2/20

Question 1

A(n) ___ is a corporation owned by stockholders whose objective is to earn a profit for the stockholders by increasing the value of stock and paying dividends.

Answer 1

Stock insurer

Question 2

A(n) ___ is a corporation owned by the policy owners.

Answer 2

Mutual insurer

Question 3

A(n) ___ is owned by the policy owners, has no stockholders, and the insurer doesn’t issue assessable policies.

Answer 3

Advance Premium Mutual

Question 4

A(n) ___ is a mutual insurer that has the right to assess the policyowners an additional amount if the insurer’s financial operations are unfavorable.

Answer 4

Assesssment Mutual

Question 5

A(n) ___ is a mutual insurer that provides life and health insurance to members of a social/religious organization.

Answer 5

Fraternal Mutual

Question 6

___ is not an insurer, but a society of members who underwrite insurance in syndicates. The memberships include corporations, individual members (called Names), and limited partnerships. The members must meet stringent financial requirements.

Answer 6

Lloyd’s of London

Question 7

A(n) ___ is an unincorporated organization in which insurance is exchanged among members called subscribers.

Answer 7

Reciprocal Exchange

Question 8

___ are generally organized as nonprofit, community oriented plans. ___ plans provide coverage for hospital services, and ___ plans provide coverage for physicians’ and surgeons’ fees.

Answer 8

Blue Cross and Blue Shield Plans; Blue Cross; Blue Shield

Question 9

A(n) ___ is a private insurer that provides comprehensive health care services to its members. Broad health care services are provided for a fixed prepaid fee, cost control is emphasized, and the choice of health care providers may be restricted.

Answer 9

Health Maintenance Organization (HMO)

Question 10

A(n) ___ is an insurer owned by a parent firm for purposes of insuring the parent firm’s loss exposures.

Answer 10

Captive Insurer

Question 11

___ refers to life insurance that is sold by mutual savings banks over the phone or through a website.

Answer 11

Savings Bank Life Insurance

Question 12

A(n) ___ is someone who legally represents the principal and has the authority to act on the principal’s behalf.

Answer 12

Agent

Question 13

The principal is legally responsible for all acts of an agent when…

Answer 13

The agent is acting within the scope of authority that may be expressed, implied, or apparent.

Question 14

A(n) ___ provides temporary insurance until a policy is written.

Answer 14

Binder

Question 15

A broker is someone who legally represents the insured, and:

(3 points)

Answer 15

• Solicits applications and attempts to place coverage with an appropriate insurer
• Is paid commission from the insurers where business is placed
• Does not have the authority to bind the insurer

Question 16

A(n) ___ is licensed to place business with a nonadmitted insurer.

Answer 16

Surplus Lines Broker

Question 17

Surplus lines refer to any type of insurance for which there is no available market within the state, and coverage must be placed with a ___.

Answer 17

Nonadmitted insurer

Question 18

The ___ is a business firm that usually represents several unrelated insurers.

Answer 18

Independent Agency

Question 19

Under the ___, an agent represents only one insurer or group of insurers under common ownership.

Answer 19

Exclusive agency system

Question 20

A(n) ___ is an insurer in which the salesperson is an employee of the insurer, not an independent contractor.

Answer 20

Direct Writer

Question 21

A(n) ___ insurer sells directly to the consumer by TV/media.

Answer 21

Direct Response

Question 22

Products are sold through ___, employees who receive a salary and incentive payments based on sales.

Answer 22

Group Representatives

Question 23

___ refers to the pricing of insurance and the calculation of insurance premiums.

Answer 23

Ratemaking

Question 24

A(n) ___ is the price per unit of insurance.

Answer 24

Rate

Question 25

A(n) ___ is the unit of measurement used in insurance pricing.

Answer 25

Exposure unit

Question 26

Rates and premiums are determined by a(n) ___, using the company’s past loss experience and industry statistics.

Answer 26

Actuary

Question 27

The ___ is the portion of the rate needed to pay losses and loss adjustment expenses.

Answer 27

Pure Premium

Question 28

___ is the amount that must be added to the pure premium for other expenses, profit, and a margin for contingencies.

Answer 28

Loading

Question 29

The ___ consists of the pure premium and a loading element.

Answer 29

Gross rate

Question 30

The ___ paid by the insurer consists of the gross rate multiplied by the number of exposure units.

Answer 30

Gross premium

Question 31

How is the gross rate calculated?

Answer 31

Pure premium / (1 - expense ratio)

Question 32

___ refers to the process of selecting, classifying, and pricing applicants for insurance.

Answer 32

Underwriting

Question 33

The corporate structure of mutual insurers is changing due to…

(3 points)

Answer 33

• Increase in company mergers
• Demutualization, whereby a mutal company is converted into a stock insurer
• Creation of mutual holding companies

Question 34

___ is where a mutual company is converted into a stock insurer.

Answer 34

Demutualization

Question 35

A(n) ___ is a company that directly or indirectly controls an authorized insurer.

Answer 35

Holding company

Question 36

The underwriting policy is stated in an underwriting guide, which specifies:

(5 points)

Answer 36

• Acceptable, borderline, and prohibited classes of business
• Amounts of insurance that can be written
• Territories to be developed
• Forms and rating plans to be used
• Business that requires approval by a senior underwriter

Question 37

Name the three basic principles of underwriting.

Answer 37

• Attain an underwriting profit
• Select prospective insureds according to the company’s underwriting standards
• Provide equity among policyholders