Question 1

The combined ratio is:

Accepted Answer

A)  the loss ratio plus the expense ratio 
B)  a measure of underwriting losses 
C)  the loss ratio divided by the expense ratio 
D)  a measure of capital gains and dividend returns 
A)  the loss ratio plus the expense ratio 
B)  a measure of underwriting losses 
C)  the loss ratio divided by the expense ratio 
D)  a measure of capital gains and dividend returns

Question 2

What are the two broad categories of the private insurance industry? Break down the broad categories into their main parts.

Accepted Answer

The private insurance industry is broken

Question 3

Which of the following statements is correct about the loading expenses for insurance companies?

Accepted Answer

A)  The loading expenses are measured using the expense ratio. 
B)  The loading expenses are governed by law. 
C)  The loading expenses reduce the insurance premiums charged by insurance companies. 
D)  The loading expenses compensate the insurance companies for the risk that they take. 
A)  The loading expenses are measured using the expense ratio. 
B)  The loading expenses are governed by law. 
C)  The loading expenses reduce the insurance premiums charged by insurance companies. 
D)  The loading expenses compensate the insurance companies for the risk that they take.

Question 4

Commercial Property Policies are a type of Personal Lines Insurance.

Accepted Answer

A) True 
 B)False

Question 5

Insurance increases the number of intentional losses that occur in society.

Accepted Answer

A) True 
 B)False

Question 6

What are considered the benefits and the costs to society of operating an insurance mechanism?

Accepted Answer

The costs of operating the insurance mec

Question 7

Warren is the president of The Huge Insurance Company. His Vice-President in charge of Finance comes to him one day and says "Warren, our combined ratio for the year is 105%." Warren replies, "Let's party!" Why isn't Warren upset about the high combined ratio?

Accepted Answer

A)  The company probably made enough money on its investments to make up for the underwriting losses. 
B)  The company has actually made a 5% profit on its insurance business. 
C)  The combined ratio really isn't that important... it only measures the combined productivity of all regional offices the company owns. 
D)  The combined ratio is not an important indicator of underwriting results. 
A)  The company probably made enough money on its investments to make up for the underwriting losses. 
B)  The company has actually made a 5% profit on its insurance business. 
C)  The combined ratio really isn't that important... it only measures the combined productivity of all regional offices the company owns. 
D)  The combined ratio is not an important indicator of underwriting results.

Question 8

All of the following are perils except:

Accepted Answer

A)  heart attack 
B)  theft 
C)  forgery and embezzlement 
D)  incorrect instructions on the label of a pesticide 
A)  heart attack 
B)  theft 
C)  forgery and embezzlement 
D)  incorrect instructions on the label of a pesticide

Question 9

The scope of the insurance market is clearly defined.

Accepted Answer

A) True 
 B)False

Question 10

Billy is driving to the beach for spring break. Before leaving on his trip, he takes some cold medicine that makes him sleepy. He falls asleep at the wheel and collides with another car on the highway and breaks his leg. In this context, which of the following is the hazard?

Accepted Answer

A)  Spring break 
B)  Knowing how to drive 
C)  Taking the medicine 
D)  Broken leg 
A)  Spring break 
B)  Knowing how to drive 
C)  Taking the medicine 
D)  Broken leg

Question 11

What is cash flow underwriting? Why is it a concern for insurance companies?

Accepted Answer

Cash flow underwriting is the practice o

Question 12

From the insurance company's perspective, what is the difference between written premium and earned premium?

Accepted Answer

A)  There is no difference; they are effectively the same thing. 
B)  Written premiums are those that belong to the insurer; earned premiums do not belong to the insurer. 
C)  Written premiums are the total premiums collected by the insurer; earned premiums are those that belong to the insurer. 
D)  Written premiums reflect the total amount of coverage provided to insureds; earned premiums reflect the net profit of the insurer. 
A)  There is no difference; they are effectively the same thing. 
B)  Written premiums are those that belong to the insurer; earned premiums do not belong to the insurer. 
C)  Written premiums are the total premiums collected by the insurer; earned premiums are those that belong to the insurer. 
D)  Written premiums reflect the total amount of coverage provided to insureds; earned premiums reflect the net profit of the insurer.

Question 13

Change of Law insurance is a type of health insurance.

Accepted Answer

A) True 
 B)False

Question 14

Legally insurance is a branch of:

Accepted Answer

A)  contract law 
B)  tort law 
C)  Neither A nor B is correct. 
D)  Both A and B are correct. 
A)  contract law 
B)  tort law 
C)  Neither A nor B is correct. 
D)  Both A and B are correct.

Question 15

An insurance contract creates duties for the insurer, but only the insured has contractual rights.

Accepted Answer

A) True 
 B)False

Question 16

If insurance did not exist in the United States, which of the following might reasonably be expected to happen?

Accepted Answer

A)  Banks would lower their interest rates on home mortgages and auto loans. 
B)  Moral hazards would decrease. 
C)  The occurrence of perils would decrease. 
D)  In general, only large businesses would be able to survive. 
A)  Banks would lower their interest rates on home mortgages and auto loans. 
B)  Moral hazards would decrease. 
C)  The occurrence of perils would decrease. 
D)  In general, only large businesses would be able to survive.

Question 17

By applying the law of large numbers the insurance companies can predict the loading expenses.

Accepted Answer

A) True 
 B)False

Question 18

Discuss the building blocks of an insurance premium.

Accepted Answer

The insurance premium consists of the in

Question 19

Participants in the private insurance market include all of the following except:

Accepted Answer

A)  insurance buyers 
B)  insurance companies 
C)  insurance regulators 
D)  the FDIC 
A)  insurance buyers 
B)  insurance companies 
C)  insurance regulators 
D)  the FDIC

Question 20

It may be correctly claimed that insurers usually do not pay for losses because:

Accepted Answer

A)  it is the insured's money that is used to pay the claims 
B)  most insurers do not pay claims until the insured sues them 
C)  almost all claims are caused by fraud 
D)  insurers estimate claims actuarially in advance in order to avoid payments 
A)  it is the insured's money that is used to pay the claims 
B)  most insurers do not pay claims until the insured sues them 
C)  almost all claims are caused by fraud 
D)  insurers estimate claims actuarially in advance in order to avoid payments

Exam 6: Fundamentals of Insurance

The combined ratio is:

What are the two broad categories of the private insurance industry? Break down the broad categories into their main parts.

Which of the following statements is correct about the loading expenses for insurance companies?

Commercial Property Policies are a type of Personal Lines Insurance.

Insurance increases the number of intentional losses that occur in society.

What are considered the benefits and the costs to society of operating an insurance mechanism?

Warren is the president of The Huge Insurance Company. His Vice-President in charge of Finance comes to him one day and says "Warren, our combined ratio for the year is 105%." Warren replies, "Let's party!" Why isn't Warren upset about the high combined ratio?

All of the following are perils except:

The scope of the insurance market is clearly defined.

Billy is driving to the beach for spring break. Before leaving on his trip, he takes some cold medicine that makes him sleepy. He falls asleep at the wheel and collides with another car on the highway and breaks his leg. In this context, which of the following is the hazard?

What is cash flow underwriting? Why is it a concern for insurance companies?

From the insurance company's perspective, what is the difference between written premium and earned premium?

Change of Law insurance is a type of health insurance.

Legally insurance is a branch of:

An insurance contract creates duties for the insurer, but only the insured has contractual rights.

If insurance did not exist in the United States, which of the following might reasonably be expected to happen?

By applying the law of large numbers the insurance companies can predict the loading expenses.

Discuss the building blocks of an insurance premium.

Participants in the private insurance market include all of the following except:

It may be correctly claimed that insurers usually do not pay for losses because:

Introduction to Enterprise Risk Management and Insurance

Risk Identification

Risk Assessment and Pooling

Risk-Handling Techniques: Loss Control, Risk Transfer, and Loss Financing

Risk-Handling Techniques: Diversification and Hedging

Insurable Perils and Insuring Organizations

Insurance Functions

Insurance Markets: Economics and Issues

Insurance Regulation

Insurance Contracts

The Personal Auto Policy

Homeowners Insurance

Professional Financial Planning

Life Insurance Policies

Standard Life Insurance Contract Provisions and Options

Annuities

Health Insurance and Disability Income

Employee Benefits

Social Security

Unemployment and Workers Compensation Insurance

Commercial Property Insurance

Commercial Liability Insurance

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