Chapter 6 INSURANCE COMPANY OPERATIONS Define the following terms used in insurance company operations: ‘4. The person who determines tate and premiums of insurance policies b. Unit of measurement used in insurance pri ‘e, The process of selecting, classifying, an pricing applicants for insurance 4. The insurer who initially writes the insurance transfers to another insurer part or all of the potential fosses associated with such insurance. ‘e. Persons who make daily decisions concerning the acceptance or rejection of business ‘What isthe difference between the pricing of insurance procucts and the pricing of other products? In what type of insurance, does the agent often have authority to bind the company immediately? a. Propesty and Casualty Insurance , Life Insurance |. Use of source of information in underwriting: Mat [ef column to that of the right column: those phrases and sentences in the Souree of information ‘Gharacieristies [Application ‘@ An ouiside fam investigates the applicant for insurance and make @ detailed report when the agent suspects moral harard ‘Agent's Report Examine the property to be insured and sond the report tothe underwriter Thspection report ‘To obtain information about the applicant's age, gender, weight, ‘ecupation, marital status, hobbies, family history, et. Physical inspection An evaluation of the agent on the TM report ‘Information about whether the applicant has health impairments or high blood pressure or not Which of the following is NOT a function ofa professional insurance agent? 4. Identify potential insureds Analyze the customer's insurance needs Recommend an insurance product to meet the customer's needs 4. All ofthe above are functions of a professional agent1 Distinguish the following terms used in reinsurance: Ceding company, Reinsurer, Retention Limit, Cession, Retrocession and Retrocessionaite ‘The amount ofthe insurance that is ceded t the reinsurer ‘The amount ofthe insurance retained by the ceding company “The insurer that transfers its insurance to another insurer. “The reingurer transfers its reinsurance to another insurer “The insure that receives pat o all ofthe insurance amount from the ceding company “The insure that receives pat or ll ofthe insurance amount from another reinsurer ‘What is meant by the “Unearned Premium Reserve"? The premiums that ate paid in advance but the petiod of protection las not yet expired. bo. The premiums that are paid in advance but the period of protection has already expired The premiums that ao shared between the ceding insurer and its reinsurer The premiums that are not paid when the loss occurs. ‘What is Facultative Reinsurance and what is Treaty Reinsurance? 4. An insuter receives an application for insurance which exceed its financial capeity Before the policy is issued, the insurer shops around for reinsurance and contact several insurers 'b. A contract has been made between an insurer and its reinsurer. The contract states that the insurer has agteed to cede insurance to reinsurer and the reinsurer has agreed to accept the business. | Match those phrases and sentences in the left column to that inthe right column, “Tulous Fire Tnsuranco and Absolute] a. Reinsurance Pool Safety Corp. (ASC) have signed an agreement in which premiums and Tosses are shared by the two company ‘on the basis of 60% for Tulous and ~ 40% for ASC respectively. ‘According to an agreement signed by] b. Surplus-Share Treaty Green Apple Fire and AAA Fite Corp, ‘the lator has agreed to accept insurance ithe loss amount exceeds the former's retention limit ora line of $600,000. Several insurers joint together to acvept| —&. Quote Share Treaty ‘an application for large amount What is the extremely important objective of the Property and Casualty Insurance Invostments?. Why?CHAPTER 8 GOVERNMENT REGULATION OF INSURANCE ‘The regulator is authorized to take control of the insurer if the ratio between the insurer’ total adjusted capital and its RBC level is: a, Higher than 200% From 150% to 200% c. From 100% to 150% 4d, From 70% to 100% Which ofthe following refers to as: Twisting? Rebating? Unfair Trade Practices? 1. ‘The inducement of a policy- owner fo drop an existing policy and replace it with new one that provides little or no economic benefits to the client. ». Giving an individual a premium reduction or some other financial advantage not sated in the policy as an inducement to purchase the policy. For example, a partial refund of an agent’s commission tothe policy owner. ©. Insurance laws prohibit misrepresentation, deceptive or false advertising, inequitable claim settlement, unfair discrimination, ete Which ofthe following is NOT a reason for Insurance Regulation? a, Ensure Reasonable rates ', Maintain Insurer Solvency Protect Customers from Unexpected Events 4, Make Insurance Available. ‘In what period of time in the United States did the court rules that insurance was interstate and subject to the federal regulation? a. 1968 b. 1944 1945 1999 5s. What is Twisting? Give an example forts illustration, Give 2 practical examples of unfair trade practices that are prohibited by the insurance laws 1 In what situation is an insurance company called “a bogus insurer”? What are problems of bogus insurers? ‘Match the phrases and sentences inthe eft column to that ofthe right one. Rates must be fled and approved by] s. Open Competition the Stale Insurance Department before they ean be used, “The rates are required for prior| 6. Fileand-Use law approval only when the rate increase cor decrease exceeds a specified range‘of $-10%, Any fate changes below 5% are permitted without prior approval 3. Insurers are Fequired only to file the rates with the State Insurance Department, and the rates can be used immediately. ©. Prioe-Approval Law Insurers are not required to file their rales with the State Insurance Department. Market forces will determine the price and the insurance availablity rather than the acts of regulatory officials. & Flex-Rating Caw 9, What are major causes of insolvency of insurers? What should the government do ‘when an insurer becomes insolvent? 10, Identify the major techniques that regula(ors use to monitor insurance company solvency,CHAPTER 9 FUNDAMENTAL LEGAL PRINCIPLES ‘According the principle of indemnity, if the actual amount of loss is 36,000 USD, the insurer may agree to pay an amount of a, 34,000 USD b. 36,000 USD. 38,000 USD 1. 40,000 USD .. Susan bought & machine for 38,000 USD two years ago. Up to now, the machine 30% depreciated and a similar machine now costs 40,000 USD in the market. She bought an insurance policy for it, If the machine is totally destroyed on fire. What is the actual cash value that the insurer will pay following to the Replacement cost less depreciation method? ‘Three years ago, Bob has bought his house for 126,000 USD. Due the down tum in the real estate market, his house would cost only 85,000 USD if being sold in the market. He has bought insurance for it. How much would be the actual cash value if the house were destroyed on fire, following Fair Market Value method. What is the method of calculating the actual cash value that takes into account all the factors that may affect the property value in the market? a Replacement Cost Less Depreciation b. Fair Market Value , Broad Evidence Rule A house advertised for sale at 60,000 USD was insured for 100,000 USD under a fire insurance policy. Three months later, the house was totally destroyed by a fire. ‘The insurer denied the lability to make payment because they said that this was fraudulence, Both parties went to court. a, What would be the course's decisi 'b. What do we cal this situation as an exception to the principle of indemnity? ‘Tom sold his home to Mary, and a fire occurred before the insurance on the home is cancelled, 1. Can Tom colleet payment from his insurer? Explain why. b, Can Mary collect payment from the insurer? Explain why. Solve problems 1,2, 4, 5, 6 on pages 190-191. a