Exam 2: Insurance and Risk

Inland marine insurance provides coverage for

One branch of government insurance programs has a number of distinguishing characteristics.These programs are compulsory,they are financed by mandatory contributions rather than general tax revenues,and benefits are weighted in favor of low-income groups.These government insurance programs are called

Which of the following is a result of adverse selection?

ABC Insurance Company calculated the amount that it expected to pay in claims under each policy sold.Rather than selling the insurance for the amount it expected to pay in claims,ABC added an allowance to cover the cost of doing business,including commissions,taxes,and acquisition expenses.This allowance is called a(n)

ABC Appliance offers a warranty requiring an annual fee.The warranty may be purchased at the time of sale or at any time within the first year after the appliance was purchased.The warranty fee after the date of purchase is twice the time-of-purchase fee.When asked why the fee was higher after the date of purchase,ABC's president said,"Buying a warranty is voluntary.We've noted that those who buy the warranty after the purchase date have a greater need for service." Charging the same rate or a lower rate after the date of purchase would expose ABC to what problem that also impacts private insurers?

According to the law of large numbers,what should happen as an insurance company increases the number of loss exposures that it insures?

JKL Insurance Company estimates that 14 out of every 100 homeowners it insures will file a claim each year.Last year,JKL insured 200 homeowners.According to the law of large numbers,what should happen if JKL insures 2,000 homeowners this year?

The requirement that losses should be accidental and unintentional in order to be insurable results in which of the following? I.Decrease in moral hazard II.More accurate prediction of future losses

Which of the following is a form of casualty insurance?

The premium that insurance companies charge does not cover the cost of expected losses only.The premium must also cover the cost of compensating agents and other costs of doing business.The amount added to the pure premium to cover these costs is called the

Ashley opened an all-you-can-eat buffet restaurant.The cost per-person was based on what Ashley believed an average restaurant patron would consume.The restaurant began to lose money.Ashley concluded that her patrons had "above average" appetites,and were attracted to her restaurant because they could eat as much as they wanted while being charged an average price.A similar phenomenon exists in insurance markets.This problem is called

All of the following are benefits to society that result from insurance EXCEPT

From the standpoint of the insurer,which of the following is a characteristic of an ideally insurable risk?

XYZ Insurance Company writes coverage for most perils which can damage property.XYZ,however,does not write flood insurance on property located in flood plains.Which requirement of an ideally insurable risk might be violated if XYZ wrote flood insurance on property located in flood plains?

Reasons why market,financial,and production risks are often uninsurable include which of the following? I.The potential to produce a catastrophic loss is great. II.The chance of loss cannot be accurately estimated.

Why is a large number of exposure units generally required before a pure risk is insurable?

Which of the following statements regarding insurance and hedging is true?

Which of the following statements is (are)true concerning private insurance? I.Social insurance programs are always written by private insurers. II.Individuals and businesses purchase private insurance.

Which of the following is classified as casualty insurance?

An insurance company that sells earthquake insurance in an area where earthquakes are possible has subjected itself to the risk of insolvency if a severe earthquake occurs.An insurer can safely sell earthquake insurance in this area if it shifts the risk of catastrophic loss to another insurer.The shifting of insured risk from one insurer to another insurer is called