RISK MANAGEMENT AND INSURANCE EXAM 1

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RISK MANAGEMENT AND INSURANCE (EXAM 1)

Actual Qs and Ans - Expert-Verified Explanation -Guaranteed passing score -92 Questions and Answers

-Format: Multiple-choice / Flashcard

Question 1: Investments

Answer:

Life Insurance Investments. Property and Liability Investments.

Question 2: Characteristics of Insurance

Answer:

Pooling of Losses. Payment of Fortuitous Losses. Risk Transfer. Indemnification.

Question 3: Lloyd's of London

Answer:

Not an insurer, but an association that provides services to its members. Insurance written by syndicates that belong to Lloyd's. Individual (Names) or corporate members put up capital to insure risks through the syndicate they belong to.

Question 4: Components of the Insurance

Answer:

Pure Premium (Fair Share of Loss Costs) + Profit/Contingency Factor + Administration Expenses + Sales/Commission Costs + Premium Taxes = Gross Premium (What the Insured Pays).

Question 5: Accounting

Answer:

Responsible for the financial accounting operations.

Question 6: Unilateral

Answer:

Only one party make a legally enforceable promise.

Question 7: Direct Loss

Answer:

Physical damage. (Destruction, theft).

Question 8: Requirements of an Enforceable Contract

Answer:

Offer (by insured) and Acceptance (by insurer). Consideration: The thing of value exchanged. Insurer - promise, insured - premiums $. Competent Parties. Legal Purpose; Legal Form.

Question 9: Subjective Probability

Answer:

Individual's personal estimate of the chance of loss.

Question 10: Risk Treatment Methods

Answer:

Avoidance, Loss Control. Risk Financing. Retention, Captives, Transfer.

Question 11: Ways to Control Hazards

Answer:

Underwriting. Contract Provisions. Deductibles.

Question 12: Brokers

Answer:

Represents the insured. (Large Commercial Accounts, Surplus Lines).

Question 13: Law and the Insurance Agent

Answer:

Agent must have authority to represent the principal. Principal is responsible for the actions of agents acting within the scope of their authority.

Question 14: Current Issues

Answer:

Financial Meltdown of AIG. Modernization of Insurance Regulation. Insolvencies. Credit-Based Insurance Scores.

Question 15: Claims Settlement

Answer:

Verify the loss. Fair and prompt settlement of losses. Provide personal assistance to the insured.

Question 16: Enterprise Risk

Answer:

Encompasses all major risk faced by a business form, such as Pure, Speculative, Strategic, Operational, and Financial.

Question 17: State Versus Federal Regulation

Answer:

Advantages of Federal Regulation: Uniformity of laws rather than by each state. Greater efficiency.More competent regulators. State Advantages: Greater innovation. Decentralized political power.

Question 18: Reciprocal Exchange

Answer:

An unincorporated organization. Small percent of premium. USAA is one such company.

Question 19: Pre-Loss-Post

Answer:

Reduce Worry, Fear. Cost/Benefit Analysis. Externally Imposed Obligations (OSHA). Survival.Continued Operations. Stability of Earnings. Continued Growth. Social Responsibility.

Question 20: Benefits of Risk Management

Answer:

Setting Objectives. Cost of Risk is Reduced. Society Benefits.

Question 21: Advantages and Disadvantages of Retention and Insurance

Answer:

Retention: (Advantages) Save money, lower expenses, increase cash flow, encourage loss prevention.(Disadvantages) Potential higher losses, higher expenses, higher taxes. Insurance: (Advantages) Paid losses, reduce uncertainty, loss control services, tax deduction. (Disadvantages) Time negotiation coverage, payment in advance.

Question 22: Moral

Answer:

Characteristics of a person that increase the chance of loss - arson, fraud.

Question 23: Risk Management

Answer:

Manages the risks of an organization.

Question 24: Ratemaking - Actuarial

Answer:

Price insurance policies using statistics and computer programs. Provide financial statements to regulators. Project future profitability. Analyze pension plan funding. FSA, FCAS, EA.

Question 25: Warranty

Answer:

Statement of fact or promise by the insured.

Question 26: Risk Treatment Methods

Answer:

Avoidance. Loss of Control. Noninsurance Transfer. Insurance Transfer. Retention.

Question 27: Legal

Answer:

Policy forms, defense, subrogation, investments.