44 questions about Risk managements and Insurance

QUESTION 1

1. During your attendance at an insurance conference in Philadelphia, you learn that a commercial package policy contains a common policy conditions page. This page provides which of the following types of information?I. A description of the property that is insured.II. A provision describing the insurer’s right to audit the insured’s books and records
   

   	1.	I only
   	2.	II only
   	3.	both I and II
   	4.	neither I nor II

2 points

QUESTION 2

1. In an imaginary world where you are an insurance adjuster someone stops to ask you to define a loss frequency. You would respond with:

   	1.	probable size of the losses that may occur during some period.
   	2.	probable number of losses that may occur during some period.
   	3.	probability that any particular piece of property may be totally destroyed.
   	4.	probability that a liability judgment may exceed a firm’s net worth

2 points

QUESTION 3

1. If Seymour is found in the unfortunate circumstance where he is deemed to be liable legally despite the fact that fault or negligence are not capable of being proved, this would be an example of:

   	1.	an intentional tort.
   	2.	comparative negligence.
   	3.	general damages.
   	4.	strict liability.

2 points

QUESTION 4

1. As a result of a passenger van accident, Heidi, a resident of Massachusetts, commenced a lawsuit against Roger for injuries that she suffered. The court found Heidi to be 40 percent at fault in the accident and Roger to be 60 percent at fault in the accident. The common law doctrine of contributory negligence indicates that Heidi should receive:

   	1.	40% of her actual damages
   	2.	100% of her actual damages.
   	3.	60% of her actual damages.
   	4.	nothing.

2 points

QUESTION 5

1. Cheryl, after graduating from college, secured a position where she acted as a risk manager. Which of the following items would be helpful to Cheryl in his effort to identify pure loss exposures?

   	1.	commodity prices
   	2.	physical inspections
   	3.	currency exchange rates
   	4.	interest rate movements

2 points

QUESTION 6

1. If Sally is knowledgeable of the law of large numbers, she would conclude that it would indicate what should happen as an insurer experiences an increase in the number of units insured?

   	1.	Underwriting expenses would decrease
   	2.	The amount the insurer expects to pay in claims should decrease
   	3.	The insurer’s profitability should become more variable
   	4.	Actual results will more closely approach expected results

2 points

QUESTION 7

1. At an insurance agency located in New England you are reviewing the following situations that relate to open-perils coverage. Which of them is (are) considered to be true?I. All losses are covered except those losses specifically excluded.II. The burden of proof is on the insured to prove that a loss is covered.

   	1.	I only
   	2.	II only
   	3.	both I and II
   	4.	neither I nor II

2 points

QUESTION 8

1. Seymour’s long-time downtown insurance agent would inform him that unique exclusions are used in insurance policies for each of the following reasons except to:

   	1.	reduce moral hazard.
   	2.	waive policy conditions.
   	3.	eliminate coverage for uninsurable perils.
   	4.	eliminate coverage not needed by typical insureds.

2 points

QUESTION 9

1. Commonwealth Cigarette Corp., located in a small town, is concerned that it may be sued and held liable in a court of law and ordered to pay a large $ award to a smoker harmed by the firm’s products. The characteristics of the legal system that serve to increase the frequency and severity of loss are known as:

   	1.	moral hazard.
   	2.	particular risk.
   	3.	speculative risk.
   	4.	legal hazard.

2 points

QUESTION 10

1. Your cousin Rex engages in a debate with your roommate about the unit of measurement that is used in property and casualty insurance pricing. Which is the correct name?

   	1.	unit rate.
   	2.	premium.
   	3.	exposure unit.
   	4.	experience unit.

2 points

QUESTION 11

1. In your position as a senior underwriter, located in a medium-sized city, you are cognizant of which of the following statements about underwriting standards as being true?I. A purpose of underwriting standards is to reduce adverse selection occurring against the insurer.II. Equitable rates should be charged to ensure that each group of policy owners will pay its own way in terms of losses and expenses.

   	1.	I only
   	2.	II only
   	3.	both I and II
   	4.	neither I nor II

2 points

QUESTION 12

1. As a part owner of Callarese Insurance Agency, you would advise your client that a situation which involves strict liability includes which of the following:
   

   	1.	operating a car
   	2.	blasting operations
   	3.	manufacturing a product
   	4.	mining operations

2 points

QUESTION 13

1. As a second year MBA student assigned a project requiring the investigation of characteristics of firms organized as mutual insurers which of the following would you find to be true?

   	1.	They are legally organized as partnerships.
   	2.	They have a board of directors which is selected by state insurance departments.
   	3.	They are owned by their stockholders.
   	4.	They may pay dividends to their policyholders.

2 points

QUESTION 14

1. Your friend Alexandria, from New York, informs you that she is in need of insurance that is not available in the state where she lives. In order to obtain insurance from a non-admitted insurer, you advise her to get in touch with a:

   	1.	surplus lines broker.
   	2.	nonadmitted agent.
   	3.	general agency broker.
   	4.	direct writer.

2 points

QUESTION 15

1. It is 2019 and Ben is estimating a loss reserve. The reserve is based on a calculation that includes duration of disability, life expectancy and similar factors. Such a method of estimating loss reserves is referred to as the:

   	1.	judgement method.
   	2.	average value method.
   	3.	loss ratio method.
   	4.	tabular value method.

2 points

QUESTION 16

1. In the insurance space, an insurance company’s property and casualty loss reserve amount will factor in estimates for each of the following items except:
   

   	1.	claims anticipated but not yet incurred.
   	2.	claims reported and adjusted but not yet paid.
   	3.	claims reported and filed but not yet adjusted.
   	4.	claims incurred but not yet reported to the company

2 points

QUESTION 17

1. You overhear from an insurance friend visiting from New Mexico that a form of loss reserve that is employed for each individual claim when it is reported to a property and casualty insurance company is called a(n):

   	1.	admitted asset.
   	2.	incurred-but-not-reported (IBNR) reserve.
   	3.	unearned premium reserve.
   	4.	case reserve.

2 points

QUESTION 18

1. Your sister-in-law calls to ask you to explain to her for a fortuitous type of loss which of the following characteristics would apply:I. Loss is certain to occurII. Loss occurs as a result of chance

   	1.	I only
   	2.	II only
   	3.	both I and II
   	4.	neither I nor II

2 points

QUESTION 19

1. Contessa’s Consignment Shop was destroyed by a fire. The firm’s fixtures cost $1,200 when purchased, but similar new fixtures now costs $1,800. Assuming the fixtures were 50 percent depreciated, what is the actual cash value of Contessa’s loss?

   	1.	$600
   	2.	$900
   	3.	$1200
   	4.	$1800

2 points

QUESTION 20

1. The actual cash value would be calculated by an adjuster taking into account all relevant factors an expert would use to determine the value of the property under which rule?

   	1.	the circumstantial evidence rule
   	2.	the broad evidence rule
   	3.	the property indemnity rule
   	4.	the objective value rule

2 points

QUESTION 21

1. Cengage Insurance Company’s policyholders’ surplus would be defined as the difference between its:

   	1.	assets and its liabilities.
   	2.	premium income and its expenses.
   	3.	reerves and its liabilities.
   	4.	assets and its nonadmitted assets.

2 points

QUESTION 22

1. If you selected a career of running your own insurance agency, which kinds of risks would you deem best address the requirements needed to be insurable by a private insurance firm?

   	1.	most market risks
   	2.	property risks
   	3.	financial risks
   	4.	political risks

2 points

QUESTION 23

1. A local Lion’s Club decided to launch a life insurance company to provide insurance to its members. The insurance company will operate as a nonprofit organization, thus receiving favorable tax treatment. The insurer formed will be considered to be a:

   	1.	health maintenance organization.
   	2.	stock insurer.
   	3.	fraternal insurer.
   	4.	reciprocal exchange.

2 points

QUESTION 24

1. One Saturday afternoon you go bowling with a group of friends. One friend is an insurance agent who initiates a disussion of insurance coverage. He explains that an insurable interest for purposes of purchasing property and liability insurance will be supported by each of the following except for:
   

   	1.	former ownership of property.
   	2.	potential legal liability.
   	3.	secured creditors.
   	4.	contractual right.

2 points

QUESTION 25

1. Which insurance law requires insurers to receive approval of rates prior to making use of them if the rate change is greater than a predetermined range?
   

   	1.	use-and-file law
   	2.	prior-approval law
   	3.	file-and-use law
   	4.	flex-rating law

2 points

QUESTION 26

1. After studying for hours, you are now taking a 4-hour P&C insurance license exam. Your next exam question indicates that the building and personal property insurance form provides several optional coverages. Which optional coverage provides that no deduction is taken for depreciation when settling a covered loss?
   

   	1.	extra expense.
   	2.	agreed value.
   	3.	replacement cost.
   	4.	inflation guard.

2 points

QUESTION 27

1. Farah holds the position of senior risk and compliance officer of the Grant Company. Farah desires to obtain protection for direct physical loss under the business and personal property (BPP) coverage form. Which causes of loss form should Farah complete in order to obtain this coverage?
   

   	1.	broad form
   	2.	basic form
   	3.	standard form
   	4.	special form

2 points

QUESTION 28

1. Phoebe Pithis owns a building in Manhattan that she has insured on a replacement cost basis for $2.4 million under a fire insurance policy that contains an 80 percent coinsurance clause. Assume that the building has a replacement cost of $4 million. How much will Phoebe collect if the building sustains a covered fire loss with a replacement cost of $80,000?

   	1.	$50,000
   	2.	$60,000
   	3.	$66,667
   	4.	$80,000

2 points

QUESTION 29

1. A homeowner, living in a small community, was injured when her furnace exploded following its faulty installation by a heating and cooling business. For the heating and cooling business, this is an example of:
   

   	1.	contingent liability.
   	2.	completed operations liability.
   	3.	products liability.
   	4.	contractual liability

2 points

QUESTION 30

1. The Markovic Gallery owns a building on Baker Street,. The Gallery owners purchased a Commercial General Liability Policy containing no endorsements. All of the claims below would be covered under the policy except for:
   

   	1.	An artist sued the gallery for slander after an employee of the gallery said the artist’s work looks like it was painted by an intoxicated monkey.
   	2.	A customer is injured when a painting falls from the wall and strikes the customer.
   	3.	A customer is injured after falling on a slippery floor at the gallery.
   	4.	An employee of the gallery accidentally started a fire that caused extensive damage to the building.

2 points

QUESTION 31

1. A prerequisite provision that can be included in a claims-made commercial general liability policy will provide coverage for claims filed after the policy has expired according to your college professor. This provision is called a(n)
   

   	1.	extended reporting period provision.
   	2.	agreed amount endorsement.
   	3.	retroactive date provision.
   	4.	per-occurrence limit clause.

2 points

QUESTION 32

1. The policy section addressing liability of an unendorsed PAP would cover which of the following situations if the insured is legally liable?
   

   	1.	The insured injures a pedestrian while operating a friend’s new motorcycle.
   	2.	The insured backs into and damages the garage door of his rented house.
   	3.	The insured intentionally runs into another motorist’s car after the driver cut in front of him.
   	4.	The insured damages a parked car while driving a dump truck for his employer.

2 points

QUESTION 33

1. Kamala, an insurance agent working in Boston, Mass., has a customer decide to walk into her office and ask:With respect to automobile insurance, what is the intended purpose of the extended non-owned liability coverage endorsement to the PAP? Her response would be:
   

   	1.	to provide liability coverage for an insured’s employer when an insured uses his or her auto for business purposes
   	2.	to provide liability coverage for an insured who occasionally operates a non-owned auto
   	3.	to provide liability coverage for anyone who loans a covered auto to another driver
   	4.	to provide liability coverage for an insured who operates a non-owned auto on a regular basis

2 points

QUESTION 34

1. Reinsurance would be used by Foxworth Insurance, a primary insurer, for each of the following reasons except to:
   

   	1.	increase the unearned premium reserve.
   	2.	increase underwriting capacity.
   	3.	protect against catastrophic losses.
   	4.	stabilize profits.

2 points

QUESTION 35

1. Avelino Insurance Company of Vermont reported the following results on its financial statements last year: Premiums Written $90,000,000 Loss Adjustment Expenses $5,000,000 Underwriting Expenses 30,000,000 Premiums Earned $100,000,000 Incurred Losses $70,000,000What was Avelino’s combined ratio last year?
   

   	1.	100.0
   	2.	103.3
   	3.	105.0
   	4.	108.3

2 points

QUESTION 36

1. Ben Smith is a teacher at a local grammar school. His personal estimate of the chance of loss is a(n)
   

   	1.	objective probability.
   	2.	objective risk.
   	3.	subjective probability.
   	4.	a priori probability.

2 points

QUESTION 37

1. U-Send-It Shipping, located in a large urban area, owns 12 large cargo container ships which transport goods from Europe. The firm can obtain physical damage insurance on these vessels by purchasing:
   

   	1.	freight insurance.
   	2.	cargo insurance.
   	3.	protection and indemnity insurance.
   	4.	hull insurance.

2 points

QUESTION 38

1. In an ad hoc group discussion with college classmates the topic of retention arises. Each of the following are considered to be potential advantages of retention except:
   

   	1.	lower expenses.
   	2.	increased cash flow.
   	3.	encouragement of loss prevention.
   	4.	protection from catastrophic losses.

2 points

QUESTION 39

1. Ellen was injured badly by an uninsured drunk driver who was driving an F250 while she was riding in a friend’s car. Ellen and her friend each have a PAP with an uninsured motorists limit of $50,000. How much will be paid by each policy if it is determined that Ellen has $70,000 of bodily injuries?
   

   	1.	Each policy will pay $35,000.
   	2.	Hertencia’s policy will pay $50,000, and the friend’s policy will pay nothing.
   	3.	Hertencia’s policy will pay $50,000, and the friend’s policy will pay $20,000.
   	4.	The friend’s policy will pay $50,000, and Hertencia’s policy will pay $20,000.

2 points

QUESTION 40

1. In a group discussion with your company’s hockey teammates, someone brings up the topic of insurable interest. She asks when is an insurable interest legally required to exist in life insurance? The correct response is:
   

   	1.	only at the time of the insured’s death
   	2.	only at the inception of the policy
   	3.	only at the time the beneficiary is paid
   	4.	both at the time of the insured’s death and at the inception of the policy

2 points

QUESTION 41

1. The insurance industry requires that ratemaking should provide for all costs so that the insurance system is financially sound. Under what circumstances would ratemaking require external data rather than or in addition to data the insurance company has developed?

5 points

QUESTION 42

1. When a homeowner experiences a major casualty loss at her home (such as a major pipe burst or a large fire) it may be beneficial to hire a public insurance adjuster to assist in the insurance claim process. Explain the benefits and costs that are encountered when using a public insurance adjuster.

5 points

QUESTION 43

1. Briefly explain the coverages provided by HO-2, HO-3, HO-4, HO-5, HO-6 and HO-8 policies.
   

5 points

QUESTION 44

1. On the way home from the gym one Saturday afternoon, you have the misfortune of getting into a car accident. Describe your duties after this accident occurs.