CPCU 520 Practice Exam 1 (Answered)
75 Questions and Correct Answers.
2025/2026.
The expenses associated with adjusting claims are referred to as
Select one:
A. Prospective loss costs.
B. Loss adjustment expenses.
C. Claims costs.
D. Operating expenses.
B. Loss adjustment expenses.
Insurer Y is small but has a specialty insurance market for high-value vehicles. In competing with a
larger insurer with a broader market, Insurer Y is likely to have which one of the following
advantages?
Select one:
A. Insurer Y would have more capital surplus available than a larger insurer would have.
B. Insurer Y can be more nimble, allowing it to respond quickly to an emerging trend or change.
C. Because Insurer Y has a niche market, a larger insurer would not be able to compete on price due
to state rate regulation.
D. Insurer Y is better able to invest in research and product development due to a more narrow
market focus.
B. Insurer Y can be more nimble, allowing it to respond quickly to an emerging trend or change.
Which one of the following statements is correct?
Select one:
A. Some of the five ideal characteristics of rates conflict with others, and compromises are often
necessary.
B. Rates are based on what consumers would be willing to pay for insurance coverage, which can be
difficult to determine.
C. A rate can be adequate or it can be competitive, but it cannot be both adequate and competitive
at the same time.
D. 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.
A. Some of the five ideal characteristics of rates conflict with others, and compromises are often
necessary.
To be successful, the differentiation business-level strategy must
Select one:
A. Produce short-term profits while phasing out a product line or existing market.
,B. Seek efficiency in all areas of operation to build a competitive advantage.
C. Accurately determine customers' preferences to develop products perceived as distinctive.
D. Focus on one group of customers and offer a low-price product or service.
C. Accurately determine customers' preferences to develop products perceived as distinctive.
Which one of the following statements is correct with respect to SWOT analysis?
Select one:
A. Identifying internal strengths and weaknesses involves considering financial, physical, human, and
organizational assets.
B. Managers use SWOT analysis to predict the future state of their companies.
C. SWOT analysis considers a company's internal environment rather than the external environment.
D. Customers are generally not considered in a SWOT analysis because the focus is on the assets an
organization owns.
A. Identifying internal strengths and weaknesses involves considering financial, physical, human, and
organizational assets.
Samuelson Insurance has developed special programs to market personal insurance to members of
college alumni and professional associations. This is an example of which one of the following types
of market segmentation?
Select one:
A. Psychographic
B. Behavioristic
C. Geographic
D. Demographic
D. Demographic
All of the following are challenges that an insurer may face that can hinder a complete alignment of
information technology (IT) and business strategies, EXCEPT:
Select one:
A. Changing IT or business metrics
B. An overly complex IT infrastructure
C. IT professionals assured of their job security
D. IT operating as a separate unit
C. IT professionals assured of their job security
An applicant for commercial property insurance is found unacceptable by an underwriter due to the
nature of its operations and the construction of the building it occupies. If the applicant installs an
automatic fire-extinguishing sprinkler system, the underwriter will approve the application. This type
of underwriting modification is known as
Select one:
A. Changing insurance rates, rating plans, or policy limits.
B. Requiring risk control measures.
, C. Using facultative reinsurance.
D. Amending the policy terms and conditions.
B. Requiring risk control measures
Which one of the following insurer performance goals is the most difficult to evaluate?
Select one:
A. Meeting social responsibilities
B. Meeting profitability goals
C. Meeting customer needs
D. Meeting legal requirements
A. Meeting social responsibilities
Which one of the following insurance consumer groups would have the most risk financing
alternatives available to them?
Select one:
A. Small business
B. Individuals
C. Middle markets
D. National accounts
D. National accounts
Information technology (IT) can help insurers increase operational efficiency. Which one of the
following would enable field claim representatives at a storm site to access policy information,
transmit claims information, and settle losses or make partial payments immediately so that
displaced families could return to their homes as soon as possible?
Select one:
A. Internet of Things
B. Low cost mobile technology
C. Cloud computing and storage
D. Telematics
B. Low cost mobile technology
Which one of the following are shared by the primary insurer and the reinsurer in pro rata
reinsurance transactions?
Select one:
A. Investment income from reserves
B. Premium taxes
C. Commissions to producers
D. Amounts of insurance
D. Amounts of insurance
Many of Fredine Insurance Company's risk control activities help the insurer reach its profit goals by
reducing the frequency and severity of covered losses that would detract from Fredine's profits.
75 Questions and Correct Answers.
2025/2026.
The expenses associated with adjusting claims are referred to as
Select one:
A. Prospective loss costs.
B. Loss adjustment expenses.
C. Claims costs.
D. Operating expenses.
B. Loss adjustment expenses.
Insurer Y is small but has a specialty insurance market for high-value vehicles. In competing with a
larger insurer with a broader market, Insurer Y is likely to have which one of the following
advantages?
Select one:
A. Insurer Y would have more capital surplus available than a larger insurer would have.
B. Insurer Y can be more nimble, allowing it to respond quickly to an emerging trend or change.
C. Because Insurer Y has a niche market, a larger insurer would not be able to compete on price due
to state rate regulation.
D. Insurer Y is better able to invest in research and product development due to a more narrow
market focus.
B. Insurer Y can be more nimble, allowing it to respond quickly to an emerging trend or change.
Which one of the following statements is correct?
Select one:
A. Some of the five ideal characteristics of rates conflict with others, and compromises are often
necessary.
B. Rates are based on what consumers would be willing to pay for insurance coverage, which can be
difficult to determine.
C. A rate can be adequate or it can be competitive, but it cannot be both adequate and competitive
at the same time.
D. 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.
A. Some of the five ideal characteristics of rates conflict with others, and compromises are often
necessary.
To be successful, the differentiation business-level strategy must
Select one:
A. Produce short-term profits while phasing out a product line or existing market.
,B. Seek efficiency in all areas of operation to build a competitive advantage.
C. Accurately determine customers' preferences to develop products perceived as distinctive.
D. Focus on one group of customers and offer a low-price product or service.
C. Accurately determine customers' preferences to develop products perceived as distinctive.
Which one of the following statements is correct with respect to SWOT analysis?
Select one:
A. Identifying internal strengths and weaknesses involves considering financial, physical, human, and
organizational assets.
B. Managers use SWOT analysis to predict the future state of their companies.
C. SWOT analysis considers a company's internal environment rather than the external environment.
D. Customers are generally not considered in a SWOT analysis because the focus is on the assets an
organization owns.
A. Identifying internal strengths and weaknesses involves considering financial, physical, human, and
organizational assets.
Samuelson Insurance has developed special programs to market personal insurance to members of
college alumni and professional associations. This is an example of which one of the following types
of market segmentation?
Select one:
A. Psychographic
B. Behavioristic
C. Geographic
D. Demographic
D. Demographic
All of the following are challenges that an insurer may face that can hinder a complete alignment of
information technology (IT) and business strategies, EXCEPT:
Select one:
A. Changing IT or business metrics
B. An overly complex IT infrastructure
C. IT professionals assured of their job security
D. IT operating as a separate unit
C. IT professionals assured of their job security
An applicant for commercial property insurance is found unacceptable by an underwriter due to the
nature of its operations and the construction of the building it occupies. If the applicant installs an
automatic fire-extinguishing sprinkler system, the underwriter will approve the application. This type
of underwriting modification is known as
Select one:
A. Changing insurance rates, rating plans, or policy limits.
B. Requiring risk control measures.
, C. Using facultative reinsurance.
D. Amending the policy terms and conditions.
B. Requiring risk control measures
Which one of the following insurer performance goals is the most difficult to evaluate?
Select one:
A. Meeting social responsibilities
B. Meeting profitability goals
C. Meeting customer needs
D. Meeting legal requirements
A. Meeting social responsibilities
Which one of the following insurance consumer groups would have the most risk financing
alternatives available to them?
Select one:
A. Small business
B. Individuals
C. Middle markets
D. National accounts
D. National accounts
Information technology (IT) can help insurers increase operational efficiency. Which one of the
following would enable field claim representatives at a storm site to access policy information,
transmit claims information, and settle losses or make partial payments immediately so that
displaced families could return to their homes as soon as possible?
Select one:
A. Internet of Things
B. Low cost mobile technology
C. Cloud computing and storage
D. Telematics
B. Low cost mobile technology
Which one of the following are shared by the primary insurer and the reinsurer in pro rata
reinsurance transactions?
Select one:
A. Investment income from reserves
B. Premium taxes
C. Commissions to producers
D. Amounts of insurance
D. Amounts of insurance
Many of Fredine Insurance Company's risk control activities help the insurer reach its profit goals by
reducing the frequency and severity of covered losses that would detract from Fredine's profits.
