RMI3011-Exam 2

In module 7 we discussed some insurance regulation basics. Which of the following are true?

I. Insurance is regulated at the state level

II. The National Association of Insurance Commissioners (NAIC) drafts model laws

III. The insurance commissioners are charged with enforcing the laws

I,II, and III

In module 7 we discussed insurance regulation. Why is insurance regulated?

Complex legal contracts

In module 7 we discussed state vs federal regulation. Arguments for state regulation include:

State regulation is more flexible and can respond more quickly to local issues

In module 7 we discussed insurance regulation. Which of the following are true regarding

regulating solvency?

I. Ensure that insurer is holding enough capital to minimize likelihood of

bankruptcy

II. Manage guaranty funds

III. Liquidate insolvent insurers

I,II, and III

In module 7 we discussed responsibilities of regulators. Which parts of insurance operations are regulated?

Virtually all aspects of insurers are regulated

In module 7, when discussing the regulation of rates we discussed the basic requirements of

rate regulation. They include:

(All of the above)

-Rates should be adequate

-Rates should not be excessive

-Rates should encourage loss control

-Rates should allocate cost burden fairly among insureds

In module 7, when discussing the regulation of agents activities, some banned agent activities

include:

Twisting

In module 7, when discussing regulating contract provisions, the regulator is responsible for

protecting the public against:

(All of the above)

-Deceptive language

-Misleading language

-Unfair contract provisions

In module 7, regulation of insurance, we discussed the effects of regulation. One of the effects

of regulation is:

(None of the above)

In module 7, regulation of insurance, we discussed where regulation is going. One area of

insurance that may be more of a focus of regulation going forward is:

Availability

In module 8 examples of government provided personal insurance include:

Social Security

In module 8 we discussed major classification of insurance, _____________ insurance covers the

risk of individuals while ________________ insurance covers perils that destroy property.

personal; property

In module 8 we discussed types of insurers. Which type of insurers is owned by the

policyholders and run by an "attorney-in-fact"?

Reciprocals

In module 8 we discussed types of insurers. Which type of insurers is owned by the policyholders?

I. Stock

II. Mutual

III. Lloyd's

II only

In module 8 we discussed that states run ________________ to protect consumers from insurer

________________.

Guaranty funds; insolvencies

Module 8: Why do life insurers prefer direct distribution of their products?

(All of the above)

-Maintain close control over the policy product

-Maintain control over sales promotion and competition

-Life insurance products are purchased less frequently than property casualty policies

Module 8: A major difference between direct distribution (exclusive agents) in property

insurance and indirect (independent agents) distribution is

(All of the above)

-Number of insurers represented

-Authority to bind coverage

-Commissions

Module 8: Organizations that operate on a global scale usually have different exposures than smaller firms including:

I. Political risk

II. Terrorism

III. Financial markets

I,II, and III

Module 8: There are variety of options for structuring international insurance programs for

global organizations. The most popular is:

Global controlled master program

Module 9: Which of the following are UNIQUE functions of insurers?

Underwriting

Module 9: Which function of insurers is synonymous with sales?

Production

Module 9: Which function of insurers involves paying the appropriate loss amounts to

policyholders?

Claims

Module 9: Which function of insurers involves selecting which risks to insure?

Underwriting

Module 9: Which function of insurers involves estimating loss frequency and severity to

determine expected loss?

Ratemaking

Module 9: Which function of insurers involves conducting market research?

Production

Module 9: Which function of insurers involves conducting market research?

Production

Module 9: Which function of insurers involves making prompt and fair payments to insureds in

"good faith"?

Claims

Module 9: One method of determining how successful an underwriter has been is determining

their?

Loss Ratio

The _____________ is similar to the loss ratio but also takes into consideration UNDERWRITING

expenses.

Combined Ratio

The _______________ is equal to the ______________ divided by (1 - __________________).

Gross premium; pure premium; loading percentage

The loading percentage must account for:

(All of the above)

-Risk loading (cushion against bad performance)

- Agent commissions

-Expenses

-Taxes and Fees

Insurance rates should be:

Adequate

_____________ used your losses from previous years as a factor in determining this year's

premium.

Experience Rating

______________ reinsurance is done on a case by case basis, while _____________ involves the reinsurer accepting all risks within the terms.

Facultative; treaty

______________ reinsurance is where a proportion is ceded, while _____________ involves

ceding all risk above a certain dollar amount.

Pro-rate; excess of loss

Module 9 Math: Loss Ratio - Underwriter X has underwriten policies with $2,000,000 in

premiums earned and losses (including loss adjustment expenses) of $1,500,000. What is X's

loss ratio?

.75

Module 9 Math: Loss Ratio - Insurer X has underwriten policies with $2,000,000 in premiums earned, losses (including loss adjustment expenses) of $1,500,000 and underwriting expenses of $500,000. What is X's combined ratio (financial basis)?

1.00

Actuarial has determined that the expected frequency of a collision is .03 and the expected

severity per collision is $20,000. What is the pure premium?

$600

The pure premium is $500, the loading percentage is 50%. What is the gross premium?

$1,000

The class rate in WC is $4.75 per $100 of payroll, Chuck's Construction has a $500,000 payroll and an experience modification factor of 1.05. What is Chuck's WC premium?

$24,937.50

Module 10: There are many parts to an insurance contract. Which part contains information

specific to the insured, like name, address, and policy limits and deductibles?

Declarations

Module 10: There are many parts to an insurance contract. Which part contains information

explaining the key terms used throughout the policy?

Definitions

Module 10: There are many parts to an insurance contract. Which part explains what is covered

under the policy?

Insuring Agreement

Module 10: There are many parts to an insurance contract. Which part explains what is NOT

covered under the policy?

Exclusions

Module 10: There are many parts to an insurance contract. Which part explains what the

insured is responsible for (insured duties)?

Conditions

Module 10: There are many parts to an insurance contract. Which part alters the policy in some

way? It may add coverage, delete coverage, or alter policy language. It takes precedence over

the original contract language?

Endorsements/Riders

Module 10: There are many parts to an insurance contract. Which part of the policy often

contains loss valuation information? For example, the difference between replacement cost and

actual cash value provisions.

Conditions

________________ is equal to ________________ minus _________________.

Actual cash value; replacement cost; depreciation

Common policy conditions include:

I. Insured's duties following a loss

II. Termination conditions

III. Assignment provisions

I,II, and III

The exclusions section of a policy lists things that are not covered, they may include:

(All of the above)

-Specific perils

-Types of losses (e.g. indirect losses)

-Types of property (e.g. cash)

-Locations (e.g. certain countries)

Some of the reasons why we see exclusions in a policy include:

(All of the above)

-the risk is uninsurable

-the risk should be covered under a different policy

-the risk is not priced in the premium

One of the most common miscellaneous clauses in property insurance policies are:

Mortgagee clause

There are a variety of miscellaneous clauses that limit the amounts payable under an insurance

contract they include:

I. Coinsurance clauses

II. Other insurance clauses

III. Assignment by the insured

I and II

There are a variety of deductibles that can appear in insurance contracts. The most common

include:

Straight(per occurence) deductibles

Coinsurance in _____________ implies a cost sharing on a percentage basis, likely after a

deductible has been met.

Health Insurance

Coinsurance in _____________ implies the insured must bear a portion of the loss ONLY when

underinsured.

Property Insurance

In some cases, a loss may occur that is covered by two or more insurance policies. In this

situation the _________________ clause governs how the risk is shared.

Other insurance

There are several common schemes to coordinate the benefits of multiple insurance policies

covering the same loss. They include:

(All of the above)

-Pro-rata sharing

-Equal shares

-Primary/Excess sharing

Chuck's Industries is insured with a policy with $100,000 policy limit and a $1,000 straight

deductible for the 2024 calendar year. Chuck's Industries suffers the following losses throughout

the year:

Loss Date Loss Amount

January 5th $ 5,000.00

April 8th $ 300.00

November 10th $ 11,000.00

How much in deductibles did Chuck's Industry have to pay towards their own losses?

$2,300

Chuck's Industries is insured with a policy with $100,000 policy limit and a $1,000 aggregate

deductible for the 2024 calendar year. Chuck's Industries suffers the following losses throughout

the year:

Loss Date Loss Amount

January 5th $ 500.00

April 8th $ 300.00

November 10th $ 900.00

How much in deductibles did Chuck's Industry have to pay towards their own losses?

$1,000

John has a health insurance policy with a $1,000 deductible and an 80/20 coinsurance

requirement (no limit). John has the following losses throughout the year:

Loss Date Loss Amount

January 5th $ 1000.00

April 8th $ 4000.00

How much does John have to pay towards his own losses?

$800

Chuck's Industries has a property insurance policy with an 80% coinsurance requirement and a

$1,000,000 policy limit. Chuck's Industries suffers a $500,000 loss during the policy period. The

replacement cost of the building at the time of the loss was $2,000,000. What is the minimum

policy limit that Chuck should have had meet the coinsurance requirement.

$1,600,000

Chuck's Industries has two property insurance policies on the same commercial property. The

first policy has a policy limit of $1,000,000, the second policy has a policy limit of $2,000,000.

The two policies other insurance clauses specify that sharing is on a pro-rata basis. Chuck's

Industries suffers a $750,000 loss during the policy period. How much does the first policy pay?

$250,000

Chuck's Industries has two property insurance policies on the same commercial property. The

first policy has a policy limit of $1,000,000, the second policy has a policy limit of $2,000,000.

The two policies other insurance clauses specify that the first policy is primary and the second is

excess. Chuck's Industries suffers a $750,000 loss during the policy period. How much does the

first policy pay?

$750,000

Module 11: The Personal Auto Policy (PAP) has six parts to the policy, the four major areas of

coverage include liability, medical coverage, _______________, and __________________.

Uninsured motorist; coverage for damage to your auto

Which part of the personal auto policy provides bodily injury and property damage coverage to

third parties?

Part A:Liability Coverage

Which part of the personal auto policy covers reasonable and necessary medical expenses

caused by an auto accident and sustained by the insured?

Part B: Medical Coverage

Which part of the personal auto policy covers bodily injury sustained by the insured from an

accident with another vehicle if the other driver is not insured?

Part D: Coverage for Damage to Your Auto

Which part of the personal auto policy requires the insured to promptly notify the insurer and

cooperate with the investigation?

Part E: Duties After an Accident or Loss

The personal auto policy limits are stated on the declarations page. If split liability limits are

shown (Part A), $100,000/$300,000/$50,000 which amount represents the bodily injury limit per

accident?

$300,000

Common exclusions in Part A: Liability of the Personal Auto Policy include:

Use of vehicle as an Uber/Lyft

Which parts of the personal auto policy have a deductible that apply?

Part D: Physical Damage to your Auto

______________ often has lower deductible than ____________________ in the Personal Auto

Policy.

Other than collision; collision

Part D: Damage to your Auto, Other than Collision coverage provides coverage against:

Theft

Common exclusions in Part D: Damage to your Auto of the Personal Auto Policy include:

(All of the above)

-Damage from wear and tear

-Confiscation by government authorities

-Use of vehicle as an Uber/Lyft

Who can cancel the Personal Auto Policy at any time?

Insured

How do states ensure that drivers have adequate assets to protect those that may be injured in

an accident?

(All of the above)

-Financial responsibility laws

-Unsatisfied judgement fund

-Uninsured/Underinsured motorist coverage

Which of the following are ways to manage the cost of automobile accidents and losses?

I. No fault insurance laws

II. Technological improvements (e.g. collision warning systems)

III. Telematics

I,II, and II

Which of the following are rating factors over which you have no control?

I. Age

II. Driving history

III. Claims history

I only

True or False: Both the Personal Auto Policy and the HO - 3 Policy provide defense costs in

addition to the policy limits.

True

True or False: Part A: Liability Coverage of the PAP provides coverage to anyone using the

covered auto with permission.

True

True or False: Part A: Liability Coverage of the PAP provides coverage to someone driving

another person's car, but the driver's coverage is excess over the auto owners' PAP policy.

True

True or False: Part C: Uninsured Motorists Coverage of the PAP provides coverage for bodily

injury of an insured if the other party's insurance limits have been exceeded.

False

True or False: Part D: Damage to your auto coverage of the PAP excludes vandalism.

False

True or False: The Personal Auto Policy provides coverage in Canada and Mexico.

False

True or False: The Personal Auto Policy can be canceled by the insurer for lack of premium

payment.

True

Module 12: Which section of the HO-3 policy provides coverage for the main dwelling on the

premises?

Coverage A:Dwelling

Module 12: Which section of the HO-3 policy provides coverage for the detached structures on

the premises?

Coverage B: Other Structures

Module 12: Which section of the HO-3 policy provides coverage for an attached garage?

Coverage A: Dwelling

Module 12: You purchase an unendorsed HO-3 policy on your home with a Coverage A: Dwelling

Limit of $500,000. What is the limit of insurance you have for a detached garage?

$50,000

Module 12: You purchase an unendorsed HO-3 policy on your home with a Coverage A: Dwelling

Limit of $500,000. What is the limit of insurance you have for your personal property?

a. $0

$250,000

Module 12: You purchase an unendorsed HO-3 policy on your home with a Coverage A: Dwelling

Limit of $500,000. What is the limit of insurance you have for your additional living expenses?

$150,000

Module 12: You purchase an unendorsed HO-3 policy on your home with a Coverage A: Dwelling

Limit of $500,000. What is the limit of insurance you have for your liability coverage?

$100,000

Module 12: Which section of the HO-3 policy has deductibles?

I. Coverage A: Dwelling

II. Coverage E: Personal Liability

III. Coverage F: Medical payments to others

I only

__________________ coverage provides broader coverage than ____________ coverage

Open perils; named perils

Module 12: Which section of the HO-3 policy is on a named perils basis?

I. Coverage A: Dwelling

II. Coverage B: Other structures

III. Coverage C: Personal Property

III only

Some common exclusions under Section I of the HO-3 Policy include:

(All of the above)

-Mold

-Wear and tear

-Vandalism(if vacant for more than 60 days

-Animals owned by the insured

Which of the following are perils insured against under coverage C of the HO-3 policy?

(All of the above)

-Fire

-Explosion

-Vehicles

Which of the following are excluded property under coverage C of the HO-3 policy?

animals

Which of the following are property under coverage C of the HO-3 policy with special

dollar limits?

firearms (theft only)