Retention Questions Ch 1

A ______________ insurance company is owned by its policyholders.

Answer explanation

Its members also called policyholders, own a mutual insurance company.

If an insurance company wants to transfer all or part of the risk it has accepted, it

would buy which of the following types of insurance?

• Residual

• Reinsurance

• Reciprocal

• Insurer

Answer explanation

An insurance company that accepts a portion of a risk for an insurance company is

called a reinsurance company.

Which of the following is an insurance company that is organized under the laws of

another state within the United States?

• Domestic

• Alien

• Foreign

• Authorized

Answer explanation

A foreign insurer is not organized under the laws of the state in which it is writing

insurance, whereas a domestic insurer is organized under the laws of the state in which

it is writing insurance.

Which insurance company department accepts the insurance risk?

• Executive

• Actuarial

• Claims

• Underwriting

Answer explanation

The Underwriting Department is responsible for evaluating the acceptability of a risk

and, once accepted, determines the actual rate to be charged.

Which of the following individuals represents the insurance company when selling an

insurance policy?

• Producer

• Broker

• Adjuster

• Insurer

Answer explanation

The producer or agent is licensed to represent the insurance company when transacting

insurance business.

Which of the following authorities does the public assume an agent has, based on the

agent’s conduct?

• Authorized

• Express

• Implied

• Apparent

Answer explanation

Implied authority is that which the public assumes the agent has if it is not written into

the agent’s agency contract.

A producer has each of the following responsibilities to the Insurer, EXCEPT:

• A fiduciary duty

• Forwarding premiums to the insurer on a timely basis

• Reporting material facts that may affect underwriting

• A duty to recommend only high premium policies

Answer explanation

The producer is responsible to the insurance applicant to promptly forward premiums to

the insurer, recommend the best protection, gain knowledge of the applicant’s insurance

needs and current insurance coverage, and serve the applicant’s best interests.

A federal regulation called the ______________ protects consumer privacy.

Answer explanation

The Fair Credit Reporting Act protects consumer privacy by ensuring that data collected

by companies on a person is confidential, accurate, relevant, and used for a proper purpose.

Dishonest tendencies that increase the probability of loss are what types of hazard?

• Physical

• Moral

• Emotional

• Legal

Answer explanation

A hazard increases the chance of loss and the three types are moral, morale, which is indifference or carelessness, and physical, which is a physical condition.

Each of the following must be included in an insurable risk, EXCEPT:

• Calculable chance of loss

• Excluded catastrophic perils

• Large group with dissimilar members

• Accidental losses

Answer explanation

An insurable risk must also include a large number of groups with the same perils,

affordable premiums, and the loss must be measurable.