Insurance Concepts and Terminology Quiz
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Questions and Answers

What is the abbreviation for "Institutes Knowledge Group"?

Institutes Knowledge Group

What is the main purpose of insurance as a risk management technique?

  • To help insureds regain their footing after a loss. (correct)
  • To promote risk control.
  • To help insureds avoid losses.
  • To help insureds manage cash flow uncertainty.

    • How many major insurance sectors exist?

  • 2 (correct)
  • 5
  • 3
  • 4

    • Insurance is a risk transfer mechanism.

    <p>True</p> Signup and view all the answers

    Insurance operates as a contract between an insurer and the insured.

    <p>True</p> Signup and view all the answers

    All insurance policies meet the same requirements as any other valid contract.

    <p>True</p> Signup and view all the answers

    What are two common approaches to structuring an insurance policy?

    <p>self-contained and modular</p> Signup and view all the answers

    What is the abbreviation for "Personal Auto Policy"?

    <p>PAP</p> Signup and view all the answers

    What category does liability insurance fall under?

    <p>Property</p> Signup and view all the answers

    What is the main purpose of life insurance?

    <p>To replace the income-earning potential lost through death.</p> Signup and view all the answers

    Which of these is NOT a type of personal insurance?

    <p>Businessowners</p> Signup and view all the answers

    What type of insurance may be needed for boat owners?

    <p>Personal Watercraft</p> Signup and view all the answers

    What type of insurance is usually required by employers to protect themselves against claims from employees who suffer job-related injuries or illnesses?

    <p>Workers' compensation</p> Signup and view all the answers

    What type of insurance protects an individual against multiple types of personal losses?

    <p>Personal Umbrella</p> Signup and view all the answers

    What is the name of the insurance that protects businesses against environmental damage?

    <p>Environmental liability insurance</p> Signup and view all the answers

    What is the name of the insurance that covers many common liability exposures faced by an organization, including its premises, operations, and products?

    <p>Commercial general liability insurance</p> Signup and view all the answers

    What type of insurance helps ensure financial stability for businesses that must pay for large potential losses?

    <p>Businessowners</p> Signup and view all the answers

    A typical "Businessowners policy" is a self-contained policy.

    <p>True</p> Signup and view all the answers

    What type of insurance is most commonly purchased by businesses that need to protect themselves from financial losses resulting from the ownership, maintenance, or use of an automobile?

    <p>Commercial auto</p> Signup and view all the answers

    What is the name of the insurance that protects the insured against theft of job-site contents, such as cash registers, computers, and inventory?

    <p>Commercial crime insurance</p> Signup and view all the answers

    What type of insurance do many business organizations purchase to provide property, crime, and liability coverages?

    <p>Businessowners policy</p> Signup and view all the answers

    Commercial umbrella liability coverage is similar to personal umbrella liability coverage.

    <p>True</p> Signup and view all the answers

    Insurers usually make a profit for their owners.

    <p>False</p> Signup and view all the answers

    What is the name of the process by which an insurer can, after paying a covered loss, recover the payment amount from another party who caused the loss?

    <p>Subrogation</p> Signup and view all the answers

    What is the type of insurance that is typically available through "surplus lines"?

    <p>insurance that isn't usually available in standard market</p> Signup and view all the answers

    Nonadmitted insurers are required by state insurance departments to file their rates and policy forms.

    <p>False</p> Signup and view all the answers

    What is the name of an insurer that is formed primarily to cover the loss exposures of its parent or members?

    <p>Captive</p> Signup and view all the answers

    What is the name of a contract that defines the eligible insurance that a reinsurer agrees to automatically reinsure a portion of from the primary insurer?

    <p>Treaty reinsurance</p> Signup and view all the answers

    Facultative reinsurance is a type of automatic reinsurance.

    <p>False</p> Signup and view all the answers

    State governments are always involved in the regulation of insurance.

    <p>True</p> Signup and view all the answers

    What type of insurance is required by employers in almost all US states?

    <p>Workers' Compensation</p> Signup and view all the answers

    Which of these is NOT a reason for government participation in insurance programs?

    <p>To provide for the purchase of life insurance.</p> Signup and view all the answers

    Which of these is NOT a common example of a US state government insurance program?

    <p>National Flood Insurance Program.</p> Signup and view all the answers

    There are three levels of government involvement in insurance programs.

    <p>True</p> Signup and view all the answers

    The "FAIR plan" is a common example of a federal government insurance program.

    <p>False</p> Signup and view all the answers

    What is the name of the insurance program offered by states to help businesses and individuals in high-risk areas purchase property insurance?

    <p>FAIR Plan</p> Signup and view all the answers

    What are the five key functions of an insurer?

    <p>marketing, underwriting, claims, risk control, premium auditing</p> Signup and view all the answers

    Which of these is NOT one of the key components of a successful marketing program?

    <p>Claims handling</p> Signup and view all the answers

    The "underwriting" process only involves selecting the right insureds for the company.

    <p>False</p> Signup and view all the answers

    What is the name of the process that helps determine how much coverage an insurer should offer for a given loss exposure?

    <p>Underwriting</p> Signup and view all the answers

    What does the abbreviation "LAE" stand for?

    <p>Loss adjustment expense</p> Signup and view all the answers

    The key goal of the "claims" function is to generate significant profit.

    <p>False</p> Signup and view all the answers

    The "Premium Audit" focuses on determining if the premium paid on a commercial insurance policy was correctly calculated based on actual loss exposures during that period.

    <p>True</p> Signup and view all the answers

    Insurers are only making a profit if they have a combined ratio below "100".

    <p>False</p> Signup and view all the answers

    What is the name of the ratio that compares "losses and loss adjustment expenses" against "earned premiums"?

    <p>Loss ratio</p> Signup and view all the answers

    Which ratio measures a company's financial health by including all cash inflows against all cash outflows?

    <p>Combined ratio</p> Signup and view all the answers

    What is NOT a category where an insurer might choose to adjust premiums?

    <p>Regulation</p> Signup and view all the answers

    The "expense ratio" is the portion of an insurer's written premiums used to pay for acquisition costs, general expenses, and licensing and premium taxes.

    <p>True</p> Signup and view all the answers

    The "investment income ratio" is a good gauge of the overall profitability of the insurer.

    <p>False</p> Signup and view all the answers

    The "overall operating ratio" helps determine the overall profitability based on underwriting profitability and investment income performance.

    <p>True</p> Signup and view all the answers

    Which of these is NOT a type of insurance distribution system?

    <p>Agency-brokerage marketing system</p> Signup and view all the answers

    Independent agents and brokers are considered to be employees of the insurer.

    <p>False</p> Signup and view all the answers

    What is the name of the valuable asset owned by an independent agent that gives them the right to sell insurance to existing customers after leaving their prior insurer?

    <p>Expiration list</p> Signup and view all the answers

    Which distribution system involves agents who are usually restricted to representing a single insurer?

    <p>Exclusive agency</p> Signup and view all the answers

    Independent agents have greater control over their operations than direct writers and exclusive agents.

    <p>False</p> Signup and view all the answers

    What is the name of an insurance professional who is responsible for placing insurance and surety business with insurers?

    <p>Producer</p> Signup and view all the answers

    Which type of insurer uses employees who are compensated via "salary, commission, or both" and are usually restricted to only representing a single insurer?

    <p>Direct writer</p> Signup and view all the answers

    What are the main functions of an insurance producer?

    <p>Prospecting, risk management review, and claim handling.</p> Signup and view all the answers

    What type of distribution system is most common when marketing to large commercial accounts that require sophisticated knowledge and service?

    <p>National and regional brokers</p> Signup and view all the answers

    What does the term "affinity marketing" refer to?

    <p>marketing to customers based on their profession, interests, hobbies, or attitudes</p> Signup and view all the answers

    What is the primary reason an insurer might choose to operate through an MGA?

    <p>To reduce operating costs</p> Signup and view all the answers

    The independent insurance agent is a key part of the surplus lines broker system.

    <p>True</p> Signup and view all the answers

    A surplus lines broker can place insurance with an unlicensed insurer.

    <p>True</p> Signup and view all the answers

    What are the two main categories of insurer income?

    <p>Sales of insurance and investment of funds</p> Signup and view all the answers

    What is the name of the process insurers use to determine the price of a policy?

    <p>Ratemaking</p> Signup and view all the answers

    Which of the following is NOT a risk control technique for reducing losses?

    <p>Premium audit</p> Signup and view all the answers

    Underwriting is an essential part of an insurer's operation and is vital to the organization's survival.

    <p>True</p> Signup and view all the answers

    What is the name of the document that allows the insurer to transfer the cost of losses to another party?

    <p>Noninsurance risk transfer</p> Signup and view all the answers

    Which are the two main types of reinsurance?

    <p>Treaty and facultative</p> Signup and view all the answers

    Study Notes

    Insurance Knowledge Aptitude Test Text Book (IKAT)

    • IKAT Version 1 is for the US Division
    • The content is proprietary and not to be forwarded outside the organization
    • The IKAT content is curated from previous versions of course material provided by the Institutes Knowledge Group

    Contents

    • Assignment 1: Understanding Insurance (pages 1-21)
      • Benefits and Costs of Insurance
      • Major Roles of Insurance
      • Types of Personal and Commercial Insurance
      • Types of Private Insurers
      • Government Insurance Programs
      • Overview of Insurance Functions
    • Assignment 2: Insurance Regulation (pages 25-41)
      • Why Insurance Operations Are Regulated
      • Insurer Licensing
      • Insurance Rate and Form Regulation
      • Market Conduct and Solvency Regulation
    • Assignment 3: Insurer Financial Performance (pages 43-63)
      • Understanding Insurer Financial Statements
      • Analyzing Insurer Financial Ratio Calculation
      • Knowledge to Action: Financial Ratios and Insurer Financial Performance Case
    • Assignment 4: Marketing (pages 64-84)
      • Understanding Factors That Influence an Agency Relationship
      • Summarizing Types of Insurance Distribution Systems
      • Functions of Insurance Producers
      • Selecting Insurance Marketing Distribution Systems and Channels
    • Assignment 5: Underwriting and Rate-making (pages 86-107)
      • Underwriting Activities
      • The Underwriting Process
      • Underwriting Management
      • Rate-making
      • Premium Determination
    • Assignment 6: Claims (pages 108-137)
      • Goals of the Claims Function
      • Claims Department Structure, Personnel, and Performance
      • The Claims Handling Process
      • Aspects of Property Insurance Claims
      • Aspects of Liability Insurance Claims
      • Good-Faith Claims Handling
    • Assignment 7: Risk Management (pages 139-167)
      • Basic Purpose and Scope of Risk Management
      • Identifying and Analyzing Loss Exposures
      • Examining the Feasibility of Risk Management Techniques
      • Selecting, Implementing, and Monitoring Risk Management Techniques
      • Benefits of Risk Management
      • Applying the Risk Management Process
    • Assignment 8: Loss Exposures (pages 168-202)
      • Property Loss Exposures
      • The Basis for Legal Liability
      • Liability Loss Exposures
      • Personnel Loss Exposures
      • Net Income Loss Exposures
      • Ideally Insurable Loss Exposures
    • Assignment 9: Insurance Policies (pages 204-239)
      • Elements of a Contract
      • Distinguishing Characteristics of Insurance Policies
      • Insurance Policy Structure
      • Policy Provisions
      • Property Policy Provisions
      • Liability Policy Provisions
    • Page References: Page numbers and additional details from the document

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    Insurance Knowledge Aptitude Test Text Book (IKAT)

    Description

    Test your knowledge on the fundamental concepts of insurance, including key terms, purposes, and types of policies. This quiz covers various aspects of risk management and insurance sectors, ensuring a comprehensive understanding of the topic. Perfect for students and professionals alike who want to solidify their insurance knowledge.

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