MIN4000 FINAL EXAM BROWN
Heisenberg Insurance has a home office in Albuquerque, New Mexico and they specialize in insuring
chemical manufacturers. Heisenberg is owned by its policyholders and any annual profits are distributed
through rate reductions. Which type of insurer is Heisenberg? - mutual insurer
Antonio is employed by an insurance company. He reviews applications to determine whether his
company should insure the applicant. Antonio assigns the applicant to a rating category based on the
applicant's degree of risk. Antonio is a(n): - underwriter
O'Houlihan Wrenches is a tool manufacturer. They have asked Average Joe Insurance to insure their new
$40 million manufacturing facility. Because of the high amount of coverage needed, the Average Joe's
underwriter has indicated that they'll need to check with their reinsurer, Globo Re, to determine if they
can obtain a reinsurance policy to specifically cover the manufacturing facility. Which type of reinsurance
does Average Joe Insurance need for the manufacturing facility? - Facultative
Lannister Insurance Company insures 200,000 vehicles. In 2019, they paid a total of $136,000,000 in
collision losses to the owners of 16,000 of those vehicles. What was Lannister's collision loss severity in
2019? - 8500 (136M/16K)
Michael Scott owns a condominium in Scranton, PA. A fire breaks out when his girlfriend, Jan, is dancing
and knocks over a candle. The fire damages the condo and Michael's most prized possession - his plasma
TV. The damage to Michael's plasma TV is considered a(n): - direct loss
What is the most important step in the risk management process? - Step 1: identify loss exposures
I have a high deductible ($2,200) in my health insurance plan. The high deductible is an example of
which type of risk management technique? - retention
Insurance is the most appropriate risk management technique for which of the following types of loss
exposures? - high severity, low frequency
Review
,The Very Good Building & Development Company is a general contractor (builder). Due to difficulty
finding affordable workers compensation insurance (covering employee injuries), Very Good established
its own insurance company based in Vermont for the purpose of insuring Very Good's workers
compensation loss exposures. The company that Very Good formed is called a - captive insurer
Jim Halpert and his wife, Pam, are selling the home they've lived in for the past seven years. They are
aware of an electrical problem in the home that they do not want to fix because it would be expensive.
Potential buyers of the home are unaware of the electrical problem. This is an example of: -
Asymmetric Information
All of the following are examples of operational risks EXCEPT:
a) changing conditions in financial markets
b) employment practices
c) customer service
d) supply chain - A
Lannister Insurance Company insures 200,000 vehicles. In 2019, they paid a total of $136,000,000 in
collision losses to the owners of 16,000 of those vehicles. What was Lannister's collision loss frequency
in 2019? - 0.08 (16k/200k)
Reubens work in insurance sales. He sells insurance through several different unrelated insurance
carriers that he legally represents. What is Reuben's job? - independent agent
Who handles the ratemaking function within insurance companies? - Actuaries
Agent Michael Scarn sells insurance for the Federal Bureau of Insurance (FBI). He is quoting a property
insurance policy for Samuel Chang, the owner of an office building. The office building is 15,000 square
feet and FBI charges a gross rate of $25 per 100 square feet. What is the gross premium for the property
policy covering the office building? - 3750 (15K feet/ 100 feet = 150ft * 25$ = 3750$)
Walter White is the owner of A1A Car Wash. Jesse Pinkman is a regular A1A customer. One day, while
waiting for his car to be washed, Jesse slipped on a wet spot on the floor and injured his back. As a result
of his injury, he threatens to file suit against Walt and A1A Car Wash. Walt quickly notifies his insurer to
start the claim process. This is an example of a: - third party claim
,Average Joe Insurance has entered into a Surplus Share reinsurance agreement with Globo Re. The
reinsurance treaty covers Average Joe's Commercial Property line of business and includes a $250,000
retention. Average Joe insures a gymnasium for $1,500,000. The owners of the gymnasium pay Average
Joe $15,000 in premium for the policy covering the factory. If the factory sustained a $600,000 loss, how
much is Globo Re responsible for? - 500,000 (250,000/1,500,000} * 600,000)
Who is responsible for regulating the insurance industry? - individual states
What is the actual cash value of a 5 year old refrigerator with a 10 year useful life? It cost $1,500 when
originally purchased, but costs $2,000 brand new today? - 1000 (5/10=50% depreciation) so
ACV=RC-DEPR so 2000-1000=1000
Johnny and Moira Rose borrowed $150,000 from Rosebud National Bank to help fund the purchase of a
new home. The home serves as collateral for the loan. Rosebud National has an insurable interest in the
home based on - being a secured creditor
Jason is the owner of a liquor store. With the insurance policy covering the liquor store, there is a
provision stating that the liquor store must have a working burglar alarm at all times in order for
insurance coverage to apply. What is this an example of? - warranty
Vincent recently broke his arm and had to go to the Emergency Room. The resulting medical bills were
$2,000. Vincent's health insurance includes a $1,000 deductible and an 80-20 coinsurance clause. How
much will his insurance company pay for the medical bills? - 800 (2000-1000=1000 * .8= 800)
Samir is using the Needs Approach to determine how much life insurance to buy. He has calculated the
following: cash needs of $30,000, income needs of $170,000, and special needs of $200,000. His current
assets total $50,000. Based on the Needs Approach, how much life insurance does Samir need? -
350,000
If you have a limited budget to spend on life insurance, but you want to maximize the amount of life
insurance you have, which type would be most appropriate? - Term Life Insurance
, Each time I visit my primary care physician, my healthcare plan requires me to pay $25. The $25 I pay is -
copayment
Which type of spending account can be coupled with a high-deductible healthcare plan? - Health
Savings Account
While walking your dog, if he/she were to bite and severely injure someone, what type of tort would this
be? - Strict Liability
Jack recently ran a red light and struck a pedestrian. As a result of the accident, the pedestrian was
admitted to the hospital. Which type of damages are the pedestrian's medical bills? - Special
Damages
Dante Hicks works at Quick Stop Groceries (a convenience store). Which of the following correctly
describes customers of the store? - Invitees
Felix Gallardo has a Personal Auto Policy with liability limits of $100,000 / $300,000 / $50,000. What is
Felix's limit for property damage? - 50,000
Charlie Harper has a Personal Auto Policy with liability limits of $50,000/$100,000/$25,000. While
speeding down the Pacific Coast Highway, Charlie loses control of his car and hits an SUV with two
people inside. From the SUV, one person's injuries are $40,000 and the other's are $75,000. How much
will Charlie's policy pay in total for bodily injuries? - 90,000
Several years ago, I was driving my car when a deer ran in front of me. As I was unable to avoid the deer,
I collided with it and it caused a significant amount of damage to my car. The damage was covered under
the "Coverage for Damage to Your Auto" part of my insurance policy. Which type of loss was this? -
Other Than Collision / Comprehensive
With no-fault insurance, injured motorists collect payment for their injuries from: - their own
insurance companies
What peril(s) does the special limit of liability for firearms apply to? - theft
