Question 1 of 25
6.0 Points
Discuss the requirements of an ideal insurable risk.
Question 2 of 25
4.0 Points
The EarthMayShake (EMS) Insurance Company wrote a large number of property insurance policies in an area where earthquake losses could occur. When the president of EMS was asked if she feared a severe earthquake might put the company out of business, she responded, “Not a chance. We transferred most of that risk to other insurance companies.” What is this called when an insurer that initially writes the insurance transfers to another insurer part or all of the potential losses associated with such insurance
Question 3 of 25
3.0 Points
Harold borrowed money from a bank to purchase a fishing boat. He purchased property insurance on the boat. Harold had difficulty making loan payments because business was bad. He intentionally sunk the boat, collected from his insurer, and paid off the loan balance. What type of problem does this scenario illustrate?
Question 4 of 25
4.0 Points
The LiveForever Life Insurance Company uses an interesting marketing system—-it has no agents. Instead, the company markets its coverages through television and radio ads, newspaper inserts, and the Internet. The company is using what type of marketing system?
Question 5 of 25
4.0 Points
The LetsDoGreatOnTheFirstExam Company plans to sell homeowners insurance in 5 western states. The company expects that 8 out of every 100 homeowners, on average, will report claims each year. What do you call the the variation between the rate of loss that the company expects to occur and the rate of loss that actually does occur?
Question 6 of 25
3.0 Points
M&M Insurance Company is concerned about its exposure to hurricane losses for property risks it insured on the Gulf Coast. M&M borrowed money from investors by issuing financial securities. M&M promised to repay the money it borrowed with interest if hurricane losses do not exceed a specified level. If hurricane losses exceed the specified level, M&M will repay less than it borrowed and use the extra money to fund hurricane losses. What are these types of securities called?
Question 7 of 25
4.0 Points
Some investors decided to start an insurance company. Each investor contributed $50,000 to raise the capital required to charter a new company. Each investor received an ownership interest in the company. The company will raise additional capital by selling ownership rights to other investors. Under this type of organization, the customer and owner functions are separate. What type of insurer is this?
Question 8 of 25
3.0 Points
Jane owns a property and liability insurance agency. She is authorized to represent several insurance companies and she is compensated by commissions. Jane’s agency owns the expiration rights to the business she sells. Is Jane an agent or a broker? And which type?
Question 9 of 25
3.0 Points
InExcess Insurance Company has a surplus-share treaty with Eversafe Reinsurance. InExcess has a retention limit of $200,000, and nine lines of insurance are ceded to Eversafe. How much will Eversafe pay if a $1,600,000 building insured by InExcess suffers an $800,000 loss?
Question 10 of 25
3.0 Points
How is the insurance industry’s “capacity” measured?
Question 11 of 25
4.0 Points
The MLX Drug Company would like to market a new hypertension drug. While the Food and Drug Administration (FDA) was testing the drug, it discovered that the drug produced a harmful side effect. When MLX learned of the FDA’s test result, MLX abandoned its plan to produce and distribute the drug. What is this way of managing risk called?
Question 12 of 25
4.0 Points
The production facility for the IHopeItDoesNotRain Company is located in a flood plain. Although the risk of flood is low, the company’s risk manager is concerned that a flood could damage the plant and equipment. He got bids on flood insurance from two insurance agents, but decided the cost of coverage was too high relative to the risk. So he did not purchase flood insurance. What is this type of risk management technique called with respect to the risk of flood?
Question 13 of 25
3.0 Points
Until a policy is actually issued, there is temporary evidence of the insurance. What is this called?
Question 14 of 25
4.0 Points
Ben is concerned that if he injures someone or damages someone’s property he could be held legally responsible and required to pay damages. What is this type of risk called?
Question 15 of 25
3.0 Points
Jim and Paula started a dry cleaning business. The business may be successful or it may fail. What is the type of risk called that is present when either a profit or loss could occur?
Question 16 of 25
4.0 Points
Explain why a company may choose to use self-insurance in an insurance market that is considered “hard”.
uestion 17 of 25
3.0 Points
The R.I.P. Company manufactures herbicide and pesticide. The company had difficulty finding affordable liability insurance. R.I.P. established its own insurance company based in Bermuda for the purpose of insuring R.I.P’s loss exposures. What would you call the company that R.I.P. formed?
Question 18 of 25
4.0 Points
The WeSellCheapStuff Company is a national retail chain. The company had one large, central warehouse. At the suggestion of the risk manager, the company decided to build four smaller regional warehouses so that a loss at the central warehouse would not be a catastrophic blow to the company’s distribution system. What type of risk management technique does this illustrate?
Question 19 of 25
3.0 Points
Fred works in property and liability insurance marketing. He legally represents insurance purchasers, rather than insurance companies. Fred is paid a commission on the insurance placed with insurers. Is Fred an agent, direct writer, or broker?
Question 20 of 25
4.0 Points
Jenna opened a successful restaurant. One night, after the restaurant closed, a fire started when the electrical system malfunctioned. In addition to the physical damage, Jenna lost profits that could have been earned while the restaurant was closed for repairs. The lost profits are an example of what?
Question 21 of 25
3.0 Points
Jan is employed by an insurance company. She reviews applications to determine whether her company should insure the applicant. She assigns the applicant to a rating category based on the applicant’s degree of risk. What is her position in the company?
Question 22 of 25
3.0 Points
Liability Insurance Company (LIC) was approached by a regional airline to see if LIC would write the airline’s liability coverage. LIC agreed to write the coverage and entered into an agreement with a reinsurer. Under the agreement, LIC retains 25% of the premium and pays 25% of the losses, and the reinsurer receives 75% of the premium and pays 75% of the losses. What type of reinsurance arrangement best describes this situation?
Question 23 of 25
4.0 Points
Last Year, The WeProtectYou Company had a combined ratio of 102.4 and lost $10.2 million on the insurance it sold. The company, however, was required to pay income taxes. What is the best explanation for this apparent contradiction? (In other words, what was the underwriting loss offset with?)
Question 24 of 25
4.0 Points
The LetsNotHaveAFire Company has production facilities in Salt Lake City and Cleveland. The probability that in any given year a fire will damage the production facility in Salt Lake City is 5%. The probability that in any given year a fire will damage the Cleveland production facility is 4%. What is the probability that AT LEAST ONE of the production facilities will be damaged by fire in an given year?
Question 25 of 25
3.0 Points
Granite Insurance Company entered into a treaty reinsurance agreement with Rock Solid Reinsurance (RSR). Granite’s retention limit is $400,000 and RSR agreed to provide reinsurance for up to $2.0 million. If Granite writes an $800,000 policy, RSR is responsible for 50% of the losses. If Granite insures a $1.6 million risk, RSR is responsible for 25% of any losses. What type of reinsurance arrangement did Granite enter into with RSR?