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Insurance License > General Insurance - chapter 1 > Flashcards

General Insurance - chapter 1 Flashcards

1
Q

who protects the insuring population by regulating all insurers and insurance professionals doing business in the State.

A

The State Commissioner, Supervisor, or Director of Insurance is the chief insurance regulator

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2
Q

Who issues non-participating policies and is owned by stockholders who
received taxable corporate dividends as a return of profit.

A

A stock insurance company

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3
Q

Who issues participating policies and is owned by the policyholders
who receive non-taxable dividends as a return of unused premium.

A

A mutual insurance company

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4
Q

What is Reinsurance

A

Reinsurance is the transfer of risk between insurance companies. The reinsurer assumes some or
all of the risk of the ceding, or primary, insurance company

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5
Q

what is a domicile?

A

Domicile refers to the state in which an insurer is incorporated.

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6
Q

what is a domestic insurer?

A

A domestic insurer is organized

under the laws of the resident state

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7
Q

what is a foreign insurer?

A

foreign insurer is organized under the laws of another state

within the United States

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8
Q

what is a alien insurer?

A

alien insurer is organized under the laws of a country outside
the U.S.

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9
Q

who is authorized to do insurance business in the state and is issued a Certificate
of Authority by the state’s Department of Insurance.

A

An admitted insurer

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10
Q

what department of an insurance company is responsible for the selection of risks to
insure and determines the rate to be charged.

A

Underwriting

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11
Q

A person or agency appointed by an insurance company to represent it and to present
policies on its behalf.

A

Producer

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12
Q

can be the employee of an insurance company that owns the agent’s book
of business, or an independent agent that enters into agency agreements with more than one
insurance company.

A

Agent/producer

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13
Q

is a three-party relationship where a Principal authorizes an Agent to act on
its behalf to create a legal relationship with a Third Party.

A

The Law of Agency

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14
Q

is written into the producer’s agency contract; implied authority is that which
the public assumes the agent possesses; and apparent authority is created when the agent
exceeds express authority and the insurer does not respond.

A

Express Authority

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15
Q

protects consumer privacy by ensuring that any data
collected by an insurer remains confidential, and is accurate, relevant, and used for a proper and
specific purpose

A

Fair Credit Reporting Act (FCRA)

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16
Q

the uncertainty of a loss.

A

A risk

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17
Q

the cause of loss

A

A Peril

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18
Q

increases the probability of a loss.

A

A hazard

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19
Q

The 3 types of hazards are?

A

physical, moral, and

morale.

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20
Q

does not allow the insured to profit from a loss; instead, it restores
the insured to the same financial or economic condition that existed prior to the loss.

A

The principle of indemnity

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21
Q

what is Insurable interest?

A

property and casualty insurance must exist at the time of the loss

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22
Q

is one of adhesion; one party (the insurer) prepares the contract and
presents it to the second party (the insured), who must accept it on a “take-it-or-leave-it” basis

A

insurance contract

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23
Q

used to determine premium include the nature of the risk, hazards,
claims history, and other factors that vary depending upon the risk.

A

Underwriting Factors

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24
Q

Contract of Adhesion is?

A

Insurer writes the contract, presents it to the applicant on a “take-it-or leave-
it” basis, without negotiation.

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25
Q

Aleatory Contract

A

The exchange of value is unequal

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26
Q

Valued Contract

A

A contract that pays a stated amount in the event of a loss

***Most insurance
policies are NOT valued contracts unless they are endorsed.

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27
Q

An agreement to pay on behalf of another party under specified
circumstances, such as when a loss occurs

A

Indemnity Contract

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28
Q

A policy form that alters or adds to the provisions of a property and casualty
insurance contract.

A

Endorsement

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29
Q

Personal Contract is when…

A

Owner cannot transfer or assign ownership of an insurance policy (property
and casualty) to another person.

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30
Q

A Non-Personal Contract is when

A

Owner may transfer or assign ownership of a life or health insurance
policy to another person.

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31
Q

what is assignment?

A

Policy owners may not assign or transfer their rights under an insurance contract
without the written consent of the insurer.

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32
Q

Unilateral Contract

A

Only one party is legally bound to the contractual obligations after the
premium is paid to the insurer.

***Only the insurer makes a promise of future performance, and
only the insurer can be charged with breach of contract.

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33
Q

Conditional Contract

A

Both parties must perform certain duties and follow rules of conduct to
make the contract enforceable.

***The insurer must pay claims if the insured has complied with all
the policy’s terms and conditions.

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34
Q

Reasonable Expectations Doctrine

A

What a reasonable and prudent policy owner would expect;
the reasonable expectations of policyowners are honored by the Courts although the strict terms
of the policy may not support these expectations.

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35
Q

Representations

A

Statements made by the applicant on the application that are believed to be
true to the best of the knowledge and belief of the applicant

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36
Q

A false statement contained in the application

A

Misrepresentations

37
Q

The willful hiding or obscuring of material facts pertinent to the issuance of
insurance (or a claim).

A

Concealment

38
Q

Statements in the application or stipulations in the policy that are guaranteed true
in all respects

A

Warranties

39
Q

Intentional deception of the truth in order to induce another to part with something of
value or to surrender a legal right

A

Fraud

40
Q

what are the 5 elements of fraud

A

■ False statement, made intentionally and that pertains to a material fact.
■ Disregard for the victim.
■ Victim believes the false statement.
■ Victim makes a decision and/or acts based on the belief in, or reliance upon, the false
statement.
■ The victim’s decision and/or action results in harm.

41
Q

An agreement without legal effect because it was made illegally or it was
declared void by the courts because it doesn’t contain all the elements of a legal contract.

A

Void Contract

42
Q

A valid contract that for reasons satisfactory to a court, may be set aside by
one of the parties.

A

Voidable Contract

43
Q

company is owned by stockholders or shareholders.

A

Stock Insurance Company

44
Q

company is owned by policyholders (who may be referred to as members)

A

Mutual Insurance Company

45
Q

A group-owned insurer whose main activity is risk sharing.

A

Reciprocal Insurance Company

46
Q

This is not an insurance company, but consists of groups of underwriters called
Syndicates, each of which specializes in insuring a particular type of risk.

A

Lloyds of London

47
Q

primarily social organizations that engage in charitable and
benevolent activities that provide life and health insurance to their members
Membership typically consists of members of a given faith, lodge, order, or society.

A

Fraternal Benefit Societies

48
Q

what does the risk retention group do

A

spreads the liability related risks of its
members.

***Each member assumes a portion of the risks insured.

49
Q

A ______________ insurance company is owned by its policyholders.

a. Stock
b. Reciprocal
c. Fraternal Benefits Society
d. Mutual

A

D. Mutual

50
Q

Insurers agree to apportion among themselves those risks that are unable
to obtain insurance through normal channels.

A

Risk Sharing Plan

*Residual Markets
A private coverage source of last resort for businesses and individuals who have been
rejected by voluntary market insurers.

51
Q

types of reinsurance companies are?

A

Treaty Agreements – Reinsurance agreement that covers all risks contained in the subject
line(s) of business automatically.

and

Facultative Agreements – Reinsurance agreement that allows ceding and reinsurance
companies the opportunity to negotiate coverage for individual risks

52
Q

If an insurance company wants to transfer all or part of the risk it has accepted, it
would buy which of the following types of insurance?
a. Residual
b. Reinsurance
c. Reciprocal
d. Insurer

A

B ) reinsurance

53
Q 
Which of the following is an insurance company that is organized under the laws of
another state within the United States?
a. Domestic
b. Alien
c. Foreign
d. Authorized
A

C. Foreign

54
Q

Insurer Management

What do executives do?

A

Oversee the operation of the business.

55
Q

Insurer Management - Actuarial Department?

A

determines the probability of loss and sets premium rates.

56
Q

Insurer Management - Underwriting Department?

A

Responsible for the selection of risks

***and rating that determines actual policy premium

57
Q

Insurer Management- Marketing/Sales Department

A

Responsible for advertising and selling

58
Q

Insurer Management - Claims Department?

A

Assists the policyholder in the event of a loss

59
Q

Which insurance company department accepts the insurance risk?

a. Executive
b. Actuarial
c. Claims
d. Underwriting

A

D. Underwriting

60
Q

A licensed individual who negotiates insurance contracts with insurers, on behalf of the
applicant.

A

Broker

61
Q 
Which of the following individuals represents the insurance company when selling an
insurance policy?
a. Producer
b. Broker
c. Adjuster
d. Insurer
A

a. Producer

62
Q 
Which of the following types of authority does the public assume an agent has when
quoting insurance?
a. Authorized
b. Express
c. Implied
d. Apparent
A

c. Implied

63
Q

A producer has each of the following responsibilities to the Insurer, except:

a. A fiduciary duty
b. Forwarding premiums to the insurer on a timely basis
c. Reporting material facts that may affect underwriting
d. A duty to recommend only high rate policies

A

D. A duty to recommend only high rate policies

64
Q

Protects consumer privacy

A

Fair Credit Reporting Act

65
Q

Imposes record keeping and government reporting requirements on banks, financial institutions
and non-financial businesses for specific financial transactions and customer financial records (a
part of the Bank Secrecy Act).

A

Financial Anti-Terrorism Act

66
Q

regulates maritime commerce in U.S. waters, transportation of cargo, and the rights of seamen.

A

Merchant Marine Act of 1920

67
Q

established the Financial Privacy Rule and

Safeguards Rule for the protection of consumers’ privacy.

A

Gramm-Leach-Bliley Act

68
Q

Enacted in direct response to the terrorist attacks

A

Terrorism Risk Insurance Act

69
Q

The Act made it a felony for a person to engage in the business of insurance after being
convicted of a state or federal felony crime involving dishonesty or breach of trust.

A

Violent Crime Control and Law Enforcement Act of 1994

70
Q

A federal regulation called the ___________ protects consumer privacy.

a. Consolidated Omnibus Budget Reconciliation Act
b. Fraudulent Insurance Act
c. Privacy Protection Act
d. Fair Credit Reporting Act

A

D. Fair Credit Reporting Act

71
Q

What are the types of risk

A

Speculative Risk & Pure risk

72
Q

Situations where there is a chance for loss, gain, or neither loss nor gain to occur example gambling

what type of risk is this?

A

Speculative Risk

73
Q

Situations where there is no chance for gain; the only outcome is for nothing to occur
or for a loss to occur.

what type of risk is this?

A

Pure Risk

74
Q 
A physical condition that
increases the probability of loss;
use, condition, or occupancy of
property. Example: Flammable
material stored near a furnace.

what type of hazard is this?

A

Physical Hazard

75
Q 
Dishonest tendencies that
increase the probability of a
loss; certain characteristics and
behaviors of people. Example: An
insured burns down his/her own
house to collect the insurance
payout.
A

Moral Hazard

76
Q 
Attitude that increases the
probability of a loss. Example:
Indifference or carelessness of
leaving one’s house or vehicle
unlocked.
A

Morale Hazard

77
Q

The condition of being at risk for a loss. Purely by existing, property and
people are at risk for loss.

A

Loss Exposure

78
Q

An imbalance created when risks that are more prone to losses than the average
(standard) risk are the only risks seeking insurance within a specific marketplace. For
example, only those living in earthquake-prone areas seek to buy earthquake insurance.

A

Adverse Selection

79
Q

Analyzing exposures that create risk and designing programs to minimize the possibility
of a loss.

A

Managing Risk

80
Q

Ways of managing risk?

A

STARR
SHARING - Investments
TRANSFER -Transferring the risk from one party to another, such as from a consumer to
an insurance company.
ADVOIDANCE - Elimination of the risk.
REDUCTION - Minimizing the chance of loss
RETENTION -Assume the responsibility for loss

81
Q

Insurable risks must include

A

Large number of homogeneous units or groups with the same perils

82
Q

Law of Large Numbers

A

As the number of units in a group increases, the more likely

it is to predict a particular outcome.

83
Q

Dishonest tendencies that increase the probability of loss are what types of hazard?

a. Physical
b. Moral
c. Emotional
d. Legal

A

b. moral

84
Q

Each of the following must be included in an insurable risk, except:

a. Calculable chance of loss
b. Excluded catastrophic perils
c. Large group with dissimilar members
d. Accidental losses

A

C. Large group with dissimilar members

85
Q

Both parties bargain in good faith when forming and entering into the contract.
The two parties rely upon the statements and promises of the other and assume
no attempt to conceal or deceive has been made.

A

Contract of Utmost Good Faith

86
Q

what does estoppel do?

A

Prevents the denial of a fact, if the fact was admitted to be true previously

87
Q

All of the following are producer responsibilities, EXCEPT:

A. Issue policies

B. Represent the insurer

C. Solicit and accept applications, and forward them to the insurer

D. Provide quotes and collect premiums

A

A. Issue policies
*** Producers do not issue policies. Insurers issue policies. Producers represent the insurer in soliciting, receiving, and forwarding applications, providing quotes, and collecting premiums.

88
Q

Which of the following powers describes the authority stated in an agent’s agency contract?

A
Implied

B
Apparent

C
Assumed

D
Express

A

D. Express

***The agency contract, which exists between an insurer and a producer, sets forth the powers that are granted to the producer. These powers are referred to as express because they are directly stated in the contract.

89
Q

The principle of indemnity helps avoid which of the following?

A. Loss exposure

B. Underinsurance

C. Overpayment of a claim

D. Adverse selection

A

C. Overpayment of a claim
***The principle of indemnity restores the insured to the same financial status as before the loss, protecting against overpayment and making a profit from a loss.

Insurance License (6 decks)

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