RM497 EXAM 1 Q&A
Taxonomy - =Ways to classify insurance
Life Health Insurance (LH) - =Protection from damage from a personal risk (ex- Investments)
Property Casualty Insurance (PC) - =Protection from damage to a property, lawsuits, and related losses
Social Insurance - =Programs in which eligibility is based on prior contributions to government, usually
in the form of payroll taxes (ex- social security)
Ordinary Insurance (individual insurance) - =Individually issued life, health, and retirement coverages
Industrial Insurance (individual insurance) - =Small amounts of protection
Credit Insurance (individual insurance) - =Secures the borrowers loan balance if they die or become
disabled
Group Insurance - =Policies covering over 50 people in one contract
Indemnification - =The insured is restored to his or her approximate financial position prior to the
occurrence of the loss
Valued Policy - =Pays a stated amount if loss occurs
Human Life Value - =Basis for valuing a persons life in life insurance, measured from the persons
dependants
Roles of Employee Benefit Plans - =Accommodation/enhancement benefits, PTO, protection programs*
, Types of Employee Benefits - =Legally required benefits (social security), Discretionary benefits
(retirement plans)
Characteristics of a perfectly competitive market - =- Large number of buyers and sellers
- No barriers to entry or exit
- Homogeneous product
- Buyers and sellers have full and equal information about the products
McCarren-Ferguson Act - =1945 US Law exempting insurance from most federal regulation, and placing
it under the authority of the individual states
Department of Justice (monitoring competition) - =Focuses on horizontal price fixing, monopolization,
mergers
Federal Trade Commission (monitoring competition) - =Focuses on price fixing and mergers
How to measure large buyers and sellers - =- Number of competitors
- Concentration Ratio: market share of the largest firms in the market
- Herfindahl Index
Herfindahl-Hirschman Index (HHI) - =An index of market concentration found by summing the square of
percentage shares of firms in the market
- Not concentrated: HHI < 1500
- Moderately concentrated: 1500 < HHI < 2500
- Highly concentrated: HHI > 2500
- Monopoly: HHI = 10,000 or 100^2
Rating Bureau - =A company financed by a lot of small insurance companies because they want them to
do statistics to find out how much they should charge based on previous years losses
Taxonomy - =Ways to classify insurance
Life Health Insurance (LH) - =Protection from damage from a personal risk (ex- Investments)
Property Casualty Insurance (PC) - =Protection from damage to a property, lawsuits, and related losses
Social Insurance - =Programs in which eligibility is based on prior contributions to government, usually
in the form of payroll taxes (ex- social security)
Ordinary Insurance (individual insurance) - =Individually issued life, health, and retirement coverages
Industrial Insurance (individual insurance) - =Small amounts of protection
Credit Insurance (individual insurance) - =Secures the borrowers loan balance if they die or become
disabled
Group Insurance - =Policies covering over 50 people in one contract
Indemnification - =The insured is restored to his or her approximate financial position prior to the
occurrence of the loss
Valued Policy - =Pays a stated amount if loss occurs
Human Life Value - =Basis for valuing a persons life in life insurance, measured from the persons
dependants
Roles of Employee Benefit Plans - =Accommodation/enhancement benefits, PTO, protection programs*
, Types of Employee Benefits - =Legally required benefits (social security), Discretionary benefits
(retirement plans)
Characteristics of a perfectly competitive market - =- Large number of buyers and sellers
- No barriers to entry or exit
- Homogeneous product
- Buyers and sellers have full and equal information about the products
McCarren-Ferguson Act - =1945 US Law exempting insurance from most federal regulation, and placing
it under the authority of the individual states
Department of Justice (monitoring competition) - =Focuses on horizontal price fixing, monopolization,
mergers
Federal Trade Commission (monitoring competition) - =Focuses on price fixing and mergers
How to measure large buyers and sellers - =- Number of competitors
- Concentration Ratio: market share of the largest firms in the market
- Herfindahl Index
Herfindahl-Hirschman Index (HHI) - =An index of market concentration found by summing the square of
percentage shares of firms in the market
- Not concentrated: HHI < 1500
- Moderately concentrated: 1500 < HHI < 2500
- Highly concentrated: HHI > 2500
- Monopoly: HHI = 10,000 or 100^2
Rating Bureau - =A company financed by a lot of small insurance companies because they want them to
do statistics to find out how much they should charge based on previous years losses
