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P&C 2 QUESTIONS AND VERIFIED ANSWERS|100% CORRECT|GRADE A+
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P&C 2 QUESTIONS AND VERIFIEDANSWERS|100% CORRECT|GRADE A+
Enhancing an insurer's ability to handle the economic impacts of unforeseen losses or expenses is an
example of which one of these characteristics of an ideal rate? - ANSWER Provide for contingencies. (A
rate's ability to provide for contingencies allows the insurer to handle the economic impacts of
unforeseen losses or expenses.)
Which one of the following statements is correct?
Unexpected variations in losses and expenses rarely are addressed in ratemaking.
The five characteristics of ideal rates complement each other and rarely require compromise.
Sudden, large rate changes sometimes lead to regulatory or legislative actions.
Changing rates is a relatively inexpensive process. - ANSWER Sudden, large rate changes sometimes lead
to regulatory or legislative actions.
As an ideal characteristic of a rate, it should:
Be similar for all policyholders.
Result in complicated premium calculations.
Be responsive.
Be constant over the long term. - ANSWER Be responsive.
As an ideal characteristic of a rate, it should:
Be reflective of risk exposure.
Be constant over the long term.
Be adjusted as frequently as possible.
Be unaffected by any changes external to the insurer. - ANSWER Be reflective of risk exposure.
Which one of the following statements is correct regarding ratemaking?
Rate stability could conflict with the ideal characteristic that rates should be simple.
,The ratemaking process rarely influences policyholder's use of risk control.
Producers, underwriters, and policyholders need not understand ratemaking systems.
Sudden, large rate changes cause dissatisfaction among customers. - ANSWER Sudden, large rate
changes cause dissatisfaction among customers.
The ratemaking goal of providing adequate coverage while making a reasonable profit on operations
complements the underwriting goal of - ANSWER Developing and maintaining a profitable book of
business.
(The ratemaking goal of providing adequate coverage while making a reasonable profit on operations
complements the underwriting goal of developing and maintaining a profitable book of business.)
Which one of the following statements is correct regarding ratemaking?
From the insurer's perspective, the primary goal of ratemaking is to implement the highest rates that
regulators will allow so as to maximize insurer profits.
Some of the five ideal characteristics of rates conflict with others, and compromises are often necessary.
A rate can be adequate or it can be competitive, but it cannot be both adequate and competitive at the
same time.
Rates are based on what consumers would be willing to pay for insurance coverage, which can be
difficult to determine. - ANSWER Some of the five ideal characteristics of rates conflict with others, and
compromises are often necessary.
Rate regulation is generally based on having rates that are adequate, not unfairly discriminatory and:
Credible.
Responsive.
Not excessive.
Stable. - ANSWER Not excessive.
Which one of the following statements is correct regarding ratemaking?
The cost of changing rates is relatively low for insurers.
Regulators prefer that insurers implement single, large rate changes than multiple small ones.
Ratemaking systems should promote risk control.
, Ratemaking should not allow for unexpected variations in losses and expenses. - ANSWER Ratemaking
systems should promote risk control.
Ratemaking generally results in higher rates for policyholders who - ANSWER Engage in activities that
result in more losses.
(Policyholders who engage in activities that tend to result in more losses, such as persons who use their
cars for business, generally pay higher premiums.)
Changing rates is an expensive endeavor for an insurer and therefore, stable rates are highly desirable.
Generally rates are changed no more than - ANSWER annually
If rates vary by territory and/or class, they are reviewed after the calculation of the overall rate change.
Territorial relativities can be determined by comparing the estimated loss ratio for each geographic
territory to the statewide - ANSWER Average loss ratio.
After data have been collected and adjusted, and after class and territorial relativities have been
determined, rate filings must be prepared. A rate filing is a document submitted to - ANSWER State
regulatory authorities.
A key step in the ratemaking process involves the determination of territorial relativities. As used in this
context, relativities refers to - ANSWER Differences in rate structure based on location within a state.
The future development of losses can be estimated by several actuarial methods. The most common
method used applies loss development factors to the - ANSWER Current experience.
Which one of the following statements is correct regarding the ratemaking process? - ANSWER When
using prospective loss costs supplied by advisory organizations, each insurer must file its own loss cost
multiplier to determine its insurance rate.
After data have been collected and adjusted, and after any territorial and class relativities have been
determined, rate filings must be prepared. Which one of the following statements is true regarding rate
filings? - ANSWER If an advisory organization files rates or loss costs on behalf of an insurer, it also
handles any follow-up or negotiations.
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