C16 BUSINESS INSURANCE FINAL EXAM WITH
QUESTIONS AND DETAILED ANSWERS |
ALREDY GRADED A+ | GUARANTEED PASS |
LATEST VERSION 2024/2025
When the investment market is performing badly on what must insurers rely in
order to earn a profit? - ANSWER--in the past when investment returns for
insurance companies have been very high, companies found that they do not have
to report on underwriting profit in order to record a profitable bottom line
-stating in about mid-2000, a bear equity market took over that lasted close to three
years thus insurers had no choice but to work towards earning underwriting profits
-those that succeeded in doing so were beginning to record very healthy profits by
2003 and this was sustained through the 2006 underwriting year
What THREE imprudent underwriting practices emerge in highly competitive
environments in soft market cycles? - ANSWER-1. Undercutting Rates
2. Relaxing policy terms and conditions
3. Neglecting loss prevention and control measures
,Name THREE strategies employed by underwriters that signify a hardening
market. - ANSWER--Soft market conditions arise when there is excess financial
capacity in the marketplace and insurers demonstrate reasonable profitability and
strong capital bases
-Hard markets follow poor results because risks underwritten at artificially low
prices must eventually be offset with high enough premiums. Companies tend to
react slowly in a hardening market because they do not want to be the first to up
prices an lose good accounts
1. Approach each risk very cautiously before offering to insure it.
2. Set more exacting underwriting standards.
3. Gives loss control and loss prevention measures significant consideration.
4. Tighten policy terms to limit exposures.
5. Mark substantial rate increases
6. Terminate relationship with brokers with unprofitable results or who only have a
small volume of business
7. Withdraw from the jurisdiction, a class of business, or an individual risk when
sufficient market share has not been gained or a portfolio or individual risk is not
profitable
,8. Withdraw from the market altogether by selling the company to another insurer
or placing it into what is known as a run-off (cease to write new business and only
service existing policies)
What is market dislocation? - ANSWER-Market dislocation is said to occur when
consumers are forces to find a new insurer when their current insurer decides to
withdraw from the market after such consumers have come to rely on the insurer
for the product
What is social inflation? - ANSWER-Refers to the increase in claims costs
resulting from generous jury awards, legislated benefit increases, and changing
legal concepts of tort and negligence that benefit plaintiffs
Identify a large loss that exhausted a significant amount of capital for the insurance
industry in 2001? - ANSWER--Hundreds of millions in shareholder capital was
lost as a result of terrorist attacks on the twin towers in NYC and the scandalously
improper accounting practices that occurred in corporate America thereafter
-although insurers and reinsurers in the U.S. market were primarily affected by the
severe claims filed, the Canadian market also felt its effects because it tends to
illicit reaction in the international market
What effect can an insolvent insurance company have on the marketplace? -
ANSWER--Shrinks the market and its capacity due to the fewer market players.
-Canada has created an association to deal with bankrupt P&C insurers, the effects
of shrinkage are even more intense for other health companies in the industry
, -When a P&C company goes bankrupt, each insurer that is a member of the
association is called upon to pay its share of claims, this could potentially have
negative effects on profit levels
How are brokers affected by market cycles? - ANSWER--During a soft market
cycle, brokers enjoy the abundance of capacity, premium rates decline and
underwriters are less demanding. However, a decline in rates means a decline in
commission
-During a hard market cycle, brokers must labour intensively to find capacity for
their clients needs and must negotiate more diligently to obtain reasonable prices.
Commission income rises when premium increases.
How are consumers affected by market cycles? - ANSWER--During a soft market
cycle, consumers are simply more neutral in their reaction to the insurance industry
-During a hard market cycle, consumers become wary, distressed and often angry.
They are faced with premiums that are suddenly not affordable, availability that is
restrictive and coverage terms are limited. Consumers are in an awkward situation
as they cannot afford to buy insurance that is mandated by law
What backlash can be expected when a mandatory insurance product becomes less
accessible to consumers because of high rates? - ANSWER--Politicians get
involved by imposing measures they believe will make insurance more affordable
-Governments can step in to establish backstops and protection plans such as caps
on the amount of loss
QUESTIONS AND DETAILED ANSWERS |
ALREDY GRADED A+ | GUARANTEED PASS |
LATEST VERSION 2024/2025
When the investment market is performing badly on what must insurers rely in
order to earn a profit? - ANSWER--in the past when investment returns for
insurance companies have been very high, companies found that they do not have
to report on underwriting profit in order to record a profitable bottom line
-stating in about mid-2000, a bear equity market took over that lasted close to three
years thus insurers had no choice but to work towards earning underwriting profits
-those that succeeded in doing so were beginning to record very healthy profits by
2003 and this was sustained through the 2006 underwriting year
What THREE imprudent underwriting practices emerge in highly competitive
environments in soft market cycles? - ANSWER-1. Undercutting Rates
2. Relaxing policy terms and conditions
3. Neglecting loss prevention and control measures
,Name THREE strategies employed by underwriters that signify a hardening
market. - ANSWER--Soft market conditions arise when there is excess financial
capacity in the marketplace and insurers demonstrate reasonable profitability and
strong capital bases
-Hard markets follow poor results because risks underwritten at artificially low
prices must eventually be offset with high enough premiums. Companies tend to
react slowly in a hardening market because they do not want to be the first to up
prices an lose good accounts
1. Approach each risk very cautiously before offering to insure it.
2. Set more exacting underwriting standards.
3. Gives loss control and loss prevention measures significant consideration.
4. Tighten policy terms to limit exposures.
5. Mark substantial rate increases
6. Terminate relationship with brokers with unprofitable results or who only have a
small volume of business
7. Withdraw from the jurisdiction, a class of business, or an individual risk when
sufficient market share has not been gained or a portfolio or individual risk is not
profitable
,8. Withdraw from the market altogether by selling the company to another insurer
or placing it into what is known as a run-off (cease to write new business and only
service existing policies)
What is market dislocation? - ANSWER-Market dislocation is said to occur when
consumers are forces to find a new insurer when their current insurer decides to
withdraw from the market after such consumers have come to rely on the insurer
for the product
What is social inflation? - ANSWER-Refers to the increase in claims costs
resulting from generous jury awards, legislated benefit increases, and changing
legal concepts of tort and negligence that benefit plaintiffs
Identify a large loss that exhausted a significant amount of capital for the insurance
industry in 2001? - ANSWER--Hundreds of millions in shareholder capital was
lost as a result of terrorist attacks on the twin towers in NYC and the scandalously
improper accounting practices that occurred in corporate America thereafter
-although insurers and reinsurers in the U.S. market were primarily affected by the
severe claims filed, the Canadian market also felt its effects because it tends to
illicit reaction in the international market
What effect can an insolvent insurance company have on the marketplace? -
ANSWER--Shrinks the market and its capacity due to the fewer market players.
-Canada has created an association to deal with bankrupt P&C insurers, the effects
of shrinkage are even more intense for other health companies in the industry
, -When a P&C company goes bankrupt, each insurer that is a member of the
association is called upon to pay its share of claims, this could potentially have
negative effects on profit levels
How are brokers affected by market cycles? - ANSWER--During a soft market
cycle, brokers enjoy the abundance of capacity, premium rates decline and
underwriters are less demanding. However, a decline in rates means a decline in
commission
-During a hard market cycle, brokers must labour intensively to find capacity for
their clients needs and must negotiate more diligently to obtain reasonable prices.
Commission income rises when premium increases.
How are consumers affected by market cycles? - ANSWER--During a soft market
cycle, consumers are simply more neutral in their reaction to the insurance industry
-During a hard market cycle, consumers become wary, distressed and often angry.
They are faced with premiums that are suddenly not affordable, availability that is
restrictive and coverage terms are limited. Consumers are in an awkward situation
as they cannot afford to buy insurance that is mandated by law
What backlash can be expected when a mandatory insurance product becomes less
accessible to consumers because of high rates? - ANSWER--Politicians get
involved by imposing measures they believe will make insurance more affordable
-Governments can step in to establish backstops and protection plans such as caps
on the amount of loss
