Deck 22: Risk Management and the Insurance Industry

Question 1

Most turnover among insurers stems from involuntary liquidations.

Answer 1

False

Question 2

Property insurance generates less premium volume than does life and health insurance.

Answer 2

True

Question 3

The market share of reciprocal and Lloyd's insurers is rising to the point of making serious inroads on the business done by stock and mutual insurers.

Answer 3

False

Question 4

The members of a reciprocal are both insurers and insureds at the same time.

Question 5

An ethical environment has little effect on the insurance industry.

Question 6

The bulk of property-liability insurance is written by mutual companies.

Question 7

The channel of distribution used by an insurance company depends on whether it is a stock or a mutual.

Question 8

Initially, a direct distribution system is more expensive for a company than an indirect one.

Question 9

Lloyd's of London relies very little on capital from corporations.

Question 10

The fastest growing lines of property and liability insurance are liability coverages.

Question 11

Fire insurance accounts for more premium volume than automobile insurance.

Question 12

Only about 15 percent of all property and liability insurers operate nationwide in all states.

Question 13

The field of insurance is dominated by relatively few companies.

Question 14

Insolvency among insurance companies is relatively low.

Question 15

Direct distribution of property-liability insurance is becoming more common.

Question 16

Governments collect more premiums in personal insurance lines than do private insurers.

Question 17

Most insurance sold in the United States is required by law.

Question 18

Automobile insurance constitutes less than half of all private property-liability premiums.

Question 19

Farm mutuals often offer assessable policies.

Question 20

A mutual insurer is owned by policyholders and is organized as a nonprofit corporation.

Question 21

Lloyd's of London specializes in the surplus line market.

Question 22

A federal program insures the solvency of private insurers, in a way similar to banks and other financial institutions.

Question 23

In spite of extensive promotion, only about half of all U.S. homeowners purchase property insurance on their homes.

Question 24

The largest line of coverage now sold by life insurers is that of annuities.

Question 25

Projected growth rates for insurance demand in industrial countries is twice as high as in emerging economies such as Eastern Europe and China.

Question 26

Match the descriptions with their terms:

-Insurance contracts directed mainly at risks of the individual are termed _________________.

A) American Agency System
B) assessable policy
C) attorney-in-fact
D) direct response
E) direct writer
F) exclusive agent
G) factory mutual
H) farm mutual
I) fraternal carrier
J) general agent
K) general insurance
L) general writing mutual
M) Guaranty funds
N) interinsurance exchange
O) involuntary coverage
P) life and health insurance
Q) Lloyd's Association
R) Lloyd's of London
S) mass merchandising
T) mutual company
U) participating and deviating
V) personal coverages
W) private insurance
X) stock company
Y) surplus line market
Z) Syndicates

Question 27

Match the descriptions with their terms:

-Insurance contracts directed at perils that may destroy property are called property coverages or _________________.

A) American Agency System
B) assessable policy
C) attorney-in-fact
D) direct response
E) direct writer
F) exclusive agent
G) factory mutual
H) farm mutual
I) fraternal carrier
J) general agent
K) general insurance
L) general writing mutual
M) Guaranty funds
N) interinsurance exchange
O) involuntary coverage
P) life and health insurance
Q) Lloyd's Association
R) Lloyd's of London
S) mass merchandising
T) mutual company
U) participating and deviating
V) personal coverages
W) private insurance
X) stock company
Y) surplus line market
Z) Syndicates

Question 28

Match the descriptions with their terms:

-A type of insurer in which individuals take risk personally is a/an _________________.

A) American Agency System
B) assessable policy
C) attorney-in-fact
D) direct response
E) direct writer
F) exclusive agent
G) factory mutual
H) farm mutual
I) fraternal carrier
J) general agent
K) general insurance
L) general writing mutual
M) Guaranty funds
N) interinsurance exchange
O) involuntary coverage
P) life and health insurance
Q) Lloyd's Association
R) Lloyd's of London
S) mass merchandising
T) mutual company
U) participating and deviating
V) personal coverages
W) private insurance
X) stock company
Y) surplus line market
Z) Syndicates

Question 29

Match the descriptions with their terms:

-An insurer that is among the earliest known types of insurers in the world is _________________.

A) American Agency System
B) assessable policy
C) attorney-in-fact
D) direct response
E) direct writer
F) exclusive agent
G) factory mutual
H) farm mutual
I) fraternal carrier
J) general agent
K) general insurance
L) general writing mutual
M) Guaranty funds
N) interinsurance exchange
O) involuntary coverage
P) life and health insurance
Q) Lloyd's Association
R) Lloyd's of London
S) mass merchandising
T) mutual company
U) participating and deviating
V) personal coverages
W) private insurance
X) stock company
Y) surplus line market
Z) Syndicates

Question 30

Match the descriptions with their terms:

-A/an _________________ in life insurance is an individual employed to hire, train, and supervise agents at a lower level.

A) American Agency System
B) assessable policy
C) attorney-in-fact
D) direct response
E) direct writer
F) exclusive agent
G) factory mutual
H) farm mutual
I) fraternal carrier
J) general agent
K) general insurance
L) general writing mutual
M) Guaranty funds
N) interinsurance exchange
O) involuntary coverage
P) life and health insurance
Q) Lloyd's Association
R) Lloyd's of London
S) mass merchandising
T) mutual company
U) participating and deviating
V) personal coverages
W) private insurance
X) stock company
Y) surplus line market
Z) Syndicates

Question 31

Match the descriptions with their terms:

-A/An _________________ works for one insurer only.

A) American Agency System
B) assessable policy
C) attorney-in-fact
D) direct response
E) direct writer
F) exclusive agent
G) factory mutual
H) farm mutual
I) fraternal carrier
J) general agent
K) general insurance
L) general writing mutual
M) Guaranty funds
N) interinsurance exchange
O) involuntary coverage
P) life and health insurance
Q) Lloyd's Association
R) Lloyd's of London
S) mass merchandising
T) mutual company
U) participating and deviating
V) personal coverages
W) private insurance
X) stock company
Y) surplus line market
Z) Syndicates

Question 32

Match the descriptions with their terms:

-A method of distributing insurance through phone or direct contact by mail without intermediaries is known as _________________.

A) American Agency System
B) assessable policy
C) attorney-in-fact
D) direct response
E) direct writer
F) exclusive agent
G) factory mutual
H) farm mutual
I) fraternal carrier
J) general agent
K) general insurance
L) general writing mutual
M) Guaranty funds
N) interinsurance exchange
O) involuntary coverage
P) life and health insurance
Q) Lloyd's Association
R) Lloyd's of London
S) mass merchandising
T) mutual company
U) participating and deviating
V) personal coverages
W) private insurance
X) stock company
Y) surplus line market
Z) Syndicates

Question 33

Match the descriptions with their terms:

-A party appointed to take charge of a reciprocal insurer is a/an _________________.

A) American Agency System
B) assessable policy
C) attorney-in-fact
D) direct response
E) direct writer
F) exclusive agent
G) factory mutual
H) farm mutual
I) fraternal carrier
J) general agent
K) general insurance
L) general writing mutual
M) Guaranty funds
N) interinsurance exchange
O) involuntary coverage
P) life and health insurance
Q) Lloyd's Association
R) Lloyd's of London
S) mass merchandising
T) mutual company
U) participating and deviating
V) personal coverages
W) private insurance
X) stock company
Y) surplus line market
Z) Syndicates

Question 34

Match the descriptions with their terms:

-A type of insurance policy in which policyholders may be asked to contribute to losses in addition to paying premiums is a/an _________________.

A) American Agency System
B) assessable policy
C) attorney-in-fact
D) direct response
E) direct writer
F) exclusive agent
G) factory mutual
H) farm mutual
I) fraternal carrier
J) general agent
K) general insurance
L) general writing mutual
M) Guaranty funds
N) interinsurance exchange
O) involuntary coverage
P) life and health insurance
Q) Lloyd's Association
R) Lloyd's of London
S) mass merchandising
T) mutual company
U) participating and deviating
V) personal coverages
W) private insurance
X) stock company
Y) surplus line market
Z) Syndicates

Question 35

Match the descriptions with their terms:

-A channel of distribution for property-liability insurance comparable to the wholesaler-retailer system for distributing tangible goods is known as the _________________.

A) American Agency System
B) assessable policy
C) attorney-in-fact
D) direct response
E) direct writer
F) exclusive agent
G) factory mutual
H) farm mutual
I) fraternal carrier
J) general agent
K) general insurance
L) general writing mutual
M) Guaranty funds
N) interinsurance exchange
O) involuntary coverage
P) life and health insurance
Q) Lloyd's Association
R) Lloyd's of London
S) mass merchandising
T) mutual company
U) participating and deviating
V) personal coverages
W) private insurance
X) stock company
Y) surplus line market
Z) Syndicates

Question 36

Match the descriptions with their terms:

-A type of insurer using exclusive agents to sell insurance and to serve as the insurer's main contact with customers is called a/an _________________.

A) American Agency System
B) assessable policy
C) attorney-in-fact
D) direct response
E) direct writer
F) exclusive agent
G) factory mutual
H) farm mutual
I) fraternal carrier
J) general agent
K) general insurance
L) general writing mutual
M) Guaranty funds
N) interinsurance exchange
O) involuntary coverage
P) life and health insurance
Q) Lloyd's Association
R) Lloyd's of London
S) mass merchandising
T) mutual company
U) participating and deviating
V) personal coverages
W) private insurance
X) stock company
Y) surplus line market
Z) Syndicates

Question 37

Match the descriptions with their terms:

-An insurer organized as a profit-making venture for its owners is known as a/an _________________.

A) American Agency System
B) assessable policy
C) attorney-in-fact
D) direct response
E) direct writer
F) exclusive agent
G) factory mutual
H) farm mutual
I) fraternal carrier
J) general agent
K) general insurance
L) general writing mutual
M) Guaranty funds
N) interinsurance exchange
O) involuntary coverage
P) life and health insurance
Q) Lloyd's Association
R) Lloyd's of London
S) mass merchandising
T) mutual company
U) participating and deviating
V) personal coverages
W) private insurance
X) stock company
Y) surplus line market
Z) Syndicates

Question 38

Match the descriptions with their terms:

-An insurer organized as a nonprofit company owned by its policy holders is a/an _________________.

A) American Agency System
B) assessable policy
C) attorney-in-fact
D) direct response
E) direct writer
F) exclusive agent
G) factory mutual
H) farm mutual
I) fraternal carrier
J) general agent
K) general insurance
L) general writing mutual
M) Guaranty funds
N) interinsurance exchange
O) involuntary coverage
P) life and health insurance
Q) Lloyd's Association
R) Lloyd's of London
S) mass merchandising
T) mutual company
U) participating and deviating
V) personal coverages
W) private insurance
X) stock company
Y) surplus line market
Z) Syndicates

Question 39

Match the descriptions with their terms:

-A mutual company specializing in insuring manufacturing establishments is known as a/an _________________.

A) American Agency System
B) assessable policy
C) attorney-in-fact
D) direct response
E) direct writer
F) exclusive agent
G) factory mutual
H) farm mutual
I) fraternal carrier
J) general agent
K) general insurance
L) general writing mutual
M) Guaranty funds
N) interinsurance exchange
O) involuntary coverage
P) life and health insurance
Q) Lloyd's Association
R) Lloyd's of London
S) mass merchandising
T) mutual company
U) participating and deviating
V) personal coverages
W) private insurance
X) stock company
Y) surplus line market
Z) Syndicates

Question 40

Match the descriptions with their terms:

-A mutual company specializing in insuring agricultural operations is a/an _________________.

A) American Agency System
B) assessable policy
C) attorney-in-fact
D) direct response
E) direct writer
F) exclusive agent
G) factory mutual
H) farm mutual
I) fraternal carrier
J) general agent
K) general insurance
L) general writing mutual
M) Guaranty funds
N) interinsurance exchange
O) involuntary coverage
P) life and health insurance
Q) Lloyd's Association
R) Lloyd's of London
S) mass merchandising
T) mutual company
U) participating and deviating
V) personal coverages
W) private insurance
X) stock company
Y) surplus line market
Z) Syndicates

Question 41

Match the descriptions with their terms:

-An insurance company without capital other than advance premiums deposited by its owners is a reciprocal, also called a/an ________________.

A) American Agency System
B) assessable policy
C) attorney-in-fact
D) direct response
E) direct writer
F) exclusive agent
G) factory mutual
H) farm mutual
I) fraternal carrier
J) general agent
K) general insurance
L) general writing mutual
M) Guaranty funds
N) interinsurance exchange
O) involuntary coverage
P) life and health insurance
Q) Lloyd's Association
R) Lloyd's of London
S) mass merchandising
T) mutual company
U) participating and deviating
V) personal coverages
W) private insurance
X) stock company
Y) surplus line market
Z) Syndicates

Question 42

Match the descriptions with their terms:

-A method of distributing property-liability insurance through payroll deduction is _________________.

A) American Agency System
B) assessable policy
C) attorney-in-fact
D) direct response
E) direct writer
F) exclusive agent
G) factory mutual
H) farm mutual
I) fraternal carrier
J) general agent
K) general insurance
L) general writing mutual
M) Guaranty funds
N) interinsurance exchange
O) involuntary coverage
P) life and health insurance
Q) Lloyd's Association
R) Lloyd's of London
S) mass merchandising
T) mutual company
U) participating and deviating
V) personal coverages
W) private insurance
X) stock company
Y) surplus line market
Z) Syndicates

Question 43

Match the descriptions with their terms:

-A nonprofit society using a lodge system to sell life and health insurance to members is a/an _________________.

A) American Agency System
B) assessable policy
C) attorney-in-fact
D) direct response
E) direct writer
F) exclusive agent
G) factory mutual
H) farm mutual
I) fraternal carrier
J) general agent
K) general insurance
L) general writing mutual
M) Guaranty funds
N) interinsurance exchange
O) involuntary coverage
P) life and health insurance
Q) Lloyd's Association
R) Lloyd's of London
S) mass merchandising
T) mutual company
U) participating and deviating
V) personal coverages
W) private insurance
X) stock company
Y) surplus line market
Z) Syndicates

Question 44

Match the descriptions with their terms:

-A mutual insurer writing all lines of insurance is known as a/an _________________.

A) American Agency System
B) assessable policy
C) attorney-in-fact
D) direct response
E) direct writer
F) exclusive agent
G) factory mutual
H) farm mutual
I) fraternal carrier
J) general agent
K) general insurance
L) general writing mutual
M) Guaranty funds
N) interinsurance exchange
O) involuntary coverage
P) life and health insurance
Q) Lloyd's Association
R) Lloyd's of London
S) mass merchandising
T) mutual company
U) participating and deviating
V) personal coverages
W) private insurance
X) stock company
Y) surplus line market
Z) Syndicates

Question 45

Match the descriptions with their terms:

-An insurance market consisting of risks that have been rejected by domestic insurers is called a/an _________________.

A) American Agency System
B) assessable policy
C) attorney-in-fact
D) direct response
E) direct writer
F) exclusive agent
G) factory mutual
H) farm mutual
I) fraternal carrier
J) general agent
K) general insurance
L) general writing mutual
M) Guaranty funds
N) interinsurance exchange
O) involuntary coverage
P) life and health insurance
Q) Lloyd's Association
R) Lloyd's of London
S) mass merchandising
T) mutual company
U) participating and deviating
V) personal coverages
W) private insurance
X) stock company
Y) surplus line market
Z) Syndicates

Question 46

Match the descriptions with their terms:

-Coverage that is written by privately organized groups is called _________________, while coverage that is written by government bodies is known as public insurance.

A) American Agency System
B) assessable policy
C) attorney-in-fact
D) direct response
E) direct writer
F) exclusive agent
G) factory mutual
H) farm mutual
I) fraternal carrier
J) general agent
K) general insurance
L) general writing mutual
M) Guaranty funds
N) interinsurance exchange
O) involuntary coverage
P) life and health insurance
Q) Lloyd's Association
R) Lloyd's of London
S) mass merchandising
T) mutual company
U) participating and deviating
V) personal coverages
W) private insurance
X) stock company
Y) surplus line market
Z) Syndicates

Question 47

Match the descriptions with their terms:

-Coverage required by law is _________________, while coverage purchased on a discretionary basis is voluntary coverage.

A) American Agency System
B) assessable policy
C) attorney-in-fact
D) direct response
E) direct writer
F) exclusive agent
G) factory mutual
H) farm mutual
I) fraternal carrier
J) general agent
K) general insurance
L) general writing mutual
M) Guaranty funds
N) interinsurance exchange
O) involuntary coverage
P) life and health insurance
Q) Lloyd's Association
R) Lloyd's of London
S) mass merchandising
T) mutual company
U) participating and deviating
V) personal coverages
W) private insurance
X) stock company
Y) surplus line market
Z) Syndicates

Question 48

Match the descriptions with their terms:

-The two main branches of insurance are property-liability insurance and _________________.

A) American Agency System
B) assessable policy
C) attorney-in-fact
D) direct response
E) direct writer
F) exclusive agent
G) factory mutual
H) farm mutual
I) fraternal carrier
J) general agent
K) general insurance
L) general writing mutual
M) Guaranty funds
N) interinsurance exchange
O) involuntary coverage
P) life and health insurance
Q) Lloyd's Association
R) Lloyd's of London
S) mass merchandising
T) mutual company
U) participating and deviating
V) personal coverages
W) private insurance
X) stock company
Y) surplus line market
Z) Syndicates

Question 49

Match the descriptions with their terms:

-Some mutuals are both _________________; that is, they plan both to cut the initial rate somewhat below stock company levels and to pay a dividend, if warranted.

A) American Agency System
B) assessable policy
C) attorney-in-fact
D) direct response
E) direct writer
F) exclusive agent
G) factory mutual
H) farm mutual
I) fraternal carrier
J) general agent
K) general insurance
L) general writing mutual
M) Guaranty funds
N) interinsurance exchange
O) involuntary coverage
P) life and health insurance
Q) Lloyd's Association
R) Lloyd's of London
S) mass merchandising
T) mutual company
U) participating and deviating
V) personal coverages
W) private insurance
X) stock company
Y) surplus line market
Z) Syndicates

Question 50

Match the descriptions with their terms:

-_________________ are groups of names that combine their resources and employ a manager who determines which risks to insure.

A) American Agency System
B) assessable policy
C) attorney-in-fact
D) direct response
E) direct writer
F) exclusive agent
G) factory mutual
H) farm mutual
I) fraternal carrier
J) general agent
K) general insurance
L) general writing mutual
M) Guaranty funds
N) interinsurance exchange
O) involuntary coverage
P) life and health insurance
Q) Lloyd's Association
R) Lloyd's of London
S) mass merchandising
T) mutual company
U) participating and deviating
V) personal coverages
W) private insurance
X) stock company
Y) surplus line market
Z) Syndicates

Question 51

Match the descriptions with their terms:

-_________________ are established to reimburse policyholders for any losses caused by bankrupt insurers.

A) American Agency System
B) assessable policy
C) attorney-in-fact
D) direct response
E) direct writer
F) exclusive agent
G) factory mutual
H) farm mutual
I) fraternal carrier
J) general agent
K) general insurance
L) general writing mutual
M) Guaranty funds
N) interinsurance exchange
O) involuntary coverage
P) life and health insurance
Q) Lloyd's Association
R) Lloyd's of London
S) mass merchandising
T) mutual company
U) participating and deviating
V) personal coverages
W) private insurance
X) stock company
Y) surplus line market
Z) Syndicates

Question 52

Direct writing

A) describes the distribution channel used primarily in fire insurance,
B) is used only by life insurers,
C) is not a satisfactory way to distribute insurance because of the lack of agent's services,
D) is approaching the indirect channel of distribution in its operating methods as time goes on.

Question 53

The American Agency System

A) is doomed because agents' commissions are too high,
B) probably best serves the business consumer rather than the individual consumer,
C) is unsuitable for the small insurer wishing to "break in" to a new market,
D) is growing rapidly in strength.

Question 54

One of the differences between stock and mutual insurers is that

A) a stock company is a corporation, but a mutual is not,
B) a stock company never issues assessable policies,
C) a stock company pays no dividends to policyholders,
D) organizers of a stock company expect a profit, while organizers of a mutual company do so purely on altruistic grounds,
E) a stock company deals through independent agents, while mutuals do not.

Question 55

In 2002 what percent of property-liability insurance premiums did agency companies write in commercial lines?

A) 34.3,
B) 56.7,
C) 70.6,
D) 29.4.

Question 56

Leading states for chartering property-liability insurers include all but one of the following:

A) Massachusetts,
B) Vermont,
C) Pennsylvania,
D) New York,
E) Texas.

Question 57

The largest broker in the United States is

A) Marsh,
B) AON,
C) Willis,
D) Arthur J. Gallagher & Co.

Question 58

Private passenger auto as a percent of total P-L premiums in 2002 is

A) 48.5,
B) 41.3,
C) 37.0,
D) 33.1.

Question 59

If your insurer becomes insolvent, you may usually successfully make a claim against

A) an agency of the federal government,
B) an agency of the state government in which the insurer is chartered,
C) a guaranty fund supported by insurers operating in your state,
D) the insurance agent who sold you the policy,
E) the claims adjusting firm handling your case.

Question 60

The channel of distribution involving the least use of intermediaries between the insurer and the consumer is

A) the American Agency System,
B) mass merchandising,
C) direct writing,
D) direct response,
E) commercial banks.

Question 61

The main factors influencing the distribution channel used in life insurance include all but which of the following:

A) need for control over sales promotion and competition,
B) need for close control over the product,
C) frequency of purchase,
D) need for providing adequate compensation for intermediaries,
E) government regulatory requirements.

Question 62

Mass merchandising

A) is the same as direct response,
B) is used mainly in life insurance,
C) is a method of distributing property-liability insurance through payroll deduction,
D) is rapidly gaining favor as a new method of distributing all kinds of insurance,
E) has been supported strongly by independent agents.

Question 63

The most popular option that global firms have with respect to how they structure their international insurance program is:

A) nonadmitted insurance on a worldwide basis,
B) a global controlled master program,
C) the design and purchase of insurance coverage by firms' management in each country,
D) to arrange insurance through a captive insurer which is set up in the firm's home country.