Chapter 2 Property and Casualty
Insurance Basics questions with verified
answers
Insurable Interest- 3 requirements - answers1. Legitimate financial interest in preserving
the property to be insured.
2. Must be No potential for gain
3. Must be potential for loss
Underwriting - answersreviewing apps for insurance ( risk selection process)
Underwriter's function - answersunderwriter evaluates apps and determines whether a
policy should be issued and its terms and rates for that policy.
Loss ratio - answers(Incurred losses + loss adjusting expense) / Earned premium =
Loss ratio
Geographic redlining - answerspractice of refusing to serve a particular area solely b/c
of its location or b/c it is served by a volunteer fire department. Illegal in NY.
Insurance credit score - answersPoint system used by insurance underwriters to predict
risk and possibility of claims and determine premium charges.
Insurance rate - answersamount charged for a particular amount of coverage
Ex. $1.00 per square foot
Class/ manual rating - answerscomputing a price per unit of insurance that applies to all
applicants with a set of characteristics.
Ex. All drivers of a given gender and age driving in the same area.
-Used in most property and casualty fields
Judgment rating - answerscredible stats are lacking or when exposure to the units are
varied so that it's impossible to construct a class. Ex. Ocean Marine insurance.
Schedule rating - answersrates are developed by applying a schedule of charges and
credits to some base rate to determine the appropriate rate for an individual exposure.
Used less frequently today.
Experience rating - answersThe insured's past loss experience enters into the
determination of the final premium.
, Retrospective rating - answersself-rating plan where actual losses during the policy
period determine the final premium.
Merit rating - answersmost common in auto insurance. Insured's premium is based not
on actual loss record, but other factors that indicate the probability that loss will occur.
Ex. Bad driving records doesn't include any at-fault accidents
Loss cost rating method - answersprovides insurer with the portion of a rate that does
not included provisions of expenses or profit.
Components - answersfactors that determine rates including :
loss reserves
loss adjusting expenses
operating expenses
profits
Negligence - answersfailure to use the care that a reasonable person would.
Elements of Negligence - answers1. Legal duty
2. Standard of care
3. Proximate cause
4. Actual loss or damage
Legal Duty - answersdefendant had a legal duty to act or not to act
Standard of Care - answersDefendant must have breached the duty to act or not to act
Proximate cause - answersThe negligence must have been the cause without which the
accident would not have happened, also referred to as direct liability
Actual Loss or Damage - answersActual injury or damage must have been suffered, just
carelessness is not sufficient cause for legal liability.
Defenses against Negligence - answers-Assumption of Risk
-Comparative Negligence
-Contributory Negligence
-Intervening Cause
-Statute of Limitations
Assumption of risk - answersseeking admission to a baseball game, a spectator must
be considered to have chosen to undergo the risk of being hit with a foul ball.
Comparative Negligence - answersUnder this defense, the fault is shred between the
parties involved and the awards for damages are reduced by the percentage of
negligence of each party.
Insurance Basics questions with verified
answers
Insurable Interest- 3 requirements - answers1. Legitimate financial interest in preserving
the property to be insured.
2. Must be No potential for gain
3. Must be potential for loss
Underwriting - answersreviewing apps for insurance ( risk selection process)
Underwriter's function - answersunderwriter evaluates apps and determines whether a
policy should be issued and its terms and rates for that policy.
Loss ratio - answers(Incurred losses + loss adjusting expense) / Earned premium =
Loss ratio
Geographic redlining - answerspractice of refusing to serve a particular area solely b/c
of its location or b/c it is served by a volunteer fire department. Illegal in NY.
Insurance credit score - answersPoint system used by insurance underwriters to predict
risk and possibility of claims and determine premium charges.
Insurance rate - answersamount charged for a particular amount of coverage
Ex. $1.00 per square foot
Class/ manual rating - answerscomputing a price per unit of insurance that applies to all
applicants with a set of characteristics.
Ex. All drivers of a given gender and age driving in the same area.
-Used in most property and casualty fields
Judgment rating - answerscredible stats are lacking or when exposure to the units are
varied so that it's impossible to construct a class. Ex. Ocean Marine insurance.
Schedule rating - answersrates are developed by applying a schedule of charges and
credits to some base rate to determine the appropriate rate for an individual exposure.
Used less frequently today.
Experience rating - answersThe insured's past loss experience enters into the
determination of the final premium.
, Retrospective rating - answersself-rating plan where actual losses during the policy
period determine the final premium.
Merit rating - answersmost common in auto insurance. Insured's premium is based not
on actual loss record, but other factors that indicate the probability that loss will occur.
Ex. Bad driving records doesn't include any at-fault accidents
Loss cost rating method - answersprovides insurer with the portion of a rate that does
not included provisions of expenses or profit.
Components - answersfactors that determine rates including :
loss reserves
loss adjusting expenses
operating expenses
profits
Negligence - answersfailure to use the care that a reasonable person would.
Elements of Negligence - answers1. Legal duty
2. Standard of care
3. Proximate cause
4. Actual loss or damage
Legal Duty - answersdefendant had a legal duty to act or not to act
Standard of Care - answersDefendant must have breached the duty to act or not to act
Proximate cause - answersThe negligence must have been the cause without which the
accident would not have happened, also referred to as direct liability
Actual Loss or Damage - answersActual injury or damage must have been suffered, just
carelessness is not sufficient cause for legal liability.
Defenses against Negligence - answers-Assumption of Risk
-Comparative Negligence
-Contributory Negligence
-Intervening Cause
-Statute of Limitations
Assumption of risk - answersseeking admission to a baseball game, a spectator must
be considered to have chosen to undergo the risk of being hit with a foul ball.
Comparative Negligence - answersUnder this defense, the fault is shred between the
parties involved and the awards for damages are reduced by the percentage of
negligence of each party.
