AINS 21 Comprehensive Practice Exam Review | Questions
& Correct Answers | Graded A+
1. What type of insurance typically covers liability for a business organization's
premises and operations?
General liability insurance
Professional liability insurance
Workers' compensation insurance
Property insurance
2. What resource must an insurer use if its losses and expenses exceed its
written premiums and investment income?
Reinsurance
Investments
Premiums
Reserves
3. Which one of the following categories of loss expenses can an insurer use to
compare its revenue and expenses?
loss reserves at beginning of period
loss reserves at end of period
incurred losses
change in loss reserves
4. Describe how claim buildup affects the overall cost structure of an insurance
policy.
, Claim buildup has no effect on the overall cost of insurance.
Claim buildup increases the overall cost of insurance by adding
indirect costs associated with managing claims.
Claim buildup reduces the overall cost of insurance by minimizing
direct costs.
Claim buildup only affects direct costs without impacting the overall
cost structure.
5. Which one of the following is a federal insurance plan in which the
government acts as a partner with a private insurer that sells insurance and
pays the claims, and then reimburses the insurer for the portion of losses that
exceeds premiums and investment income? Choose one answer.
Beach and Windstorm Plan
National Flood Insurance Program (NFIP)
Residual Auto Plan
Terrorism Risk Insurance Program (TRIP)
6. What is one potential outcome of destructive competition in the insurance
industry?
Increased premiums for consumers
Enhanced customer service
Financial instability among insurers
Greater regulatory oversight
7. Describe how the transfer of risk works in the context of insurance and its
importance in risk management.
, Transferring risk involves shifting the financial burden of potential
losses to another party, typically through insurance, which helps
manage exposure.
Transferring risk refers to retaining the risk within the organization to
save costs.
Transferring risk is about controlling the risk through safety measures.
Transferring risk means eliminating the risk entirely through avoidance
strategies.
8. What is one of the primary benefits of insurance?
Risk transfer
Guaranteed profit
Increased premiums
Reduced regulations
9. If a new insurance policy is being developed for a type of loss exposure that
is highly unpredictable and has a high likelihood of catastrophic loss, what
challenges might insurers face in offering this policy?
Insurers may face challenges in accurately pricing the premiums
and managing the risk associated with the unpredictable nature of
the loss exposure.
Insurers will find it easy to predict losses and set premiums.
Insurers will only need to focus on regulatory compliance.
Insurers will have no challenges since all loss exposures can be
insured.
, 10. What is the risk management technique commonly used for loss exposures
that cannot be easily retained, avoided, or controlled?
Control
Transfer
Avoidance
Retention
11. Liability coverage for loss exposures arising from a business organization's
premises and operations, its products, or its completed work is typically
provided by
Personal liability insurance.
Commercial general liability insurance.
Auto liability insurance.
Professional liability insurance.
12. Which one of the following can result from destructive competition?
Improving loss ratios
Certain types of insurance become unavailable
Lack of development of new policy forms
Excessive rates and unreasonable profits
13. Liability insurance is referred to as
Third party coverage
Fourth party coverage
Second party coverage
& Correct Answers | Graded A+
1. What type of insurance typically covers liability for a business organization's
premises and operations?
General liability insurance
Professional liability insurance
Workers' compensation insurance
Property insurance
2. What resource must an insurer use if its losses and expenses exceed its
written premiums and investment income?
Reinsurance
Investments
Premiums
Reserves
3. Which one of the following categories of loss expenses can an insurer use to
compare its revenue and expenses?
loss reserves at beginning of period
loss reserves at end of period
incurred losses
change in loss reserves
4. Describe how claim buildup affects the overall cost structure of an insurance
policy.
, Claim buildup has no effect on the overall cost of insurance.
Claim buildup increases the overall cost of insurance by adding
indirect costs associated with managing claims.
Claim buildup reduces the overall cost of insurance by minimizing
direct costs.
Claim buildup only affects direct costs without impacting the overall
cost structure.
5. Which one of the following is a federal insurance plan in which the
government acts as a partner with a private insurer that sells insurance and
pays the claims, and then reimburses the insurer for the portion of losses that
exceeds premiums and investment income? Choose one answer.
Beach and Windstorm Plan
National Flood Insurance Program (NFIP)
Residual Auto Plan
Terrorism Risk Insurance Program (TRIP)
6. What is one potential outcome of destructive competition in the insurance
industry?
Increased premiums for consumers
Enhanced customer service
Financial instability among insurers
Greater regulatory oversight
7. Describe how the transfer of risk works in the context of insurance and its
importance in risk management.
, Transferring risk involves shifting the financial burden of potential
losses to another party, typically through insurance, which helps
manage exposure.
Transferring risk refers to retaining the risk within the organization to
save costs.
Transferring risk is about controlling the risk through safety measures.
Transferring risk means eliminating the risk entirely through avoidance
strategies.
8. What is one of the primary benefits of insurance?
Risk transfer
Guaranteed profit
Increased premiums
Reduced regulations
9. If a new insurance policy is being developed for a type of loss exposure that
is highly unpredictable and has a high likelihood of catastrophic loss, what
challenges might insurers face in offering this policy?
Insurers may face challenges in accurately pricing the premiums
and managing the risk associated with the unpredictable nature of
the loss exposure.
Insurers will find it easy to predict losses and set premiums.
Insurers will only need to focus on regulatory compliance.
Insurers will have no challenges since all loss exposures can be
insured.
, 10. What is the risk management technique commonly used for loss exposures
that cannot be easily retained, avoided, or controlled?
Control
Transfer
Avoidance
Retention
11. Liability coverage for loss exposures arising from a business organization's
premises and operations, its products, or its completed work is typically
provided by
Personal liability insurance.
Commercial general liability insurance.
Auto liability insurance.
Professional liability insurance.
12. Which one of the following can result from destructive competition?
Improving loss ratios
Certain types of insurance become unavailable
Lack of development of new policy forms
Excessive rates and unreasonable profits
13. Liability insurance is referred to as
Third party coverage
Fourth party coverage
Second party coverage
