Chapter 10 Insurance Company Operations Flashcards
Most insureds purchase property and casualty policies In a:
a. monoline policy
b. package policy
c. regulatory policy
d. manual rate policy
b. package policy
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
c. providing comparable prices from other agencies
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
c. exclusions
What is experience rating?
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
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
d. ease obtaining competitive proposals
___________ 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
c. insurance binders
What is meant by the term class rated?
the insurance exposures are similar in many ways, so there is no real value in determining specific rates for each individual risk
Which section of an insurance policy lays out the general ground rules of the policy?
a. conditions
b. insuring agreement
c. exclusions
d. declarations
a. conditions
Class rates and specific rates are used to classify:
a. agencies
b. leases
c. insurers
d. risks
d. risks
Large and unusual risks are usually classified as:
a. class
b. manual
c. judgement
d. specific
d. specific
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
a. conditions
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
a. dilute the available amount of liability coverage
What is schedule rating?
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
What is the difference between a package policy and a monoline policy?
package policy-a policy containing at least two different insurance coverages, typically both property and liability coverages
monoline policy-each coverage is purchased individually
Higher deductibles usual mean what?
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
What is a specific rate?
rates applied to larger and more unusual risks
In an insurance policy, what are conditions?
the general ground rules of the policy
cancellation, amendment procedures, etc.
In an insurance policy, what are exclusions?
describe the limitations of coverage under the policy and specifies what the policy does not cover
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
b. experiencing rating
What is the function of an underwriter?
Underwriters are responsible for determining which applications to accept or decline, classifying risks, and deciding the terms, conditions, and cost of coverage to offer.
What is an insurance binder?
A temporary insurance policy that provides coverage until the actual policy can be issued by the insurance company.
What are four examples of the underwriter’s ongoing responsibilities?
- 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
What type of underwriter specializes in auto, general liability, and other liability insurance?
casualty underwriters
What is the primary reason for caution in adding additional insured to a general liability policy?
increased premiums
it dilutes the amount of available liability coverage
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
b. property policies
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
a. opt for higher deductibles
What is a moral hazard?
a hazard involving the questionable character or integrity of an insured, which could lead to dubious or intentionally caused claims
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
c. the underwriting process used to assess loss exposures
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.
d. derive from the character or integrity of the insured’s business and its personnel.
