Missed Questions

Question 1

The most widely-known risk management technique used by individuals is

Select one:
A. Retention, that is, paying for the losses they incur.
B. Risk control.
C. Maintenance.
D. Risk financing by purchasing insurance.

Answer 1

*****D. Risk financing by purchasing insurance.

Question 2

Argot Stock Insurance Company’s (Argot) net income is $1,000,000 and its average owners’ equity is $18,000,000. Argot’s average policyholders’ surplus is $20,000,000. Using the GAAP formula, which one of the following is Argot’s return on equity?

Select one:
A. 5%
B. 5.56%
C. 18%
D. 20%

Answer 2

*****B. 5.56%

Question 3

An office building houses a small tax accounting firm with 10 employees. Most clients visit the office in person, and very little travel is required by the accountants. When underwriting commercial general liability coverage for this risk, the primary concern would be

Select one:
A. Operations loss exposures.
B. Completed operations loss exposures.
C. Products loss exposures.
D. Premises loss exposures.

Answer 3

****D. Premises loss exposures.

Question 4

Jessica has her car insured for liability, collision, and comprehensive coverage with Greatview Insurance. She has decided to purchase a pickup truck as a second vehicle. As she is leaving the dealership with her new pickup, she accidently collides with another vehicle, causing damage to both. Neither she nor the other driver is injured. Jessica returns home and calls her insurer to advise of her new purchase and to report the claim. Her claim is assigned to Lucas. After identifying the policy and entering initial loss information, which one of the following describes how Lucas would most likely proceed?

Select one:
A. He would set a liability reserve for general damages arising from the accident.
B. He would check whether the dealership has insurance to cover damage to Jessica’s new truck.
C. He would confirm that a “newly acquired auto” meets the policy definition of “your covered auto.”
D. He would advise Jessica that there is no coverage because the pickup is not listed on the policy.

Answer 4

*****C. He would confirm that a “newly acquired auto” meets the policy definition of “your covered auto.”

Question 5

An insured is patronizing a drive-through restaurant when the vehicle scrapes along a barrier, damaging the paint on the side of the vehicle. The adjuster declares the vehicle a constructive total loss. The vehicle’s actual cash value (ACV) before the accident was $2,500, and the cost to repair it is $2,000. The salvage value, or ACV after the loss, is $1,000. Assuming the insured wants to keep the vehicle, how much will the insurer pay ignoring deductibles?

Select one:
A. $1,500
B. $2,000
C. $2,500
D. $3,000

Answer 5

*****A. $1,500

Question 6

ABC Insurance Company has a 20% quota share treaty with XYZ Reinsurer. One of ABC’s policies has a $1 million limit, a premium of $8,000, and a loss of $50,000. How much of the loss will XYZ Reinsurer pay?

Select one:
A. $0
B. $4,000
C. $10,000
D. $40,000

Answer 6

****C. $10,000

Question 7

A change in accounting estimate

Select one:
A. May require special disclosure of the change.
B. Generally affects only the latest reporting period.
C. Could possibly require recalculation of prior period results.
D. Requires specific implementation guidance.

Answer 7

****B. Generally affects only the latest reporting period.

Question 8

Which one of the following is a term used to represent premium that has been earned but not yet billed?

Select one:
A. Earned but not reported
B. Additional reported premium
C. Reinstatement premium
D. Earned premium adjustment

Answer 8

****A. Earned but not reported

Question 9

An adjustment for risk in the commutation of a reinsurance agreement

Select one:
A. Does not affect the economic value.
B. Equals the economic value.
C. Decreases the economic value.
D. Increases the economic value.

Answer 9

****D. Increases the economic value.

Question 10

Which one of the following is a reason insurance professionals should conduct pre-loss policy analysis?

Select one:
A. To determine the extent of coverage for a loss
B. To determine whether a policy complies with state requirements
C. To determine the appropriate premium for the policy
D. To ensure that the policy being sold is appropriate for the insured’s loss exposures

Answer 10

****D. To ensure that the policy being sold is appropriate for the insured’s loss exposures

Question 11

Which one of the following correctly describes how liability policies that include a deductible usually handle the defense of claims?

Select one:
A. The insurer provides a defense only for losses that exceed the deductible amount.
B. The insurer bills the insured for defense costs less than the deductible amount.
C. The insurer pays a stated amount which reduces the limit available under the policy.
D. The insurer pays all defense costs without contribution from the insured.

Answer 11

****D. The insurer pays all defense costs without contribution from the insured.

Question 12

Joshua is a claim representative who has been assigned an auto liability claim. To determine whether his company’s Personal Auto Policy (PAP) provides coverage for the claim, Joshua should first review the policy’s

Select one:
A. Declarations.
B. Exclusions.
C. Insuring Agreement.
D. Conditions.

Answer 12

*****A. Declarations.

Question 13

An insured has a Personal Auto Policy (PAP) that includes uninsured motorist (UM) coverage for his own car. The insured is injured while riding on a private tour bus that is hit by an at-fault uninsured motorist. Which one of the following statements is true?

Select one:
A. The insured is not entitled to UM coverage because of the public or livery conveyance exclusion.
B. The insured is entitled to UM coverage under his or her PAP.
C. The insured is entitled to UM coverage from the bus company’s policy but not from his own PAP.
D. The insured is entitled to UM coverage under his PAP under the share-the-expense car pool exception.

Answer 13

*****B. The insured is entitled to UM coverage under his or her PAP.

Question 14

There are 12 Additional Coverages under Section I of the HO-3 policy. Which one of the following statements is true regarding coverage for trees, shrubs, and other plants?

Select one:
A. The limit is $500 per tree, shrub, or plant, subject to a $1,000 maximum.
B. The additional coverage is dependent on another covered loss for it to apply.
C. The limit is $500 per tree, shrub, or plant with the total amount not to exceed 5% of the Coverage A limit.
D. The deductible stated on the declarations page applies to each tree, shrub, or plant.

Answer 14

**C. The limit is $500 per tree, shrub, or plant with the total amount not to exceed 5% of the Coverage A limit.

Question 15

Which one of the following statements is the purpose of the No Benefit to Bailee condition of the Commercial Property Conditions Form?

Select one:
A. It reinforces the insurer’s right of subrogation against the bailee.
B. It relieves bailees of liability to bailors for any damage to the property they hold.
C. It allows bailees to limit their liability for others’ property by using contractual provisions.
D. It relieves bailees of liability for damage if the damage is recoverable under insurance carried by the bailor.

Answer 15

****A. It reinforces the insurer’s right of subrogation against the bailee.

Question 16

Which one of the following statements is true regarding exposures for large commercial risks?

Select one:
A. Large commercial risks present challenges for ratemaking, so typical exposure bases such as payroll or an item’s value may not be useful.
B. Composite rating is used for some large commercial risks when the amount of exposure stays consistent throughout the policy period.
C. In loss-rated composite rating, premium is based on the individual risk’s historical loss experience using standard rating algorithms.
D. With composite rating, each exposure measure is audited throughout the policy term with commensurate adjustments to the premium.

Answer 16

***A. Large commercial risks present challenges for ratemaking, so typical exposure bases such as payroll or an item’s value may not be useful.

Question 17

Historical premium adjusted for actual or expected distributional changes is referred to as

Select one:
A. Current rate level.
B. Premium trend.
C. Premium on level.
D. Premium development to ultimate.

Answer 17

**B. Premium trend.

Question 18

Which one of the following is true regarding the term “reserves”?

Select one:
A. No differentiation can be made between “unpaid claim estimate” and “carried reserve.”
B. Incurred but not enough reported (IBNER) is also referred to as pure IBNR.
C. The narrow definition of incurred but not reported claims (IBNR) is the same as “development on known claims.”
D. The carried reserve for unpaid claims is the amount reported in an internal statement of financial condition.

Answer 18

*****D. The carried reserve for unpaid claims is the amount reported in an internal statement of financial condition.

Question 19

The cost of residual uncertainty can have a significant effect on an individual or organization. Which one of the following statements is correct with respect to residual uncertainty?
Select one:
A. For organizations, the cost of residual uncertainty is limited to the effect that uncertainty has on members of the organization.
B. Individuals and organizations vary greatly as to how much residual uncertainty they are willing to accept, and this benefits society and the economy.
C. The cost of residual uncertainty includes the cost of any insurance policies purchased to cover losses not treated by other risk management techniques.
D. The cost of residual uncertainty can be calculated by subtracting the expected cost of losses or gains from an organization’s cost of risk.

Answer 19

B. Individuals and organizations vary greatly as to how much residual uncertainty they are willing to accept, and this benefits society and the economy.

Question 20

Which one of the following is most likely to conflict with the post-loss goal of continuity of operations?

Select one:
A. Social responsibility
B. Tolerable uncertainty
C. Economy of operations
D. Survival

Answer 20

C. Economy of operations

Question 21

Which one of the following planned retention funding measures is the least formal and the least expensive to administer?

Select one:
A. Current expensing of losses
B. Using an unfunded reserve
C. Using a funded reserve
D. Borrowing funds

Answer 21

A. Current expensing of losses

Question 22

Which one of the following statements is correct with respect to line underwriters?

Select one:
A. Line underwriters focus on risk characteristics and need not be knowledgeable about policy forms and provisions.
B. Line underwriters select and rate new business. They are not generally involved in the proposal or renewal process.
C. Line underwriters formulate underwriting policy and develop underwriting guides.
D. Line underwriters can offer valuable technical assistance to an insured’s risk manager and to the producer responsible for the account.

Answer 22

D. Line underwriters can offer valuable technical assistance to an insured’s risk manager and to the producer responsible for the account.

Question 23

JSP Insurance Agency (JSP) is an exclusive agency for a large writer of personal insurance products. JSP occupies the end unit of a strip shopping center, and a restaurant occupies the adjoining unit. JSP’s office is separated by adequate clear space from an adjacent strip of stores. The strip mall is classified as ISO construction class 3 and is made of noncombustible materials. JSP’s office is separated from the restaurant by a movable wall to allow the units to be easily resized to meet occupants’ needs. The ISO public protection classification (PPC) for the strip mall is 2. Given this information, which one of the following statements is true regarding the physical hazards presented by JSP from a fire underwriting standpoint?

Select one:
A. The nature of JSP’s business makes it a relatively high-hazard risk from an occupancy standpoint.
B. The noncombustible construction of this property means that this building is fire resistive and much safer than joisted masonry or frame construction.
C. The external loss exposures presented to JSP require no special consideration due to the construction type and the end unit location within the mall.
D. The PPC of 2 indicates that the public fire service should provide at least adequate public protection from fire loss.

Answer 23

D. The PPC of 2 indicates that the public fire service should provide at least adequate public protection from fire loss.

Question 24

An important consideration in evaluating property loss exposures is their potential severity. Underwriters use several measures to determine the potential severity of a loss and each measure is the sum of separate values for every type of coverage the policy provides. Which one of the following measures of potential loss severity is the easiest to calculate and is the only measure of potential severity on which underwriters tend to agree?

Select one:
A. Maximum foreseeable loss
B. Probable maximum loss
C. Amount subject
D. Policy amount

Answer 24

D. Policy amount

Question 25

Which one of the following is true regarding business income coverage under the BOP?

Select one:
A. Hurricane Katrina demonstrated that the BOP business income coverage dollar limits were often inadequate.
B. The dollar limit of business income coverage under the BOP is relatively high.
C. Business income coverage under the BOP is identical to that of the separate ISO policy.
D. Business income coverage under the BOP is written on an actual loss sustained basis.

Answer 25

D. Business income coverage under the BOP is written on an actual loss sustained basis.

Question 26

Which one of the following statements is true concerning claim information users?

Select one:
A. Producers must have policyholder loss information to prepare renewal policies properly.
B. Actuaries, by reviewing claim files, can detect material aspects of an insured’s loss exposures since the policy was first underwritten.
C. Marketing establishes reserves for IBNR losses and projects development of claims for which the reserves may change over the life of the claim.
D. Actuaries evaluate losses that sometimes reveal an undetected loss exposure.

Answer 26

A. Producers must have policyholder loss information to prepare renewal policies properly.

Question 27

Antonia and Philip have their house insured with Durham Insurance under an HO-3 homeowner’s policy. Philip is the named insured and there is no mortgagee shown on the policy. During a storm, a lightning strike results in a kitchen fire and high winds causes a tree to fall on the roof, leaving a large hole. The homeowners make emergency repairs to protect against further damage and report the loss to the insurer. The claim is assigned to Miguel who identifies the policy and performs an initial review. After discussing the loss with Antonia and Philip, which one of the following will Miguel most likely do?

Select one:
A. Take detailed statements from firefighters and neighbors to establish what the actual cause of loss was
B. Verify whether there is a mortgagee on the property that may need to be included in the loss settlement
C. Determine whether lightning and windstorm are covered causes of loss and whether any exclusions apply
D. Verify that Antonia meets the policy definition of “insured” and is entitled to receive payment for her portion of the loss

Answer 27

C. Determine whether lightning and windstorm are covered causes of loss and whether any exclusions apply

Question 28

With a property loss, the insured is required to

Select one:
A. Notify the police in case of loss by theft.
B. Give an examination under oath for every loss.
C. Give written notice of the loss.
D. Hire a public adjuster to assist with a claim.

Answer 28

A. Notify the police in case of loss by theft.

Question 29

Merchandise is subject to significant depreciation due to fashion changes, seasonal selling patterns and technological changes. A retail clothing store experiences a fire in September, when all bathing suits are being sold at 50 percent of the original price. In valuing the inventory at actual cash value,

Select one:
A. The adjuster would take the insured’s original costs, less physical depreciation.
B. The adjuster should take the reduced listed retail price into consideration.
C. The reduced price is irrelevant because claim settlement is based on cost less depreciation.
D. Only the actual cost to manufacture bathing suits of like kind and quality would be considered.

Answer 29

B. The adjuster should take the reduced listed retail price into consideration.

Question 30

Per risk excess of loss reinsurance covers

Select one:
A. Property insurance and applies separately to each loss occurring to each risk.
B. Workers compensation insurance and applies to the total of all losses occurring from one risk.
C. Liability insurance and applies to each loss occurring from each occurrence.
D. Property insurance and applies to the total of all losses occurring from one risk.

Answer 30

A. Property insurance and applies separately to each loss occurring to each risk.

Question 31

On what basis are financial statements that adhere to generally accepted accounting principles (GAAP) typically produced?

Select one:
A. A liquidation basis
B. A consolidated basis
C. A deferral-matching basis
D. An asset-liability basis

Answer 31

B. A consolidated basis

Question 32

Which one of the following is a policy liability that might exist on an insurer’s balance sheet?

Select one:
A. Liability for reinsurance recoverables
B. Liability for policies that have yet to be written
C. Liability for level premium renewable term life insurance
D. Liability for possible renewals of property insurance contracts with no guaranteed pricing

Answer 32

C. Liability for level premium renewable term life insurance

Question 33

Which one of the following might be a reason for a regulatory accounting system to gross up the reported premiums by the amount of credits for large deductible arrangements?

Select one:
A. To offset the negative impact on reported earned premiums
B. To avoid a negative impact on smaller insureds under a premium assessment system
C. To discourage the use of large deductible plans by insureds in an effort to avoid state premium taxes
D. To avoid the negative impact of falling insurer loss ratios reported to the state

Answer 33

B. To avoid a negative impact on smaller insureds under a premium assessment system

Question 34

Jeremy is a bailee who insures bailor Sam’s property for Sam’s benefit. Jeremy has an insurable interest in the property, but if Sam’s property becomes damaged or destroyed, Jeremy

Select one:
A. Retains all payable insurance proceeds.
B. Has no right to any insurance proceeds because it is not his property.
C. Splits the proceeds from any insurance settlement with Sam.
D. Pays any awarded insurance proceeds to Sam.

Answer 34

D. Pays any awarded insurance proceeds to Sam.

Question 35

Jack and Diane Adams own two private passenger vehicles which are insured under a Personal Auto Policy (PAP). The vehicles are insured for liability, medical payments, uninsured motorists, and collision coverage for damage to your vehicle. One vehicle has a $250 deductible and the other has a $1,000 deductible for the collision coverage. They purchased a third vehicle, but forgot to add it to their PAP. Ten days later, Diane was driving the new vehicle when she lost control and struck a tree, causing $4,000 in damage to the new vehicle. Which one of the following best describes how the PAP will apply to this loss?

Select one:
A. The PAP will provide collision coverage for the newly acquired auto, and a $500 deductible will apply.
B. The PAP will provide collision coverage for the newly acquired auto, and a $1,000 deductible will apply.
C. The PAP will provide collision coverage for the newly acquired auto, and a $250 deductible will apply.
D. The PAP will not provide collision coverage because it is beyond the four-day automatic coverage period.

Answer 35

C. The PAP will provide collision coverage for the newly acquired auto, and a $250 deductible will apply.

Question 36

An example of an uninsured motor vehicle under the Personal Auto Policy (PAP) is

Select one:
A. A vehicle with insurance for bodily injury liability through a policy that has a limit for bodily injury liability that is less than that required by the state where the named insured’s covered auto is principally garaged.
B. A vehicle that is self-insured under state law.
C. An old travel trailer placed on blocks in the woods and used as a hunting lodge.
D. An uninsured dune buggy designed mainly for use on sand while being used on a beach.

Answer 36

A. A vehicle with insurance for bodily injury liability through a policy that has a limit for bodily injury liability that is less than that required by the state where the named insured’s covered auto is principally garaged.

Question 37

Grace owns two vehicles that are insured under her Personal Auto Policy (PAP). One of the vehicles is covered for both collision and other than collision (OTC). The other is covered only for OTC. The collision deductible is $500, and the OTC deductible is $250. Grace borrowed her neighbor Helen’s vehicle one day to run an errand while both of her vehicles were unavailable. On her way home, she lost control of the vehicle and hit a tree. There were no serious injuries, but the damage to the vehicle was $5,000. Helen’s PAP covers the vehicle for OTC coverage only, subject to a $250 deductible. Which one of the following statements regarding this scenario is true?

Select one:
A. Grace’s PAP insurer will pay $4,750 for this loss.
B. There is no coverage available under either Grace’s PAP or Helen’s PAP.
C. Grace’s PAP insurer will pay $4,500 for this loss.
D. Helen’s PAP insurer will pay $4,750.

Answer 37

C. Grace’s PAP insurer will pay $4,500 for this loss.

Question 38

The HO-3 policy Coverage D—Loss of Use limit

Select one:
A. Applies in addition to Coverage A, B, and C limits.
B. Is 10% of the Coverage A limit.
C. Applies separately for Additional Living Expenses and Fair Rental Value.
D. Includes a time frame limit of 30 days.

Answer 38

A. Applies in addition to Coverage A, B, and C limits.

Question 39

Which one of the following is an excluded peril under Section I—Coverages A and B of the HO-3 policy?

Select one:
A. Volcanic eruption
B. Theft of construction materials
C. Aircraft
D. Accidental leak of water from plumbing

Answer 39

B. Theft of construction materials

Question 40

An occurrence as defined in the HO-3 policy is

Select one:
A. A claim.
B. A loss.
C. An accident.
D. An event.

Answer 40

C. An accident.

Question 41

All of the following are policy conditions that apply to both Sections I and II of the HO-3 policy, EXCEPT:

Select one:
A. Death
B. Severability of Insurance
C. Nonrenewal
D. Liberalization

Answer 41

B. Severability of Insurance

Question 42

Which one of the following statements concerning the Scheduled Personal Property Endorsement is true?

Select one:
A. The Section I deductible applies to scheduled items.
B. The Coverage C special limits do not apply to scheduled items.
C. Cameras cannot be scheduled under the endorsement.
D. The endorsement covers fewer causes of loss than does the HO-3 policy.

Answer 42

B. The Coverage C special limits do not apply to scheduled items.

Question 43

Under which one of the following provisions of the Building and Personal Property Coverage Form (BPP) is the maximum payment $10,000 or five percent of the building limit, whichever is less?

Select one:
A. Outdoor Property coverage extension
B. Increased Cost of Construction additional coverage
C. Pollutant Cleanup and Removal additional coverage
D. Debris Removal additional coverage

Answer 43

B. Increased Cost of Construction additional coverage

Question 44

Gift Gallery, a small chain of stores selling gift items, has an extremely busy period during the two months before Christmas, requiring it to significantly increase its inventory during this period. To adequately cover its fluctuating inventory values and keep premiums to a minimum, Gift Gallery should purchase a Building and Personal Property Coverage Form (BPP) with

Select one:
A. An Agreed Value coverage extension.
B. The business personal property limit equal to the highest inventory value during the year.
C. The Peak Season Limit of Insurance endorsement.
D. The Functional Personal Property Valuation (Other Than Stock) endorsement.

Answer 44

C. The Peak Season Limit of Insurance endorsement.

Question 45

An insured purchases coverage for their vehicle a Personal Auto Policy (PAP) which includes uninsured motorist (UM) coverage. The insured is injured when a city-owned transit bus without liability insurance, a bond, or self-insurance causes a collision with the insured’s vehicle. The insured

Select one:
A. Is entitled to UM coverage under the PAP under the share-the-expense car pool exception.
B. Is not entitled to UM coverage because the definition of “uninsured motor vehicle” excludes any vehicle owned by a governmental unit or agency.
C. Is entitled to UM coverage under the terms of the Insuring Agreement.
D. Is not entitled to UM coverage because of the public or livery conveyance exclusion.

Answer 45

B. Is not entitled to UM coverage because the definition of “uninsured motor vehicle” excludes any vehicle owned by a governmental unit or agency.

Question 46

An insured has a Personal Auto Policy (PAP) that includes uninsured motorist (UM) coverage for his own car. The insured is injured while riding on a private tour bus that is hit by an at-fault uninsured motorist. Which one of the following statements is true?

Select one:
A. The insured is not entitled to UM coverage because of the public or livery conveyance exclusion.
B. The insured is entitled to UM coverage under his or her PAP.
C. The insured is entitled to UM coverage from the bus company’s policy but not from his own PAP.
D. The insured is entitled to UM coverage under his PAP under the share-the-expense car pool exception.

Answer 46

B. The insured is entitled to UM coverage under his or her PAP.

Question 47

Underwriting guidelines serve which one of the following purposes?

Select one:
A. Allow for the development of insights and experience
B. Provide rates for individual risks
C. Avoid duplication of effort
D. Provide for flexible and unstructured decisions

Answer 47

C. Avoid duplication of effort

Question 48

what is the combined ratio

Answer 48

loss over earned
plus
und exp over written

Question 49

When uncertainty exists, a conflict can arise between reliability and

Select one:
A. Completeness.
B. Transparency.
C. Lack of bias.
D. Verifiability.

Answer 49

C. Lack of bias.

Question 50

An income statement is structured to calculate an organization’s

Select one:
A. Profitability.
B. Sources and uses of funds.
C. Net worth.
D. Assets as of a specific date.

Answer 50

A. Profitability.

Question 51

Based on accounting rules, which one of the following earning approaches may be allowed, as an exception, when the effect is not material to the financial statements?

Select one:
A. Pro rata
B. Non-pro rata
C. Premium deficiency recognition
D. Deferred revenue

Answer 51

A. Pro rata

Question 52

For liability, medical payments, and uninsured motorists under the Personal Auto Policy (PAP), a replacement auto is

Select one:
A. Not covered for more the fourteen days unless the insured asks for the coverage.
B. Covered for the remainder of the policy period, even if the insured does not ask for coverage.
C. Not covered without prompt notice to the insurer.
D. Covered for the remainder of the policy period in addition to the physical damage coverage.

Answer 52

B. Covered for the remainder of the policy period, even if the insured does not ask for coverage.

Question 53

The Public or Livery Conveyance Exclusion Endorsement

Select one:
A. Reinforces the public or livery conveyance exclusion in the personal auto policy.
B. Raises the premium for the public or livery conveyance exclusion in the personal auto policy.
C. Replaces the public or livery conveyance exclusion in the personal auto policy.
D. Removes the public or livery conveyance exclusion in the personal auto policy.

Answer 53

A. Reinforces the public or livery conveyance exclusion in the personal auto policy.

Question 54

There are three exclusions in the HO-3 policy that apply only to Coverages A and B in addition to the basic nine exclusions in Section I—Exclusions. These three exclusions are weather,

Select one:
A. Governmental actions, and faulty workmanship.
B. Acts or decisions of any person, group, organization, or governmental body, and intentional loss.
C. Ordinance or law, and faulty workmanship.
D. Acts or decisions of any person, group, organization, or governmental body, and faulty workmanship.

Answer 54

D. Acts or decisions of any person, group, organization, or governmental body, and faulty workmanship.

Question 55

Steve and Julie purchased a HO-3 policy with a Coverage A limit of $200,000 and a Coverage C limit of $100,000. Steve and Julie added the Earthquake endorsement to their policy, which has the standard deductible. An earthquake occurs and causes significant damage to their dwelling and property. If Steve and Julie suffered a $75,000 loss as a result of the earthquake, how much coverage will their policy provide?

Select one:
A. $0
B. $65,000
C. $70,000
D. $74,500

Answer 55

B. $65,000

Earthquake is 5% cov A

Question 56

Which one of the following perils would be covered under the commercial property policy broad form but not covered under the basic form?

Select one:
A. Damage due to vandalism
B. Damage due to vehicles
C. Damage due to weight of snow
D. Damage due to explosion.

Answer 56

C. Damage due to weight of snow

Question 57

Drop-down coverage in an umbrella liability policy is provided for claims that are which one of the following?

Select one:
A. Covered by an underlying policy and claims not covered by the underlying policy due to the depletion of the underlying policy’s aggregate limit
B. Not covered by an underlying policy, including claims not covered due to the depletion of the underlying policy’s aggregate limits
C. Covered by an underlying policy
D. Not covered by an underlying policy, excluding claims not covered due to the depletion of the underlying policy’s aggregate limits

Answer 57

B. Not covered by an underlying policy, including claims not covered due to the depletion of the underlying policy’s aggregate limits

Question 58

The most accurate definition of a rate is

Select one:
A. The total of all actual costs of a risk transfer.
B. The price per exposure unit for insurance coverage.
C. A charge for insurance which is not inadequate, excessive, and unfairly discriminatory.
D. An estimate of the expected value of future costs of an insurance coverage.

Answer 58

B. The price per exposure unit for insurance coverage.

Question 59

Ratemaking processes that address increased limits factors and deductibles are needed because

Select one:
A. Many lines of insurance, such as homeowners, commercial property, and umbrella coverage, require increased limits.
B. Even as personal wealth has been declining and individuals have fewer assets to protect, they still want more insurance coverage.
C. The amount of jury awards has increased, and unlike general inflation, this has a disproportionate impact on increased limits losses.
D. General inflation drives up costs, and trends in costs have a greater impact on increased limits losses than on basic limits losses.

Answer 59

D. General inflation drives up costs, and trends in costs have a greater impact on increased limits losses than on basic limits losses.

Question 60

Although actuarial approaches may vary, the term “insurer” broadly represents

Select one:
A. Any risk bearer for property-casualty exposures.
B. An organization with a funded self-insured program.
C. Any risk bearer for any type of exposures.
D. An insurance company.

Answer 60

A. Any risk bearer for property-casualty exposures.

Question 61

Staff underwriters share research of the market responsibilities with actuarial and marketing departments. Research includes an ongoing evaluation of which one of the following?

Select one:
A. Revision to coverage forms
B. Optimal product mix in the book of business
C. Average loss ratio for a book of business
D. The hit ratios by underwriter

Answer 61

B. Optimal product mix in the book of business

Question 62

The federal Commercial Motor Vehicle Safety Act (CMVSA) of 1986 requires that

Select one:
A. Drivers of specific large vehicles hold a commercial driver’s license (CDL).
B. Commercial vehicles be classified according to the ISO Commercial Lines Manual (CLM) rules.
C. Vehicles be rated according to the individual weight and size of each unit.
D. Truckers develop and implement a fleet safety program.

Answer 62

A. Drivers of specific large vehicles hold a commercial driver’s license (CDL).

Question 63

Insurers can use different methods of setting claim reserves. Which one of the following methods establishes a predetermined dollar amount of reserve for each claim as it is reported?

Select one:
A. Expert system
B. Roundtable
C. Individual case
D. Average value

Answer 63

D. Average value

Question 64

Property policies for carriers in the business of transporting other people’s property typically protect the interests of

Select one:
A. Both the carrier and the property owner.
B. The carrier only.
C. The shipper only.
D. The owner of the property in transit only.

Answer 64

A. Both the carrier and the property owner.

Question 65

In many cases, a trade-off exists between relevance and

Select one:
A. Neutrality.
B. Reliability.
C. Transparency.
D. Completeness.

Answer 65

B. Reliability.

Question 66

Under U.S. regulatory accounting, the liability for extended reporting endorsements covering a definite period into the future is recorded as

Select one:
A. Unearned premium reserves.
B. Earned premium.
C. Loss reserves.
D. Written premium.

Answer 66

A. Unearned premium reserves.

Question 67

Which one of the following statements is true regarding loss reserves and the unearned premium reserve?

Select one:
A. Both loss reserves and the unearned premium reserve cover claim obligations with some overlap.
B. Loss reserves and the unearned premium reserve cover different portions of claim obligations with no overlap.
C. Loss reserves cover claim obligations, while the unearned premium reserve covers only unearned premiums and not claim obligations.
D. A deficiency in one of these types of reserves indicates a deficiency in the other type.

Answer 67

B. Loss reserves and the unearned premium reserve cover different portions of claim obligations with no overlap.

Question 68

Which one of the following is an exclusion to part A of the Personal Auto Policy (PAP)?

Select one:
A. Bodily injury to any family members using a covered auto
B. Any organization responsible for the acts of a person using a covered auto
C. Bodily injury to an insured’s employee
D. A prejudgement interest payment

Answer 68

C. Bodily injury to an insured’s employee

Question 69

Which one of the following statements is correct regarding Section I Coverage C—Personal Property of the HO-3 policy?

Select one:
A. Coverage is as broad as the special form coverage for dwellings and other structures.
B. Damage caused by mold, fungus, or wet rot caused by a sump pump is covered.
C. There is no coverage for damage from falling objects that penetrate the building.
D. There is damage to personal property from rain and snow only if wind or hail first damages the building.

Answer 69

D. There is damage to personal property from rain and snow only if wind or hail first damages the building.

Question 70

Under the HO-3 policy Section I—Conditions, the Loss Payment condition

Select one:
A. Establishes how the amount to be paid for a property loss will be determined.
B. Outlines a method for resolving disagreements between the insured and the insurer.
C. Provides that if the insured abandons the property after it is damaged, the insurer need not take over responsibility for it.
D. States that the insurer will adjust all losses with the insured or the insured’s spouse (unless another person is named in the policy or is legally entitled to receive payment).

Answer 70

D. States that the insurer will adjust all losses with the insured or the insured’s spouse (unless another person is named in the policy or is legally entitled to receive payment).

Question 71

The HO-3 policy

Select one:
A. Is assignable only with the insurer’s written consent.
B. Is fully assignable without the insurer’s consent.
C. May be assigned when the insured makes a written request within 60 days of the assignment.
D. Cannot be assigned to another party.

Answer 71

A. Is assignable only with the insurer’s written consent.

Question 72

Which one of the following Additional Coverages is covered under the Causes of Loss—Special Form but not under the Causes of Loss—Broad Form?

Select one:
A. Property in Transit
B. Collapse
C. Falling Objects
D. “Fungus”, Wet Rot, Dry Rot and Bacteria

Answer 72

A. Property in Transit

Question 73

Insurers underwrite Agreed Value optional coverage carefully for which one of the following reasons?

Select one:
A. The insurer is obliged to pay the ACV of the damaged property, regardless of the limit of insurance purchased.
B. Claims settlements under agreed value policies are typically higher than those under policies that include an 80 percent coinsurance clause.
C. If the Agreed Value coverage option is not renewed, the coinsurance condition cannot be reinstated.
D. Insureds are often tempted to underinsure, knowing they will not suffer a coinsurance penalty when the agreed value option is in effect.

Answer 73

D. Insureds are often tempted to underinsure, knowing they will not suffer a coinsurance penalty when the agreed value option is in effect.

Question 74

Which one of the following statements is correct with respect to the Control of Property condition of the Commercial Property Conditions Form?

Select one:
A. It states that coverage under the policy will not be affected by acts or omissions of persons other than the insured, if the others are not acting under the direction or control of the insured.
B. It requires the insured to give the insurer access to the premises in order to make inspections and to review the insured’s accounting and other records.
C. It prohibits the insured from abandoning damaged property to the insurer.
D. It states that a violation of a policy condition at one location will suspend coverage at all locations.

Answer 74

A. It states that coverage under the policy will not be affected by acts or omissions of persons other than the insured, if the others are not acting under the direction or control of the insured.

Question 75

Betty’s Birdhouses constructs and sells birdhouses. Betty discovered a fungus in the wood used to construct the birdhouses that would kill birds. Betty withdrew her entire stock of birdhouses to avoid any claims from environmental organizations for loss to wildlife. Does Betty’s Commercial General Liability (CGL) Coverage Form cover the cost to withdraw the birdhouses and feeders?

Select one:
A. No, because the fungus is considered an excluded pollutant
B. No, because the cost to withdraw Betty’s product is excluded
C. Yes, because withdrawing the birdhouses eliminated property damage claims
D. Yes, because the damage was not expected or intended by Betty

Answer 75

B. No, because the cost to withdraw Betty’s product is excluded

Question 76

Argot, Inc. is insured under a CGL policy with a $2,000,000 general aggregate limit, a $1,000,000 products-completed operations aggregate limit, and a $1,000,000 each occurrence limit. After already incurring $1,350,000 in losses subject to the general aggregate, Argot is sued by a customer for an injury that occurs at Argot’s main location. The lawsuit results in $800,000 in damages and $50,000 in defense costs. Applying the limits, which one of the following represents the amount of coverage available under the policy for the damages and defense costs resulting from this lawsuit?

Select one:
A. $650,000
B. $700,000
C. $800,000
D. $850,000

Answer 76

B. $700,000

Question 77

Which one of the following is generally true regarding an insurer’s internal data?

Select one:
A. Some data required for ratemaking is not specific to any one policy or, in some cases, not even to any one product.
B. Each record in a policy database represents a transaction tied to a specific claim (such as a reserve change).
C. Underwriting expenses and unallocated loss adjustment expenses (ULAE) are tracked in the aggregate by policy year.
D. The two types of internal data involved in a ratemaking analysis are known as databases and expenses.

Answer 77

A. Some data required for ratemaking is not specific to any one policy or, in some cases, not even to any one product.

Question 78

Risk management program goals are typically divided into two categories: pre-loss goals and post-loss goals. Which one of the following describes one of these categories of goals?

Select one:
A. Pre-loss goals are risk management goals that allow the organization to prepare for future losses.
B. Pre-loss goals include profitability, earnings stability, and loss prevention.
C. Post-loss goals broadly describe the degree of recovery that an organization will strive to reach following a loss.
D. Post-loss goals include immediate restoration of operations, tolerable uncertainty, and loss mitigation.

Answer 78

C. Post-loss goals broadly describe the degree of recovery that an organization will strive to reach following a loss.

Question 79

Which one of the following is considered the primary advantage of using retention as a risk financing technique?

Select one:
A. Incentives for risk control
B. Timing of cash flows
C. Control of claims process
D. Cost savings

Answer 79

D. Cost savings

Question 80

Daniel is an insurance producer with over 20 years of experience. He has placed insurance programs using reinsurance arrangements, retention plans, and various captive arrangements. He has negotiated broad coverage and high limits for his customers. With which one of the following customer groups is Daniel most likely working?

Select one:
A. Individuals
B. Middle markets
C. Small business
D. National accounts

Answer 80

D. National accounts

Question 81

Which one of the following statements is correct with respect to underwriting workers compensation insurance?

Select one:
A. On-premises hazards relating to housekeeping and maintenance are rare.
B. An insured’s providing healthcare benefits is not related to its workers compensation exposure.
C. All firms in the same industry generally have the same hazards and level of risk.
D. From an underwriting standpoint, housekeeping refers to cleanliness and operating efficiency.

Answer 81

D. From an underwriting standpoint, housekeeping refers to cleanliness and operating efficiency.

Question 82

Which one of the following is correct with regard to an insurer’s line and large-line capacity?

Select one:
A. Reinsurance is generally not used to increase insurers’ large-line capacity.
B. The specific characteristics of a loss exposure do not influence an insurer’s line.
C. Large-line capacity is an insurer’s ability to reinsure a larger proportion of its book of business.
D. An insurer’s line is influenced by the maximum amount of insurance or limit of liability allowed by insurance regulations.

Answer 82

D. An insurer’s line is influenced by the maximum amount of insurance or limit of liability allowed by insurance regulations.

Question 83

In general, to be understandable, information contained in financial reports must be intelligible, clearly disclosed, and

Select one:
A. Transparent.
B. Relevant.
C. Reliable.
D. Consistent.

Answer 83

A. Transparent.

Question 84

Under a deferral-matching approach, the written premium that results from the prospective addition of another driver to an automobile policy would

Select one:
A. Be retrospective to the policy inception date.
B. Be earned immediately.
C. Initially affect both earned and unearned premium.
D. Initially affect only unearned premium.

Answer 84

D. Initially affect only unearned premium.

Question 85

Brenda wrote a poem that she sent to her sister who sold the poem to a recording company. Learning of the sale, Brenda became upset. If Brenda has an insurable interest in the poem she wrote as a type of “property,” the legal basis of her insurable interest arises out of

Select one:
A. Representation of another party.
B. Contractual obligations.
C. Ownership interest in property.
D. Factual expectancy.

Answer 85

C. Ownership interest in property.

Question 86

Which one of the following is an example of a supplementary payment under the liability coverage of the Personal Auto Policy (PAP)?

Select one:
A. Emergency response assessment
B. Cost of bail bonds
C. Traffic violation fines
D. Pre-verdict interest

Answer 86

B. Cost of bail bonds

Question 87

Which one of the following statements is correct with respect to the Building and Personal Property (BPP) Coverage Form?

Select one:
A. The BPP must be written to provide coverage for all of the following: buildings, business personal property, and personal property of others.
B. The BPP covers business personal property and property of others up to a specified percentage of the building coverage limit.
C. The BPP provides coverage against both direct and indirect loss or damage caused by a covered cause of loss.
D. The BPP lists several types of classes of property that do not qualify as covered property.

Answer 87

D. The BPP lists several types of classes of property that do not qualify as covered property.

Question 88

Under the Building and Personal Property Coverage Form (BPP), which one of the following extensions covers loss only by fire, lightning, explosion, riot or civil commotion, and aircraft?

Select one:
A. Property Off-Premises
B. Outdoor Property
C. Newly Acquired or Constructed Property
D. Personal Effects and Property of Others

Answer 88

B. Outdoor Property

Question 89

Which one of the following is covered by the Causes of Loss—Special Form but not by the Causes of Loss—Basic Form?

Select one:
A. Settling, cracking, shrinking, or expansion
B. Smog
C. Mechanical breakdown
D. Melting of ice, sleet, or snow on the building structure

Answer 89

D. Melting of ice, sleet, or snow on the building structure

Question 90

Under the Legal Action Against Us condition of the Commercial Property Conditions Form, if the insured wishes to bring legal action against the insurer, he or she must do so within which one of the following timeframes?

Select one:
A. Sixty days after the insurer denies coverage for a loss
B. One year from the date on which the insured notifies the insurer of his or her intention to sue
C. Three years after the insurer’s action that has given rise to the suit
D. Two years after the date on which the direct physical loss occurred

Answer 90

D. Two years after the date on which the direct physical loss occurred

Question 91

Insurer X currently writes minimal insurance business in a state, but it would like to grow significantly. Which one of the following is the least likely basis for Insurer X’s rate in this state?

Select one:
A. Loss costs provided by an advisory organization
B. Rates used by competitors
C. Insurer X’s own experience in the state
D. Insurer X’s own experience countrywide

Answer 91

C. Insurer X’s own experience in the state

Question 92

A good exposure base

Select one:
A. Provides little or no opportunity for dishonest disclosure by insureds.
B. Is the only item by which losses may systematically vary.
C. Should never be replaced by another over time because this requires a rating algorithm change.
D. Reflects the same direct proportion to the expected loss as does a rating variable.

Answer 92

A. Provides little or no opportunity for dishonest disclosure by insureds.

Question 93

When it comes to providing management with the desired level of assurance, with which one of the following does tolerable uncertainty conflict?

Select one:
A. Legality
B. Economy of operations
C. Social responsibility
D. Survival

Answer 93

B. Economy of operations

Question 94

Which one of the following statements is correct with respect to premises medical payments coverage?

Select one:
A. The coverage can be excluded by endorsement, but this is rarely done.
B. It pays medical expenses for insureds injured by the policyholder’s premises or operations.
C. The limits for medical payments coverage are typically $25,000 to $50,000.
D. It requires that the policyholder be legally liable for the injured party’s injury.

Answer 94

A. The coverage can be excluded by endorsement, but this is rarely done.

Question 95

Which one of the following types of reinsurance is generally chosen by newly incorporated insurers or insurers with limited capital because it is effective in providing surplus relief?

Select one:
A. Facultative
B. Pro rata
C. Aggregate excess
D. Per risk

Answer 95

B. Pro rata

Question 96

In terms of insurance to value principles applying to liability insurance policies, which one of the following statements is true?

Select one:
A. Insurers generally seek insurance to value for liability policies.
B. The law generally limits the dollar amount of damages that a court can award to an injured party, allowing insurers to determine the maximum possible loss for most liability loss exposures.
C. Liability insurers seek to use insurance rates that are adequate for whatever “layer” of coverage they are insuring.
D. It is not important for insureds to estimate the potential severity of their liability loss exposures because insurers do not seek insurance to value for liability policies.

Answer 96

C. Liability insurers seek to use insurance rates that are adequate for whatever “layer” of coverage they are insuring.

Question 97

Which one of the following statements relating to the use of property insurance deductibles is correct?

Select one:
A. Property insurance deductibles reduce premium costs by encouraging insureds to prevent or reduce losses.
B. For most property insurance policies, the premium reduction is directly proportional to the size of the deductible.
C. Risk transfer mechanisms such as insurance are designed to cope with low-severity property losses.
D. Small property insurance deductibles help eliminate dollar trading.

Answer 97

A. Property insurance deductibles reduce premium costs by encouraging insureds to prevent or reduce losses.

Question 98

Josh owns an auto service center. A customer dropped off a car for repair one morning and Josh agreed to drive the customer to the customer’s office. Josh used his personal car insured by a Personal Auto Policy (PAP) to do this. While driving the customer to work, Josh got into an auto accident with another car in which the customer and the other driver were injured. Which one of the following is correct with regard to this loss under Josh’s PAP?

Select one:
A. Coverage would apply to this loss under an exception to the other business use exclusion.
B. Coverage would not apply to this loss because the event does not qualify as an accident under the insuring agreement.
C. Coverage would not apply to this loss because the garage business use exclusion would apply.
D. Coverage would apply to this loss under an exception to the garage business use exclusion.

Answer 98

D. Coverage would apply to this loss under an exception to the garage business use exclusion.

Question 99

Which one of the following homeowners policy additional coverages is NOT subject to a deductible?

Select one:
A. Landlord’s furnishings
B. Loss assessment
C. Debris removal
D. Fire department service charge

Answer 99

D. Fire department service charge

Question 100

Which one of the following is an insured peril under Coverage C of an unendorsed HO-3 policy?

Select one:
A. Damage to the kitchen table from the ceiling fan that fell on it
B. Damage to china and crystal from earthquake tremors
C. Damage to furniture from sudden release of soot from the furnace
D. Damage to the outside awning from the weight of snow and ice

Answer 100

C. Damage to furniture from sudden release of soot from the furnace

Question 101

An insured has an HO-3 policy covering his home. While he was away during a special athletic tournament in his town, he rented his home for a week to one of the athletes. During that week, the mail carrier was injured on a loose floorboard on the porch of the home. A claim was made against the insured. Does the Coverage E business exclusion apply?

Select one:
A. No, because rental of an insured location on an occasional basis is a covered loss exposure if the location is used only as a residence.
B. It depends on whether a dollar threshold for the amount of rent charged is met.
C. No, because home rental is not considered a business activity.
D. Yes, because renting property to others qualifies as a business as defined by the policy.

Answer 101

A. No, because rental of an insured location on an occasional basis is a covered loss exposure if the location is used only as a residence.

Question 102

“Merchandise held in storage or for sale, raw materials and in-process or finished goods, including supplies used in their packing or shipping” is the Building and Personal Property Coverage Form’s (BPP) definition for which one of the following?

Select one:
A. Contents
B. Stock
C. Inventory
D. Business personal property

Answer 102

B. Stock

Question 103

Which one of the following is an exclusion unique to the Causes of Loss—Special Form?

Select one:
A. Rupture or bursting of water pipes
B. Smog
C. Mudslide or mudflow
D. War

Answer 103

B. Smog

Question 104

Which one of the following is a sublimit subject to the each occurrence limit of a CGL policy?

Select one:
A. Medical expense limit
B. Personal and advertising injury limit
C. Products–completed operations limit
D. Defense costs limit

Answer 104

A. Medical expense limit

Question 105

Which one of the following statements concerning the calculation of fixed expense fees and other additive premium is true?

Select one:
A. The rating algorithm always incorporates fixed expenses through an additive-per-exposure expense fee.
B. An adjustment to the expense fee includes dividing the average fixed underwriting expense by the variable permissive loss ratio.
C. Generally, no adjustment to the expense fee is needed to account for variable expense and profit.
D. A company expects target profit on premium except that which comes from fixed expense fees.

Answer 105

B. An adjustment to the expense fee includes dividing the average fixed underwriting expense by the variable permissive loss ratio.

Question 106

Which one of the following statements is correct with respect to state insurance regulators’ involvement in the claim handling process?

Select one:
A. Enforcement of controls by state insurance regulators is usually handled under the Unfair Claims Settlement Practices Act or similar legislation.
B. All states currently license claim representatives, and standard procedures and uniform regulation are in place for doing so.
C. Market conduct investigations that are periodically performed by insurance regulators are limited to the review of claim practices.
D. Consumer complaints to state insurance departments about claim service typically result in the loss of the claim representative’s license.

Answer 106

A. Enforcement of controls by state insurance regulators is usually handled under the Unfair Claims Settlement Practices Act or similar legislation.

Question 107

Hallbinger Shoe Store closed for two months due to smoke and water damage resulting from a fire in an adjacent structure. All of the following are important issues involved in adjusting Hallbinger’s business income claim, EXCEPT:

Select one:
A. Determining the time period necessary for the store to be restored to use.
B. Determining whether Hallbinger used due diligence in completing repairs
C. Deciding whether to settle the claim before or after operations have been resumed
D. Determining whether the owner of the adjacent structure had property insurance on the structure

Answer 107

D. Determining whether the owner of the adjacent structure had property insurance on the structure

Question 108

Which one of the following is an approach used to determine the initial recognition of losses for the current accident year?

Select one:
A. Historical claim records of past losses
B. Accrual of estimated incurred losses based on the level of earned exposure
C. Changes in the estimate of incurred losses for the current calendar year
D. Projection of aggregate reserves

Answer 108

B. Accrual of estimated incurred losses based on the level of earned exposure

Question 109

Jack and Susan own and manage a hotel. They have posted signs that they are not responsible for the property of hotel guests. However, if a court establishes that they do have to reimburse a guest for a property loss, it will most likely be decided on the legal basis of

Select one:
A. Factual expectancy.
B. Exposure to absolute or strict liability.
C. Contractual obligations.
D. Representation of another party.

Answer 109

A. Factual expectancy.

Question 110

The Insuring Agreement in Part A—Liability Coverage of the Personal Auto Policy (PAP) contains descriptions of all of the following, EXCEPT:

Select one:
A. Persons and organizations insured
B. Defense costs covered
C. Exclusions to coverage
D. Damages covered

Answer 110

C. Exclusions to coverage

Question 111

Joel is a delivery driver for XYZ Auto Supply. He usually drives the company van, but one day, since he only had to deliver a small part, Joel used his own car that is insured with a Personal Auto Policy (PAP). While doing so, Joel was involved in a two-vehicle accident and a liability claim was made against Joel and XYZ Auto Supply. Which one of the following is an insured(s) under Joel’s PAP in this situation?

Select one:
A. XYZ Auto Supply only
B. Joel and XYZ Auto Supply
C. Joel only
D. None

Answer 111

B. Joel and XYZ Auto Supply

Question 112

Collision coverage under the Personal Auto Policy (PAP)

Select one:
A. Applies only to damage to a vehicle for which the owner of the vehicle is responsible.
B. Is less expensive than other than collision (OTC) coverage.
C. Applies to damage to a vehicle resulting from explosion or earthquake.
D. Applies to damage to a parked insured vehicle resulting from a passenger in another parked vehicle opening its door.

Answer 112

D. Applies to damage to a parked insured vehicle resulting from a passenger in another parked vehicle opening its door.

Question 113

Jamal flew from his home in New York to California for a vacation. While there, he rented a car. Jamal declined all of the optional coverages that were offered to him at the rental agency. While driving the rental car, Jamal was at fault in a collision with a truck. The repairs to the rental car will cost $2,000. Jamal’s Personal Auto Policy (PAP) has a $250 other than collision deductible and a $500 collision deductible. What amount will Jamal’s insurer pay for the loss?

Select one:
A. $0
B. $1,500
C. $1,750
D. $2,000

Answer 113

B. $1,500

Question 114

A storm causes power lines to break 10 miles from the insured’s premises. The loss of electrical power causes food in the insured’s freezer to thaw and spoil. Coverage for this loss is

Select one:
A. Covered because damage resulting from loss of electrical power is covered.
B. Covered because it was caused by a covered peril off the residence premises.
C. Excluded because the power failure occurred off the residence premises.
D. Not covered because food is not considered personal property.

Answer 114

C. Excluded because the power failure occurred off the residence premises.

Question 115

Nick’s five-year-old nephew from another state was visiting for the day. Nick was mowing the grass at his home when he accidentally ran over his nephew’s toe, causing injury. Nick has an HO-3 policy. Which of the following coverages would apply to this loss?

Select one:
A. Coverage F—Medical Payments to Others only
B. Coverage E—Personal Liability only
C. None
D. Coverage E—Personal Liability and Coverage F—Medical Payments to Others

Answer 115

D. Coverage E—Personal Liability and Coverage F—Medical Payments to Others

Question 116

Under which one of the following provisions of the Building and Personal Property Coverage Form (BPP) must the insurer be notified within 180 days after the occurrence of loss that a claim will be made under the terms of the optional coverage in order for that optional coverage to pay the maximum benefit available?
Select one:
A. Replacement Cost
B. Extension of Replacement Cost to Personal Property of Others
C. Agreed Value
D. Inflation Guard

Answer 116

A. Replacement Cost

Question 117

For which one of these does the Coverage A Mobile Equipment exclusion eliminate coverage?

Select one:
A. The transportation of mobile equipment by an auto that is owned by an insured
B. A watercraft owned by the insured
C. An auto owned by the insured
D. An airplane owned by the insured

Answer 117

A. The transportation of mobile equipment by an auto that is owned by an insured

Question 118

Lucy, the owner of Lucy’s Flower Shop, was delivering a vase of flowers to a customer, Mrs. White. When Mrs. White opened her front door, her dog ran outside, knocking the flowers from Lucy’s hands, and causing the vase to shatter and injure Mrs. White. Although the customer insisted that she would be fine, Lucy received a medical bill for injuries to Mrs. White two years later. The medical treatment had been received one week before Lucy received the bill. Lucy explains the situation to her insurer and requests coverage under her Commercial General Liability Coverage Form (CGL). Will the medical expenses be covered under Coverage C—Medical Payments of the CGL?

Select one:
A. No, because the medical expenses must be incurred and reported to the insurer within one year after the date of the accident.
B. No, because the coverage does not apply to accidents that occur away from the insured’s premises and adjacent ways.
C. No, because the customer was obligated to tell Lucy that she would be filing a claim within five days of the accident.
D. No, because there is no liability against the insured.

Answer 118

A. No, because the medical expenses must be incurred and reported to the insurer within one year after the date of the accident.

Question 119

The personal and advertising injury limit is the most the insurer will pay under Coverage B of the CGL policy for damages arising out of personal and advertising injury

Select one:
A. During the policy period.
B. Per insured.
C. From any one type of offense.
D. To any one person or organization.

Answer 119

D. To any one person or organization.

Question 120

With the standard increased limit factor (ILF) approach,

Select one:
A. The actuary uses historical data to calculate the indicated ILFs, although the results may be volatile.
B. The actuary typically does not make the assumption that the frequency is the same for all risks.
C. Determining a distribution representative of the expected losses is a major challenge.
D. Claims information in the layers of loss being studied is relied on heavily, providing consistent and reliable results.

Answer 120

A. The actuary uses historical data to calculate the indicated ILFs, although the results may be volatile.