CPCU 520 Chapter 5 Risk Control and Premium Auditing session quiz

1. Risk control goals for an insurer include all but which of the following:
a. Earn a profit
b. Meeting customer needs
c. Comply with legal requirements
d. Write larger policies

2. Risk control may change a marginal policy to an acceptable one. This improves an insurers:
a. Premium volume
b. Reduce insured’s losses
c. Improve underwriting decisions
d. Improve revenue source

3. Risk control may include all but which of the following services?
a. Conduct physical surveys
b. Perform risk analysis and improvements
c. Eliminate moral hazards
d. Develop safety management programs

4. A condition of careleness or indifference that increases the frequency or severity of losses is

a. A moral hazard
b. A physical hazard
c. A morale hazard
d. A legal hazard

5. Physical survey provides benefits to the underwriter and insured. Which of the following is not a benefit of
the physical survey?
a. UW is more confident in the exposures to be insured
b. Insured is more confident in the rates charged
c. Insured is more confident in the valuation
d. Insured has more understanding of its loss exposures and how to reduce losses

6. Risk control efforts complement the activities of other departments. Which of the following departments
benefit from risk control results?
a. Underwriting, accounting, marketing
b. Claims, human resources, customer service
c. Customer service, claims, premium auditing
d. Underwriting, marketing, claims
7. There are a number of reasons for conducting premium audits. Which of the following is not a key reason to
conduct a premium audit:
a. To meet regulatory requirements
b. To detect moral hazards
c. To collect ratemaking data
d. To determine correct premium

8. Which of the following is not true about premium audits?

a. They are performed at the end of a policy term
b. They must be conducted on site
c. They require specialized training and knowledge
d. They provide underwriting with additional information about the risk

9. Which of the following are the stages, in correct order, of the premium auditing process?
a. Planning, reviewing operations, determining employment relationships, finding and evaluating books
and records, auditing books and records, analyzing and verifying results, reporting on findings
b. Planning, determining employment relationships, auditing books and records, reporting on findings,
verifying findings, providing implementation plan
c. Planning, reviewing operations, touring plant and discussing roles with key employees, developing
correct class codes, verifying 941’s and payroll records, reporting findings
d. Planning , reviewing each entity, developing appropriate class codes per employee, reviewing payroll
records, validating application of codes, comparing to policy estimates, reporting findings

10. Why is it important for a premium auditor to determine employment relationships?

a. To distinguish in which operation the employee works
b. To distinguish between employees and subcontractors
c. To develop results that withstand a test audit
d. To determine if a field audit is required

11. Why is an audit conducted after the policy term is completed?

a. The insured may have supplied the wrong codes at the beginning of the term
b. Solely to determine if the insured has increasing or decreasing sales
c. Policy’s subject to audit exposures are estimated at beginning of term
d. To provide underwriting an opportunity to validate insured’s operations

12. Premium auditing complements which of the following insured’s key departments
a. Underwriting, risk control, accounting
b. Underwriting, claims, marketing
c. Accounting, IT, customer service
d. Claims, risk control, actuarial