Deck 9: Insurance Markets: Economics and Issues

Question 1

Choose the true statement.

A) FAIR plans were developed to provide insurance to automobile drivers when coverage is otherwise unavailable.
B) FAIR plans are now found in all states.
C) FAIR plans require that each property owner that requests it, be given an inspection of his property and an offer of insurance at an appropriate rate or written notice of improvements needed before insurance can be offered.
D) In general, FAIR plans have shown underwriting gains in most states in most years.

Answer 1

C

Question 2

Participants in the American insurance market include all of the following except:

A) insurance buyers
B) insurance companies
C) insurance regulators
D) the FDIC

Answer 2

D

Question 3

Prior to September 11, 2001, property insurance policies:

A) covered terrorism
B) excluded terrorism from coverage
C) covered war
D) were very expensive

Answer 3

A

Question 4

Stare decisis means:

A) to stand by decisions
B) to stand for decisiveness
C) to let the thing speak for itself
D) to stare indecisively

Question 5

In most states the insurance commissioner is:

A) republican
B) democrat
C) appointed
D) elected

Question 6

In choosing an insurance company, the most important factor is:

A) how many dollars it pays for claims
B) the amount of liquid assets the insurer has
C) its financial strength
D) the state in which it is domiciled

Question 7

The text suggests that insurance consumers should:

A) inform themselves about the company, policy, etc. to protect their own self-interest
B) rely on government regulation to protect their interest, since insurance companies and policies cannot be understood by the public
C) rely on attorneys and the lawsuit process to protect themselves
D) rely on self-regulation of insurance companies and the insurer's goodwill to protect their interest

Question 8

Which of the following Latin terms means "to stand by decisions," and conveys the idea that court decisions set precedents?

A) res ipsa loquitor
B) stare decisis
C) ab initio
D) in hoc stare

Question 9

All the following are true concerning FAIR (Fair Access to Insurance Requirements) plans except:

A) they are one possible solution to the insurance availability problem
B) they are found in only four states
C) they are designed to deal with unavailability of property insurance
D) they have not been profitable in most states most years

Question 10

The A.M. Best Company can help you to determine which of the following about your insurer?

A) Its reputation for settling claims
B) Its customer service rating
C) How many complaints have been filed against it
D) Its financial strength rating

Question 11

All of the following are rights of insurance consumers except:

A) the right to accurate information
B) the right to have complaints heard
C) the right to affordable prices
D) the right to product development and improvement

Question 12

The efficient insurance market requires all of the following conditions except:

A) numerous sellers and buyers
B) well-informed consumers
C) numerous purchase substitutes (homogeneity)
D) a government subsidy for lower-income citizens

Question 13

Which of the following is true about the supply and demand curves for insurance?

A) The demand for insurance is very elastic and sensitive to price.
B) As price declines, the demand for insurance increases dramatically.
C) The supply of insurance increases dramatically with a decrease in the price.
D) Insurers will tend to reduce supply if the price is artificially increased or decreased.

Question 14

All the following are requirements for perfect competition except:

A) a well-established regulatory environment
B) numerous sellers, each holding a small market share
C) numerous well-informed consumers
D) a homogeneous, perfectly substitutable product

Question 15

Which of the following is a primary reason that insurance consumers are not well-informed?

A) Insurers have not made much effort to inform consumers.
B) The rewards of making informed decisions are not worth the cost of obtaining the needed information.
C) State insurance regulators do not provide the needed information.
D) Insurance prices are so low that most consumers do not care to be informed.

Question 16

All of the following firms provide financial ratings of insurance companies except:

A) A.M. Best
B) Standard & Poor's
C) Moody's
D) NASD

Question 17

Mr. Murray has asked you to help him choose an insurance company. Which of the following criteria would you not recommend that he take into consideration?

A) Insurer's financial strength
B) Insurer's claims service
C) Insurer's service both before and after a loss
D) The recommendation of at least two different insurance agents

Question 18

The individual consumer must ultimately deal with several issues to make an efficient purchase in the insurance market. Which of the following generally should not be a major consideration?

A) The type of policy covering the exposure(s)
B) The maximum amount of insurance coverage
C) The commission the agent will receive from the sale
D) The insurance agent's expertise

Question 19

Given the following choices, the best advice for purchasing automobile insurance is:

A) always buy full coverage
B) always buy the cheapest policy
C) choose the largest deductible you can reasonably afford
D) never buy auto insurance from a stock company

Question 20

One of the reasons why there is not sufficient supply for high-risk insurance applicants is:

A) consumers will not buy insurance if prices are increased
B) the existence of joint underwriters associations
C) regulators have limited the premiums that insurers can charge for such customers
D) the number of insurance contracts written by an insurer is totally regulated

Question 21

CFP stands for:

A) Chartered Financial Planner
B) Certified Financial Planner
C) Casualty Finance Professional
D) Claims and Financial Planner

Question 22

Which of the following statements about the numbers of buyers and sellers in the insurance market is correct?

A) The market share of the four largest sellers is bigger than those found in other industries, which are considered competitive.
B) The insurance market has a sufficient numbers of buyers, but not a sufficient number of sellers.
C) The insurance market has a sufficient numbers of sellers, but not a sufficient number of buyers.
D) The market share of the four largest sellers is comparable to those found in other industries, which are considered competitive.

Question 23

Which of the following statements about the insurance market is not correct?

A) Compulsory insurance laws make the insurance market more efficient.
B) The insurance market has many buyers and sellers.
C) Insurance companies do not hold constrictive rights to their clients.
D) The insurance market consist of buyers , sellers, and regulators.

Question 24

Which of the following is the best driver to maintain an adequate supply of insurance at affordable prices?

A) Regulations
B) Excluding high-risk applicants
C) Excluding low-risk applicants
D) Competition among insurers

Question 25

Insurance companies that have funny TV commercials:

A) make the insurance market more efficient
B) attract more attention of regulators
C) waste money of the insured
D) make themselves less reputable

Question 26

Insurance regulators:

A) make the insurance market more efficient
B) have been forced to intervene in the market periodically
C) assist consumers in choosing the right insurance company
D) mainly deal with low-risk insurance applicants

Question 27

Why do regulators care whether high-risk drivers have insurance?

A) Regulators are silly and have nothing better to do.
B) Otherwise insurance companies would lose too much money.
C) Excluding high-risk drivers is a violation of the Constitution.
D) The societal costs associated with the accidents caused by high-risk drivers is at least somewhat reduced by having them pay an insurance premium, even if it is too low for the associate risk.

Question 28

CPCU stands for:

A) Certified Property and Casualty Underwriter
B) Claims, Property, and Casualty Underwriter
C) Chartered Property Casual Underwriter
D) Chartered Professional Claims Underwriter

Question 29

CLU stands for:

A) Chartered Life Underwriter
B) Casualty Life Underwriter
C) Claims Litigation Underwriter
D) Chartered Legal Underwriter

Question 30

When choosing the right amount of life insurance to purchase, the consumer should first consider:

A) how much money she can afford for monthly premiums
B) her financial goals and reasons for buying it in the first place
C) how many assets she already owns
D) none of the above

Question 31

Why is it more difficult to choose a good life insurance policy than to choose a good auto insurance policy?

A) People don't like thinking about death or dying, and thus cannot be objective in the selection process.
B) Most people rarely need life insurance, while auto insurance is required by law.
C) Life insurance policies are not standardized, while many non-life policies are.
D) Both B and C are correct.

Question 32

A lack of insurance for high-risk drivers:

A) makes the insurance market more efficient
B) should change their behavior
C) makes insurance costs go up
D) reduces regulation in the insurance market

Question 33

Which of the following statements about joint underwriting associations is correct?

A) All states have joint underwriting associations.
B) All those who want to get insurance can join.
C) Insurance companies charge the involuntary market losses to the voluntary market.
D) They provide assigned risk plans.

Question 34

Consumers that have done some research to gather insurance information:

A) make the insurance market less efficient
B) probably will get better subsequent information from insurance companies
C) probably will just get "razzle-dazzle" from insurance companies
D) probably wasted their time

Question 35

Moody's Investors Service provides what type of information about insurers?

A) Financial strength
B) Average time it takes them to pay valid claims
C) Daily stock price reports
D) Complaint history

Question 36

Which of the following statements about FAIR plans is correct?

A) The success of FAIR plans is unclear.
B) FAIR plans are a good solution to the problem of unavailability of property insurance.
C) FAIR plans show that the provision of property insurance by the private market is a success.
D) FAIR plans benefit property owners in the suburbs.

Question 37

David and Kathy have asked you about A.M. Best Reports services. They specifically want to know if there are any criticisms of Best's and other rating agencies. You would be correct if you told them:

A) all the agencies tend to agree on the ratings for a given company, so it's difficult to compare them
B) ratings are merely estimates, and are no guarantee that the future of the insurer will remain the same
C) it only takes one letter grade to sum up the condition of a company
D) the ratings firms have almost never made mistakes in their assessments of companies, so they're due to make one any time now

Question 38

Most markets involve two parties. How many does the insurance market have?

A) 1
B) 2
C) 3
D) 4

Question 39

When choosing the proper amount of insurance:

A) one should always insure those exposures that occur most frequently
B) one should always take a little bit less insurance than the agent recommends to save some money in the long run
C) one should never expose more to loss than one can afford to lose
D) one should take the biggest deductible that is available

Question 40

Which of the following insurance applicants have not had problems buying insurance in recent years?

A) Politicians
B) Directors of Firms
C) Medical Doctors
D) Hospitals

Question 41

Which of the following is not a source of consumer protection in the insurance industry?

A) Insurance commissioners
B) Laws
C) Politicians
D) Courts

Question 42

Briefly explain the role of the courts and the law in providing consumer protection relative to insurance products.

Question 43

Explain briefly why increasing or decreasing price artificially can decrease the supply of insurance.

Question 44

What is the purpose of an automobile insurance plan? How does an auto plan generally work?

Question 45

Which of the following statements about insurance laws is not correct?

A) Insurance laws are generally fairly flexible.
B) There are insurance laws that deal with fair prices for insurance.
C) There are insurance laws that deal with the solvency of insurance companies.
D) Insurance laws protect the rights of the insured.

Question 46

The insurance market's structure has no major flaws.

Question 47

Health care providers and officers of corporations have had trouble obtaining liability insurance in recent years.

Question 48

Automobile insurance plans, also known as assigned risk plans, are designed to give discounts to good drivers who have had no insurance claims or motor vehicle tickets for at least three years.

Question 49

The role of the court is to promote the consumer's interest, while the role of the insurance commissioner is to promote the insurer's interest.

Question 50

The lack of availability of life insurance is a serious problem in the U.S.

Question 51

Finding the lowest price is the first responsibility of the smart insurance consumer.

Question 52

New York's insurance law makes it illegal to make false statements or rumors about insurance companies.

Question 53

The insurance commissioner applies the state insurance code to regulate insurance companies and their activities.

Question 54

Which of the following statements about the courts is correct?

A) Courts mostly deal with insurance companies denying coverage.
B) Courts mostly deal with insurance companies not paying on legitimate claims.
C) Courts mostly deal with insurance companies not providing sufficient coverage.
D) Courts mostly deal with insurance companies not paying on fraudulent claims.

Question 55

The text associates low cost insurance with a bargain.

Question 56

The main thrust of state insurance regulation with respect to the consumer has been to protect consumers from abusive practices, and to protect them from insolvent insurers.

Question 57

Insurance companies offer identical and perfectly substitutable products.

Question 58

FAIR plans guarantee insurance to all applicants.

Question 59

Comparison shopping for insurance is generally not worthwhile since very little price variation is found in either life or property insurance.

Question 60

Which of the following statements about insurance commissioners is not correct?

A) Insurance commissioners interpret the state's insurance laws.
B) Insurance commissioners enforce the state's insurance laws.
C) Insurance commissioners have limited powers when it comes to protecting the insured.
D) Every state has an insurance commissioner.

Question 61

When the consumer purchases insurance, several key decisions are made. What are these key decisions?