AU 60 Chapter 7 Practice Questions And Answers

AU 60 Chapter 7 Practice Questions And
Answers
Apratingpplanpthatpadjustspthepinsuredppremiumpforpsavingspinpinsurancepcompanypcommis
sionspispcalled:p-pCORRECTppANSWER-Expensepmodification.

ABCpCorp.pisplookingptopinsureptwopbuildingspunderpapblanketpinsuranceppolicy.pEachpbuildi
ngphaspanpinsurablepvaluepofp$1,000,000.pThepunderwriterpassignspthepbuildingspapratingpof
p$1.25pandp$0.75pperp$100prespectively.pIfpthepunderwriterppricespthepinsurancepusingpblan

ketpaverageprate,pwhatpshouldpABCpCorp.'sppremiumpbe?p-pCORRECTppANSWER-
$20,000.

ABCpCorp.pisplookingptopinsureptwopbuildingspunderpapblanketpinsuranceppolicy.pEachpbuildi
ngphaspanpinsurablepvaluepofp$500,000.pThepunderwriterpassignspthepbuildingspapratingpofp$
1.25pandp$0.75pperp$100prespectively.pIfpthepunderwriterppricespthepinsurancepusingpblank
etphighestprate,pwhatpshouldpABCpCorp.'sppremiumpbe?p-pCORRECTppANSWER-$12,500.

Actuariespandpunderwriterspbothphaveprolespinppricingpinsurancepproducts.pWhatpwouldpbep
thepunderwriters'pprimaryppricingprole?p-pCORRECTppANSWER-
Chargingpapsufficientppremiumpforpthepriskpassumed.

Actuariespandpunderwriterspbothphaveprolespinppricingpinsurancepproducts.pWhichponepofpth
epfollowingpispactuaries'pprimaryppricingprole?p-pCORRECTppANSWER-Ratemaking.

ActuarypJoepSmithpispprojectingpapratepincreasepofp10ppercentpinpthepupcomingpyear.pIfpthep
credibilitypfactorpisp.25,phowpmuchpofpapratepincreasepwouldpbeptaken?p-
pCORRECTppANSWER-2.5%.




Adequatep-pCORRECTppANSWER-
Ofpthepthreepregulatorypcriteria,pthispispthepmostpimportant.pRatespmustpbepadequatepinpord
erpforptheppremiumspcollectedptopbepsufficientptoppaypforpincurredplossespandpthepexpensesp
associatedpwithpthoseplosses.pBecausepratesparepbasedponppredictionspofpfutureplosses,pin
surersparepoftenpwillingptopestablishppricespthatpwinpmarketpsharepbutpcouldpleadptopinsolven
cy.

Affordabilityp-pCORRECTppANSWER-
Apsocialpgoalpofpinsurancepthatpstatespthatpapceilingpplacedponpratespkeepspcoveragepavaila
blepsoppeoplepcanppurchasepit,pthatpratesparepdeterminedpsopthatptheyptransferpapportionpofpt

, hepcostspofpcoveragepfromphigh-
riskpinsuredsptopthepremainingpinsureds,porpthatpapsubsidypfrompoutsidepthepinsurancepmec
hanismpoffsetsppremiumspthatparepdeemedpunaffordable.

Allpofpthepfollowingparepobjectivespofpratepregulation,pEXCEPT:p-pCORRECTppANSWER-
Ratesppromotepavailabilitypandpaffordabilitypofpinsurance.

AmountpSubjectp-pCORRECTppANSWER-
Theptotalpvaluepexposedptoplosspatpanyponeplocationpfrompanyponepevent.

Anpearnedpexposurepunitpispanpexposurepunit:p-pCORRECTppANSWER-
Forpwhichpthepinsurerphaspprovidedpapfullpyearpofpcoverage.

AnpinsurancepratepdevelopedpbypanpISOpfieldprepresentativepthroughpapphysicalpvisitptopapp
articularppropertypandpdevelopmentpofpanpindividualpadvisoryplosspcostpispknownpaspap-
pCORRECTppANSWER-Specificpfireprate.




AutopInsurerpBpispcalculatingptheppureppremiumpbasedponpinsuredplossespofp$8pmillionpandp
earned-carpyearspofp200,000.pTheppureppremiumpis:p-pCORRECTppANSWER-$40.

AutopInsurerpTpinsuredp100,000pcarspeachpyearpduringpapthreepyearpexperiencepperiod,pan
dpitspincurredplossespwerep$30pmillion.pWhatpisptheppureppremiumpperpcarpyear?p-
pCORRECTppANSWER-$100.




Availabilityp-pCORRECTppANSWER-
Apsocialpgoalpofpinsurancepthatpstatespthatpinsurancepispaccessibleptopthosepwhopwantporpne
edpit.

ConfidencepLevelpCredibilityp-pCORRECTppANSWER-
Thepamountpofpconfidencepanpactuaryphaspinpprojectedplossesp(andpthepresultingprates)pinc
reasespaspthepnumberpofpexposurepunitspincreases.pThepgoalpisptopdesignpapratingpsystempt
opmakepeachpclasspasphomogeneouspasppossiblepwithoutpsacrificingppredictivepaccuracy.

CredibilitypFactorp-pCORRECTppANSWER-
Thepfactorpappliedpinpratemakingptopadjustpforptheppredictivepvaluepofplosspdatapandpusedpto
pminimizepthepvariationspinpthepratespthatpresultpfromppurelypchancepvariationspinplosses




Dueptoppoorplosspexperiencepinpitspproductpliabilityplinepofpinsurance,panpinsurerpwantsptopad
justpitspcurrentpinsuranceprates.pThepinsurer'spactualplosspratiopisp45ppercentpandpthepexpec
tedplosspratiopisp40ppercent.pUsingptheplosspratiopratemakingpmethod,pwhichponepofpthepfollo
wingprepresentspthepindicatedpratepchange?p-pCORRECTppANSWER-12.5%pincrease.

Experiencepratingpplanspcanpbepusedptopmodifypratespofpindividualpaccounts.pWhichponepofp
thepfollowingpispapbenefitpofpexperiencepratingpplans?p-pCORRECTppANSWER-
Experiencepratingpplanspencouragepthepinsuredptopimplementpriskpcontrolpmeasures.