RMIN 5100S - EXAM 1 QUESTIONS & ANSWERS
This person evaluates risks & determines best approach to manage risk - Answer -Risk
Manager
Risk management for small companies - Answer -Someone serves in the role of risk
manager in addition to other duties
Risk manager for large companies - Answer -Directors of Enterprise Risk Management,
Chief Risk Officers
Risk manager for mid-size companies - Answer -Mid-size Companies - Risk Manager
Describe the Risk Management Process - Answer -1. Identify
2. Measure and Analyze
3. Select the appropriate technique(s)
4. Implement & Monitor
What are the 4 risk management techniques? - Answer -Avoid, retain, transfer, control
What are the major Insurance operations? - Answer -Sales (agents), Underwriting,
Ratemaking (Actuaries), Claims
Someone who legally represents the principal (insurance company) and has the
authority to act on the principal's behalf - Answer -Agents
True or false: The agent is legally responsible for all their own acts when the agent is
acting within the scope of authority - Answer -False (kind of)! The principal is legally
responsible
True or false: Agents have the authority to bind coverage - Answer -True
What are the two types of agents? - Answer -Independent and exclusive/captive
Represents only one insurer or group of insurers under common ownership - Answer -
Exclusive / Captive Agent
Usually represents several unrelated insurers - Answer -Independent Agent
This agent is used more frequently in personal lines and small businesses, carriers also
provide resources and traning for the agent - Answer -Exclusive/Captive
, This agent is used more frequently in Commercial P&C, can find coverage better suited
for client, and has contracts with multiple insurance companies - Answer -Independent
This person legally represents the insured, solicits applications and places coverage
with the appropriate insurer, works with several unrelated insurers, and is paid a
commission by insurer - Answer -Broker
True or False: Brokers have the authority to bind - Answer -False!
The process of selecting, classifying, and pricing applicants for insurance - Answer -
Underwriting
Who sets underwriting guidelines? - Answer -Chief Underwriting Officer
What are the basics of underwriting? - Answer -Attain a profit, keep brokers/agents &
clients happy, maintain standards, and avoid adverse selection
What equation reveals the profitability of an underwriter? - Answer -combined ratio -
(Incurred loss + expenses / earned premiums)
What is the desired ratio for underwriting profits? - Answer -Around 1:1
Adverse Selection - Answer -The tendency of persons with a higher-than-average
chance of loss to seek insurance at standard rates
Adverse selection typically results from.... - Answer -asymmetric information
Asymmetric information - Answer -Occurs when one party has information that is
relevant to a transaction that the other party does not have
Underwriting goals - Answer -- Accept exposures (insureds) at the appropriate rate.
- Reject applications if exposures do not meet underwriting rules or guidelines.
- Produce a book of business (group of insureds) whose actual experience will
approach expected experience.
- Must be a skillful judge of people / industries / product lines (casualty, property, health,
etc.)
- Underwriters do NOT reject exposures simply because they expect losses.
The pricing of insurance and the calculation of insurance premiums, performed by
actuaries - Answer -Rate Making
Gross Premium = - Answer -Gross rate (price per unit of insurance) * Exposure unit
(unit of measure)
Components of Gross Rate - Answer -pure premium, load, risk charge
This person evaluates risks & determines best approach to manage risk - Answer -Risk
Manager
Risk management for small companies - Answer -Someone serves in the role of risk
manager in addition to other duties
Risk manager for large companies - Answer -Directors of Enterprise Risk Management,
Chief Risk Officers
Risk manager for mid-size companies - Answer -Mid-size Companies - Risk Manager
Describe the Risk Management Process - Answer -1. Identify
2. Measure and Analyze
3. Select the appropriate technique(s)
4. Implement & Monitor
What are the 4 risk management techniques? - Answer -Avoid, retain, transfer, control
What are the major Insurance operations? - Answer -Sales (agents), Underwriting,
Ratemaking (Actuaries), Claims
Someone who legally represents the principal (insurance company) and has the
authority to act on the principal's behalf - Answer -Agents
True or false: The agent is legally responsible for all their own acts when the agent is
acting within the scope of authority - Answer -False (kind of)! The principal is legally
responsible
True or false: Agents have the authority to bind coverage - Answer -True
What are the two types of agents? - Answer -Independent and exclusive/captive
Represents only one insurer or group of insurers under common ownership - Answer -
Exclusive / Captive Agent
Usually represents several unrelated insurers - Answer -Independent Agent
This agent is used more frequently in personal lines and small businesses, carriers also
provide resources and traning for the agent - Answer -Exclusive/Captive
, This agent is used more frequently in Commercial P&C, can find coverage better suited
for client, and has contracts with multiple insurance companies - Answer -Independent
This person legally represents the insured, solicits applications and places coverage
with the appropriate insurer, works with several unrelated insurers, and is paid a
commission by insurer - Answer -Broker
True or False: Brokers have the authority to bind - Answer -False!
The process of selecting, classifying, and pricing applicants for insurance - Answer -
Underwriting
Who sets underwriting guidelines? - Answer -Chief Underwriting Officer
What are the basics of underwriting? - Answer -Attain a profit, keep brokers/agents &
clients happy, maintain standards, and avoid adverse selection
What equation reveals the profitability of an underwriter? - Answer -combined ratio -
(Incurred loss + expenses / earned premiums)
What is the desired ratio for underwriting profits? - Answer -Around 1:1
Adverse Selection - Answer -The tendency of persons with a higher-than-average
chance of loss to seek insurance at standard rates
Adverse selection typically results from.... - Answer -asymmetric information
Asymmetric information - Answer -Occurs when one party has information that is
relevant to a transaction that the other party does not have
Underwriting goals - Answer -- Accept exposures (insureds) at the appropriate rate.
- Reject applications if exposures do not meet underwriting rules or guidelines.
- Produce a book of business (group of insureds) whose actual experience will
approach expected experience.
- Must be a skillful judge of people / industries / product lines (casualty, property, health,
etc.)
- Underwriters do NOT reject exposures simply because they expect losses.
The pricing of insurance and the calculation of insurance premiums, performed by
actuaries - Answer -Rate Making
Gross Premium = - Answer -Gross rate (price per unit of insurance) * Exposure unit
(unit of measure)
Components of Gross Rate - Answer -pure premium, load, risk charge
