Introduction to Insurance

Question 1

Name the two categories of Risk:

Answer 1

Speculative and Pure

Question 2

Define “Speculative” Risk

Answer 2

Possibility for Loss AND Gain

Question 3

Define “Pure” Risk

Answer 3

Possibility of Only Loss

Question 4

Name the two categories of Loss:

Answer 4

Direct and Indirect

Question 5

Define Direct Loss

Answer 5

Physical Damage: House Burnt Down

Question 6

Define Indirect Loss

Answer 6

Consequential Damage: Hotel Stay

Question 7

Name the three categories of Hazards:

Answer 7

Physical, Moral, and Morale

Question 8

Define “Physical Hazard”

Answer 8

A tangible threat

Question 9

Define “Moral Hazard”

Answer 9

An individual’s character

Question 10

Define “Morale Hazard”

Answer 10

State of mind/Careless attitude

Question 11

Name the five methods of handling Risk

Answer 11

STARR: Sharing/Transfer/Avoidance/Retention/Reduction

Question 12

What is the purpose of STARR?

Answer 12

STARR categorizes the five ways to manage Risks.

Question 13

What are the six elements necessary for insuring Risk?

Answer 13

CANHAM: Calc/Afford/Non-Cat/Homo/Acci/Meas

Question 14

What does “CANHAM” stand for?

Answer 14

Calculable/Affordable/Non-Catastrophic/Homogenous/Accidental/Measurable

Question 15

What is a ceding Insurer?

Answer 15

The company reducing risk by insuring with a reinsurer

Question 16

What is a reinsurer?

Answer 16

The company assuming risk by insuring an insurance company

Question 17

Name the two categories of Reinsurance:

Answer 17

Facultative and Treaty

Question 18

Define “Facultative Reinsurance”

Answer 18

When the reinsurer chooses to insure individual policies on a case by case basis

Question 19

Define “Treaty Reinsurance”

Answer 19

When the reinsurer chooses to insure all policies of one specific type

Question 20

What is a stock insurer?

Answer 20

An insurance company that is owned by its shareholders. These companies are considered “non-participating,” as their policy holders do not receive a share of dividends

Question 21

What is a mutual insurer?

Answer 21

An insurance company that is owned by its policy holders. These companies are considered “participating,” as their policy holders receive a share of dividends in the form of a premium refund.

Question 22

What are Fraternal Benefit Societies?

Answer 22

A society that includes insurance as a benefit of membership

Question 23

What are reciprocal insurers?

Answer 23

A group of insurance companies who agree to insure each other, thereby agreeing to split losses.

Question 24

What is the Lloyd’s Association?

Answer 24

An association of independent underwriters selling policies

Question 25

What is a risk retention group?

Answer 25

An insurance group formed by various businesses, created solely for obtaining liability insurance

Question 26

What is a risk purchasing group?

Answer 26

A group formed by various businesses, created solely for purchasing liability insurance

Question 27

What is self-insurance?

Answer 27

When a business or individual purchases no insurance, and chooses to retain the risk on their own

Question 28

What are the three categories of insurance, based on where an insurance company is headquarted in relation to where they practice?

Answer 28

Domestic (practices in same state they're HQed in), Foreign (practices in a difference state from where they're HQed), Alien (practices in a different country than they're HQed in)

Question 29

What are the four types of agency systems?

Answer 29

Independent, Captive, General, Direct-Writing

Question 30

What is an "Independent Agent"?

Answer 30

An agent who sells for different companies, is an independent contractor, and keeps all policy renewals

Question 31

What is a "Captive Agent"?

Answer 31

An agent who sells for one insurance company, is an independent contractor, and does not keep policy renewals

Question 32

What is a "General Managing Agent"?

Answer 32

An agent who trains and hires agents to work for them, and has overriding commission on all policies

Question 33

Direct-Writing

Answer 33

An agent who works for a single insurance company, is a formal employee, and does not keep policy renewals

Question 34

What are the three types of agent authorities?

Answer 34

Express (written), Implied (reasonably assumed by the agent), Apparent (reasonably assumed by the customer)

Question 35

What is a fiduciary?

Answer 35

A person in a position of financial trust

Question 36

What is the meaning of commingling in insurance?

Answer 36

The illegal act of mixing a customer's premium with an agents' own funds