Chapter 10 Insurance Company Operations

Question 1

Most insureds purchase property and casualty policies In a:

a. monoline policy
b. package policy
c. regulatory policy
d. manual rate policy

Answer 1

b. package policy

Question 2

Which of the following would NOT be considered a responsibility of an underwriter?

a. adding or deleting coverage for the policyholder
b. pricing desired changes in coverage
c. providing comparable prices from other agencies
d. providing payment terms for policies

Answer 2

c. providing comparable prices from other agencies

Question 3

Which section of an insurance policy describes the limitations of coverage under the policy and specifies what the policy does not cover?

a. conditions
b. insuring agreement
c. exclusions
d. declarations

Answer 3

c. exclusions

Question 4

What is experience rating?

Answer 4

a rating in which the underwriter typically compares a particular business’s actual losses to the statistical losses of other businesses in the same industry

Question 5

Having all of your insurance policies expire on the same date will:

a. increase your deductibles
b. require extended insurance
c. cause difficulties in financing premiums
d. ease obtaining competitive proposals

Answer 5

d. ease obtaining competitive proposals

Question 6

___________ are used because it is not always possible for the insurance company to issue the policy immediately.

a. insurance brokers
b. monoline policies
c. insurance binders
d. deposit premiums

Answer 6

c. insurance binders

Question 7

What is meant by the term class rated?

Answer 7

the insurance exposures are similar in many ways, so there is no real value in determining specific rates for each individual risk

Question 8

Which section of an insurance policy lays out the general ground rules of the policy?

a. conditions
b. insuring agreement
c. exclusions
d. declarations

Answer 8

a. conditions

Question 9

Class rates and specific rates are used to classify:

a. agencies
b. leases
c. insurers
d. risks

Answer 9

d. risks

Question 10

Large and unusual risks are usually classified as:

a. class
b. manual
c. judgement
d. specific

Answer 10

d. specific

Question 11

Henry is reviewing his company’s insurance policy and has just finished the section that lays out the general ground rules for the policy. This section of an insurance policy is referred to as the:

a. conditions
b. exclusions
c. declarations
d. insuring agreement

Answer 11

a. conditions

Question 12

The lawyer cautioned Jeffrey about naming additional insurers to his general liability policy primarily because adding them might increase premiums for the named insured and:

a. dilute the available amount of liability coverage
b. increase his risks
c. reduce his overall coverage
d. be illegal

Answer 12

a. dilute the available amount of liability coverage

Question 13

What is schedule rating?

Answer 13

a means by which the underwriter can apply debits or credits to class rates to calculate the premium appropriate to a certain risk more accurately

Question 14

What is the difference between a package policy and a monoline policy?

Answer 14

package policy-a policy containing at least two different insurance coverages, typically both property and liability coverages

monoline policy-each coverage is purchased individually

Question 15

Higher deductibles usual mean what?

Answer 15

lower premiums

other reasons for choosing higher deductibles

• business doesn’t want to incur expense of submitting small claims
• business does not want to risk the higher premiums caused by numerous small claims
• business does not want its loss records to be adversely affected by a number of minor losses
• the business thinks it makes more sense to retain the risk

Question 16

What is a specific rate?

Answer 16

rates applied to larger and more unusual risks

Question 17

In an insurance policy, what are conditions?

Answer 17

the general ground rules of the policy

cancellation, amendment procedures, etc.

Question 18

In an insurance policy, what are exclusions?

Answer 18

describe the limitations of coverage under the policy and specifies what the policy does not cover

Question 19

When underwriters compare a particular business’s actual losses to the statistical losses pf other businesses in the same industry, they are completing a(n):

a. schedule rating.
b. experiencing rating
c. retrospective rating
d. regulatory pricing rating

Answer 19

b. experiencing rating

Question 20

What is the function of an underwriter?

Answer 20

Underwriters are responsible for determining which applications to accept or decline, classifying risks, and deciding the terms, conditions, and cost of coverage to offer.

Question 21

What is an insurance binder?

Answer 21

A temporary insurance policy that provides coverage until the actual policy can be issued by the insurance company.

Question 22

What are four examples of the underwriter’s ongoing responsibilities?

Answer 22

• adding or deleting coverage for the policy holder
• pricing desired changes in coverage
• providing payment terms for policies
• adding other entities to the policyholder’s policy as additional insureds, such as landlords on the tenant’s policies

Question 23

What type of underwriter specializes in auto, general liability, and other liability insurance?

Answer 23

casualty underwriters

Question 24

What is the primary reason for caution in adding additional insured to a general liability policy?

Answer 24

increased premiums

it dilutes the amount of available liability coverage

Question 25

For insurance purposes, mortgages and loss payees are most often added to:

a. professional liability policies
b. property policies
c. general liability policies
d. umbrella liability policies

Answer 25

b. property policies

Question 26

Not wanting to incur the considerable expense of submitting small claims that tie up its personnel and divert energies from the main activities of the business is a reason for a business to:

a. opt for higher deductibles
b. get a retrospective rating plan
c. use manual rates instead of judgement rates.
d. calculate deposit premiums

Answer 26

a. opt for higher deductibles

Question 27

What is a moral hazard?

Answer 27

a hazard involving the questionable character or integrity of an insured, which could lead to dubious or intentionally caused claims

Question 28

Understanding_________ will help you relate the underwriter’s function to the availability, cost, coverage, and terms of insurance programs offered to property owners and managers.

a. insurance policy pricing
b. the compensation process for an agent
c. the underwriting process used to assess loss exposures
d. the leasing process between landlords and tenants

Answer 28

c. the underwriting process used to assess loss exposures

Question 29

Moral hazards can be defined as hazards that:

a. reflect the condition of a company’s risk exposure
b. come from the culture of the company owners
c. result from conditions in an insured’s business that cause employees to become indifferent.
d. derive from the character or integrity of the insured’s business and its personnel.

Answer 29

d. derive from the character or integrity of the insured’s business and its personnel.