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Study Guide: Exam 3
d. All of the above
|
Which of the following is a criteria for effective rate making?
a. Rates should be adequate but not excessive.
b. Rates should be fairly allocated
c. Rates should encourage loss control among insureds.
d. All of the above |
c. i, ii, iii, v
|
The claims department is responsible for:
i. Paying the claim
ii. Determine the amount of loss
iii. Determine whether loss occurred
iv. Determine who caused loss
v. Determine if policy covers loss
a. i, ii, iv, v b. i, ii, v
c. i, ii, iii, v d. i, ii, iii, iv, v |
Production |
The act of selling the insurance |
Rate making |
The act of determining what price insurance has |
Underwriting |
The act of determining whether or not a sale can be accepted |
Investment |
The application of premiums paid in advance to generate usable returns |
Claims/Loss Management |
The settlement of losses under insurance contracts and the adjustment of differences that arise between the company and the policyholder |
Reinsurance |
The passing on of an insurance burden to another company |
a. ii and vi
|
Which of the following is not an objective of reinsurance?
i. Increasing underwriting capacity
ii. Creating new insurance business directly
iii. Providing protection under catastrophic loss
iv. Stabilizing profits and evening out loss ratios
v. Reducing unearned premium reserves
vi. Funding insurance operations
vii. Facilitating entry/exit in insurance lines of business
a. ii and vi b. iv and vi
c. vii d. All are reinsurance objectives
c. vii |
Formal Facultative Reinsurance
|
An agreement by which the reinsurer is bound to take certain types of risks involved if offered by the ceding company.
Used when the ceding company is bound to take on certain types of risks by its agents before it has the opportunity to examine them. |
Informal Facultative Reinsurance
|
Specific reinsurance on an optional basis - there are no obligation to either cede or reinsure.
Used when reinsurance is of an unusual nature or when it is negotiated only occasionally. |
Treaty Reinsurance Pro-rata treaty Excess-of-loss treaty
|
An agreement under which the ceding company is required to cede some certain amounts of business which the reinsurer must accept.
One type requires that all premiums and losses are accepted in some proportion.
Another type requires that losses be paid by the reinsurer in excess of some predetermined deductible or retention |
Statutory Accounting Principles |
The set of accounting principles that are used by insurers in financial reporting. This is due to the unique regulatory environment faced by the insurance industry. |
b. False
|
Managing claims and losses is relatively more important in life insurance than in property and liability, given the higher loss frequency and the complicated nature of losses.
a. True
b. False |
Bonds |
The most popular asset for general account investments |
Stocks |
The most popular asset for separate account investments |
Hard market |
A market for insurance in which underwriting standards. and premiums, are high |
Soft market |
A market for insurance in which underwriting standards, and premiums, are relatively low |
Surplus |
Insurer assets - insurer liablilities |
Capacity |
The relative level of surplus; also, the maximum limit of insurance a company can provide to any one insured |
Combined Ratio/ Combined Loss Ratio
|
Losses+Loss adjustment expenses+Underwriting expenses
Premiums |
Investment Earnings |
The basic rate-making method used in property-liability insurance, as well as the greatest source of profit in long payout period lines of insurance |
Industry Capacity and Investment Returns |
The 2 major determinants of the industry's place in the underwriting cycle |
Gross premium
|
Pure Premium
(1-Expense ratio) |
Pure Premium
|
Expected Losses
# of exposure units |
Gross Premium |
Pure Premium +Gross Premium*Expense ratio |
Premium |
Rate*# of exposure units |
a. True
|
The process of rate-making is imprecise and unscientific to a large degree
a. True
b. False |
Combined ratio |
If this is greater than 1, underwriting operations are unprofitable; if it is less than 1, then underwriting operations are profitable |
Investment |
The function of this department is to to select and supervise the appropriate investment for a firm's advanced premiums |
b. False
|
An insurance company makes most of its profits through the underwriting side of business.
a. True
b. False |
Real property |
Land and all structures permanently attached to the land, as well as anything that is growing on it. |
Personal property |
All property that is movable. |
Direct loss |
Damage to property |
Indirect loss |
Loss that comes from a decline in revenues or increase in expenses due to a damage to property. |
a. iii
|
Which of the following can be insured against?
i. Loss of goodwill due to negligence
ii. Loss of a copyright by theft
iii. Damage to irrigation equipment on a farm
a. iii b. i
c. i and iii d. All of the above |
a. True
|
Liability insurance is more complex than property insurance
a. True
b. False |
Liability Exposure |
Loss through legal liability for harm caused to others |
Bodily Injury
|
Liability for losses incurred due to harm to mind and body.
Can include payments for medical bills, loss of income, rehabilitation costs, loss of services, pain/suffering damages, punitive damages. |
Property damage |
Liability due to loss from actual damage to a property, as well as loss of use of the property. |
Personal injury
|
Liability as a result of libel, slander, invasion of privacy, false arrest, and the like is known as:
a. Civil injury
b. Personal injury
c. Societal injury
d. Injury to reputation |
a. True
|
Legal expenses are a type of liability damage
a. True
b. False |
Criminal law |
Law directed towards wrongs against society |
Civil Law |
Law directed towards wrongs against individuals and organizations |
Tort |
Legal injury or wrong to another that arises from actions other than breach of contract |
b. False
|
In a tort case, the court will not allow recovery in an action for damages as a remedy
a. True
b. False |
d. Criminal
|
Which of the following is not a type of tort?
a. Strict liability
b. Intentional
c. Negligence
d. Criminal |
Negligence |
Failure to exercise the degree of care required by law, which is the conduct that a reasonably prudent individual would exercise to prevent harm. |
d. Determined by the care required of a reasonably prudent person
|
The standard of care used as a basis for determining negligence is
a. Uniformly established across a variety of acts
b. Determined entirely by precedent
c. Written in civil law as a guide to be followed
d. Determined by the care required of a reasonably prudent person |
Omission |
Failure to do something in the presence of a duty to act |
Positive act |
The doing of something in terms of negligence |
d. i, ii, iii, iv
|
Which of the following are elements of negligence?
i. Damage or injury to a claimant
ii. Proximate cause relationship between the negligent act and the infliction of damages
iii. Existence of a legal duty to use reasonable care
iv. Failure to perform a legal duty to use reasonable care
a. i, iii, and iv b. iii and iv
c. i and ii d. i, ii, iii, iv |
Proximate cause |
A cause from which an unbroken chain of effects can be traced to the event in question |
Voluntary act |
An act done of one's own free will |
a. A negligent act is always inexcusable
|
A negligent act is excused in what case?
a. A negligent act is always unexcusable
b. The act was involuntary
c. A and B
d. None of the above |
Imputed act |
An act done by a servant or agent of an individual. The person in whose service the causer of the act was is liable for his or her employee's actions in this case. |
Vicarious Liability |
The principle by which parents and employers are, respectively, liable for the actions of their children and employees |
Compensatory damages |
Damages meant to make up for the amount of a damage |
Punitive damage |
Damages intended to punish a person for wrongdoing |
Special Damages |
Damages for loss due to body injury, such as medical expenses or lost income |
General damages |
Damages for pain and suffering |
b. Assumed the risk of harm
|
The defendant in a negligence case may claim that the plaintiff has no cause for action because the plaintiff
a. Had joint liability with the defendant
b. Assumed the risk of harm
c. Should have been more careful
d. Caused damage to the property in question in addition to being harmed by it |
The Last Clear Chance Rule |
A plaintiff who is endangered by their own negligence can still recover damages from the defendant using this principle |
a. True
|
A plaintiff's right to damages can be upheld if it is proven that the defendant had a last clear chance to avoid the event in question but failed to do so
a. True
b. False |
State of the Art Defense |
The defense that a product's manufacturer is not liable for damages if a product is manufactured to the best standards of the time; can be expanded other negligence cases |
Res ipsa Loquitur |
The principle which allows a plaintiff to collect damages without proving negligence |
d. All necessary care was taken by the defending party
|
The following are all requirements for Res ipsa Loquitur except
a. The event is one which does not normally occur in the absence of negligence
b. The injured party has not contributed to the accident in any way
c. The defendant has exclusive control over the instrumentality causing the accident
d. All necessary care was taken by the defending party |
Joint/ Several Liability |
The principle that allows a plaintiff to collect damages from multiple negligent parties. It expands the principle of imputed liability. |
b. False
|
Superfund legislation has led to lower standards of care in regards to negligence
a. True
b. False |
a. Oregon
|
Which of the following states allows punitive damages?
a. Oregon
b. Nebraska
c. Massachusetts
d. Washington |
Increased damage awards |
Higher inflation and the existence of liability insurance are factors contributing to this |
Contractual liability |
One's liability imputed to another by way of contract; not insurable |
a. True
|
Employers are liable for any harm caused to their employees while on the job due to negligence
a. True
b. False |
a. Other tenants
|
The tenant of a property owes a degree of care to all of the following except
a. Other tenants
b. Trespassers
c. Licensees such as meter readers or mailmen
d. Invitees |
b. False
|
In property owner-tenant liability, there is currently a trend towards cementing and more clearly defining classifications of individuals to whom the tenant owes a necessary degree of care.
a. True
b. False |
Attractive Nuisance Doctrine |
The principle making the occupier of a property liable for injuries to children if there is a dangerous object or feature on the property that is likely to attract children. In this case, the child is treated as an invitee |
a. passes to the tenant
|
When a property is leased, any duty that the landlord owed to members of the public
a. passes to the tenant
b. remains with the landlord |
a. True
|
Legal action can be taken on a warranty that is either express or implied
a. True
b. False |
Uniform Commercial Code |
Under this code, the manufacturer of a product warrants that the goods are reasonably fit for their intended purpose, and that the description serves as an ample substitute for inspection |
Strict Tort |
Under this principle, the manufacturer of a product is liable for injuries sustained by the user, the purchaser, or a third party such as a bystander |
b. False
|
If a bystander is injured by a defective product, the manufacturer has no liability for their injury
a. True
b. False |
Completed Operations Liability
|
Criteria for this liability:
The damage must occur after the contractor has completed the work
The work has been accepted by the owner or abandoned by the contractor |
Professional acts liability |
The liability principle stating that the seller of services is required to use reasonable care not to injure other in the performance of those services |
a. True
|
The standard of care required by professionals is broadly interpreted; however, it is expected that they possess the skill, judgement and knowledge appropriate to their calling, and that they conduct themselves according to professional standards
a. True
b. False |
c. A and B
|
The use of Res ipsa Loquitur in medical malpractice has
a. Raised the cost of malpractice liability insurance
b. Made doctors unwilling to try new treatments
c. A and B
d. None of the above |
Respondeat superior |
The principle making employers responsible for the actions of their agents, no matter whether the employer is acting in accordance with or contrary to given directions |
b. False
|
An employer is entirely exempt from liability from the actions of an independent contractor in his or her employ
a. True
b. False |
b. False
|
An employer is responsible for any liability from the operation of an automobile, save for if he or she does not own it
a. True
b. False |
Vicarious Liability |
The legal principle which makes the parent of a minor liable for damage done by said minor by operating an automobile |
a. True
|
It is justifiable to believe that an operator of a motor vehicle is competent to handle it, unless there is obvious evidence of incapacity or known recklessness
a. True
b. False |
The owner |
In the case of a family car, this person is liable for any family member who uses the car |
b. Liability of the minor operating an automobile
|
Which of the following is not an area of negligence in terms of automobiles?
a. Liability of the employers for actions done by their servants or agents using automobiles for business
b. Liability of the minor operating an automobile
c. Liability of a legal operator of the automobile
d. Liability of the owner for the negligence of other operating his car |
b. An 18 wheeler used for personal pleasure
|
Which of the following is not eligible for a personal auto policy?
a. A private passenger car used for business or pleasure
b. An 18 wheeler used for personal pleasure
c. A pickup truck or van used in farming or transporting goods
d. A car owned or leased by an individual or jointly by a married couple |
b. 40%
|
What percent of motor vehicle related deaths in 2003 were due to alcohol?
a. 20%
b. 40%
c. 45%
d. 70% |
c. Liability ($91.7B or 59%)
|
The majority of private passenger auto premiums are:
a. Comprehensive
b. Collision
c. Liability
d. Physical Damage |
a. True
|
All residents are covered under a personal auto policy
a. True
b. False |
Occupying |
"In, upon, getting in, on, out, or off of" are all considered |
a. True
|
Definitions in a personal auto policy may differ by sections
a. True
b. False |
d. All of the above
|
Which of the following can be defined as "your covered auto"
i. Shown in declarations
ii. Small passenger auto, pickup, or van
iii. Newly acquired autos
iv. Trailer
v. Replacement vehicles
a. i and ii b. i, ii, ii, and v
c. ii only d. All of the above |
Section A: Liability coverage |
This part of the auto coverage pays legal judgement on your behalf which have resulted from an auto accident |
d. All of the above
|
Liability covers which of the following types of vehicles?
a. Owned
b. Leased
c. Borrowed
d. All of the above |
Insured persons |
This is defined as any person using your covered auto, as well as any organization whose liability arises from your negligence with auto |
Supplementary benefits |
This part of the personal auto policy covers defense costs up to policy limits, bail bonds, and lost earnings |
i, ii, iv, v, vi, vii, viii are generally excluded
|
Which of the following is not generally covered under a personal auto policy?
i. Intentional injury
ii. Damage to own property
iii. Damage due to hail
iv. Using vehicles without permission
v. Damage caused if driver in auto business uses car
vi. Damage caused while using a motorcycle
vii. Other vehicles not listed in declarations
viii. Damage caused while using car as taxi |
Section B: Medical payments |
Covers injuries to your person caused by an accident and sustained by an insured at a no-fault basis |
c. i and iii
|
Which of the following is covered by part B of a personal auto policy?
i. Occupants of the vehicle during an accident
ii. Anyone hit by your vehicle
iii. The insured if he or she is hit by a motor vehicle as a pedestrian
iv. Any condition excluded under part A
a. i only b. i, ii, and iii
c. i and iii d. i, ii, iii, and iv |
Section C: Uninsured Motorist Coverage |
This part of a personal auto policy covers damage from a motorist who is not properly insured |
Bodily injury and personal damage |
Part C of a personal auto policy largely deals with these sorts of damages |
a. True
|
An arbitration clause applies to Part C of a personal auto policy
a. True
b. False |
i, iii, v, vi
|
Characteristics of an uninsured motor vehicle include:
i. No policy applies at time of accident or limits are inadequate
ii.The damage caused is intentional
iii. Tort-feasor violates conditions of their contract
iv. Someone other than name insured is driving the vehicle
v. Hit-and-run vehicle
vi. Tort-feasor is insured by an insolvent insurer |
Section D: Physical Damage |
This part of a personal auto policy covers payments for direct accidental losses to covered autos or non-owned autos. It is optional |
a. True
|
Actual cash value is the same as Kelly Blue Book value for an automobile
a. True
b. False |
ii, iii, iv, and v
|
Section D of a personal auto policy pays for which of the following by default?
i. A rental car
ii. Collision damage
iii. Transportation and towing
iv. Repair and replacement
v. Damage other than collision, such as hail, flood, fire, or theft
vi. Damage from wear and tear
vii. Damage on a racetrack |
Section E: Duties after an Accident/Loss |
This part of the personal auto policy defines duties of the insured after experiencing a loss; generally, the insured must promptly notify the insurer of the circumstances of the accident, cooperate with the insurer, and notify police in an uninsured motorist scenario |
Section F: General Provisions |
This section of the personal auto policy defines the provisions of the policy; it includes territorial limits on where the policy applies, what happens in case the policy is canceled, and any additional endorsements onto the policy |
b. False (not Mexico) |
Generally, a personal auto policy issued in the US applies in Puerto Rico, Canada, and Mexico |
d. Pro-rata
|
What type of calculation is used to decide how much of the paid premium is refunded in case of cancellation of a personal auto policy?
a. NPV analysis
b. Excess of policy
c. All unpaid premium
d. Pro-rata |
b. False (not Race)
|
The primary factors in determining the cost of automobile insurance are territory, age, gender, marital status, race, and use of auto.
a. True
b. False |
i, iv, v
|
Which of the following are secondary factors in pricing auto insurance?
i. Number of vehicles insured
ii. Income
iii. Number of people in household
iv. Vehicle type
v. Driving record
vi. Previous insurers |