1. Why is a large number of exposure units required for a risk to be
insurable?
a. It allows the insurer to more accurately predict the expected dollar
amount of loss and calculate a pure risk premium
b. It allows for at least some losses to occur c. It reduces the
moral hazard d. It guarantees the insurer will make money e. It
permits cross subsidization from the lower premium insureds to those higher premium paying policyholders with larger losses |
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2. The definition of peril is: a. The actual cause of loss b. The uncertainty concerning loss c. A measure of the accuracy with which a loss can be predicted d. The actual cause of loss e. the first cause in an unbroken chain of events
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3. The moral hazard is:
a. A loss of faith in the insurer because of a denial of claims.
b. Illustrated by the loss of a wallet to a thief.
c. The potential for the insurer to increase premiums after loss.
d. The increase of loss caused by attempts to defraud the insurer .
e. The insolvency of the insurance company due to lapses in judgement from the CEO
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4. A financial contract in which a small certain payment is exchanged in order for someone to be indemnified against large uncertain losses:
a. Derivative Contract Profit or policyholer surplus
b. Financial Swap Arrangement
c. Insurance
d. Subordinated Debenture
e. Mutual Fund
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5. A pure risk is one where:
a. The result can only be a loss or no loss b. The result can be a gain or loss c. The result can be only a gain or no gain d. The result can not be predicted e. The result is subject to chance
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6. The criteria for ideally insurable losses include all of the following EXCEPT:
a. Losses definite in time.
b. Accidental Losses.
c. A small carefully defined group of exposures.
d. A large number of homogeneous risks .
e. low probability of catastrophic loss.
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7.In a casualty insurance policy in order to receive a claim payment you need to show insurable interest: :
a. At the inception of the contract.
b. Prior to the purchase of the policy.
c. When assigning coverage to another
d. At the time of loss
e. When paying the first premium for coverage.
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8. The systematic (market) risk associated
with an individual stock is most closely identified with the
a. Standard deviation of the returns on the stock.
b. Standard deviation of the returns on the market.
c. Beta of the stock
d. Coefficient of variation of returns on the stock.
e. Coefficient of variation of returns on the market.
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9. Which of the following is NOT likely to be found
on the declarations page of an insurance contract?
a. conditions suspending coverage
b. identity of the named insured
c. a list of coverage provided by the policy
d. the name of the insurance company
e. the amount of the premium for the policy
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10. I.M. Hip has a renter's policy that covers the cost of him living in a different apartment should he be unable to occupy his own apartment after a fire. This type of coverage is referred to as:
a. Direct loss coverage
b. Inconsequential loss coverage
c. Hazardous conditions insurance
d. Adverse selection coverage
e. Indirect loss coverage |
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11. In order to establish negligence of the defendant, a plaintiff must show all of the following EXCEPT:
a. a law has been broken
b. a legal duty to protect existed
c. an injury resulted directly from a breach of duty
d. a person did not act reasonably
e. the defendant breached a legal duty
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12. A risk where the frequency of loss is low and the severity of loss is high represents a case where which risk management tool should be used:
a. Risk assumption
b. Loss prevention
c. Loss control
d. Insurance or risk transfer
e. Risk avoidance
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13. Assume I.M Clumsy, a renter, is injured by Ima Landord's negligence. Ima did not replace burned out light bulbs in the common hallway and Clumsy was injured when he fell down the apartment building's stairs near the hallway. Ima's best line of defense would be:
a. res ipsa loquitur
b. assumption of risk - a reasonable person would get a flashlight or take other precautions
c. Ima did not intend injury
d. since the property was rented, the plaintiff always has the duty to change the light bulbs
e.there was no duty owed to the plaintiff as renter
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14. Adverse selection represents a case where:
a. an insured attempts to obtain coverage at substandard rates
b. individuals who are poorer than average risks will attempt to obtain insurance at standard rates
c. the federal government must provide coverage
d. a buyer of an interest rate swap contract losses money as interest rates rise
e. an employer is held responsible for the actions of his/her employee under the doctrine of res ipsa loquitur
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15. State insurance regulations require insurers set up legal reserves and set aside surplus because:
a. assets have to equal liabilities plus policyholder equity
b. reserves are long-term obligations and must be met with long-term assets
c. they provide a cushion against unexpected underwriting or investment losses
d. insurers need to set aside dollars for meeting employee pension obligations and accrued commissions for insurance agents
e. insurers need to offset assets that are classified as "nonadmitted" in order to be eligible for Federal TARP dollars
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16. Disability is conservatively [strictly]defined within the OASDHI federal program as:
a. the inability to engage in any occupation
b. the inability to make the same income as before one was disabled
c. the inability to earn non-wage income to replace lost earnings from disability
d. the inability to engage in the occupation for which you were trained17%
e. the inability to earn income higher than the minimum wage due to injury |
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17. The purpose of the waiting period in a disability income policy is:
a. to eliminate payments for minor illness
b. to provide larger benefits to those who become injured
c. to provide indirect loss coverage in the aftermath of injury
d. to reduce the time it takes an insurer to make a claim payment of disability
e. to integrate employment sick days with the disability insurance contract
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18. The most difficult and important step in the risk management process and one that can lead to a risk manager being terminated if it is not conducted properly is:
a. risk identification, particularly those risks that are foreseeable
b.finding the most costly insurer to cover all the risks that may impact an organization
c. determining the appropriate amount of premium for pure and speculative risks
d. covering all the firm's financial risks using derivative contracts
e. hiring a highly trained accountant to create a tax-sheltered captive within the organization to allow management to take vacations in Bermuda |
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19. Which clause or concept in insurance law provides that when an insurer indemnifies the insured for loss, the insurer has the right to recovery from a negligent third party?
a. Utmost good faith
b. Proof of loss
c. The unilateral adhesion clause
d. Subrogation
e. Stare derisis. |
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20. Poor or faulty wiring that may lead to fire is an example of a:
a. named peril b. morale hazard c. speculative risk d. physical hazard e. moral hazard
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21. Which of the following is a definition of insurance?
a. A savings account designed to protect you in the event of a rainy day
b. A financial arrangement whereby an individual pays a small certain payment called the premium in order to be indemnified against large uncertain losses
c. A socialist plot to destroy the free enterprise system
d. A contractual agreement in which the insurer agrees to pay the insured only if the insured requests the money
e. An investment contract designed to allow the insured to earn a fair rate of return on his/her investment
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22. The term insurance demutualization refers to:
a. the process of a stock insurer converting its organizational structure to mutual
b. the board of directors action in declaring dividends for the policy owners
c. the process of a mutual insurer converting its organizational structure to the stock form of ownership
d. the process of liquidating an insolvent mutual insurance company
e. the process of individual policyholders electing to take non-participating policies from a mutual company
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23. A captive insurance company:
a. only provides loss control services
b. typically sells auto insurance to the public using independent agents
c. provides a mechanism for self-insurance
d. only uses attorneys-in-fact
e. cannot be operated by a manufacturing firm
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24. Risk managers can identify potential property losses using:
a. walking tours of the facilities and operations subject to risk
b. checklists
c. flowcharts
d. inteviews with employees
e. all of the above
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25. Interest rate risk arises for an insurer from:
a. the change in a currency's discount rate
b. changes in the value of fixed income securities because of changes in interest rates
c. the change in interest rates caused solely by inflation
d. changes in the value of currency relative to another currency
e. loss potential from a person defaulting on a loan due to high interest rates
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26. The best risk management method to use when the severity of loss is high, and the frequency of loss is high is:
a. risk avoidance
b. risk assumption
c. risk transfer
d. loss prevention and control
e. insurance
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27. Insurance is the best risk management tool when the chance of loss is ______ and the loss severity is _______.
a. high, low
b. low, high
c. high, high
d. low, low
e. moderate,moderate
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28. One example of the use of risk assumption in insurance is:
a. the use of subrogation
b. the use of a deductible by the insured
c. the use of ipsa res loquitur when making a claim settlement
d. the use of actual cash value when settling a claim
e. the use of contingent claim analysis in determining the amount of coverage available for claim settlement.
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29. While busy studying for your Risk Management and Insurance final, the Sunday evening before the big exam, you decide that a pizza would be helpful to remembering basic insurance principles. Not wanting to leave the stimulating and entertaining study of insurance to drive over to the pizza parlor you give you keys to your roomate to drive over to get the pizza. You offer to split the pizza as a reward for such service. Unfortunately, your roommate runs a traffic light and plows into your insurance professor who is out for a Sunday drive down Main street. As result of these festivities:
a. Your roommate's insurance policy will pay for all claims brought by the professor due to negligence from the accident
b. The professor knowing that one of his students is involved in the accident will forgive all losses and give that student an A for being dedicated and industrious
c. Your insurance policy will pay all claims as a result of the accident
d. Your insurance pllicy will pay all claims from the accident, but should liability damages be greater than your coverage, your roommate's policy may pay all amounts not covered under your policy.
e. Your roommate's insurance policy will pay first on the accident, and then your insurance policy pays all claims above the liability limits on your roommate's coverage.
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30. When selecting an insurer for casualty coverage the insured should consider:
a. the company's record of settling claims and its financial strength and stability as noted by outside rating agencies such as AM Best
b. information from the insurance commissioner's office on any outstanding complaints
c. all of the above
d. the brilliance of the insurer's online advertising
e. only a and c
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