Insurance Operations Review
Questions
Course Introduction
Insurance Operations explores the fundamental processes and functions within insurance companies and agencies. The course covers topics such as underwriting, claims management, policy issuance, premium collection, and customer service, detailing how each area contributes to the overall performance and profitability of insurance organizations. Students will also examine regulatory compliance, risk management practices, and the role of technology in streamlining insurance operations. Emphasis is placed on both the technical and strategic aspects of operations, preparing students to understand workflow efficiency and operational decision-making in the insurance industry.
Recommended Textbook
Introduction to Risk Management and Insurance 9th Edition by Mark S. Dorfman
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23 Chapters
1245 Verified Questions
1245 Flashcards
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Page 2
Chapter 1: Fundamentals and Terminology
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70 Verified Questions
70 Flashcards
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Sample Questions
Q1) All the following are direct losses except:
A)a house is burglarized
B)a store loses $200,000 in sales because a fire closes it down for two weeks
C)a corporation must pay $1 million in ransom when its CEO is kidnapped
D)an delivery truck needs $15,000 in repairs after a collision
Answer: B
Q2) For the U.S.insurance industry,2001 was an unprofitable year in terms of underwriting,but not investments.
A)True
B)False
Answer: False
Q3) The International Financial Reporting Standards definition of "insurance contract" specifically includes insurance contracts that have a low degree of risk transfer.
A)True
B)False
Answer: False
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3
Chapter 2: Defining the Insurable Event
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Sample Questions
Q1) You can collect for your own injuries under a liability policy.
A)True
B)False
Answer: False
Q2) Catastrophic losses are not insured by the private insurance industry because:
A)if a truly catastrophic loss occurs, it can threaten the solvency of the insurer
B)catastrophic losses can result from an individual's moral hazard
C)the federal government wants to insure catastrophic losses
D)the losses require foreign reinsurance companies to operate in the U.S.
Answer: A
Q3) In a negligence lawsuit,jury's primary function is to:
A)assist the judge in interpreting the law
B)determine the facts
C)decide guilt or innocence
D)make sure neither plaintiff nor defendant cheats in presenting their case
Answer: B
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4
Chapter 3: Risk Management
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61 Flashcards
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Sample Questions
Q1) Leasing is an example of risk assumption.
A)True
B)False Answer: False
Q2) Loss prevention is the best risk management tool when the chance of loss is __________________ and the potential loss severity is __________________.
A)high, high
B)high, low
C)low, low
D)low, high Answer: B
Q3) Risk managers can identify potential property losses using:
A)walking tours
B)checklists
C)flowcharts
D)all of the above Answer: D
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Page 5
Chapter 4: Financial Services Companies
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42 Verified Questions
42 Flashcards
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Sample Questions
Q1) Dividends from mutual insurers are not subject to federal income tax.
A)True
B)False
Q2) All the following are true about fraternal insurers except:
A)they market their product to social organizations
B)they are nonprofit and have tax advantages
C)they specialize in life insurance
D)they typically sell coverage through commercial banks
Q3) Reciprocal exchanges provide a considerable amount of automobile insurance.
A)True
B)False
Q4) What are the basic differences between a stock and a mutual insurance company?
Q5) The term "demutualization" refers to:
A)the process of a stock insurer converting its organizational structure to mutual B)the board of directors' action in declaring dividends for the policy owners
C)the process of a mutual insurer converting its organizational structure to the stock form
D)the process of liquidating an insolvent mutual insurance company
Q6) How do a reciprocal exchange and a mutual insurance company differ?
Page 6
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Chapter 5: Insurance Occupations
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Sample Questions
Q1) Brokers generally stand in the same position as life insurance agents with respect to the legal power to bind the insurer to a life insurance contract.
A)True
B)False
Q2) In 2004,insurance brokers in New York were accused of violating a duty to their clients (insurance buyers). What was that duty?
A)loyalty to the buyer
B)no self-dealing at the buyer's expense
C)full disclosure to the buyer about the insurer's financial condition
D)full disclosure of all the broker's investment interests in insurers
Q3) Explain what a direct writer company is. Explain what the independent agency system is.
Q4) At the present,most insurance sold over the internet is:
A)illegal
B)personal lines coverage
C)small business coverage
D)expensive
Q5) What is the difference between an agent and a broker?
Q6) What are the steps in the loss adjustment process?
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Chapter 6: the Insurance Market: the Economic Problem
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Sample Questions
Q1) Given the following choices,the best advice for purchasing automobile insurance is
A)always buy full coverage
B)always buy the cheapest policy
C)choose the largest deductible you can reasonably afford
D)never buy auto insurance from a stock company
Q2) All of the following are rights of insurance consumers except:
A)the right to accurate information
B)the right to have complaints heard
C)the right to affordable prices
D)the right to product development and improvement
Q3) All of the following firms provide financial ratings of insurance companies except:
A)A.M. Best
B)Standard & Poors
C)Moody's
D)NASD
Q4) The insurance markets structure has no major flaws.
A)True
B)False
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Chapter 7: Insurance Regulation
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62 Verified Questions
62 Flashcards
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Sample Questions
Q1) The right of the states to regulate insurance was first established by the:
A)SEUA decision
B)Paul v. Virginia decision
C)National Association of Insurance Commissioners Act
D)McCarran Ferguson Act
Q2) Insurer reserve requirements exist to:
A)force the insurer to maintain a minimum amount of assets
B)allow the insurer to earn investment income
C)allow the insurer to charge higher premiums
D)set money aside for fixed asset acquisition
Q3) A loss reserve is more likely to be maintained in relatively large amounts by a property than a life insurance company.
A)True
B)False
Q4) The Optional Federal Charter would require insurers to:
A)dismantle their state regulatory systems
B)submit to federal insurance regulation
C)phase out state regulation over a ten year period
D)none of the above
Q5) Explain what a guarantee fund is.How are guarantee funds financed?
Page 9
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Chapter 8: Insurance Contracts
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Sample Questions
Q1) The doctrine of proximate cause:
A)forces the insurer to pay for all claims arising out of an unbroken sequence of events if any one of the subsequent perils following the original excluded peril was covered
B)forces the insurer to pay for all claims arising out of an unbroken sequence of events if the original insured peril was covered
C)forces the insurer to pay for the loss when the proximate cause of the event is the insured's fault
D)divides any loss payment among parties proximately affected by the loss
Q2) The ____________ clause in an insurance policy says that when the insurer indemnifies the insured for a loss,it takes over the insured's right to collect payment from any negligent third party that may have caused the loss.
A)indemnity
B)proof of loss
C)adhesion
D)subrogation
Q3) Explain the principle of subrogation. Provide a mathematical example of its use.
Q4) Explain the principle of indemnity. How does one measure indemnity?
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Chapter 9: Basic Property and Liability Insurance Contracts
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Sample Questions
Q1) Describe the purposes of deductibles.
Q2) Explain what is meant by short-rate and pro-rata cancellation. In what cases are each used?
Q3) If Marcell has a $250,000 home and two $200,000 fire insurance policies,how much can he collect in total from both policies following a $100,000 loss?
A)$100,000
B)$200,000
C)$250,000
D)none of the above
Q4) Which of these is not a condition precedent or subsequent under the "duties after loss" provisions?
A)duty to give immediate notice
B)duty to commence suits within one year of a loss
C)duty to cooperate with the insurer at trials
D)duty to hire an attorney to represent you if you challenge denial of your claim
Q5) Explain the purpose of the declaration page found in insurance contracts.
Q6) What are some of the reasons exclusions are found in insurance contracts?
Q7) What is the purpose of the recovered property clause in dealing with salvage?
Page 11
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Chapter 10: Homeowners Insurance
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51 Verified Questions
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Sample Questions
Q1) The named insured leaves a suitcase filled with clothing on the seat of his unattended,unlocked automobile. The loss is valued at $900 replacement cost and a depreciated value of $700.The HO-2 contract has a $200 deductible on Section I. How much will the HO-2 contract pay for this loss?
A)$0 (because the clothing was in an automobile)
B)$700
C)$500
D)$0 (because the automobile was unlocked)
Q2) No consequential or loss of use losses are covered by the standard homeowners' policy.
A)True
B)False
Q3) The HO policy's Mortgage Clause continues to protect the lender (mortgagee)even if the insured/homeowner has committed fraud against the insurer.
A)True
B)False
Q4) What is meant by "Medical Payments to others?" Why does the coverage exist?
Q5) Explain the concept of concurrent causation as it applies to collapse.
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Chapter 11: the Personal Auto Policy
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Sample Questions
Q1) Financial responsibility laws legally require every driver to purchase automobile insurance.
A)True
B)False
Q2) What is the difference between a single limit and a split limit in expressing liability limits in the PAP?
Q3) Uninsured Motorist coverage usually provides property damage coverage to the insured for damages to his auto caused by an insured motorist.
A)True
B)False
Q4) In the Personal Automobile Policy, "your covered auto" includes all of the following except:
A)any car listed on the declarations page
B)a newly acquired auto
C)your trailer, if being towed by a passenger car, pickup, panel truck, or van D)a motorcycle, just as long as it is not borrowed
Q5) Does the PAP provide any loss of use (indirect coverage)in the contract? What is it and how does it work (if any)?
Q6) Explain the purpose of Uninsured Motorist coverage.
Page 13
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Chapter 12: Professional Financial Planning
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Sample Questions
Q1) Which of the following is not a business use of life insurance?
A)to protect a business against loss caused by the death of a key person
B)to provide a means of rewarding and retaining valuable personnel
C)to lower business losses when an employee is fired
D)to provide some amount of life insurance to employees
Q2) When a person dies,the gross estate is
A)taxed at the rate of 50%
B)taxed only if made up of real property valued at more than $250,000
C)subject to the federal estate and gift tax
D)not taxed if death bed gifts are made to eligible children
Q3) Financing retirement is a challenge for many Americans. Which of the following is not a reason that retirement planning has become more challenging?
A)many employers no longer fund retirement programs for their employees
B)many employees have complicated but generous health insurance plans provided by their employer
C)Social Security has increased the normal retirement age and lowered benefit targets
D)Increases in longevity put a greater burden on retirement savings
Q4) Why is it necessary to buy life insurance on a non-wage earning spouse?
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Page 14
Chapter 13: Life Insurance Policies
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Sample Questions
Q1) Universal life was created in response to which of the following?
A)declining popularity of term life insurance in the mid-1980's
B)declining inflation and investment yields in the late 1970's
C)less-sophisticated consumers demanding easier-to-read policies
D)high-yield, low risk investment opportunities that made whole life insurance unattractive
Q2) The accumulation of a reserve consisting of excess payments above the mortality cost in the early years of a policy is necessary for the:
A)deferred annuity plan
B)minimum reserve standard
C)level premium plan
D)yearly renewable term plan
Q3) Under a group life insurance plan,in general,individuals do not have to pass an insurer's medical examination.
A)True
B)False
Q4) In general,what are the uses for term life insurance? Provide examples.
Q5) What are the features that distinguish universal life from traditional forms of life insurance?
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Chapter 14: Standard Life Insurance Contract Provisions
And Options
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Sample Questions
Q1) The owner of a life insurance policy has which of the following rights under the contract?
A)select the beneficiary
B)discontinue the policy's coverage
C)borrow the cash value
D)all of the above
Q2) All lapsed life insurance policies may be reinstated.
A)True
B)False
Q3) The beneficiary of a life insurance policy has the right to assign the policy as security for a loan.
A)True
B)False
Q4) The waiver of premium option can result in the savings value of a life insurance policy increasing,even if no premiums are currently being paid.
A)True
B)False
Q5) Explain briefly the operation of the guaranteed insurability rider,the waiver of premium rider,and the double indemnity rider.
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Chapter 15: Annuities
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Sample Questions
Q1) Oprah has $250,000 and wishes to purchase a single-premium annuity. All other things being equal,which of the following annuities will provide her with the smallest monthly liquidation payment?
A)20 year period certain, joint and 2/3 survivor, single premium
B)20 year period certain, single premium
C)20 year period certain, joint and 2 survivor, single premium
D)Straight life annuity, single premium.
Q2) In an annuity the risk of dying too soon is transferred to the insurer.
A)True
B)False
Q3) A male age 65 will receive lower monthly benefits per $1,000 of premium payment than a female age 65,because of the female's better longevity.
A)True
B)False
Q4) Explain the purpose of the annuity contract in a financial plan.
Q5) How do insurers classify annuities to describe their benefits?
Q6) What is the difference between a SPDA and a FPDA?
Q7) Explain how an annuity,10 years certain would work.
Q8) Explain briefly how annuity distributions are taxed.
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Chapter 16: Medical Expense and Disability Insurance
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Sample Questions
Q1) Granny Clampett's health insurance policy has a $500 annual aggregate deductible,and 80/20 cost sharing deductible,and a $5,000 maximum annual out-of-pocket cap of $5,000. She wrecks her Harley and breaks her hip,and her total medical bills for the injury are $122,721. How much will her insurer pay for this claim?
A)$5,500
B)$97,777
C)$98,177
D)$117,721
Q2) The term "HMO" means:
A)Health Maintenance Organization
B)Health Management Organization
C)Healthy Mamas Organization
D)Hospital Management Organization
Q3) More than half of all health insurance in the U.S.is provided by:
A)Blue Cross Plans
B)Traditional Health Insurers
C)HMOs & PPOs
D)HMOs only
Q4) Explain how a typical major medical contract works.
Q5) Distinguish between cost shifting and cost containment in health care.
Page 18
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Chapter 17: Advanced Topics in Risk Management
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Sample Questions
Q1) All RMIS systems are designed to record and analyze the same information regardless of the type and size of business.
A)True
B)False
Q2) Explain what is meant by financial risk management?
Q3) To lessen the impact of catastrophic losses,many insurers use all the following except:
A)contingent surplus notes
B)catastrophe bonds
C)forward purchase options
D)exchange traded options
Q4) Which of the following would be least important in making the retention/transfer decision?
A)tax implications
B)social and ethical concerns
C)historical management policy
D)financial ability to pay losses
Q5) What factors are emphasized more in international risk management than domestic risk management?
Q6) What is a RMIS? How does a RMIS help the risk manager?
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Chapter 18: Commercial Property Insurance
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61 Flashcards
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Sample Questions
Q1) Loss of income after a fire loss is an indirect loss.
A)True
B)False
Q2) "Fire" means rapid combustion accompanied by heat,light or glow,when used in insurance terminology.
A)True
B)False
Q3) Inland marine policies typically cover all of the following classes of property except:
A)valuable personal property
B)bridges
C)factory buildings
D)property designated for import
Q4) Historically,fire marks were symbols mounted on buildings to identify the building's fire insurer.
A)True
B)False
Q5) "Cargo" and "freight" losses are the same thing in ocean marine insurance.
A)True
B)False
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Chapter 19: Commercial Liability Insurance
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Sample Questions
Q1) The Americans with Disabilities Act (ADA)requires employers to do which of the following?
A)Hire a minimum number of disabled persons
B)Discriminate in favor of disabled persons
C)Actively seek out disabled persons as potential employees
D)Make reasonable accommodations for disabled employees or qualified job applicants
Q2) Professional liability insurance policies usually:
A)are not available in todays marketplace
B)do not provide a defense for the insured
C)do not give the insurer the right to settle suits without the insured's consent
D)are not available for insurance agents
Q3) Most no-fault automobile insurance laws,as they exist,restrict the right to sue for pain and suffering.
A)True
B)False
Q4) Explain the need for a claims-made form. Explain how a liability insurance contract written on a claims-made form works.
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Chapter 20: Bonding,Crime Insurance and Reinsurance
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Sample Questions
Q1) What is the difference between the crimes of theft,robbery and burglary?
Q2) United Insurance Company insures Travelco for fire insurance.United reinsures 40% of this exposure with Promises Reinsurance company on a pro-rata basis. If a $400,000 insured loss occurs at Travelco,Promises Reinsurance will pay United:
A)$0
B)$400,000
C)$160,000
D)$240,000
Q3) All the following are arguments that surety bonding is not the same as insurance except:
A)three parties in the surety bonding contract instead of two for insurance
B)fraud on the part of the principal does not relieve an insurer of liability under a bond, whereas it does relieve the insurer of liability in an insurance contract
C)the surety bonding contract is only lending financial backing
D)both the bonding contract and insurance contract are issued by licensed insurance companies
Q4) What is the difference between a surety bond and a fidelity bond?
Q5) Explain the need for surety bonding. How does it work?
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Chapter 21: Employee Benefits
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Sample Questions
Q1) A defined contribution retirement plan defines the amount of benefits to be contributed to the employee during retirement.
A)True
B)False
Q2) Explain how employees are taxed on group life insurance supplied as an employee benefit.
Q3) Explain the advantages to an employer of a defined benefit pension plan versus a defined contribution pension plan.
Q4) What is the main reason for the increase in employee benefit costs during the last 15 years?
A)cost of funding retirement income
B)cost of sick leave and worker absenteeism
C)cost of health insurance
D)none of the above
Q5) The traditional American method of providing retirement and health benefits is best described as a democratic socialist approach.
A)True
B)False
Q6) Explain the difference between a PPO and an HMO.
Page 23
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Chapter 22: Social Security
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Sample Questions
Q1) Mr.Smalley is a retiree on the Medicare prescription drug plan. This year his drug expenditures are $250. What percentage will Medicare pay of the $250?
A)0
B)75
C)95
D)none of the above
Q2) The "earnings test" ___________.
A)reduces Social Security survivor benefits if wage income exceeds an annually indexed amount
B)reduces Medicare benefits if Social Security benefits exceed an annually indexed amount
C)requires retired people to show a financial need before benefits are paid
D)reduces Social Security benefits if earned wages exceed an annually-indexed amount
Q3) The Primary Insurance Amount (PIA)in Social Security:
A)determines your hospital benefits
B)determines your supplementary medical benefits
C)is based on an average indexed monthly earnings calculation
D)determines your eligibility for benefits
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Chapter 23: Unemployment and Workers Compensation Insurance
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Sample Questions
Q1) All workers' compensation claims are reviewed by special courts.
A)True
B)False
Q2) Intentionally self-inflicted injuries are usually,though not always,covered by workers' compensation insurance.
A)True
B)False
Q3) Experience rating of the unemployment program has which of the following effects?
A)penalizes good employers that never fire employees
B)encourages short term layoffs and causes an unstable work force
C)charges employers more when the economy is weak, thus charging for poor experience when companies can least afford it
D)provides funds to continue employment instead of dismissing employees
Q4) Worker's compensation is likely to cover all the following except:
A)100 percent of lost wages during disability
B)medical expenses
C)rehabilitation expenses
D)reasonable funeral expenses
Q5) List and explain briefly the purposes of the worker's compensation laws.
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