RMIN 4000 FINAL EXAM BROWN UNIVERSITY
ACTUAL QUESTIONS AND ANSWERS 100%
CORRECT
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)
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
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
,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$)
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
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
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
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
The insurance company drafts and prints the policy contract. The insured
must accept the entire contract; they cannot insist that some of the policy
language be changed. Which legal characteristic of an insurance contract is
this describing?
contract of adhesion
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
Bruce Wayne is the owner of a large house insured under an HO-3 policy.
Unfortunately, bats have gotten into his attic and caused substantial damages
to the dwelling. Is the resulting damage covered by his homeowners policy?
nope - nesting not covered
Ernesto arrived home from work to find his home filled water and sewage.
Unfortunately, tree roots had grown into his drain pipe causing a blockage. As
a result, the drain water from his home had backed up and was now coming up
and through the drains in his sinks and toilets. How would coverage apply
under the HO-3 to this type of loss?
both the dwelling damages and personal property are excluded
exposures
things of value that could be lost (ex: car, health, license, money, etc)
perils
cause of a loss; things that could happen to these assets (ex: fire, tornado, collision,
license revoked, car accident, theft, vandalism, etc.)
risk management
what you do to protect these assets and prevent or reduce losses (ex: insurance,
alarm, drive safely, seatbelt)
risk
uncertainty concerning the occurrence of a loss OR a calculated possibility of a
negative outcome
calculated possibility
probabilistic outcome that is known/estimated, ranges from 0-100, greatest risk lies
at 50% because you have no idea if it is going to happen or not. It is fairly easy to
make accurate estimates when there is a lot of data available.
loss
When a house catches on fire, insurance agencies work to quantify the monetary
loss of the house, property & personal property. Must be quantifiable ($)
frequency
How often does a loss occur? The number of losses (fire, theft, collision) that occur
within a specified time period. Probability of a loss. Ex: Probability of a fire is
.0071/loss exposure per year. # Losses / # Exposures
Severity
How much does it cost when a loss does occur?
The $ amount of loss for a specific peril (fire, theft, collision) Ex: Average fire loss =
$32,547. Total Losses ($) / # Losses
hazard
Condition that creates or increases the frequency and/or severity of a loss, but does
NOT cause a loss. FOUR TYPES: physical, moral, morale, legal.
physical hazard
a physical condition that increases the frequency or severity of loss. ex: Corrosion on
a water pipe ends up busting the pipe & causes water damage
ACTUAL QUESTIONS AND ANSWERS 100%
CORRECT
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)
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
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
,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$)
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
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
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
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
The insurance company drafts and prints the policy contract. The insured
must accept the entire contract; they cannot insist that some of the policy
language be changed. Which legal characteristic of an insurance contract is
this describing?
contract of adhesion
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
Bruce Wayne is the owner of a large house insured under an HO-3 policy.
Unfortunately, bats have gotten into his attic and caused substantial damages
to the dwelling. Is the resulting damage covered by his homeowners policy?
nope - nesting not covered
Ernesto arrived home from work to find his home filled water and sewage.
Unfortunately, tree roots had grown into his drain pipe causing a blockage. As
a result, the drain water from his home had backed up and was now coming up
and through the drains in his sinks and toilets. How would coverage apply
under the HO-3 to this type of loss?
both the dwelling damages and personal property are excluded
exposures
things of value that could be lost (ex: car, health, license, money, etc)
perils
cause of a loss; things that could happen to these assets (ex: fire, tornado, collision,
license revoked, car accident, theft, vandalism, etc.)
risk management
what you do to protect these assets and prevent or reduce losses (ex: insurance,
alarm, drive safely, seatbelt)
risk
uncertainty concerning the occurrence of a loss OR a calculated possibility of a
negative outcome
calculated possibility
probabilistic outcome that is known/estimated, ranges from 0-100, greatest risk lies
at 50% because you have no idea if it is going to happen or not. It is fairly easy to
make accurate estimates when there is a lot of data available.
loss
When a house catches on fire, insurance agencies work to quantify the monetary
loss of the house, property & personal property. Must be quantifiable ($)
frequency
How often does a loss occur? The number of losses (fire, theft, collision) that occur
within a specified time period. Probability of a loss. Ex: Probability of a fire is
.0071/loss exposure per year. # Losses / # Exposures
Severity
How much does it cost when a loss does occur?
The $ amount of loss for a specific peril (fire, theft, collision) Ex: Average fire loss =
$32,547. Total Losses ($) / # Losses
hazard
Condition that creates or increases the frequency and/or severity of a loss, but does
NOT cause a loss. FOUR TYPES: physical, moral, morale, legal.
physical hazard
a physical condition that increases the frequency or severity of loss. ex: Corrosion on
a water pipe ends up busting the pipe & causes water damage
