Insurance Principles and Products

The Basis of risk is

• A) liability

• B) uncertainty

• C) possibility of loss

• D) insurance

An ombudsman is entrusted with...........functions

• a. managing & concilling

• b. conciliation and award making

• c. agency and principal

• d. none of the above

A fire destroyed Ethan's store. Investigators determined the fire originated in the garbage dumpster behind the store, and the his insurance company indemnified him for his loss. What insurance term describes the fire that caused the destruction of Ethan's store?

• A) Hazard

• B) Severity of loss

• C) Peril

• D) Captive

JT Rawlings Ltd. is a very large corporation that set up its own offshore insurance company, Full Coverage Insurance, to cover its risks.Offshore insurance companies like Full Coverage are called

• A) risk managers

• B) captives

• C) reserves.

• D) employer's liability

To indemnify means to

• A) put back in the same financial position just prior to the loss

• B) put aside funds to pay for losses reported but not yet paid.

• C) transfer risk to someone who has better financial resources and can withstand loss.

• D) make financial provisions for dealing with potential losses.

The Three (3) major categories of insurance are

• A) social insurance, automobile insurance, and life and health insurance

• B) social insurance, life and health insurance, and general insurance/property and casualty insurance.

• C) general insurance/property and casualty insurance, automobile insurance, and liability insurance.

• D) general insurance/property and casualty insurance, property insurance, and life and health insurance.

The Caregiver Insurance Company chose to write insurance for risk in many different locations. It found that this was an effective way to balance premiums with losses and expenses. Selecting risk in this manner is called

• A) diversity of type of risk.

• B) diversity of location

• C) volume.

• D) risk concentration

On their way home from school, teenagers Jack and Tim enjoyed throwing rocks at vehicles from a bridge overlooking the freeway. One day, a rock they threw smashed the front windshield of a vehicle and startled the driver, who crashed into the guardrail. The driver was not injured, but the damage to the vehicle was substantial. Both Jack and Tim were later caught by the police, and their parents were forced to pay for the damages to the vehicle involved in the accident.Jack and Tim's actions can be described as an example of

• A) the theory of probability.

• B) negligence.

• C) exposure to risk.

• D) the law of large numbers.

Shield Insurance Ltd. agreed to insure a large commercial client. Due to the size of this client's operations, there is the potential that it could suffer a substantial loss. It would be financially difficult for Shield Insurance Ltd. to pay the entire claim itself. To spread this risk, Shield Insurance Ltd. contacted Adequate Insurance Company to request that it cover a portion of the risk. Adequate Insurance Company agreed, but only on the condition that it receive a portion of the premium the client has paid to Shield Insurance Ltd.The term that best describes this scenario is

• A) retention.

• B) reinsurance.

• C) loadings.

• D) casualty insurance.

As part of their claims services, some insurers have set up special investigation units (SIUs) Their responsibilities include

• A) establishing underwriting policies and risk and class limits to serve as guidelines for all business offered.

• B) investigating suspicious claims involving fraud and insurance crime.

• C) establishing yearly targets.

• D) overseeing the overall management of the administration and efficiency of the company's claims service.