Question 1

The underwriting process begins with the

Accepted Answer

The underwriting process begins with the agent, who first collects information from the potential policyholder and initiates the underwriting process.

Question 2

Which of the following statements about underwriting policy is (are)true?
I.A company must establish an underwriting policy consistent with company objectives.
II.Underwriting policy is usually subjective and allows the underwriter considerable flexibility with respect to lines written and forms used.

Accepted Answer

Statement I is true as every insurance company must have an underwriting policy that aligns with its objectives. Statement II is not entirely true as underwriting policy is not entirely subjective and must comply with industry regulations and standards. Flexibility is provided to the underwriter but within those boundaries.

Question 3

All of the following are reasons for a primary insurer to use reinsurance EXCEPT

Accepted Answer

Using reinsurance does not increase the unearned premium reserve, as this reserve is calculated based on the premiums collected but not yet earned by the insurer. The primary reasons for insurers to use reinsurance are to increase underwriting capacity, protect against catastrophic losses, and stabilize profits.

Question 4

Which of the following statements about claim settlement is (are)true?
I.The fair payment of claims requires an insurer to adopt a very liberal claims policy.
II.To prevent lawsuits,an insurer should provide no personal assistance to a claimant other than that which is required by contractual obligations.

Accepted Answer

Both statements are false. The fair payment of claims requires a reasonable and objective claims policy that balances the interests of the claimant and insurer. Providing personal assistance to a claimant, beyond contractual obligations, can actually help prevent lawsuits by addressing any questions or concerns they may have and demonstrating that the insurer is committed to resolving the claim fairly.

Question 5

Insurers obtain data that can be used to determine rates from

Accepted Answer

Insurance advisory organizations, such as the Insurance Services Office (ISO), collect and analyze data on risk and claim patterns to help insurers set rates. Pools, banks, and reciprocal exchanges may also provide data, but they are not typically as reliable or relevant for setting insurance rates.

Question 6

The primary function of an actuary is to

Accepted Answer

The primary function of an actuary is to determine premium rates for insurance products based on risk assessment and calculations of probability of loss. They use mathematical models and statistical analysis to analyze data and develop premium rates that are appropriate for the level of risk involved. While actuaries may be involved in other functions like investing insurance company assets, negotiating reinsurance treaties, and adjusting claims, these are not their primary roles.

Question 7

All of the following statements about the settlement of a claim are true EXCEPT

Accepted Answer

The adjuster is not responsible for filing the proof of loss. It is the policyholder's responsibility to file the proof of loss, which is a sworn statement supporting the amount of the claim. The adjuster uses this statement to support their decision about the claim.

Question 8

Which of the following statements about claims settlement is true?

Accepted Answer

Independent adjusters may be utilized by insurers in areas where the volume of business is too low for them to maintain their own adjusters. Agents are never authorized to settle claims, as this is typically handled by licensed adjusters. A public adjuster is not a salaried employee, but instead an independent professional hired by a policyholder to represent their interests. Staff claims representatives are employed by the insurer, not the policyholder.

Question 9

If an underwriter suspects moral hazard,the underwriter may ask an outside firm to investigate the applicant and make a detailed report to the insurer.This report is called a(n)

Accepted Answer

An inspection report is a detailed investigation report conducted by an outside firm hired by the insurer in order to investigate an applicant suspected of moral hazard. The report would provide information on the applicant's financial and personal background, alcohol and drug abuse, criminal history, and other factors that may increase the risk of a claim being filed. The underwriter would use this information to determine whether to accept or reject the applicant's insurance application.

Question 10

Which of the following is a function of the marketing department of an insurance company?

Accepted Answer

The primary function of the marketing department in an insurance company is to identify production goals, develop and promote products, and attract new customers.

Question 11

Morgan was hired by an insurance company after she graduated from college.Upon completion of a training program,Morgan was assigned to a territory where she adjusts claims of the insurer's policyowners.Morgan is a(n)

Accepted Answer

Morgan being hired by an insurance company and completing a training program indicates that she is a staff claims representative. Public adjusters are not employed by insurance companies and work directly for policyholders. Agents sell insurance policies, while independent adjusters are contractors who work for multiple insurance companies.

Question 12

Which of the following statements about underwriting standards is (are)true?
I.One purpose of underwriting standards is to reduce adverse selection against the insurer.
II.Equitable rates should be charged so that each group of policyowners pays its own way in terms of losses and expenses.

Accepted Answer

I is true as underwriting standards aim to select policyholders who are less likely to have a claim, thereby reducing adverse selection against the insurer. II is also true, as underwriting standards should ensure that rates are equitable and each group of policyholders pays their own way in terms of losses and expenses.

Question 13

Common sources of underwriting information for life and health insurance include all of the following EXCEPT

Accepted Answer

The applicant's income tax return is not commonly used as a source of underwriting information for life and health insurance. The other options listed (the application, a physical examination, and the Medical Information Bureau) are commonly used sources of underwriting information.

Question 14

The unearned premium reserve of an insurer is

Accepted Answer

The unearned premium reserve is a liability that represents the amount of gross premiums that have been collected but have not yet been earned by the insurer because the policy period has not yet ended. It is a reserve set aside to cover potential claims during the remainder of the policy period.

Question 15

Which of the following statements about reinsurance is true?

Accepted Answer

Reinsurance is a form of insurance that allows insurance companies to transfer a portion of their risk to other parties, known as reinsurers. The insurer transferring business to a reinsurer is called the ceding company. Therefore, statement D is true. Statement A is false because reinsurers do purchase reinsurance to limit their own exposure. Statement B is false because the primary insurer is the first to provide claims services to the insured after a loss occurs. Statement C is false because the amount of insurance retained by the insurer is called net retention; the amount of insurance transferred to a reinsurer is called cession.

Question 16

Which of the following statements about treaty reinsurance is true?

Accepted Answer

Treaty reinsurance involves an agreement where the reinsurer must accept all business that falls within the scope of the treaty, without underwriting each individual risk.

Question 17

One source of life and health insurance underwriting information is an organization that life and health insurance companies can join.As a member,life and health insurance companies report health impairments of applicants,and this information is shared with member companies.Although the information is shared,the underwriting decision of the member company is not disclosed.What is this organization called?

Accepted Answer

The organization described is the Medical Information Bureau (MIB), which collects and shares health and medical information about insurance applicants among member companies. The other options (A, C, D) are not relevant to this particular aspect of the insurance industry.

Question 18

Factors that may result in more restrictive underwriting decisions include which of the following?
I.Inadequate rates.
II.The unavailability of reinsurance at favorable terms.

Accepted Answer

Inadequate rates and unavailability of reinsurance at favorable terms both increase the risk to the insurer and may result in more restrictive underwriting decisions. Inadequate rates mean that the premiums are not adequate to cover the potential losses, and therefore insurers may need to be more selective in the risks they take on. Unavailability of reinsurance at favorable terms means that insurers may not be able to transfer some of the risk to reinsurers, increasing their own risk exposure and leading to more cautious underwriting.

Question 19

Which of the following statements about treaty reinsurance is true?

Accepted Answer

Using a reinsurance pool provides financial capacity to write large amounts of insurance. Treaty reinsurance refers to a prearranged, ongoing agreement between the ceding insurer and the reinsurer. Surplus-share and quota-share are examples of treaty reinsurance arrangements, but they do not involve the transfer of 100 percent of liability to the reinsurer. An excess-of-loss treaty specifies that the reinsurer pays losses in full only if they exceed the ceding insurer's retention limit. So, option D is the only statement that is true.

Question 20

A reinsurance contract that is entered into on a case-by-case basis after an application for insurance is received by a primary insurer is called

Accepted Answer

Facultative reinsurance is entered into on a case-by-case basis after an application for insurance is received by a primary insurer. It provides coverage for individual risks that exceed the primary insurer's retention limit or for risks that are outside the scope of their automatic treaty reinsurance. The other options listed are different types of reinsurance arrangements, but do not match the description of facultative reinsurance.

Quiz 6: Insurance Company Operations

The underwriting process begins with the

All of the following are reasons for a primary insurer to use reinsurance EXCEPT

Insurers obtain data that can be used to determine rates from

The primary function of an actuary is to

All of the following statements about the settlement of a claim are true EXCEPT

Which of the following statements about claims settlement is true?

If an underwriter suspects moral hazard,the underwriter may ask an outside firm to investigate the applicant and make a detailed report to the insurer.This report is called a(n)

Which of the following is a function of the marketing department of an insurance company?

Morgan was hired by an insurance company after she graduated from college.Upon completion of a training program,Morgan was assigned to a territory where she adjusts claims of the insurer's policyowners.Morgan is a(n)

Which of the following statements about underwriting standards is (are) true? I.One purpose of underwriting standards is to reduce adverse selection against the insurer. II.Equitable rates should be charged so that each group of policyowners pays its own way in terms of losses and expenses.

Common sources of underwriting information for life and health insurance include all of the following EXCEPT

The unearned premium reserve of an insurer is

Which of the following statements about reinsurance is true?

Which of the following statements about treaty reinsurance is true?

Factors that may result in more restrictive underwriting decisions include which of the following? I.Inadequate rates. II.The unavailability of reinsurance at favorable terms.

Which of the following statements about treaty reinsurance is true?

A reinsurance contract that is entered into on a case-by-case basis after an application for insurance is received by a primary insurer is called