Exam 2: Insurance and Risk

Which of the following is implied by the requirement that a loss should be determinable and measurable to be insurable? I.The loss must be definite as to place. II.The loss must be definite as to amount.

Which of the following statements about the insurance industry as a source of investment funds is (are)true? I.These funds result in a lower cost of capital than would exist in the absence of insurance. II.These funds tend to promote economic growth and full employment.

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

Which of the following is implied by the pooling of losses?

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

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?

All of the following are social costs associated with insurance EXCEPT

Which of the following statements regarding insurance and gambling is (are)true? I.Insurance is used to handle existing pure risks,while gambling creates a new speculative risk. II.Insurance usually involves risk avoidance,while gambling typically involves only risk reduction.

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?

All of the following are characteristics of insurance EXCEPT

Which of the following is a form of casualty insurance?

According to the law of large numbers,what should happen as an insurer increases the number of units insured?

In addition to marketing life insurance,life insurers typically sell which of the following products? I.Retirement annuities II.Disability income insurance

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.

Adverse selection occurs

Apex Insurance Company wrote a large number of property insurance policies in an area where earthquake losses could occur.When the president of Apex was asked if she feared that a severe earthquake might put the company out of business,she responded,"Not a chance.We transferred most of that risk to other insurance companies." An arrangement by which an insurer that initially writes insurance transfers to another insurer part or all of the potential losses associated with such insurance is called

LMN Insurance markets homeowners insurance.The LMN homeowners policy combines property and casualty insurance in the same contract.Insurance policies combining property and casualty coverage in the same contract are called

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)

Characteristics of a fortuitous loss include which of the following? I.The loss is certain to occur. II.The loss occurs as a result of chance.

Bronson Casualty Company sells casualty insurance only.Which of the following coverages could you purchase from Bronson Casualty Company?