Question 1

In 2008,Liberty Mutual Insurance Company acquired Safeco Insurance Company.This acquisition demonstrates which financial services industry trend?
A)convergence
B)demutualization
C)mass merchandising
D)consolidation

Accepted Answer

The acquisition of Safeco Insurance Company by Liberty Mutual Insurance Company is an example of consolidation in the financial services industry, where larger companies acquire or merge with smaller companies to gain market share, increase their customer base, and reduce competition.

Question 2

The leaders of a religious group decided to start a life insurance organization to insure members of the religious group.The insurer will operate as a nonprofit organization,thus receiving favorable tax treatment.The insurer formed will be a
A)health maintenance organization.
B)stock insurer.
C)fraternal insurer.
D)reciprocal exchange.

Accepted Answer

Fraternal insurers are insurance organizations formed by members of a fraternal or religious organization for the purpose of providing insurance to its members. They operate as nonprofit organizations and receive favorable tax treatment. Therefore, the best choice in this scenario is a fraternal insurer.

Question 3

Which of the following statements is (are)true with respect to the financial services industry?
I.The number of life insurers operating in the industry continues to increase at a rapid rate.
II.The Financial Modernization Act of 1999 permits financial institutions to compete in other financial markets outside their core business area.
A)I only
B)II only
C)both I and II
D)neither I nor II

Accepted Answer

Statement I is false as the number of life insurers operating in the industry has been decreasing in recent years. Statement II is true as the Financial Modernization Act of 1999, also known as the Gramm-Leach-Bliley Act, allows financial institutions to offer a wider range of financial services outside of their traditional areas of business.

Question 4

A personal lines insurance company initiating banking and investment services for its policyowners demonstrates which financial services industry trend?
A)convergence
B)demutualization
C)mass merchandising
D)consolidation

Accepted Answer

Convergence refers to the merging of different financial service industries, such as insurance and banking. In this case, the personal lines insurance company is initiating banking and investment services, thereby converging with the banking industry.

Question 5

ABC Term 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 type of marketing system that ABC Term Life Insurance Company uses is called the
A)mass merchandising system.
B)mixed marketing system.
C)direct response system.
D)worksite marketing system.

Accepted Answer

The company markets its coverages directly to consumers through various mediums like television, radio, newspaper, and the Internet without any agents involved. This type of marketing system is called the direct response system.

Question 6

The financial services field is currently experiencing consolidation and convergence.If both of these trends continue,in the future we should observe
A)fewer financial institutions offering a narrower range of financial services products.
B)fewer financial institutions offering a wider range of financial services products.
C)more financial institutions offering a narrower range of financial services products.
D)more financial institutions offering a wider range of financial services products.

Accepted Answer

The convergence of financial services means that financial institutions are offering a wider range of products than ever before, with traditional lines between banks, insurers, and investment firms blurring. Meanwhile, consolidation means that there are fewer overall financial institutions, but those that remain may offer a diverse range of services. Therefore, option B is the most likely outcome if both trends continue.

Question 7

Jim would like to start a business raising thoroughbred racehorses.The business would be the first of its kind in the state where he lives.Obtaining insurance on the horses is a key concern,and he was dismayed to learn that none of the insurers authorized to operate in his state offer this specialty insurance.What is the name of the intermediary which Jim can use to place this coverage with an insurer not admitted to his state?
A)alien insurer
B)general agent
C)surplus lines broker
D)direct writer

Accepted Answer

A surplus lines broker is an intermediary licensed to place insurance coverage with non-admitted insurers, which may include specialty coverage not offered by admitted insurers. In this case, Jim can use a surplus lines broker to find an insurer who offers thoroughbred racehorse insurance coverage.

Question 8

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.This type of insurer is called a
A)stock company.
B)reciprocal exchange.
C)fraternal company.
D)mutual company.

Accepted Answer

A stock company is a type of insurer where ownership is held by shareholders who provide capital to the company in return for ownership rights. The shareholders bear the risks and receive the profits of the company. Customers purchase insurance policies from the company but do not have any ownership rights. The fact that the investors in this scenario receive ownership interest in the company indicates that this is a stock company.

Question 9

Which of the following statements is (are)true about savings bank life insurance (SBLI)?
I.Each depositor at the savings bank receives life insurance equal to his or her savings account balance.
II.The goal of SBLI is to provide low-cost life insurance to consumers.
A)I only
B)II only
C)both I and II
D)neither I nor II

Accepted Answer

Statement I is incorrect as not all savings banks offer SBLI, and even for those that do, the life insurance is not necessarily equal to the savings account balance. Statement II is correct as providing low-cost life insurance is indeed the goal of SBLI.

Question 10

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.The company that R.I.P.formed is called a
A)captive insurer.
B)reciprocal insurer.
C)fraternal insurer.
D)holding company.

Accepted Answer

R.I.P. established its own insurance company in Bermuda for the purpose of insuring its own loss exposures, which is called a captive insurer.

Question 11

Marcy advises her clients on investments,taxes,wealth management,estate issues,budgeting,and insurance.Marcy is also a licensed life insurance agent.When Marcy sells life insurance to a client,the distribution channel used is a(n)
A)stock broker.
B)financial planner.
C)financial institution.
D)independent agent.

Accepted Answer

The answer of Marcy advises her clients on investments,taxes,wealth management,estate...

Question 12

Sarah owns a property and liability insurance agency.She is authorized to represent several insurance companies and she is compensated by commissions.Sarah's agency owns the expiration rights to the business she sells.Sarah is a(n)
A)independent agent.
B)exclusive agent.
C)direct writer.
D)insurance broker.

Accepted Answer

Independent agents represent multiple insurance companies and own the expiration rights to the business they sell, distinguishing them from exclusive agents, direct writers, and brokers.

Question 13

RST Insurance is an interesting company.It doesn't have any agents.Instead,the company sells insurance through radio ads,telemarketers,and newspaper and magazine inserts.This distribution method is called
A)reciprocal exchange.
B)direct response system.
C)mass merchandising.
D)multiple distribution system.

Accepted Answer

RST Insurance uses a direct response system which involves selling insurance directly to customers through various channels without the need for agents.

Question 14

Which of the following statements about Blue Cross and Blue Shield plans is (are)true?
I.Blue Cross and Blue Shield plans can be organized on a nonprofit basis or on a for-profit basis.
II.Blue Cross provides coverage for hospital services; Blue Shield provides coverage for physicians' and surgeons' fees.
A)I only
B)II only
C)both I and II
D)neither I nor II

Accepted Answer

Statement I is true as Blue Cross and Blue Shield plans can be organized on a nonprofit or for-profit basis depending on the specific plan. Statement II is also true as Blue Cross typically provides coverage for hospital services and Blue Shield provides coverage for physician and surgeon fees.

Question 15

Cathy just started a job with XYZ Manufacturing Company.She attended an orientation and was given a packet providing information about the various employee benefits XYZ offers.One item in the packet was a booklet and application form from an auto insurer.The insurer offers lower premiums to XYZ employees.The insurer's plan for selling individually-underwritten auto insurance to employees of XYZ Manufacturing Company is called
A)direct response.
B)mass merchandising.
C)personal selling.
D)multiple marketing.

Accepted Answer

Mass merchandising refers to the strategy of offering insurance products to a large group of people, such as employees of a company, often at a discounted rate.

Question 16

Brian buys and sells investment securities for his clients.Brian also decided to become a licensed life insurance agent to better serve his customers.While Brian's primary focus is buying and selling financial securities for his clients in exchange for commissions,he also earns commissions on his life insurance sales.Brian is a(n)
A)financial planner.
B)stock broker.
C)insurance broker.
D)personal-producing general agent.

Accepted Answer

Brian is primarily focused on buying and selling financial securities for his clients, which is the role of a stock broker. His additional role as a licensed life insurance agent does not change his primary occupation.

Question 17

All of the following are reasons why mutual insurance companies convert to stock insurance companies EXCEPT
A)Stock companies can offer stock options to attract and retain key personnel.
B)Stock companies can raise new capital more easily.
C)Stock companies are exempt from state insurance regulation.
D)Stock companies offer greater flexibility to expand through acquisitions.

Accepted Answer

Stock companies are not exempt from state insurance regulation. Instead, they are subject to the same regulatory requirements as mutual companies.

Question 18

Scott works in property and liability insurance marketing.He legally represents insurance purchasers,rather than insurance companies.Scott is paid a commission on the insurance placed with insurers.Scott is a(n)
A)exclusive agent.
B)direct writer.
C)branch manager.
D)insurance broker.

Accepted Answer

Scott represents the insurance purchasers and is paid a commission, which are characteristics of an insurance broker.

Question 19

Big Mutual Insurance Company would like to take advantage of financial services deregulation by acquiring a bank and a stock brokerage firm.Big Mutual,however,would have trouble raising the funds needed to make these acquisitions under the mutual form of organization.Big Mutual is planning to switch from the mutual form of organization to the stock form,and to issue shares of common stock to raise capital.This change in organizational structure is called
A)mutualization.
B)retrocession.
C)reinsurance.
D)demutualization.

Accepted Answer

The change in organizational structure of Big Mutual from mutual form to stock form and issuing shares of common stock to raise capital is called demutualization.

Question 20

ABC Insurance has always used the exclusive agency system to market coverages.ABC,however,cannot afford full-time agents in sparsely-populated areas.To reach customers in these areas,ABC enters into agreements with local independent agents.Using more than one marketing system is called employing a
A)direct response system.
B)general agency system.
C)multiple distribution system.
D)branch office system.

Accepted Answer

ABC Insurance is using both the exclusive agency system and local independent agents, which means they are employing a multiple distribution system.

Quiz 5: Types of Insurers and Marketing Systems

In 2008,Liberty Mutual Insurance Company acquired Safeco Insurance Company.This acquisition demonstrates which financial services industry trend?

The leaders of a religious group decided to start a life insurance organization to insure members of the religious group.The insurer will operate as a nonprofit organization,thus receiving favorable tax treatment.The insurer formed will be a

A personal lines insurance company initiating banking and investment services for its policyowners demonstrates which financial services industry trend?

ABC Term 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 type of marketing system that ABC Term Life Insurance Company uses is called the

The financial services field is currently experiencing consolidation and convergence.If both of these trends continue,in the future we should observe

Which of the following statements is (are) true about savings bank life insurance (SBLI) ? I.Each depositor at the savings bank receives life insurance equal to his or her savings account balance. II.The goal of SBLI is to provide low-cost life insurance to consumers.

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.The company that R.I.P.formed is called a

Marcy advises her clients on investments,taxes,wealth management,estate issues,budgeting,and insurance.Marcy is also a licensed life insurance agent.When Marcy sells life insurance to a client,the distribution channel used is a(n)

Sarah owns a property and liability insurance agency.She is authorized to represent several insurance companies and she is compensated by commissions.Sarah's agency owns the expiration rights to the business she sells.Sarah is a(n)

RST Insurance is an interesting company.It doesn't have any agents.Instead,the company sells insurance through radio ads,telemarketers,and newspaper and magazine inserts.This distribution method is called

All of the following are reasons why mutual insurance companies convert to stock insurance companies EXCEPT

Scott works in property and liability insurance marketing.He legally represents insurance purchasers,rather than insurance companies.Scott is paid a commission on the insurance placed with insurers.Scott is a(n)

ABC Insurance has always used the exclusive agency system to market coverages.ABC,however,cannot afford full-time agents in sparsely-populated areas.To reach customers in these areas,ABC enters into agreements with local independent agents.Using more than one marketing system is called employing a