Insurance Knowledge Aptitude Test (IKAT)
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Questions and Answers

What is the main purpose of insurance for individuals and organizations?

  • To help manage cash flow uncertainty.
  • To provide financial protection against unexpected losses.
  • To comply with legal requirements.
  • To achieve all of the above. (correct)

What is the most important factor in determining the value of a liability claim?

The legal responsibility of the insured and the amount of damages.

Which type of insurance policy typically covers losses to a dwelling, other structures, personal property, and loss of use of property due to a covered cause ofloss?

  • Commercial property insurance
  • Worker's compensation insurance
  • Homeowners policy (correct)
  • Liability insurance

Why is it easier for insurers to price property insurance compared to liability insurance?

<p>Property loss exposures are typically more easily calculable than liability loss exposures. (A)</p> Signup and view all the answers

A surplus lines insurer is usually exempted from insurance regulations pertaining to policy forms and rates.

<p>True (A)</p> Signup and view all the answers

What are the three main areas where insurance regulation focuses on the insurance operations?

<p>Licensing, insurance rates, and insurance policies.</p> Signup and view all the answers

Which of the following is NOT a risk control technique?

<p>Insurance (D)</p> Signup and view all the answers

What are two main sources of income for insurers?

<p>The sale of insurance and the investment of funds.</p> Signup and view all the answers

What is a catastrophe loss?

<p>A loss that affects many similar loss exposures in the same location or at almost the same time. (C)</p> Signup and view all the answers

What are the three elements of a liability loss exposure?

<p>Assets exposed to liability loss, causes of liability loss, and financial consequences of liability loss.</p> Signup and view all the answers

Which of the following is NOT a common valuation method for property insurance?

<p>Market Value (B)</p> Signup and view all the answers

What is the primary purpose of an insuring agreement in an insurance policy?

<p>To clarify the insurer's promises to the insured. (D)</p> Signup and view all the answers

What is the purpose of an exclusion in an insurance policy?

<p>To clarify the limitations of coverage. (C)</p> Signup and view all the answers

Flashcards

Solvency

The ability of an insurer to meet its financial obligations as they become due, even those resulting from insured losses that may be claimed several years in the future.

Foreign insurer

An insurer licensed to operate in a state but incorporated in another state.

Why insurance operations are regulated?

Insurance is regulated by state governments to ensure the financial security of insurers and protect the interests of policyholders.

Mutual insurer

A corporation owned by its policyholders, with a goal of earning profits but also paying dividends to policyholders.

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Captive insurer

An insurer formed primarily to cover the loss exposures of its parent or members.

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Surplus lines law

A state law that permits any producer with a surplus lines license issued by that state to procure insurance from an eligible surplus lines insurer if the applicant cannot obtain the desired type of insurance in the admitted market.

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Underwriting

The process of selecting insureds, pricing coverage, determining policy terms and conditions, and then monitoring the underwriting decisions.

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Premium audit

A method of examining a policyholder's operations, records, and books of account to determine the actual exposure units and premium for insurance coverages already provided.

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Subscription agreement

An agreement authorizing the attorney-in-fact to act on behalf of the subscribers to market and underwrite insurance coverage, collect premiums, invest funds, and handle claims.

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Stock insurer

An insurer that is owned by its stockholders and formed as a corporation for the purpose of earning a profit for the stockholders.

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Lloyd's

An unincorporated association of investors, grouped in syndicates, who are represented by underwriters to write insurance and reinsurance.

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Surplus lines insurance

Insurance coverage unavailable in the standard market due to pricing difficulties or an inability to meet underwriting requirements.

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Admitted insurer

An insurer that has been granted a license to do business within a state by the state insurance department.

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Underwriting process

A formal process for evaluating and accepting insurance risks based on the insurer's underwriting criteria.

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Alien insurer

An insurer domiciled in a country other than the United States.

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Residual Auto Plans

State governments establish a mechanism to guarantee the availability of insurance to high-risk drivers who have difficulty purchasing coverage at a reasonable rate in the private market.

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Reciprocal Insurance Exchanges

Each member of a reciprocal insurance exchange is both an insured and an insurer. They contract with a manager called an attorney-in-fact to handle the operations.

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Claims handling process

The process of evaluating insurance claims and determining the cause and amount of loss to be paid.

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Nonadmitted insurer

An insurer not authorized by the state insurance department to do business within that state.

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Main goals of insurance regulation

The goal of insurance regulation is to protect consumers, maintain insurer solvency, and prevent destructive competition in the market.

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Risk control

A conscious act or decision not to act that reduces the frequency and/or severity of losses or makes losses more predictable.

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Workers compensation insurance

Helps employers meet their obligations under state statutes to injured workers.

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Domestic insurer

An insurer doing business in the jurisdiction in which it is incorporated.

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Minimum surplus requirement

The financial requirement for a domestic insurer that is also a mutual insurer, which has no capital derived from the sale of stock.

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Insurance policy form regulation

A formal process for evaluating and approving insurance policy language to ensure clarity and fairness for policyholders.

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FAIR plans

State governments establish a mechanism to guarantee the availability of property insurance to property owners who are otherwise unable to obtain insurance because of their property's location.

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Insurance rate regulation

The process of determining the appropriate price for insurance coverage, considering factors like risk, cost, and profitability.

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Market conduct regulation

State governments regulate the marketing activities of insurance companies to ensure fairness and prevent deceptive practices.

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Underwriting activities

The process of gathering information to assess a prospective insured's risk, determining coverage options, and setting premiums.

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Insurer licensing

State governments oversee the licensing of insurance companies, agents, brokers, and claims representatives to ensure they meet qualifications and maintain professional standards.

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Study Notes

Insurance Knowledge Aptitude Test Text Book (IKAT)

  • IKAT Version 1 is for the US Division
  • Material provided by the Institutes Knowledge Group
  • Proprietary material, not to be forwarded outside the organization

Contents

  • Assignment 1: Understanding Insurance

    • 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
    • Summary (page numbers 1, 2, and 6)

  • Assignment 2: Insurance Regulation

    • Why Insurance Operations Are Regulated
    • Insurer Licensing
    • Insurance Rate and Form Regulation
    • Market Conduct and Solvency Regulation
    • Summary (page numbers 2 and 32)

  • Assignment 3: Insurer Financial Performance

    • Understanding Insurer Financial Statements
    • Analyzing Insurer Financial Ratio Calculations
    • Knowledge to Action: Financial Ratios and Insurer Financial Performance Case
    • Summary (page numbers 3, 47, and 42)

  • Assignment 4: Marketing

    • Understanding Factors That Influence an Agency Relationship
    • Summarizing Types of Insurance Distribution Systems
    • Functions of Insurance Producers
    • Selecting Insurance Marketing Distribution Systems and Channels
    • Summary (page numbers 3, 64, 69 and 75)

  • Assignment 5: Underwriting and Rate-making

    • Underwriting Activities
    • The Underwriting Process
    • Underwriting Management
    • Rate-making
    • Premium Determination
    • Summary (page numbers 3, 86, 87, and 90)

  • Assignment 6: Claims

    • 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
    • Summary (page numbers 3 and 108)

  • Assignment 7: Risk Management

    • 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
    • Summary (page numbers 4 and 139)

  • Assignment 8: Loss Exposures

    • Property Loss Exposures
    • The Basis for Legal Liability
    • Liability Loss Exposures
    • Personnel Loss Exposures
    • Net Income Loss Exposures
    • Ideally Insurable Loss Exposures
    • Summary (page numbers 4 and 168)

  • Assignment 9: Insurance Policies

    • Elements of a Contract
    • Distinguishing Characteristics of Insurance Policies
    • Insurance Policy Structure
    • Policy Provisions
    • Property Policy Provisions
    • Liability Policy Provisions
    • Summary (page numbers 5 and 204)

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Related Documents

IKAT Version 1 For US Division PDF

Description

This quiz tests your understanding of key concepts in insurance, including the roles, types, and regulations governing insurance operations. Additionally, you will explore insurer financial performance and the importance of financial statements and ratios. Perfect for those looking to enhance their insurance knowledge.

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