Regulation

Question 1

A ____________ is provided to an insurance company as proof of licensure within the state.

Answer 1

Certificate of Authority

Question 2

Once certified by the state, the insurer is considered to be _________, and is authorized to conduct business within the state.

Answer 2

Admitted

Question 3

Authorized insurance companies oftentimes conduct business in multiple states, and as such, they are categorized based on ____________.

Answer 3

the state in which the insurance company’s home office is incorporated.

Question 4

____________ refers to the state or country in which the insurance company is incorporated.

Answer 4

Domicile of Incorporation

Question 5

What are the differences between Domestic Insurer, Foreign Insurer, and Alien Insurer?

Answer 5

Domestic Insurer does business in the state in which they are incorporated. Foreign Insurer does business in a state in which they are not incorporated. Alien Insurer does business in a country in which they are not incorporated.

Question 6

The concept of ___________ is the sharing of risk between an insurance company and a re-insurance company, known as a ___________, to provide additional insurance coverage for risks that are too large for the single insurer to adequately cover.

Answer 6

‘reinsurance’

Reinsurer,

Question 7

When an insurance company cannot assume an entire risk of an applicant’s request at the time of application, it will __________________ .

Answer 7

transfer part of the risk by purchasing additional insurance coverage from a reinsurance company

Question 8

A _____________ provides the details of the agreed reinsurance policy, and a reinsurance premium is paid by the ___________, to the reinsurer in exchange for the additional coverage.

Answer 8

Reinsurance Agreement

Cedent Insurer

Question 9

The agreement between the cedent insurer and the reinsurer does not affect the ______________ and is often times not even known by the insured individual or business. The insured is covered by the insurer, and if necessary, the insurer shares part of its risk with a reinsurer.

Answer 9

agreement between the cedent insurer and the insured individual or business

Question 10

Insurance is a form of _____________ used to protect the financial well-being of an individual, company, or other entity in the event of an unexpected financial loss. While health, life, and disability insurance provide a financial ‘safety net’ against the unexpected financial loss resulting from illness, disability, or death, the goal of an insurance company is to _________________.

Answer 10

risk management

maintain profitability for its shareholders

Question 11

_______________ is the key to predicting if and when a loss will occur.

Answer 11

Understanding the concept of risk and how it is measured

Question 12

Each insurer employs statistical analysts, called __________, to analyze and predict potential loss in order to set and maintain premium pricing for the insurer’s products.

Answer 12

Actuaries

Question 13

The better an insurance company can ___________, the more profitable it will become, thus insurers are in the business of ________________.

Answer 13

predict the outcome of risk

analyzing and predicting risk

Question 14

Risk, in its most basic sense, is defined as the potential for an outcome to result in either a __________. It is the exposure of an action that will result in either a positive or negative outcome.

Answer 14

gain or a loss based on a given action, event, or occurrence

Question 15

______________ is the fundamental basis of how insurance works. Knowing this, it is important to understand the types of risk, as well what causes risk to result in a loss.

Answer 15

Understanding risk and how it is quantified by the insurance industry

Question 16

Health and life insurers do not consider ___________ to be insurable because of its potential for gain.

Answer 16

speculative risk (gambling, etc.)

Question 17

Involves only the chance of loss, such as the chance of an injury from an accident. Due to the certainty of an outcome resulting only in loss, insurance focuses only on _________.

Answer 17

pure risk

Question 18

Insurance companies have been analyzing and quantifying risk for decades, and in doing so, they have developed methods of calculating risk in order to adequately fund the financial losses associated with the life and health insurance policies of its customers, while _____________.

Answer 18

maintaining its own profitability

Question 19

All varieties of insurance rely on two principles to ensure that an insurance company is profitable and that its insurance claims are satisfied: _________________

Answer 19

risk pooling and the law of large numbers.

Question 20

Also known as __________, risk pooling is simply the spreading of a specific risk, or the exposure of a specific loss, across a sizable number of individuals instead of bearing all costs on the individual person.

Answer 20

Loss Sharing

Question 21

In basic terms, all insured individuals contribute small amounts of ________ on a regular basis to cover a much larger amount of loss, referred to as ___________, if and when it was to occur. __________, which is the combining of similar ‘exposure units,’ is necessary for the law of large numbers to operate. _____________ are the economic value of the person’s life or property being insured.

Answer 21

premium
Loss Exposure
Risk pooling
Exposure Units

Question 22

Insurance companies combine all insured individuals into various ‘pools,’ or groups, to determine the risk involved in order to calculate ___________. This certainty of loss only calculates the general amount of risk in a given group, but cannot predict ________. However, knowing the percentage of individuals who will experience financial loss, the insurance company can charge the correct amount of premium per individual to satisfy the predicted percentage of loss.

Answer 22

the certainty of loss

which individuals are at risk

Question 23

Based on the concept that the larger the number of individual risks that are combined into a group, the more certain an insurance company is to knowing the amount of loss sustained that will occur in any given period of time. Also, the more _____________ the group is, the more accurate this prediction can be.

Answer 23

‘homogeneous,’ or similar,

Question 24

A ______ is the factor, or underlying condition, that gives rise to a _____. A ______ is the specific event that causes, or is the grounds, for loss.

Answer 24

Hazard
peril
Peril

Question 25

The concept of ______ refers to the tendency of more unhealthy people being insured than healthy people, thus demanding more funding for claims from the insurer. The larger the group of individuals covered, the less likely ______ will affect the insurer.

Answer 25

adverse selection

adverse selection

Question 26

______ hazards are defined by physical conditions that exist which have the potential to lead to loss, such as unsafe working conditions. Blocked fire exits, exposed electrical wiring, damaged or unsafe tools are examples of ______ hazards. Diseases and medical conditions that can lead to loss, such as cancer, are also considered to be ______ hazards.

Answer 26

Physical
physical
physical

Question 27

______ hazards are defined by human behavior, actions, habits and lifestyles such as smoking, eating an unhealthy diet, drug abuse, texting while driving and drunk driving, all of which increase the risk of a ______. Dishonesty, bad credit, intentionally filing false insurance claims, abusing credit cards and suing for the sole purpose of the potential for gain are also examples of ______ hazards.

Answer 27

Moral
peril
moral

Question 28

______ hazards are defined by a temporary lapse in judgment that leads to a brief indifference in attitude towards risk. As an example, a driver might fail to stop at a stop light because the driver was texting. The carelessness of running a red light is considered a ______ hazard; however, the act of texting while driving is considered a ______ hazard.

The primary difference between a ‘moral’ and ‘morale’ hazard is the ______, meaning that an intended action, such as texting while driving, is considered a moral hazard, whereas an unintended action, such as failing to stop at a red light, is considered a morale hazard.

Answer 28

Morale
morale
moral
intention of the action taken

Question 29

What are 2 methods of handling risk?

Answer 29

Risk avoidance

Reducing risk

Question 30

______ is defined as accepting and managing risk when it occurs, such as having reserve funds available in the event of an accident or illness.

Answer 30

Retaining Risk

Question 31

Self-insuring often involves ______ between the company and an insurer by retaining and managing small risks through company funds, while transferring larger, more costly risks to an insurance company.

Answer 31

Sharing Risk

Question 32

By ______ to an insurance company, costs resulting from an insured’s future risks are paid by the insurer, and in exchange, the insurer charges a monthly premium (payment) to the insured.

Answer 32

Transferring Risk

Question 33

When an insurance company ______ a health or life insurance application, it assesses the risks associated with the applicant.

Answer 33

‘underwrites’

Question 34

The goal of an insurance company is to ______.

Answer 34

maintain a profit while providing financial protection for its customers.

Question 35

In order to measure the amount of risk that is associated with an applicant, the insurer’s underwriting department reviews the application according to its ______.

Answer 35

‘underwriting guidelines.’

Question 36

Simply stated, an insurance company determines an applicant’s eligibility and premium amount based on his or her ______.

Answer 36

overall risk, and how this risk is classified according to the insurer’s risk limits and standards

Question 37

Name the 4 classifications of risk.

Answer 37

Preferred
Standard
Substandard
Declined

Question 38

______ Includes all government-sponsored insurance such as Social Security, Medicare and Medicaid to U.S. citizens through federal and state legislation.

Answer 38

Social insurance

Question 39

Name the 5 elements of insurable risk.

Answer 39

Any outcome must result by accident and produce a loss (Pure Risk)

The insurer must be able to calculate the risk and the amount of loss incurred (Risk Pooling)

There must be a large enough number of similar risks being insured (Law of Large Numbers)

The risk cannot lead to catastrophic loss for the insurer

The risk cannot be ‘adversely’ selected