UKFM3033 Insurance Quiz

Which of the following is a basic characteristic of insurance?

• pooling of losses

• avoidance of risk

• payment of intentional losses

• certainty about specific losses that will occur

Which of the following is implied by the pooling of losses?

• sharing of losses by an entire group

• inability to predict losses with any degree of accuracy

• substitution of actual loss for average loss

• increase of objective risk

According to the law of large numbers, what happens as the number of exposure units increases?

• Actual results will increasingly differ from probable results.

• Actual results will more closely approach probable results.

• Nondiversifiable risk will decrease.

• Objective risk will increase.

From the viewpoint of the insurer, all of the following are characteristics of an ideally insurable risk EXCEPT

• The loss must be accidental.

• The loss should be catastrophic.

• The premium must be economically feasible.

• There must be a large number of exposure units.

From the standpoint of the insurer, which of the following is a characteristic of an ideally insurable risk?

• The loss must be intentional.

• There must be a small number of unique loss exposures.

• The chance of loss must be calculable.

• The loss must be indeterminable.

Which of the following types of risks is normally uninsurable by private insurers?

• personal risks

• property risks

• liability risks

• political risks

Which of the following is a result of adverse selection?

• The insurer's financial results will be substantially improved.

• Persons most likely to have losses are also most likely to seek insurance at standard rates.

• It is unnecessary for the insurance company to use underwriting.

• Insurance can be written only by the federal government.

All of the following are benefits to society that result from insurance EXCEPT

• less worry and fear.

• elimination of moral hazard.

• indemnification for loss.

• loss prevention.

All of the following are social costs associated with insurance EXCEPT

• insurance company operating expenses.

• fraudulent claims.

• inflated claims.

• increased cost of capital.

If insurers were to provide indemnification for losses that were deliberately caused, which characteristic of ideally insurable risks would not be met?

• The loss must be accidental and unintentional.

• The loss must be determinable and measurable.

• The loss should not be catastrophic.

• There must be a large number of similar exposure units.