Exam 2: Insurance and Risk

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

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

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

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

If insurers were to provide indemnification for losses that were deliberately caused, which characteristic of ideally insurable risks would not be met?

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.

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?

Insurance companies collect premiums in advance. Since the premiums collected are not needed to pay losses and expenses immediately, the funds can be loaned to business firms. Because of this fact, insurance benefits society by

Which of the following is classified as casualty insurance?

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?

BBB Auto Club provides emergency road service and other services to its members. BBB Auto Club charges a higher membership fee to new members than it charges to members who are renewing their membership. When asked to explain this pricing policy, the auto club president noted, "New members often sign-up prior to taking a long road trip, so we have to charge more as first-year members have higher service utilization rates." A similar phenomenon observed in insurance markets is called

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.

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

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?

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

A discount store chain is concerned that cashiers might steal money from cash registers. To provide protection against theft by the cashiers, the discount store chain can purchase a

All of the following are social costs associated with insurance EXCEPT

Which of the following statements concerning social insurance benefits is (are) correct? I.Social insurance benefits are heavily weighted in favor of upper-income groups because of their higher earnings. II.Social insurance benefits are financed entirely or in part by mandatory contributions by covered employers and employees, and not by general revenues of the government.

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?