to the auto policy as what?
• The requirements of a valid offer include?
• Which statement is correct regarding construction contracts?
• What is a primary reason for using a controlled distribution system?
• Coverage for money, securities, and other property from burglary, robbery, theft, and employee dishonesty is typically provided by
• Adhering to the characteristics of an ideally insurable loss exposure in selling insurance helps ensure what about premiums?
• Perception that insurance premiums are high is primarily due to
• Market conduct regulation focuses on the insurer's treatment of applicants for insurance, insureds, and claimants. Which area of operations does this regulation primarily affect?