Chapter 1-10 Multiple Choice Quiz Questions Flashcards
Ch 1. Which of the following is an appropriate question to ask when determining whether a risk should be rated by class or schedule?
Can this risk be placed in a class? When determining whether the risk should be rated by class or schedule, the underwriter should consider if the risk can be placed in a class.
Ch 1. Loadings are additional charges added to the basic rate for certain features of a risk - True or False?
True - An underwriter could add loadings (additional charges) to the basic rate for features of the risk that are considered to be more hazardous than the average risk in that class
Ch 1. Underwriters cannot modify coverage to address the needs of existing or prospective insureds - True or False?
False - One of an underwriter’s important kills is the ability to chose and perhaps modify coverage to address the needs of an existing or prospective insured
Ch 1. Loss control inspectors typically group hazards in four main categories, including
Physical hazards - loss control inspectors typically group hazards in four main categories, including physical hazards. Physical hazards are any aspect of the physical risk that may make a loss more likely.
Ch 1. Good communication is an adversarial process - True or False?
False - Good communication is not adversarial, and good business communication avoids confrontation. The other person should be treated as a partner with whom the underwriter works to achieve a common goal, rather than a subordinate or an adversary
Ch1. How is self-insured retention (SIR) different from a deductible?
The insurer is not involved in losses that fall within the SIR
Ch 1. What are LDFs?
Loss Development Factors
Ch 1. What are the four main categories of hazards identified by loss control inspectors?
Attitude to loss prevention on the part of the risk’s management, physical hazards, housekeeping, and neighbourhood
Ch 1. What coverage will a wrap-up policy provide for Shady Acres project?
It will address liability exposures arising out of the work on the project for all parties
Ch 1. What is a potential issue with a manuscript wording?
It is unique and, therefore, untested
Ch 1. When should the class rating approach to rating be used?
When statistics can be gathered on a large number of risks that share common characteristics
Ch 1. When should the class rating approach to rating be used?
When statistics can be gathered on a large number of risks that share common characteristics
Ch 1. When should the schedule rating approach to rating be used?
When the available statistical data are fragmented are too fragmented for class rating
Ch 2. Does statistically improbable loss occur?
Yes. The statistical improbability of loss does not rule out the possibility of it. Especially when studying losses due to a natural catastrophe, the underwriter should remember that possibility is not the same as probability
Ch 2. How is the loss triangle method used?
It groups losses by year over successive time periods to show a history of change in the amounts of all losses. the loss triangle method groups losses year over successive time periods to show a history of change in the amounts of all losses. By reviewing patterns of loss development factors calculated in this historical loss triangle, the actuary or underwriter can estimate future losses.
Ch 2. Losses must be analyzed for ______ that will lead the underwriter to an assessment of the experience
Patterns
Ch 2. Underwriters must distinguish between _______ and _______ risks
Undesirable and desirable. As with the risk that has had one or more serious losses, the risk that has had none must be scrutinized on its merits, which may be due to pure luck in spite of poor conditions, or it may reflect management’s commitment to loss prevention. the difference is between undesirable and desirable risks.
Ch 2. What extra source of information may an experienced underwriter have that an inexperienced underwriter will need to develop?
Familiarity with the industry. The underwriter’s familiarity with the industry of which a risk is part could arise either from extensive experience in underwriting the industry or from direct experience working in the industry.
Ch 2. What formula is used to project settlement values?
Total incurred losses x Loss development factor. Once loss development factors have been calculated for an account, the underwriter can go back and project losses at their ultimate settlement values as follows: Total Incurred Losses x Loss Development Factor
Ch 2. What is a loss run?
A summary or report of loss experience for a risk over a specified time. A loss run is a summary or report of loss experience for a risk over a specified time.
Ch 2. what is the formula used to calculate an incurred loss ratio?
Total incurred losses / Earned Premium. Incurred loss ratio is the ratio of incurred losses to earned premium.
Ch 2. What situation happens frequently with many clients, but causes an underwriter to have an incomplete loss picture for an insured?
Unreported losses. Underwriters should consider the situations in which the insured is covered but does not report recurrent losses that, according to the statistics, frequently happen. The loss picture for an insured can look very different when one looks beneath the surface presented by the loss run.
Ch 2. Which two related concepts should an underwriter understand regarding losses and claims?
Loss frequency and Loss severity
Ch 3. The amount of insurance for a project site should be _______
The estimated completed value of the project. The amount of insurance for a project site should be the same as the estimated completed value of the project. This should include the value of landscaping, hoardings, site preparation, and other items if they are meant to be insured
Ch 3. What are primary considerations when underwriting builders insurance?
Qualifications and expertise of the policyholder, natural features of the site, and methods of type of construction
Ch 3. What are two causes of loss covered by equipment breakdown insurance but typically excluded by an all-risk property policy?
Mechanical breakdown and Electrical arcing. An all risks property policy usually excludes loss arising from the explosion, bursting, or rupture of boilers and pressure vessels, mechanical breakdown, and electrical arcing. An equipment breakdown policy complements the property policy and fills in certain gaps in its coverage by responding to all these causes of loss.
Ch 3. What is contingent business interruption insurance?
Insurance for a business interruption caused by the interruption of a supplier’s or the client’s business
Ch 3. What is covered by an equipment breakdown policy?
Loss from a sudden and accidental breakdown of an object resulting in physical damage to the object and any resultant property damage directly caused by the breakdown.
Ch 3. What is the difference between the American and British forms of business interruption insurance?
In the American system, an insured who suffers an interruption of business is considered indemnified after the product and a place to sell it have been restored. In the British system, business is considered interrupted for as long as the level of business income is affected.
Ch 3. What risk is more likely to occur in a property with a legalized grow operation?
Fire
Ch 3. What type of inspection is important for most equipment breakdown insurers?
Loss prevention inspection
Ch 3. What was included in the IBC Homeowners forms after the passage of the Cannabis Act?
A special limit applying a specified dollar limit to coverage of “cannabis in all consumable forms and cannabis plants, whether for recreational or medicinal use”
Ch 3. Who is generally named as insureds in a builders risk insurance policy?
The general contractor and the owner
Ch 4. Umbrella liability policies provide the same coverage as the primary policy - True or False?
False - The umbrella policy provides additional limits of insurance in excess of underlying limits. Unlike the excess policy, the umbrella policy provides broader coverage than the primary policy.
Ch 4. What is another name for professional liability insurance?
Errors and Omissions - Professional liability insurance also known as errors and omissions insurance covers liability exposure from providing a specialized service while practising a profession. It covers liability arising out of negligent acts, errors, and omissions in the delivery of professional services or the failure to deliver those services
Ch 4. What area is covered by an umbrella policy
Worldwide - The coverage provided by umbrella policies is worldwide. As with all other aspects of an umbrella policy, however the underwriter must review and confirm this feature
Ch 4. Fraudulent, dishonest or criminal acts are typically exclusions from a Directors and Officers policy
True - Directors and officers insurance does not insure against fraudulent, dishonest of criminal acts to insure against such acts would be against public policy.
Ch 4. Contractors seeking wrap-up insurance must have an established record of
Financial and business competence. Contractors seeking wrap-up must have an established record of financial and business competence.
Ch 4. How should an underwriter analyze the financial strength of an enterprise?
Analyze the latest annual report and financial statements for the risk and obtain a current financial analysis from a third party. compare the risk with others in its industry group using financial ratios.
Ch 4. The wording for wrap-up insurance is the insurers standard liability wording with amendments regarding which of the following?
Named insured section, description of operations, and aggregate limits of insurance
Ch 4. What does it mean if professional liability policy wordings are written on a claims-made basis?
It covers claims even if the wrongful act that gave rise to the claim did not take place during the policy period - provided that it did not take place before the retroactive date stated in the policy
Ch 4. What does SIR stand for when referring to an excess policy?
Self-Insured Retention - One reason a standalone excess policy is written is that the excess policy may stand in excess of an insureds SIR
Ch 4. what is directors and officers insurance?
Insurance to defend and indemnify directors and officers of a profit or non-profits company. Directors and officers insurance ins basically a specialized form of liability insurance. In effective, it functions as errors and omissions insurance to cover the obligation of an insured enterprise, whether non-profit or for profit, to defend and indemnify its directors and officers for claims made against them
Ch 4. What is the performance of a duty of care for a profession?
Performing to the standard of other professionals in a field
Ch 4. What is the purpose of excess policy?
To provide additional limits of insurance. The excess policy typically follows form - the provisions of the excess policy follow or correspond to, the provisions of the primary policy. Essentially, the sole purpose of the excess policy is to provide additional limits of insurance
Ch 4. What is wrap-up insurance?
It insures against exposure to liability for loss or damage to third parties on the part of participants in a commercial construction project, whether small or large, a new building or a renovation
Ch 4. Which of the following factors will have the largest influence in how much directors and officers insurance is needed?
Whether the company is private or publicly traded and whether its for-profit or non-profit enterprise
Ch 4. Which people involved with a project will the underwriter need detailed background information for while considering whether they will issue a wrap-up policy.
Named insured, owner, general contractor and construction manager
Ch 5. Which of these companies experienced a major privacy breach that affected 3 billion user accounts?
Yahoo
Ch 5. what is an example of a widely used ridesharing app?
Uber. Established in 2010, is one of the most widely used ridesharing services and is available through the Uber app
Ch 5. What is Level 3 of the levels of vehicle automation?
Conditional automation. Level 3 vehicle automation is conditional automation, where all aspects of the dynamic driving task is completed by an automated system, with th eexpectation that the human driver will respond appropriately to an intervention request.
Ch 5. What is an example of a phishing scam?
Deactivation scare is a phishing scam where an email claims the recipients account will be deactivated unless they immediately follow a link and enter their name/password
Ch 5. In what year was a ridesharing endorsement first offered in Ontario?
2016, a major Canadian insurer launched a ridesharing endorsement in Ontario
Ch 5. What was the term AI coined?
1956.
Ch 5. What is a typical exclusion for cyber risk insurance?
Reputation damage. Cyber risk insurance excludes hard to quantify losses, such as reputation damage, lost intellectual property, some class action lawsuits and future losses
Ch 5. What is FUS?
Fire Underwriting Survey. Is a national organization that provides data on public fire protection for underwriting purposes
Ch 5. What do the words block and chain mean in the term blockchain?
Block - digital information stored in a public database (the chain)
Ch 5. In what year did cybercrime become the second most common type of economic fraud affecting Canadian businesses?
2015
Ch 5. What is the oldest and most widely recognized provided of ratings, financial data, and news with an exclusive focus on the insurance industry?
AM Best Rating Services.
Ch 5. what is the unique identifying code give to a specific block in a blockchain?
Hash.
Ch 5. In what year was an insurance policy created to cover people who use Airbnb?
There is currently no insurance policy on the market to cover people who use Airbnb
Ch 5. Underwriting directors and officers liability coverage for blockchain companies is limited because _________
The regulatory environment is constantly evolving
Ch 5. What allows a car to be self-driving?
Artificial intelligence, sensor technology, and on-board computing
Ch 5. What are some potential benefits of blockchain technology to the insurance industry?
Reduced costs, simpler and faster transactions, and enhanced ability to combat fraud
Ch 5. What is a virtual team?
A team with members who are not physically working together in one location
Ch 5. What is artificial intelligence?
The simulation of human intelligence processes by machines
Ch 5. What is behavioral policy pricing?
Data from telematic and wearable sensors allowing for lower premiums for less risky behavior
Ch 5. What is cyber risk?
Any risk of financial loss, disruption of business, or damage to an organization’s reputation because of a failure of its information technology systems
Ch 5. What is the sharing economy?
Digital platforms and apps that make connecting and sharing convenient, simple and secure
Ch 5. What organization has developed standards for eDocs and electronic signatures for the insurance industry?
Centre for the Study of Insurance Operations
Ch 6. Earths yearly average temperature has been warmer than the combined average temperature for all of the twentieth century since what year?
1998
Ch 6. From an underwriting perspective, what is a distinction between wildfire and other types of fire?
Wildfire is made more likely and more dangerous by climate change
Ch 6. How many levels of flood risk represented?
Through designated zones
Ch 6. How much did the Canadian insurance industry lose in 2018 due to severe weather catastrophes?
1.9 Billion
Ch 6. Water damage accounts for what percentage of home insurance claim costs?
50%
Ch 6. What is a limitation for binding coverage on risks near a wildfire?
Any risk or structure within a certain radius of a fire classified by a government as out of control
Ch 6. What is a method of mitigating overland water losses?
Clearing debris from storm drains
Ch 6. What is one reason that water damage claims over the years have escalated in both frequency and severity?
Finished basements
Ch 6. What is the highest amount wildfires have cost insurers worldwide in a single year?
14 billion
Ch 6. What is the product of burning fuel that is warming Earth’s atmosphere?
Greenhouse gases
Ch 7. What is the best source of information about a risk’s finances?
The risk’s annual report. Generally, the best sources of financial information are the risk’s annual or quarterly reports to shareholders
Ch 7. Underwriters review financial statements to assess a risk’s ability to pay premium - True or False
False - Underwriters review financial statements to assess a risk and identify problems that may affect their decisions
Ch 7. What analysis provides information on the environment within which a company will operate?
SWOT - A SWOT analysis of a company’s strengths, weaknesses, opportunities, and threats gives information on the environment within which a company will operate
Ch 7. Liquidity ratios measure a businesses ability to pay its liabilities - True or False
True, Liquidity ratios are a measure of a businesses ability to pay its liabilities
Ch 7. Which class of financial statements is the most reliable?
Audited Statements - Audited statements are expensive to complete, but they are the most reliable
Ch 7. How do you calculate the current ratio?
Current Assets/ Current Liabilities
Ch 7. What are pro forma statements?
Financial statements prepared to emphasize either current or projected figures
Ch 7. What do profitability ratios measure?
The overall effectiveness of a company’s management
Ch 7. What is a change to a company’s financial statements that may indicate a potential problem?
Having a different auditor complete the financial statements
Ch 7. what is an inevitable but serious issue when evaluating a risks financial information?
Lag between the preparation of the preparation of financial statements after the most recent fiscal year and the present
Ch 7. What is the difference between revenues that are accounted for on the an accrual basis and those accounted for on a cash basis?
If revenues are accounted for on an accrual basis and not a cash basis, then the revenue is recorded when the item or service is shold, even though the cash may not have been received.
Ch 7. What is the most important thing about a company’s return on equity?
It should exceed the return that would available on an equivalent investment
Ch 7. What is the purpose of the questions an underwriter asks regarding potential problems in financial statements?
To assist the underwriter in making a thorough assessment of the risk
Ch 7. What is the purpose of the statement of cash flow?
It answers questions about how much money a business generated, where the money came from, and where it went
Ch 7. What three financial statements are of particular interests to an underwriter
Balance sheet, income statement, statement of cash flow
Ch 8. A captive is best suited to catastrophic and unexpected exposures - True or False
False - A captive is best suited to non-catastrophic somewhat predictable exposures
Ch 8. What are the responsibilities of the insurer for losses below the SIR threshold?
None - the insurer has no responsibility for or involvement with a claim below the SIR threshold
Ch 8. An SIR can be financially draining - True or False
True - A disadvantage of SIRs is that they can be financially draining. A company’s risk management program must be properly designed to ensure that the company can manage the financial consequence’s of an SIR
Ch 8. What is a disadvantage of a reciprocal for subscribers?
Time commitment - Is one disadvantage of a reciprocal to subscribers because they might have to agree in advance to subscribe for a number of years
Ch 8. What is alternative risk financing?
A self-insurance arrangement. Alternative risk financing is the name given to the set of methods by which an organization may retain its risk. It is a self-insurance arrangement that finances risk by means other than a transfer to a traditional insurer
Ch 8. How can a reciprocal transfer part of the risk it has retained for its subscribers?
They can buy traditional commercial insurance from reinsurers or primary excess insurers
Ch 8. How does a captive insurance company reduce frictional costs?
It removes or reduces the direct and indirect costs associated with market transactions
Ch 8. How is a reciprocal different than a group captive?
A reciprocal can be licensed in any jurisdiction and can insure risks without a fronting insurer in any jurisdiction in which it is licensed.
Ch 8. What are the responsibilities of an insurer that fronts for a captive?
Making claim payments and recovering those payments from the captive
Ch 8. What is a captive insurance company?
An insurer that is owned and controlled by it’s insured(s)
Ch 8. What is a disadvantage of an SIR to an insurer?
If the development of losses causes them to exceed the SIR threshold the insurer inherits the consequences of the SIR client’s management of them while they were still below the SIR threshold
Ch 8. What is a reciprocal insurance exchange?
A group of similar organizations that share their risk. In a reciprocal insurance exchange (inter insurance exchange), a group of similar organizations share their risk; it is a means of risk financing in which a number of subscribing organizations together appoint a central underwriter as attorney-in-fact to share the costs of risk financing.
Ch 8. What is the difference between a deductible and self-insured retention (SIR)?
A deductible is applied by an insurer after a claim is made, a SIR is applied by the insured before claiming against its policy
Ch 8. What is trading dollars with an insurer a bad idea?
Because there is little uncertainty in a trading dollars situation, the company is handing over the dollars needed to cover its losses plus the insurer’s overhead
Ch 8. Why might a company want to retin its own risk?
If it has many small claims, it is probably trading dollars with an insurer rather than transferring risk. The uncertainty that a company protects itself against by buying insurance may not exist for a company with a high frequency of smaller claims, which would be largely expected. There would be little or no risk to be transferred and the pure premium the insurer charges for the coverage is likely to be about the same as the amount of loss that will be incurred during the policy term.
Ch 9. When covering international property, there may be natural exposures in other countries that are rarely if ever seen in Canada - True or False?
True - There may be natural exposures in other countries that are rarely, if ever seen in Canada The foreign land could be prone to hurricanes, monsoons, earthquakes, tsunamis, droughts, volcanic eruptions, or other natural disasters
Ch 9. NAIC stands for the National Agent Insurance Commission - True or False?
False - The National Association of Insurance Commissioners (NAIC) in the United States is one of several useful websites for an underwriter of international risk
Ch 9. What employee of a company with foreign exposure will an underwriter consult to gain information about that foreign exposure?
The risk manager - An underwriter looking for information about foreign exposure can consult a risk manager, who is responsible for buying insurance on behalf of the insured and for managing all aspects of the insured’s exposure, both foreign and domestic
Ch 9. While some likely exposures in foreign locations are due to natural phenomena, others are caused from?
Differing standards - Some exposures are caused by differing standards, in Europe for example sprinkler protection in buildings is less common than in North America. Standards differ around the world, and the underwriter must find out how they differ to correctly assess the exposure
Ch 9. Admitted paper is insurance on locally approved forms accepted by the local authority - True or False?
False - Admitted paper is insurance written on locally approved policy forms issued by a locally licensed, registered or authorized insurer.
Ch 9 . How does the brokers role change in some foreign jurisdictions?
In some foreign jurisdictions the broker plays a more controlling role in the account. Following a loss, it is not unusual to see the broker assign the adjuster and direct the handling of a claim, as well as negotiate on behalf of the insured.
Ch 9. What circumstances may make it impossible for a Canadian insurer to cover a client’s international exposure?
Some countries prohibit local entities from purchasing insurance from anyone except a locally established, authorized and licensed insurer
Ch 9. What does NAIC stand for?
National Association of Insurance Commissioners
Ch 9. What is a fronting arrangement?
An arrangement by which an insurer issues a policy with the intention of transferring most or all of the exposure to a reinsurer or other insurer not licensed in the jurisdiction of the fronting insurer
Ch 9. What is a potentially damaging assumption an underwriter can make regarding a client’s foreign exposure?
Underwriters cannot afford to infer to the extent or nature of a foreign exposure from a client’s good reputation and record in North America
Ch 9. What is a serious concern when covering international property?
There may be natural exposures in other countries that are rarely, if ever seen in Canada
Ch 9. What is admitted paper?
Insurance written on locally approved policy forms issued by a locally licensed, registered or authorized insurer
Ch 9. What is an issue for insurers when providing liability insurance for international exposures?
The cultures and judicial systems in other countries can make underwriting liability insurance across boarders difficult and highly uncertain
What is difference-in-limits (DIL) insurance?
Coverage provided by a non-admitted international insurance policy for the difference between its limits and the lower limits provided by the foreign admitted policy
Ch 9. Why might a reinsurer be an important source of information and advice regarding foreign exposure?
They often have underwriting office worldwide and can advise the underwriter on local rules and regulations that may influence the judgement of a foreign risk
Ch 10. What is speculative risk?
Risk with a chance of either loss or gain
Ch 10. How long is a typical treaty relationship between insurers?
More than 1 year. A treaty typically establishes a long-term relationship where profit is expected. Treaties are not usually effective for just one year.
Ch 10. How is pricing determined in proportional reinsurance?
Total premium determined by the insurer, and the reinsurer received a percentage of it
Ch 10. What is pure risk?
A risk with no chance of gain, only loss
Ch 10. What is the simplest form of proportional treaty reinsurance?
A quota share treaty
Ch 10. Casualty coverage is usually
Non-proportional
Ch 10. What are three types of reinsurers?
Direct writers, broker-market reinsurers, and reinsurance departments are types of reinsurers
Ch 10. How many reinsurers can an insurer have?
Many
Ch 10. What documents facultative reinsurance on a risk?
A facultative certificate
Ch 10. What is the fundamental characteristic of all parties to a reinsurance contract?
They are all professional insurance companies
Ch 10. What aspect of a reinsurers business would leakage affect directly?
Profitability
