Insurance Pricing Practice Test

If a new regulation is introduced that increases the minimum coverage required for certain policies, how might this affect the severity of claims?

• It could lead to an increase in the severity of claims due to higher coverage limits.

• It would decrease the severity of claims by reducing the number of claims filed.

• It would have no effect on the severity of claims.

• It would only affect the premiums charged, not the claims themselves.

Describe how the age of a building can affect its fire insurance premium.

• Older buildings are always cheaper to insure than newer ones.

• Older buildings may have higher premiums due to increased risk of fire hazards.

• Age has no impact on insurance premiums.

• All buildings have the same insurance premium regardless of age.

If a driver switches from a high-performance sports car to a standard sedan, what is likely to happen to their motor insurance premium?

• The premium will decrease because sports cars are less expensive to insure.

• The premium will increase because sedans are more common.

• There will be no change in the premium as it is based on the driver's age.

• The premium is likely to decrease due to lower risk associated with the sedan.

What is an insurance premium?

• A payment made to an insurance company in exchange for coverage

• A payment made to the government for Medicare or Medicaid coverage

• A payment made to a healthcare provider for medical services

• A payment made to a pharmacy for prescription medications

What should be checked if there is a significant increase in average premiums?

• One should check for the number of claims filed by policyholders.

• One should check for the total number of insurance policies sold.

• One should check for changes in the rate formula or any external environmental changes, such as increases in the sum insured.

• One should check for changes in the insurance policy terms only.

How might an increase in loss adjustment expenses affect an insurance company's pricing strategy?

• It would have no effect on pricing strategy.

• It may lead to higher premiums to cover increased costs associated with managing claims.

• It would decrease premiums due to lower risk.

• It would only affect the underwriting process.

What is the primary purpose of an insurance premium?

• To provide coverage for the policyholder.

• To cover administrative costs only.

• To pay for future claims only.

• To determine the risk factors of the insured.

How does the vehicle model impact motor insurance premiums?

• Vehicle model does not impact premiums; only the driver's age matters.

• All vehicle models have the same insurance cost regardless of their value.

• Premiums are determined solely by the insured's location, not the vehicle model.

• Certain vehicle models may be more expensive to repair or have higher theft rates, leading to higher premiums.

If a policyholder files a claim for a covered loss, what should the insurance company do next?

• The insurance company should assess the claim to determine its validity and the amount to be paid.

• The insurance company should immediately deny the claim regardless of the circumstances.

• The insurance company should increase the policyholder's premium due to the claim.

• The insurance company should cancel the policyholder's insurance policy.

Types of expenses include:

• fixed expenses

• variable expenses

• Loss adjustment expense

• all of the above