Download Michigan Property & Casualty Exam Questions and Answers and more Exams Insurance law in PDF only on Docsity!
questions and answers
FIO - correct answer ✅(Federal Insurance Office) Monitors insurance industry and identifies issues and gaps in the state regulation of insurers. It also monitors access to affordable insurance by underserved communities and consumers. Insurance Regulation at State Level - correct answer ✅Insurance industry is regulated primarily at the state level. Legislature writes and passes laws, judicial branch interprets them. Surplus and Excess Insurance - correct answer ✅Insurance available when coverage cannot be obtained from admitted insurers. Cannot be solely utilized to receive lower cost coverage than would be available from an admitted carrier. Private vs Government Insurers - correct answer ✅Most insurance is written through private insurers, however there are instances where government provides an alternative, usually when there is a lot of risk involved and private insurers have no means to insure. (Gulf Coast) Residual Markets - correct answer ✅A private coverage source of last resort for businesses and individuals who have been rejected by voluntary market insurers. Insurance Agents/Producers - correct answer ✅Licensed individuals representing an insurance company when transacting insurance. Reinsurance Companies - correct answer ✅Insurance company that assumes all or a portion of a risk from a primary or ceding insurance company.
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Treaty Agreements - correct answer ✅Reinsurance agreement that covers all risks contained in the subject line(s) of business automatically. Insurers - correct answer ✅Manufacture and sell insurance coverage by way of insurance policies or contracts. Facultative Agreements - correct answer ✅Reinsurance agreements that allow ceding and reinsurance companies the opportunity to negotiate coverage for individual risks. Financial Rating Services - correct answer ✅Independent financial rating services evaluate and rate the financial stability of insurance companies. Assign ratings to show financial strength/weakness. Insurance Agency - correct answer ✅Independent organizations that recruit, contract with, and support sales agents and producers. Self Insurer - correct answer ✅Assume the financial risk of one's self. generally on an option for large companies. Insurance Regulation at the Federal Level - correct answer ✅Federal government cannot regulate insurance in areas over which states have authority. Government is last resort. The Insured - correct answer ✅Person or entity that buys insurance for protection from loss of life, health, property or liability.
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Risk Retention Groups (RRG) - correct answer ✅Group owned insurer that primarily assumes and spreads the liability related risks of its members. Licensed in at least one state and may insure members in other states. They must have sufficient liquid assets to meet loss obligations. Each member assumes a portion of risks returned. Lloyds of London - correct answer ✅Group of underwriters called syndicates that each specialize in a particular type of risk. Members are individually liable for each risk they assume. Stock Insurance Company - correct answer ✅-Owned by stockholders or shareholders -Directors and officers direct company operations and are elected by shareholders -Stockholders receive taxable dividends as return of profit -Dividends are not guaranteed -Generally issue non-participating policies Reciprocal Insurance Company - correct answer ✅-Group owned insurer whose main activity is risk sharing -Reciprocal insurer is unincorporated and is formed by individuals, firms and business corporations that exchange insurance on one another. -Exchange is affected though an attorney-in-fact Mutual Insurance Company - correct answer ✅-Owned by policyholders -Trustees and directors run company operations, they are elected by policyholders.
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-Policyholders receive non-taxable dividends as return of unused premium -Issue participating policies Executives - correct answer ✅Oversee operations of the business Actuarial Department - correct answer ✅Gather and interpret stats to determine probability of loss and sets premium rates. Underwriting Department - correct answer ✅Responsible for selection of risks and determines actual policy premium Marketing and Sales Department - correct answer ✅Responsible for advertising and selling Claims Department - correct answer ✅Assists policyholder in event of a loss Career Agency System - correct answer ✅Agents are recruited, trained and supervised by a managing employee or general agent who is with the insurance company Independent Agency - correct answer ✅An agent or agency that enters into agency agreements with more than one insurer. Exclusive or Captive Agency System - correct answer ✅-Deals with the insured through an exclusive or captive agent.
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Express Authority - correct answer ✅Authority that is written into the producer's agency contract Implied Authority - correct answer ✅Authority the public assumes the producer has. Apparent Authority - correct answer ✅Authority created when the producer exceeds the authority expressed in the agency contract. Producer's Responsibilities to the Insurer - correct answer ✅1) Fiduciary duty to the insurer in all respects, especially when handling premium funds
- Must keep premium funds in a trust account separate from other funds and forward to insure properly
- Must report any material facts that may affect underwriting
- Responsible for soliciting, negotiating, selling and canceling the insurance policies with the insurer
- Duty to only recommend the purchase of suitable policies Producer's Responsibilities to Insurance Applicant or Insured - correct answer ✅1) Forward premiums to insurer on a timely basis
- Seek and gain knowledge of the applicants insurance needs
- Review and evaluate the applicants current insurance coverage, limits and risks
- Serve the best interests of the applicant or insured, although producers represent the insurer
- Recommend coverage that best protects the insured from possible loss and NOT the most profitable coverage from the perspective of the producer
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Broker - correct answer ✅A licensed individual who negotiates insurance contracts with the insurers, on behalf of the applicant. Brokers represent the applicant or the insured's best interest, not the insurer. Fair Credit Reporting Act (15 USC 1681-1681d) - correct answer ✅Protects consumer privacy. Ensures data collected is confidential, accurate, relevant and used for proper and specific purpose. Credit reporting is used to determine the financial and moral status of the applicant, this act is to protect the applicants from overly intrusive information collection practices. Financial Anti-Terrorism Act (USA Patriot Act) - correct answer ✅Imposes record keeping and government reporting requirements on banks, financial institutions and non-financial businesses for specific financial transactions and customer financial records Fraud and False Statements (Fraudulent Insurance Act) - correct answer ✅1) Fraud always involves a false statement and deceit; it can be either a criminal or civil crime. Federal laws prohibit the commission of fraud.
- In 2001, each state enacted its own Fraudulent Insurance Act.
- A fraudulent act involves a misstatement of material fact by a person who knows or believes that statement to be false. Merchant Marine Act of 1920 (The Jones Act) - correct answer ✅Because workers' compensation laws do not apply to seamen, the Jones Act allows insured seamen
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TRIA was intended to respond to the chaos the 9/11 terrorist attacks caused in the insurance industry as well as to assure that commercial property and liability insurance would continue to be able to provide coverage for the peril of terrorism. Violent Crime Control and Law Enforcement Act of 1994 (18 USC 1033, 1034) - correct answer ✅This act made it a felony for a person to engage in the business of insurance after being convicted of a state or federal felony crime involving dishonesty or breach of trust. Risk - correct answer ✅A condition where the chance, likelihood, probability or potential for a loss exists Management - correct answer ✅The determination of what types of protection are required to meet an insured's needs. Speculative Risk - correct answer ✅Situations where there is a chance for loss, gain, or neither loss nor gain to occur. An example of speculative risk is gambling. Gambling cannot be insured. Pure Risk - correct answer ✅Situations where there is no chance for gain; the only outcome is for nothing to occur or for a loss to occur. Pure risk can be insured. Examples include:
- The possibility of damage to property caused by a fire or other natural disaster
- The possibility of financial loss as a result of death
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Loss - correct answer ✅Reduction, decrease, or disappearance of value. The basis of a claim for damages under the terms of an insurance policy. Peril - correct answer ✅The cause of a loss Hazard - correct answer ✅A specific condition that increases the probability, likelihood, or severity of a loss from a peril. Physical Hazard - correct answer ✅A physical condition that increases the probability of loss; use, condition, or occupancy of property. Example: Flammable material stored near a furnace. Moral Hazard - correct answer ✅Dishonest tendencies that increase the probability of a loss; creation characteristics and behaviors of people. Example: An insured burns down his/her own house to collect the insurance payout. Morale Hazard - correct answer ✅Attitude that increases the probability of a loss Example: Indifference or carelessness of leaving one's house or vehicle unlocked. Loss Exposure - correct answer ✅The condition of being at risk for a loss. Purely by existing, properly and people are at risk for loss.
questions and answers
Insurable risks must include... - correct answer ✅1) Large number of units or groups with the same perils (law of large numbers as the number of units in a group increases, the more likely it is to predict a particular outcome.
- The chance of loss must be calculable
- The loss must be measurable
- The premiums must be affordable
- From the perspective of the insured, the loss must be accidental in nature
- Catastrophic perils are not covered The Insurance Contract - correct answer ✅A legal contract purchased to indemnify the insured against a loss, damage or liability arising from an unexpected event. Designed to transfer risk from the insured to the insurer. Principle of Indemnity - correct answer ✅Insured is restored to the same financial or economic condition that existed prior to the loss. Insured should not profit from an insurance transaction. Insurability - correct answer ✅The ability of an applicant to meet an insurer's underwriting requirements Underwriting - correct answer ✅The process of selecting, classifying and rating a risk for the purpose of issuing insurance coverage. Insurable Events - correct answer ✅Any event, past or present, that may cause loss or damage or create legal liability on the part of the insured.
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Insurable Interest - correct answer ✅Requires the potential for an insured to suffer financial or economic hardship in the event of a loss. Property-Insurable interest must exist at the time of the loss Casualty-Insurable interest must exist at the time of the loss. Life and Health- Insurable interest must exist at the time of application, but not at time of loss Contract Law - correct answer ✅Pertains to the formation and enforcement of contracts Tort Law - correct answer ✅Torts are civil wrongs; they're not crimes or breaches of contract. They result in injuries or harm that constitute the basis or a claim by a third party Contract of Utmost Good Faith - correct answer ✅Both parties bargain in good faith when forming and entering int the contract Estoppel - correct answer ✅Prevents the denial of a fact, if the fact was admitted to be true previously
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Valued Contract - correct answer ✅A contract that pays a stated amount in the event of a loss Indemnity Contract - correct answer ✅An agreement to pay on behalf of another party under specified circumstances, such as when a loss occurs. Applicant - correct answer ✅Party submitting application for insurance Application - correct answer ✅A document submitted by an applicant to an insurer with information needed to underwrite. Endorsement - correct answer ✅A policy form that alters or adds to the provisions of a property and casualty insurance contract. Personal Contract - correct answer ✅Owner cannot transfer or assign ownership of an insurance policy to another person. Non-Personal Contract - correct answer ✅Owner may transfer or assign ownership of a life or health insurance policy to another person. Unilateral Contract - correct answer ✅Only one party is legally bound to the contractual obligations after the premium is paid to the insurer. Only the insurer makes a promos of future performance, and only the insurer can be charged with breach of contract.
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Conditional Contract - correct answer ✅Both parties must perform certain duties and follow rules of conduct to make the contract enforceable. The insurer must pay claims if the insured has compiled with all the policy's terms and conditions. Reasonable Expectations Doctrine - correct answer ✅What a reasonable and prudent policy owner would expect; the reasonable expectations of policy owners are honored by the courts although the strict terms of the policy may not support these expectations Warranties - correct answer ✅Statements in the application or stipulations in the policy that are guaranteed true in all respects. If warranties are later discovered untrue or breached coverage is voided. Underwriter - correct answer ✅Primary responsibility is the selection of risks to be insured Underwriting Factors - correct answer ✅1) Nature of risk
- Hazards that are present
- Claims history
- Other factors that depend upon the type of risk being insured Loss Ratio - correct answer ✅Determined by dividing Paid Losses + Loss Reserves by Total Earned Premiums Expense Ratio - correct answer ✅Determined by dividing an insurer's Total Operating Expenses by Written Premiums
