Chapter 6

Question 1

Government programs can operate as reinsurers, reinsuring 100 percent of the risk or that part in excess of the private insurer’s retention.

Answer 1

Government insurance programs can operate in direct competition with private insurers

Question 2

Two individuals each have a 0.05 percent probability of suffering a total homeowners loss in a given year, and those two people pool their loss exposures. Assuming the loss exposures are independent of one another, which one of the following represents the probability of both individuals suffering a total loss with the pooling arrangement in place

Answer 2

0.05 * 0.05 = 0.0025 or 0.25%

Question 3

For Residential loss exposures Fire, windstorm, and

Answer 3

flood involve a large number of similar exposure units.

Question 4

Premiums for flood insurance may not be economically feasible, depending on

Answer 4

location.

Question 5

Net income loss exposures associated with property losses exhibit almost all

Answer 5

the characteristics of ideally insurable risks.

Question 6

Net income losses resulting from unemployment may or may not be fortuitous,

Answer 6

depending on the individual involved.

Question 7

Premises and operations liability losses are definite in time, cause, and location, and are

Answer 7

measurable.

Question 8

Unless a disaster occurs, death losses are typically independent and not

Answer 8

catastrophic.

Question 9

Life, health, and retirement causes of loss are

Answer 9

Subject to moral and morale hazard problems.

Question 10

Two individuals each have a 75 percent probability of not suffering a homeowners loss in a given year. Assuming that losses involving these two homes are independent of one another, and that the two individuals enter into a pooling arrangement, what is the probability of neither individual suffering a loss

Answer 10

56% or 0.56 = 0.75 * 0.75

Question 11

Private insurers are reluctant to provide windstorm insurance on coastal properties. This is because the loss exposures fail to meet the criterion that ideally insurable exposures must be

Answer 11

independent and not catastrophic

Question 12

As the number of members in a pool increases, on a PER MEMBER basis the expected value of losses remains

Answer 12

unchanged. and the standard deviation decreases

Question 13

as the number of members in the pool increases the expected losses and standard deviation of the POOL both increase

Answer 13

Per Member (unchanged; sd decrease) vs Pool (increase ; sd increase)

Question 14

Insurance helps reduce the financial burden to society by compensating

Answer 14

accident victims.