Chapter 6 -Insurance Companies Flashcards
What departments are unique to insurance companies?
a. Marketing, underwriting, and claims
b. Actuarial, claims, and underwriting
c. Accounting, claims, and underwriting
d. Human resources, accounting, and marketing
b. Actuarial, claims, and underwriting
In many cases, the operational structures of insurers are similar to any other business enterprise. But some departments are unique to insurers: actuarial, underwriting, and claims.
What is an underwriting loss?
a. Money the insurer sets aside to pay claims that have been incurred but not reported yet
b. Money that the insurer pays for the salaries of its underwriters
c. Money that an insurance company loses as a result of its insurance operations
d. Money that the insurer pays for claims.
c. Money that an insurance company loses as a result of its insurance operations
An underwriting loss is the amount of money that an insurance company loses as a result of its insurance operations.
What is facultative reinsurance?
a. Reinsurance of risks on an individual case-by-case basis subject to acceptance or rejection by the insurer
b. Reinsurance of risks on a class-by-class basis, so all risks in a designated class are automatically reinsured
c. Reinsurance in which the reinsurer automatically accepts a portion of the ceding company’s liability for a specified class
d. Reinsurance on an excess of loss basis covered by a treaty negotiated annually
a. Reinsurance of risks on an individual case-by-case basis subject to acceptance or rejection by the insurer
Facultative reinsurance is reinsurance of risks on an individual case-by-case basis subject to acceptance or rejection by the insurer.
What is subscribed capital?
a. The amount of stock sold by a corporation
b. The amount of premium paid by the insured
c. The amount of commission paid to the broker who sold the policy
d. The value of the premium note
a. The amount of stock sold by a corporation
Subscribed capital is the amount of stock sold by a corporation.
What is treaty insurance?
a. Insurance that is placed on an individual case-by-case basis
b. Insurance that is placed on a facultative excess basis
c. Reinsurance in which an agreement between the insurer and the reinsurer provides for automatic reinsurance without the insurer having to submit every risk to the reinsurer.
d. Reinsurance in which an agreement between the insurer and the reinsurer requires the insurer to submit every risk to the reinsurer for approval.
c. Reinsurance in which an agreement between the insurer and the reinsurer provides for automatic reinsurance without the insurer having to submit every risk to the reinsurer.
Treaty reinsurance is an agreement between the insurer and the reinsurer that provides for automatic reinsurance without the insurer having to submit every risk to the reinsurer.
What is underwriting profit?
a. The fee charged for providing the insurance policy to the insured
b. The unearned premium on the fee paid by the insured
c. The commission paid to the broker
d. The amount of money an insurance company gains as a result of its insurance operations
d. The amount of money an insurance company gains as a result of its insurance operations
Underwriting profit is the amount of money an insurance company gains as a result of its insurance operations. It is the excess of earned premiums collected over payments made for losses and expenses.
Which of the following relates to the degree of certainty in predicting future losses?
a. The theory of relativity
b. The combination of risks equation
c. The law of large numbers
d. The theory of evolution
c. The law of large numbers
The law of large numbers is the mathematical premise that states that the degree of uncertainty is reduced as the number of events increases.
Which statement correctly describes mutual insurance companies?
a. They are companies with the main purpose of making a profit for shareholders.
b. Their original purpose was community involvement.
c. They are based on the principle of mutual aid, where each policyholder is a member.
d. They are companies that have extensive engineering and training facilities.
c. They are based on the principle of mutual aid, where each policyholder is a member.
Mutual insurance company act in the interest of their policyholders.
Which statement correctly describes stock companies?
Select one:
a. They are companies whose main purpose is making a profit for shareholders.
b. They are companies owned by their members.
c. They are companies that require no capital or shareholders.
d. They are companies that work at reducing the cost of a policy
a. They are companies whose main purpose is making a profit for shareholders.
What is the role of special investigation units?
a. To adjust claims over the telephone
b. To investigate suspicious claims
c. To research investments for insurer capital funds
d. To conduct background searches on job candidates
b. To investigate suspicious claims
Many insurance companies have established special investigation units (SIUs), staffed by former law enforcement officers, senior adjusters, and possibly other specialists, whose function is to investigate suspicious claims.
Proportional and nonproportional are the two method of reinsurance?
True
False
False
Treaty and Facultative are the methods of reinsurance
To reinsure is to insure again by transferring to another insurance company all or part of a liability assumed.
True
False
True
Reinsurances transfers all or part of a liability assumed to another insurance company, Reinsurance can be said to be the insurance of insurance companies
Shareholders in a stock company hope to make a reasonable profit on their investments from :
a. Investment income and underwriting profits
b. Underwriting profits and personal income
c. The company’s profits and investments
d. The companies profit and personal income
a. Investment income and underwriting profits
Stock insurers seek reasonable returns on their investments from both investments income and underwriting profit
An insurance companies operated at what levels and contains what departments?
In most insurance companies, the business functions are segregated into administration, marketing, accounting and finance, actuarial, underwriting and claims. Departments operating at branch and head office levels.
Which type of insurer operates for the benefit of it members only by sharing risk and maintaining low expenses.
a. Stock company
b. Captive insurer
c. Lloyd’s marker
d. Mutual insurer
d. Mutual insurers
A mutual insurance company is a form of cooperative enterprise that is owned by policyholders and operates for the benefit of the policy holders.
Describe the different types of insurance providers
4 Different types of insurance providers
Operating for Profit
Co-operative
Government
Captive
Describe an operating for profit insurance company
An operating for profit insurance company is a stock companies that produces income for their shareholders. They are not owned by their policy holders, their main source of profit is underwriting profit and investment profits
list some examples of Co-operative Insurance company?
Mutual companies
Assessment / premium note mutual
Factory mutual
Stock mutual
Co-operative stock mutual
What is unique to a Government insurance company?
contract is between the insured and the government
can be presented as Monopolistic market or
Alterative market
What is unique to Captive Insurers
Self insure by it’s parent company. Reinsurance is purchased to protect losses the parent company is unable to absorb.
Lloyd’s Insurance Market
Not an insurance company. It is an insurance market. Like a farmers market for insurance. syndicates are made of groups of people. They offer protection for unique risks. They are the worlds specialist in the insurance market
Insurance companies earn profits from what two sources?
Underwriting profits
Investment Income
What is an Underwriting profits?
The amount of money an insurance company gains as a result of its insurance operations. Money in vs money out
What is an Investment Income?
Insurance companies have reserve funds that they invest to earn income.
