Loss frequency is defined as the A) probable size of the losses that may occur during some period. B) probable number of losses that may occur during some period. C) probability that any particular piece of property may be totally destroyed. D) probability that a liability judgment may exceed a firm’s net worth. […]
Date: September 19th, 2020
A group of farmers agreed that if any farmer suffered a property loss, the loss would be spread over the entire group. In this way, each farmer is responsible for the average loss of the group rather than the actual loss that each farmer sustained. Which characteristic of insurance is embodied in this agreement? A) […]
Date: September 19th, 2020
Adverse selection occurs A) when an insurance company loses money on its investments. B) when insurance purchasers buy insurance but do not have a loss. C) when catastrophic losses occur as a result of a natural disaster. D) when applicants with a higher-than-average chance of loss seek insurance at standard rates. ANSWER Answer: […]
Date: September 19th, 2020
All of the following are social costs associated with insurance EXCEPT A) insurance company operating expenses. B) fraudulent claims. C) inflated claims. D) increased cost of capital. ANSWER Answer: D
Date: September 19th, 2020
Which of the following statements regarding insurance and hedging is (are) true? I. Insurance involves the transfer of an insurable risk while hedging handles risk that is typically uninsurable. II. Insurance transactions can reduce objective risk, while hedging typically involves only risk transfer and not risk reduction. A) I only B) II only C) both […]
Date: September 19th, 2020
Which of the following statements about the insurance industry as a source of investment funds is (are) true? I. These funds result in a lower cost of capital than would exist in the absence of insurance. II. These funds tend to promote economic growth and full employment. A) I only B) II only C) both […]
Date: September 19th, 2020
According to the law of large numbers, what should happen as an insurance company increases the number of loss exposures that it insures? A) Fewer losses should be expected to occur. B) The amount of premiums needed to cover losses should decrease. C) The volatility of the insurance company’s underwriting results should increase. D) The […]
Date: September 19th, 2020
All of the following are benefits to society that result from insurance EXCEPT A) less worry and fear. B) elimination of moral hazard. C) indemnification for loss. D) loss prevention. ANSWER Answer: B
Date: September 19th, 2020
An insurance company that sells earthquake insurance in an area where earthquakes are possible has subjected itself to the risk of insolvency if a severe earthquake occurs. An insurer can safely sell earthquake insurance in this area if it shifts the risk of catastrophic loss to another insurer. The shifting of insured risk from one […]
Date: September 19th, 2020
Which of the following statements regarding private insurance and government insurance is (are) true? I. Private insurance programs include life and health insurance and property and liability insurance. II. Social insurance programs are government insurance programs that are voluntary and financed entirely by contributions from covered employers. A) I only B) II only C) both […]
Date: September 19th, 2020
