Apex Insurance Company wrote a large number of property insurance policies in an area where earthquake losses could occur. When the president of Apex was asked if she feared that a severe earthquake might put the company out of business, she responded, “Not a chance. We transferred most of that risk to other insurance companies.” […]
According to the law of large numbers, what should happen as an insurer increases the number of units insured? A) The amount the insurer expects to pay in claims should decrease. B) Underwriting expenses should decrease. C) Actual results will more closely approach expected results. D) The insurer’s profitability should become more variable. […]
Inland marine insurance provides coverage for A) goods being shipped on land. B) premature death of members of the armed forces. C) goods being shipped on ocean-going vessels. D) liability exposures of nonprofit organizations. ANSWER Answer: A
Which of the following is implied by the pooling of losses? A) sharing of losses by an entire group B) inability to predict losses with any degree of accuracy C) substitution of actual loss for average loss D) increase of objective risk ANSWER Answer: A
Which of the following is a form of casualty insurance? A) fire insurance B) general liability insurance C) inland marine insurance D) ocean marine insurance ANSWER Answer: B
The requirement that losses should be accidental and unintentional in order to be insurable results in which of the following? I. Decrease in moral hazard II. More accurate prediction of future losses A) I only B) II only C) both I and II D) neither I nor II ANSWER Answer: C
Which of the following is classified as casualty insurance? A) workers compensation insurance B) fire insurance C) marine insurance D) life insurance ANSWER Answer: A
Why is a large number of exposure units generally required before a pure risk is insurable? A) It prevents the insurer from losing money. B) It eliminates intentional losses. C) It minimizes moral hazard. D) It enables the insurer to predict losses more accurately. ANSWER Answer: D
From the standpoint of the insurer, which of the following is a characteristic of an ideally insurable risk? A) The loss must be intentional. B) There must be a small number of unique loss exposures. C) The chance of loss must be calculable. D) The loss must be indeterminable. ANSWER Answer: C
Characteristics of a fortuitous loss include which of the following? I. The loss is certain to occur. II. The loss occurs as a result of chance. A) I only B) II only C) both I and II D) neither I nor II ANSWER Answer: B
