Download AINS 101 Exam Prep Questions with Correct Answers: Insurance Fundamentals and more Exams Insurance Economics in PDF only on Docsity!
AINS 101 EXAM PREP QUESTIONS WITH CORRECT ANSWERS
“As a single mother on a very tight budget, Ciara is tempted to skimp on her insurance. However, her friend Mehmet tells her not to skimp on insurance, because it will help manage her cash flows. Which one of the following examples best illustrates Mehmet's point? A. Ciara needs her car to get to her job, and she needs her job to make car payments and pay for her car insurance. B. When her car's windshield breaks, Ciara has to pay only $100 of the $600 cost of replacing it. C. When her car's transmission goes out a month after the warranty expires, Ciara is faced with a $1,100 repair bill.
D. Ciara finds it difficult to come up with a $787 auto insurance premium every six months. -
CORRECT ANSWER When her car's windshield breaks, Ciara has to pay only $100 of the $
cost of replacing it." "Which one of the following statements is correct regarding the benefits provided by insurance? A. Insurance reduces the financial consequences of loss exposures but not the related uncertainty. B. The primary role of insurance is to meet mandatory insurance requirements. C. The reduction in losses paid by insurers due to risk control measures benefits individual insureds but not society as a whole.
D. Insurance helps reduce the financial burden to society by compensating accident victims. -
CORRECT ANSWER Insurance helps reduce the financial burden to society by compensating
accident victims."
"A homeowners policy is a type of - CORRECT ANSWER Personal property-casualty insurance
policy." "Insurance Company wrote a commercial liability policy for a manufacturer of off-road motorcycles. The potential costs of the insured's loss exposure exceed Insurance Company's capacity. Insurance Company could consider which one of the following types of contractual
transferring agreement to meet its needs? - CORRECT ANSWER Reinsurance"
"In an effort to reduce expenses, increase profitability, and reduce human errors; ABC Insurance Company decided to automate most of its personal lines underwriting function. The company now uses standardized application forms that are submitted electronically to one of the company's regional offices. At each regional office, a computer with a scanner reads the
applications. The computer has been programmed with acceptable answers to the questions. If the answers on the application are all acceptable, the policy is automatically issued. Rejected applications are automatically forwarded to a human underwriter who reviews them. The use of this technology has reduced the company's expense ratio by two and a half percent, and reduced the time it takes to issue a policy. ABC Insurance Company's use of computers to evaluate applications electronically is an application of A. Radiant sensors. B. Artificial intelligence.
C. - CORRECT ANSWER Artificial intelligence."
"Jimmy decided to buy a house in his neighborhood that had been foreclosed on by the bank that held the mortgage. He is hoping to do some renovation and repair work on the house, and then
sell it for a quick profit. What type of risk is this? - CORRECT ANSWER Speculative Risk"
"Which one of the following represents uncertainty about outcomes that can be negative or positive? A. Loss exposure B. Transfer C. Risk
D. Pooling - CORRECT ANSWER Risk"
"Which one of the following describes the characteristics of a mutual insurance company? A. A corporation owned by policyholders that provides insurance to its policyholders. B. An unincorporated association that provides reciprocal coverage to subscribers. C. An unincorporated association that earns profits for its individual investors.
D. A corporation owned by stockholders that earns profits for the stockholders. - CORRECT
ANSWER A corporation owned by policyholders that provides insurance to its policyholders."
"Autonomous Vehicle Applications (AVA) is a start-up company that develops safety technologies that can be sold to companies that are producing autonomous vehicles. One technology AVA is developing allows an autonomous vehicle to detect, extract, and analyze images; and then to respond to the images. For example, the technology would detect a presence in a crosswalk, extract the image, and a computer would analyze the image. When the image was determined to be a human being, the vehicle would slow down or stop until the crosswalk was clear. This
D. Renegade is committed to branching out in the near future to include more coverages for
specialized small businesses. - CORRECT ANSWER Renegade keeps enough cash assets on
hand to cover claims on policies long after it collected the premiums from customers."
"What term refers to the ability of an insurer to meet its obligations as they become due? -
CORRECT ANSWER Solvency"
"All of the following appear on an insurer's balance sheet, EXCEPT: A. Liabilities B. Assets C. Net income
D. Policyholders' surplus - CORRECT ANSWER Net income"
"An insurer's balance sheet can best be described as a A. Relationship between revenue and liabilities. B. Snapshot of its financial position. C. Relationship between assets and expenses.
D. Summary of premiums written. - CORRECT ANSWER Snapshot of its financial position"
"The financial report for Hometown Insurer contains the following information: Earned premiums $4,000, Written premiums $5,000, Net investment income $1,000, Incurred losses $3,000, Incurred underwriting expenses $2,000,
What was the Hometown Insurer's combined ratio? - CORRECT ANSWER (3/4) + (2/5) =.
"How do you get combined ratio? - CORRECT ANSWER Loss Ratio + Expense Ratio = (Incurred
Losses/Earned Premiums) + (Incurred Underwriting Expenses/Written Premiums)" "The financial report for LMN Insurance contains the following information: Earned premiums $8,000, Written premiums $10,000,
Incurred losses $6,000, Incurred underwriting expenses $4,000,
What is LMN Insurance's expense ratio? - CORRECT ANSWER 4/10 = .4 (40%)"
"How do you get expense ratio? - CORRECT ANSWER Incurred underwriting expenses /
Written premiums"
"How do you get loss ratio? - CORRECT ANSWER Incurred Losses / Earned Premiums"
"Spencer Insurance Associates is an independent agency selling primarily homeowners policies. This agency A. Is free to work with as many different insurers as it wants. B. Generally represents its customers rather than insurance companies. C. Can use the policyholder expiration lists, but they are owned by insurers.
D. Cannot commit an insurer to write a policy, unlike a broker, who usually can. - CORRECT
ANSWER Is free to work with as many different insurers as it wants."
"The key to the direct writer marketing system is that A. Customers purchase insurance through call centers. B. An agency is contracted to sell insurance for one insurer or group of insurers. C. The insurer is using its own employees as producers.
D. Customers can get quotes for coverage through web-based portals. - CORRECT ANSWER
The insurer is using its own employees as producers." "One of the reasons for insurance regulation is to prevent destructive competition. In which one of the following scenarios would destructive competition be exhibited? A. North Insurance is trying to break into a specialized type of insurance market that is generally out of range for most customers; North decides to price its coverages commensurate with other insurers offering similar policies. B. South Insurance purposely writes its policies with hard-to-understand terminology that only its agents can explain, so that its insureds will purchase its products without asking a lot of questions. C. West Insurance has had three straight years of record-setting low claims and has accumulated more than expected profits; it plans on the trend continuing and overspends on new long-term investments.
C. By making marginal accounts acceptable, risk control helps the Claims Department settle losses. D. Risk control personnel are responsible for answering any complex questions that insureds have
about premium audits. - CORRECT ANSWER Risk control personnel can assist underwriters in
modifying a new applicant's loss exposures to meet eligibility requirements." "As an experienced underwriter, Rick has learned to make every effort to avoid a mistake that can produce insufficient premium to cover losses, or pricing that isn't competitive. Which one of the following underwriting mistakes can often cause these issues? A. Misclassifying exposures B. Recommending the applicant implement risk control measures C. Using predictive models
D. Adjusting policy terms and conditions - CORRECT ANSWER Misclassifying exposures
(Misclassification of exposures can produce insufficient premium to cover losses or pricing that isn't competitive.)" "Which one of the following is a temporary agreement providing insurance coverage until the formal policy is issued? A. Binder B. Rating classification C. Book of business
D. Submission - CORRECT ANSWER Binder (A binder is a temporary agreement providing
insurance coverage until the formal policy is issued.)" "The size of an employer's loss exposure for workers compensation insurance is based on A. The number of its employees. B. The final premium audit. C. The extent of its operations.
D. The amount of its payroll. - CORRECT ANSWER The amount of its payroll. (The size of an
employer's loss exposure for workers compensation insurance is based on the amount of its payroll.)" "Which one of the following is the fundamental measure of loss exposure used in insurance rating? A. Premium
B. Exposure unit C. Risk
D. Rate - CORRECT ANSWER Exposure unit. (The exposure unit is the fundamental measure of
loss exposure used in insurance rating.)" "Tony now works at the corporate level for Newtown Insurance. He is considered a staff underwriter. Which one of the following is primarily a responsibility of staff underwriters? A. Manage a book of business B. Support producers C. Recommend coverage
D. Revise underwriting guidelines - CORRECT ANSWER Revise underwriting guidelines
(Revising underwriting guidelines is primarily a responsibility of staff underwriters.)" "Jill works in the field for Goshen Mutual as a line underwriter. Which one of the following is primarily a responsibility of line underwriters? A. Revise underwriting guidelines B. Select insureds C. Research the market
D. Develop coverage forms - CORRECT ANSWER Select insureds (One of the primary
responsibilities of line underwriters is to select insureds.)" "Which one of the following is the first step in the underwriting process? A. Develop underwriting alternatives B. Evaluate the submission C. Monitor the underwriting decision
D. Determine an appropriate premium - CORRECT ANSWER Evaluate the submission
(Evaluating the submission is the first step in the underwriting process.)" "Produce, such as apples or grapes, may be priced by the unit or by the pound. In insurance, these measures are similar to A. Construction cost index. B. Rates. C. Exposure units.
B. Punitive damages. C. Out-of-pocket damages.
D. Special damages. - CORRECT ANSWER General damages. (Damages for disfigurement are a
form of general damages.)" "Reggie, Harper, Kimmie, and Stefan work in the claims department of North Insurance Company (NIC). Which one of the following is true regarding the various types of claims personnel employed at NIC? A. Harper is a specialized claims representative who works for a small local insurance organization. B. Stefan, a claims supervisor, reviews files and helps determine staff development strategies. C. Kimmie enjoys her role as a telephone claims representative whose specialty is in-person meetings. D. Reggie, a field claims representative, works in NIC's main office and likes having an indoor desk
job. - CORRECT ANSWER Stefan, a claims supervisor, reviews files and helps determine staff
development strategies. (Stefan, a claims supervisor, reviews files and helps determine staff development strategies.)" "Willis, a claims representative, is collaborating with his colleague Suzanna from his insurance company's risk control department. How will Suzanna help Willis? A. Provide claims experience information to help the risk control department. B. Provide laboratory analysis when Willis is investigating a claim. C. Provide inventory values and contractors' equipment lists as needed by Willis.
D. Provide information so Willis can appropriately price loss exposures. - CORRECT ANSWER
Provide laboratory analysis when Willis is investigating a claim. (Suzanna from risk control will help Willis by providing laboratory analysis when Willis is investigating a claim. A is incorrect as that is what Willis would do to help Suzanna. C is incorrect as these are activities the premium auditing department might do to help Willis. D is incorrect as Willis does not price loss exposures (this is done by underwriting).)" "Jerome Wilder is a claims representative with Hermani Insurance. Which group of activities listed below would best exemplify Jerome's actions, in the order they are given, as he systematically handles a new loss in his role? A. Acknowledging the claim - identifying the policy - contacting the insured B. Determining the cause of loss - investigating and documenting the claim - identifying the policy C. Determining the cause of loss and loss amount - identifying the policy - acknowledging the claim
D. Investigating and documenting the claim - contacting the insured - concluding the claim -
CORRECT ANSWER Acknowledging the claim - identifying the policy - contacting the insured
(Of the choices given, Jerome's actions as he systematically adjusts the loss, in the order given, would be acknowledging the claim - identifying the policy - contacting the insured.)" "Henry is a new claims representative with Able Insurers. Which one of the following will Henry find is true as he gains more experience with his company's claims handling process? A. Henry sits in the cubicle next to another claims representative, Marty, who assigns claims to Henry. B. Henry will determine the type of loss - such as property damage or liability - for each claim he handles. C. Henry learns that all claims, no matter the circumstances or parties involved, could involve subrogation. D. Henry learns that policy denials do not need to be routinely reflected or included in the claims
file. - CORRECT ANSWER Henry will determine the type of loss - such as property damage or
liability - for each claim he handles." "Bill's three-year-old stereo was completely destroyed in a covered loss. Its expected useful life was ten years. Its replacement cost is $600. Its actual cash value (ACV) is A. $ 60. B. $180. C. $420.
D. $600. - CORRECT ANSWER $420. (The stereo's Depreciation is 3/10 x $600 = $180. The ACV
is $600 - $180 = $420.)" "After Marvin's car was stolen, and he was reimbursed for the loss by Greatson Insurance, the police found and returned the vehicle, which was dented and spray-painted, but still had parts that could be usable. Greatson's rights to recover and sell or otherwise dispose of insured property on which it has paid a total loss are called A. Constructive rights. B. Catastrophe rights. C. Fiduciary rights.
D. Salvage rights. - CORRECT ANSWER Salvage rights. (Salvage rights allow the insurer to
recover and sell or otherwise dispose of insured property on which the insurer has paid a total loss.)" "Damages for pain and suffering are a form of
D. Multiply the amount of special damages of $1,500 by three as a rule of thumb, and pay $4,500.
- CORRECT ANSWER Use past cases which are similar as a guide. (In assessing general damages, Toni should use past cases which are similar as a guide.)" "Producer Gerald Hilker is one of the most successful producers at the Westfield Agency, which represents several different insurers. Because of this, which one of the following is most likely true? A. Gerald makes most of his income from commissions from customer sales. B. Gerald usually presents a proposal for coverage soon after meeting prospective insureds. C. Gerald's interactions with customers usually end after he issues them their policies.
D. Gerald, due to his success at the agency, is more accurately an "agent" than a "producer". -
CORRECT ANSWER Gerald makes most of his income from commissions from customer sales.
(Gerald makes most of his income from commissions from customer sales. B and C are both incorrect as a long term relationship with customers is more beneficial than a one time or hurried sale. D is incorrect as the two terms are synonymous for anyone selling insurance for one or more insurers.)" "Lacey is a customer service representative (CSR) who has been employed by Greeley Insurance for five years. She worked in Greeley's call center for just a year when she was moved to a busy insurance office staffed primarily with claims representatives and producers. As she continues her exemplary service to Greeley and its customers, which one of the following best describes how she supports her fellow insurance professionals in her role as a CSR? A. Lacey is not permitted to show empathy or take information related to a new loss that just occurred. B. Lacey performs all the roles of a claims professional and a producer but with a different title. C. Lacey has been trained to replicate many of the activities performed by producers.
D. Lacey is not permitted to give advice on how a customer may meet specific coverage needs. -
CORRECT ANSWER Lacey has been trained to replicate many of the activities performed by
producers. (Lacey has been trained to replicate many of the activities performed by producers.)" "Which one of the following accurately describes activities related to customer service representatives? A. It costs more in advertising to keep an existing customer than to attract a new one. B. It takes longer to renew an existing account than it does to write a piece of new business. C. Profitability in the insurance business is directly linked to customer retention.
D. Excellent service builds strong relationships but not necessarily customer loyalty. - CORRECT
ANSWER Profitability in the insurance business is directly linked to customer retention."
"Robin, a producer from Grantley Insurance, is always alert to changes in her clients' loss exposures. Why is this so important? A. Implemented risk management techniques may prove to be ineffective or become obsolete. B. Knowledge of such changes will inform their efforts to create a list of experts that can be called to assist. C. Producers have expertise about risk financing through insurance.
D. Producers can aid clients in developing risk management cost allocation plans. - CORRECT
ANSWER Implemented risk management techniques may prove to be ineffective or become
obsolete. (Correct. Producers should be alert to changes in clients' loss exposures because implemented risk management techniques may prove to be ineffective or become obsolete." "Leadon Transportation is using the expertise of its producer Carmen to help the organization understand how to correct substandard performance as well as evaluate exceeded standards. One measurement she will use is the cost of risk which is best described as A. The terms of insurance or other risk-financing mechanisms. B. The total cost of all aspects of the organization that relate to managing risk. C. Substandard performance and/or risk management standards.
D. The allocation of risk management costs. - CORRECT ANSWER The total cost of all aspects of
the organization that relate to managing risk. (Cost of risk involves the total cost of all aspects of the organization that relate to managing risk.)" "Alicia works for the Drewman Agency, Sandi at insurer Greenway Insurance, and Rosa at Grossman Brokers, all as customer service representatives. Which one of the following is true regarding their work? A. Alicia can process policy endorsements and explain coverage to her customers. B. Sandi, Alicia, and Rosa are not involved in the generation of new business. C. Rosa can provide superior service but is not generally involved in attracting new customers.
D. Sandi is the only one who can replicate the activities of a producer. - CORRECT ANSWER
Alicia can process policy endorsements and explain coverage to her customers." "Producer Josh never tires in encouraging insureds to adopt and sustain a robust and measurable risk management program. As part of this effort, which one of the following will Josh find is true?
The insurer determines the wording of the policy, and the insured has little choice but to take it or leave it.)" "When preprinted forms do not provide the terms of coverage needed by a particular insured or small group of insureds, the insurer may A. Ask the customer to resubmit an application. B. Draft a manuscript form to meet the customer's needs. C. Work with an advisory organization to develop a form.
D. Incorporate statutes into a policy. - CORRECT ANSWER Draft a manuscript form to meet the
customer's needs. (When preprinted forms do not provide the terms of coverage needed by a particular insured or small group of insureds, the insurer may draft a manuscript form to meet the customer's needs.)" "The Insurance Services Office, Inc. (ISO) commercial package policy is an example of a A. Modular policy. B. Manuscript form. C. Self-contained policy.
D. Single insurance document. - CORRECT ANSWER Modular policy. (ISO commercial package
policy is an example of a modular policy; it combines different coverage parts related to different lines of business.)" "Which one of the following most accurately describes one of the policy provisions in an insurance policy? A. The declarations state the insurer's promise to the insured. B. The definitions contain a list of forms included in the policy. C. The conditions state what the insurer specifically will not cover.
D. The exclusions are in place to reduce duplicate coverage. - CORRECT ANSWER The
exclusions are in place to reduce duplicate coverage. (The exclusions are in place to reduce duplicate coverage. A is incorrect as the insuring agreement, not the declarations, state the insurer's promise to the insured. B is incorrect as the declarations, not the definitions, contain a list of forms included in the policy. And C is incorrect as the exclusions, not the conditions, state what the insurer specifically will not cover.)"
"Adhering to the characteristics of an ideally insurable loss exposure in selling insurance help assure that A. The losses associated with it typically involve small amounts. B. The insurer is able to predict the amount and timing of each future loss. C. The insurer can charge a high premium for the coverage.
D. The insurer is able to charge a premium that the insured can afford to pay. - CORRECT
ANSWER The insurer is able to charge a premium that the insured can afford to pay. (Adhering
to the characteristics of an ideally insurable loss exposure in selling insurance help assure that the insurer is able to charge a premium that the insured can afford to pay.)" "Ling has noticed that her neighbor has recovered money for two homeowners property claims and an auto damage claim he has filed in recent years. Ling has been paying insurance premiums for many years and has never suffered a loss or made a claim. She feels that her insurance contracts over the years have been worthless to her. What Ling does not understand is that she has been paying premiums for a contract A. That is nontransferable. B. Of unequal amounts. C. Of adhesion.
D. Of utmost good faith. - CORRECT ANSWER Of unequal amounts."
"New homeowner and small business owner Sallie learns that an insurance policy may contain other documents than its insurance forms. Accordingly, which one of the following will Sallie find is true regarding her new insurance purchases? A. As Sallie's policy coverages are relatively common, she will simply require a manuscript policy. B. Sallie's application may contain endorsements which modify the basic policy form. C. Sallie learned all policies, personal and commercial, contain relevant statutory terms for clarity. D. Sallie's application for insurance was returned to her as it was no longer useful after receiving
her policy. - CORRECT ANSWER Sallie's application may contain endorsements which modify
the basic policy form." "Claims supervisor Charlotte is reviewing the incoming claims for the day to decide which ones to assign to various claims reps. Of those claims, which one of the following descriptions will Charlotte find is an example of a fortuitous loss? A. The value of an insured's home decreases due to a lack of maintenance. B. Insureds intentionally set a fire and burn their house down.
"Liabilities - CORRECT ANSWER Financial obligations, or debts, owed by a company to another
entity, usually the policyholder in the case of an insurer."
"Investment income - CORRECT ANSWER Interest, dividends, and net capital gains received by
an insurer from the insurer's financial assets, minus its investment expenses."
"Loss reserve - CORRECT ANSWER An estimate of the amount of money the insurer expects to
pay in the future for losses that have occurred."
"Unerned premium reserve - CORRECT ANSWER An insurer liability representing the amount
of premiums received from policyholders that are not yet earned."
"Loss ratio - CORRECT ANSWER A ratio that measures losses an loss adjustment expenses
against earned premiunms and that reflects the percentage of premiums being consumed by losses."
"Expense ratio - CORRECT ANSWER An insurer's incurred underwriting expenses for a given
period divided by its written premiums for the same period."
"Combined ratio - CORRECT ANSWER A profitability ratio that indicates whether an insurer
has made an underwriting loss or gain."
"Independent agency - CORRECT ANSWER A business, operated for the benefit of its owner
(or owners) that sells insurance, usually as a representative of several unrelated insurers."
"Exclusive agency marketing system - CORRECT ANSWER An insurance marketing system
under which agents contract to sell insurance exclusively for one insurer (or for an associated group of insurers)."
"Direct writer marketing system - CORRECT ANSWER An insurance marketing system that
uses sales agents (or sales representatives) who are direct employees of the insurer."
"Distribution channel - CORRECT ANSWER The necessary people and physical facilities to
support the sale of insurance products and services"
"Producer - CORRECT ANSWER Any of several kinds of insurance personnel who place
insurance and surety business with insurers and who represent either insurers or insureds, or both."
"Agent - CORRECT ANSWER In the agency relationship, the party that is authorized by the
principal to act on the principal's behalf."
"Agency - CORRECT ANSWER A legal, consensual relationship that exists when one party, the
agent, acts on behalf of another party, the principal."
"Principal - CORRECT ANSWER The party in an agency relationship that authorizes the agent
to act on that party's behalf."
"Broker - CORRECT ANSWER An independent producer who represents insurance customers."
"Agency expiration list - CORRECT ANSWER The record of an insurance agency's present
policyholders and the dates their policies expire."
"Certificate of insurance - CORRECT ANSWER A brief description of insurance coverage
prepared by an insurer or its agent and commonly used by policyholders to provide evidence of insurance."
"Predictive modeling - CORRECT ANSWER A process in which historical data based on
behaviors and events are blended with multiple variables and used to construct models of anticipated future outcomes."
"Catastrophe model - CORRECT ANSWER A type of computer program that estimates losses
from future potential catastrophic events."
"Policyholders' surplus - CORRECT ANSWER An insurer's assets minus its liabilities, which
represents its net worth."
"Underwriting - CORRECT ANSWER The process of selecting insureds, pricing coverage,
determining insurance policy terms and conditions, and then monitoring the underwriting decisions made."
"Book of business - CORRECT ANSWER A group of policies with a common characteristic, such
as territory or type of coverage, or all policies written by a particular insurer or agency."
"Rate manual - CORRECT ANSWER A resource for classifying accounts and developing
premiums for given types of insurance; includes necessary rules, factors, and guidelines to apply those rates."
