fin3330 40077 risk management & insurance sec 01 spring 2018 cps

  

Question 1 

1. If Paul is found in the      unfortunate circumstance where he is deemed to be liable legally despite      the fact that fault or negligence are not capable of being proved, this      would be an example of: 

  

1.

general damages.

 

2.

comparative   negligence.

 

3.

an intentional tort.

 

4.

strict liability.

2.00000 points   

Question 2 

1. As a result of an auto accident,      Janet, a resident of Minnesota, commenced a lawsuit against William for      injuries she suffered. The court found that Janet was 40 percent at fault      in the accident and William was 60 percent at fault in the accident. The      common law doctrine of contributory negligence indicates that Janet should      receive:

  

1.

40% of her actual   damages

 

2.

nothing.

 

3.

60% of her actual   damages.

 

4.

100% of her actual   damages.

2.00000 points   

Question 3 

1. After graduating from college, if      you were acting in a position as a risk manager, which of the following      items would be helpful to you in your effort to identify pure loss      exposures? 

  

1.

commodity prices 

 

2.

physical   inspections

 

3.

currency exchange   rates

 

4.

interest rate   movements 

2.00000 points   

Question 4 

1. If a person is knowledgeable of      the law of large numbers, she would conclude that it would indicate      what should happen as an insurer experiences an increase in the number of      units insured?

  

1.

Underwriting   expenses would decrease

 

2.

The amount the   insurer expects to pay in claims should decrease

 

3.

Actual results will   more closely approach expected results

 

4.

The insurer’s   profitability should become more variable

2.00000 points   

Question 5 

1. Your next door neighbor asks you      to explain for a fortuitous type of loss which of the following      characteristics would apply:

I.    Loss is certain to occur

II.   Loss occurs as a result of chance

  

1.

I only

 

2.

II only

 

3.

both I and II

 

4.

neither I nor II

2.00000 points   

Question 6 

1. As an insurance agent located in      Rhode Island you are reviewing the following situations that relate to      open-perils coverage. Which of them is (are) considered to be true?

I.    All losses are covered except those losses specifically excluded.

II.  The burden of proof is on the insured to prove that a loss is covered.

  

1.

I only

 

2.

II only

 

3.

both I and II

 

4.

neither I nor II

2.00000 points   

Question 7 

1. Your long-time downtown insurance      agent would inform you that unique exclusions are used in insurance      policies for each of the following reasons except to:

  

1.

reduce moral   hazard.

 

2.

waive policy   conditions.

 

3.

eliminate coverage   for uninsurable perils.

 

4.

eliminate coverage   not needed by typical insureds.

2.00000 points   

Question 8 

1. Imagine that you are an insurance      adjuster and someone asked you to define a loss frequency. You would      respond with:

  

1.

probable size of   the losses that may occur during some period.

 

2.

probable number of   losses that may occur during some period.

 

3.

probability that   any particular piece of property may be totally destroyed.

 

4.

probability that a   liability judgment may exceed a firm’s net worth.

2.00000 points   

Question 9 

1. Beacon Cigarette Corp., located in      Illinois, is worried that it may be sued and held liable in a court of law      and ordered to pay a large $$ award to a smoker harmed by the firm’s      products. The characteristics of the legal system that serve to increase      the frequency and severity of loss are known as:

  

1.

moral hazard.

 

2.

particular risk.

 

3.

speculative risk.

 

4.

legal hazard.

2.00000 points   

Question 10 

1. In your position as an underwriter      located in Vermont, you are aware of which of the following statements      about underwriting standards as being true?

I.  A purpose of underwriting standards is to reduce adverse selection occurring against the insurer. 

II.  Equitable rates should be charged to ensure that each group of policy owners will pay its own way in terms of losses and expenses. 

  

1.

I only 

 

2.

II only 

 

3.

both I and II

 

4.

neither I nor II 

2.00000 points   

Question 11 

1. As the owner of Murray Insurance      Agency, you would advise you client that a situation that involves strict      liability includes which of the following? 

  

1.

operating a car

 

2.

blasting operations   

 

3.

manufacturing a   product

 

4.

mining operations

2.00000 points   

Question 12 

1. As a college student investigating      the characteristics of firms organized as mutual insurers which of the      following would you find as true?

  

1.

They are legally   organized as partnerships.

 

2.

They have a board   of directors which is selected by state insurance departments.

 

3.

They are owned by   their stockholders.

 

4.

They may pay   dividends to their policyholders. 

2.00000 points   

Question 13 

1. Your friend Jennifer from      California tells you that she is in in need of insurance that is not      available in the state where she lives. In order to obtain insurance from      a non-admitted insurer, you advise her to get in touch with a:

  

surplus lines   broker.

 

nonadmitted agent.

 

general agency   broker.

 

direct writer.

2.00000 points   

Question 14 

1. It is 2018 and Jim is estimating a      loss reserve. The reserve is based on a calculation that includes duration      of disability, life expectancy and similar factors. Such a method of      estimating loss reserves is referred to as the: 

  

1.

judgement method. 

 

2.

tabular value   method. 

 

3.

loss ratio method. 

 

4.

average value   method. 

2.00000 points   

Question 15 

1. In the insurance sector, an      insurance company’s property and casualty loss reserve amount will factor      in estimates for each of the following items except:

  

1.

claims anticipated   but not yet incurred.

 

2.

claims reported and   adjusted but not yet paid.

 

3.

claims reported and   filed but not yet adjusted.

 

4.

claims incurred but   not yet reported to the company.

2.00000 points   

Question 16 

1. You overhear from an insurance      friend visiting from Connecticut that a form of loss reserve that is      employed for each individual claim when it is reported to a property and      casualty insurance company is called a(n) 

  

1.

admitted asset. 

 

2.

incurred-but-not-reported   (IBNR) reserve. 

 

3.

unearned premium   reserve. 

 

4.

case reserve. 

2.00000 points   

Question 17 

1. Ted’s Consignment was destroyed by      a fire. The firm’s fixtures cost $1,200 when  purchased, but similar      new fixtures now costs $1,800. Assuming the fixtures were 50 percent      depreciated, what is the actual cash value of Ted’s loss?

  

1.

$600

 

2.

$900

 

3.

$1200

 

4.

$1800

2.00000 points   

Question 18 

1. The actual cash value would be      calculated by an adjuster taking into account all relevant factors an      expert would use to determine the value of the property under which rule?

  

1.

the circumstantial   evidence rule

 

2.

the broad evidence   rule

 

3.

the property   indemnity rule

 

4.

the objective value   rule

2.00000 points   

Question 19 

1. ACME Insurance Company’s      policyholders’ surplus would be defined as the difference between its

  

1.

assets and its   liabilities.

 

2.

premium income and   its expenses.

 

3.

reserves and   its liabilities.

 

4.

assets and its   nonadmitted assets.

2.00000 points   

Question 20 

1. If you ran your own insurance      agency, which kinds of risks would you deem best address the requirements      needed to be insurable by a private insurance firm?

  

1.

most market risks

 

2.

property risks

 

3.

financial risks

 

4.

political risks

2.00000 points   

Question 21 

1. A local Kiwanis Hall decided to      launch a life insurance company to provide insurance to its members. The      insurance company will operate as a nonprofit organization, thus receiving      favorable tax treatment. The insurer formed will be considered to be a: 

  

1.

health maintenance   organization.

 

2.

stock insurer.

 

3.

fraternal insurer.

 

4.

reciprocal   exchange.

2.00000 points   

Question 22 

1. You have an insurance agent over      to your house with a group of friends for dinner. In discussing insurance      coverages she explains that an insurable interest for purposes of      purchasing property and liability insurance will be supported by each of      the following except for:

  

1.

former ownership of   property.  

 

2.

potential legal   liability.

 

3.

secured creditors.

 

4.

contractual right. 

2.00000 points   

Question 23 

1. Which insurance law requires      insurers to receive approval of rates prior to making use of them if the      rate change is greater than a predetermined range?

  

1.

flex-rating law

 

2.

prior-approval law

 

3.

file-and-use law

 

4.

use-and-file law

2.00000 points   

Question 24 

1. At an insurance conference that      you attend in New Jersey, you learn that a commercial package policy      contains a common policy conditions page. This page provides which of the      following types of information?

I.    A description of the property that is insured. 

II.  A provision describing the insurer’s right to audit the insured’s books and records

  

1.

I only

 

2.

II only

 

3.

both I and II

 

4.

neither I nor II

2.00000 points   

Question 25 

1. You are taking a 4-hour P&C      insurance license exam. Your next exam question indicates that the      building and personal property insurance form provides several optional      coverages. Which optional coverage provides that no deduction is taken for      depreciation when settling a covered loss?

  

1.

extra expense.

 

2.

agreed value.

 

3.

replacement cost.

 

4.

inflation guard.

2.00000 points   

Question 26 

1. Debby holds the position of senior      risk and compliance manager of Distler Company, located in Florida. Debby      wants to obtain protection for direct physical loss under the business and      personal property (BPP) coverage form. Which causes of loss form should      Debby complete to obtain this coverage? 

  

1.

special form

 

2.

basic form 

 

3.

standard form 

 

4.

broad form 

2.00000 points   

Question 27 

1. Rachel Forman owns a building in      New York that she has insured on a replacement cost basis for $2.4 million      under a fire insurance policy that contains an 80 percent coinsurance      clause. Assume that the building has a replacement cost of $4 million. How      much will Rachel collect if the building sustains a covered fire loss with      a replacement cost of $80,000? 

  

1.

$50,000

 

2.

$60,000

 

3.

$66,667

 

4.

$80,000

2.00000 points   

Question 28 

1. Wilson Shipping, located in Texas,      owns 10 large cargo container ships which transport goods from Europe. The      firm can obtain physical damage insurance on these vessels by purchasing

  

1.

hull insurance.

 

2.

cargo insurance.

 

3.

protection and   indemnity insurance.

 

4.

freight insurance.

2.00000 points   

Question 29 

1. The liability that is related to      work being performed by outside contractors is referred to as

  

1.

contractual   liability.

 

2.

contingent   liability.

 

3.

care, custody, and   control liability.

 

4.

customer’s   liability.

2.00000 points   

Question 30 

1. A homeowner in Detroit was injured      when a furnace exploded following its faulty installation by a heating and      cooling business. For the heating and cooling business, this is an example      of

  

1.

contingent   liability.

 

2.

completed   operations liability.

 

3.

products liability.

 

4.

contractual   liability

2.00000 points   

Question 31 

1. Herget Gallery owns a building on      Wharf Street in Washington, D.C. Herget Gallery purchased a Commercial      General Liability Policy containing no endorsements. All of the claims      below would be covered under the policy except for:

  

1.

An artist sued the   gallery for slander after an employee of the gallery said the artist’s work looks   like it was painted by an intoxicated monkey.

 

2.

A customer is   injured when a painting falls from the wall and strikes the customer.

 

3.

A customer is   injured after falling on a slippery floor at the gallery.

 

4.

An employee of the   gallery accidentally started a fire that caused extensive damage to the   building. 

2.00000 points   

Question 32 

1. A prerequisite provision that can      be included in a claims-made commercial general liability policy provides      coverage for claims filed after the policy has expired according to your professor.      This provision is called a(n)

  

1.

extended reporting   period provision.

 

2.

agreed amount   endorsement.

 

3.

retroactive date   provision.

 

4.

per-occurrence   limit clause.

2.00000 points   

Question 33 

1. The policy section addressing      liability of an unendorsed PAP would cover which of the following      situations if the insured is legally liable?

  

The insured injures   a pedestrian while operating a friend’s new motorcycle.

 

The insured backs   into and damages the garage door of his rented house.

 

The insured   intentionally runs into another motorist’s car after the driver cut in front   of him. 

 

The insured damages   a parked car while driving a dump truck for his employer.

2.00000 points   

Question 34 

1. As an insurance agent located in      Tennessee, your customer walks into your office and asks:

With respect to automobile insurance, what is the intended purpose of the extended non-owned liability coverage endorsement to the PAP? Your response would be:

  

1.

to provide   liability coverage for an insured’s employer when an insured uses his or her   auto for business purposes

 

2.

to provide   liability coverage for an insured who occasionally operates a non-owned auto

 

3.

to provide   liability coverage for anyone who loans a covered auto to another driver

 

4.

to provide   liability coverage for an insured who operates a non-owned auto on a regular   basis

2.00000 points   

Question 35 

1. Nicole was injured badly by an      uninsured drunk driver who was driving an F150 while she was riding in a      friend’s car. Nicole and her friend each have a PAP with an uninsured      motorists limit of $50,000. How much will be paid by each policy if it is      determined that Nicole has $70,000 of bodily injuries?

  

1.

Each policy will   pay $35,000.

 

2.

Nicole’s policy   will pay $50,000, and the friend’s policy will pay nothing.

 

3.

Nicole’s policy   will pay $50,000, and the friend’s policy will pay $20,000.

 

4.

The friend’s policy   will pay $50,000, and Nicole’s policy will pay $20,000.

2.00000 points   

Question 36 

1. Reinsurance would be used by      Sundown Insurance, a primary insurer, for each of the following reasons except      to:

  

1.

increase the   unearned premium reserve.

 

2.

increase   underwriting capacity.

 

3.

protect   against catastrophic losses.

 

4.

stabilize profits.

2.00000 points   

Question 37 

1. Benvi Insurance Company of New      Mexico reported the following results on its

      financial statements last year: 

           Premiums Written                $90,000,000

           Loss Adjustment Expenses     $5,000,000

           Underwriting Expenses          30,000,000 

           Premiums Earned               $100,000,000

           Incurred Losses                    $70,000,000

What was Benvi’s’s combined ratio last year?

  

1.

100.0 

 

2.

103.3

 

3.

105.0 

 

4.

108.3 

2.00000 points   

Question 38 

1. Sally is a teacher at a local high      school. Her personal estimate of the chance of loss is a(n)

  

1.

objective   probability.

 

2.

objective risk.

 

3.

subjective   probability.

 

4.

a priori probability.

2.00000 points   

Question 39 

1. In a group discussion with      classmates the topic of retention arises. Each of the following are      considered to be potential advantages of retention except:

  

1.

lower expenses.

 

2.

increased cash   flow.

 

3.

encouragement of   loss prevention.

 

4.

protection from   catastrophic losses.

2.00000 points   

Question 40 

1. Among the listed choices below, identify      which is an expense for a life insurance company.

  

1.

loss reserves

 

2.

death benefits paid   to a beneficiary

 

3.

unrealized capital   gains

 

4.

realized capital   losses

2.00000 points   

Question 41 

1. The significant Dodd-Frank Act of      2010 gives authority to the Federal Insurance Office for which of the      following?

  

1.

to represent the   federal government in international discussions of insurance regulation

 

2.

to license and   charter new insurance companies that plan to operate nationally 

 

3.

to be the   primary monitor of insurance company solvency 

 

4.

to be the primary   regulator of all aspects of insurance 

2.00000 points   

Question 42 

1. In a group discussion with your      Northeastern MBA class, someone brings up the topic of insurable interest.      Someone asks when is an insurable interest legally required to exist in      life insurance? The correct response is:

  

1.

only at the time of   the insured’s death

 

2.

only at the   inception of the policy

 

3.

only at the time   the beneficiary is paid

 

4.

both at the time of   the insured’s death and at the inception of the policy

2.00000 points   

Question 43 

1. In the realm of the insurance      industry, casualty insurance coverage would apply to which of the      following categories of insurability? 

  

1.

workers compensation   insurance

 

2.

fire insurance 

 

3.

marine insurance 

 

4.

life insurance 

2.00000 points   

Question 44 

1. As a medical doctor, you are      curious about medical payments under a PAP.  You wonder: Which of the      following statements about the medical payments coverage of the PAP is      true?   The correct answer is:

  

1.

The amount of the   benefit typically is $100,000.

 

2.

Covered expenses   must be incurred within 30 days of the accident.

 

3.

Covered expenses   include the cost of funeral services.

 

4.

The benefit limit   applies on a per-accident basis rather than on a per-person basis.

2.00000 points   

Question 45 

1. Danielle’s office building,      located in Manchester, New Hampshire, was damaged by a fire caused by a      careless tenant. After paying Danielle for the loss, the insurance company      sued the tenant to recover its loss. This suit is based on the principle      of

  

1.

warranty.

 

2.

insurable interest.

 

3.

utmost good faith.

 

4.

subrogation.

2.00000 points   

46     

1. Please list and explain the      advantages and disadvantages that accrue to an insurer when it decides to      purchase reinsurance.

       47     

1. List three methods used for      determining case reserves and explain how these three methods differ in      execution / processing.