New York State Property and Casualty
Licensing Actual Exam Study
Questions with Elaborate Answers
1. What is a Broker? - ANSWER A broker is someone who acts on behalf of
the insured in negotiating insurance, their for a broker has no binding
authority, however brokers are considered to be a collector of premiums.
2. What is an agent (producer)? - ANSWER An agent is a person who acts on
behalf of an insurance company with whom they are contracted. Agents
have binding authority, this authority stems from 3 separate authority.
3. Expressed Authority - ANSWER This is the actual written agency contract.
4. Morale Hazard - ANSWER Attitude that increases the probability of loss.
(Ex: indifference or carelessness of leaving one's house or vehicle
unlocked.)
5. Loss Exposure - ANSWER Condition of being at risk of a loss. Purely by
existing, property and people are at risk for loss.
6. Managing Risk - ANSWER Minimize the possibility of a loss. Ways to
manage risk: STARR- Sharing, Transfer, Avoidance, Reduction, Retention
7. STARR - ANSWER managing risk: Sharing- Investments of a large number
of people may be pooled by use of a corporation or partnership. Transfer-
Transferring the risk from one party to another, such as from consumer to
insurance company. Avoidance- Elimination of risk, avoid the activity that
, gives rise to the chance of loss. Reduction- Minimizing the chance of loss,
but not preventing the risk. Retention- Assume the responsibility for loss,
self insure the entire loss or a portion of the loss by choosing deductibles is a
method of retention.
8. Law of large Numbers - ANSWER As the number of units in a group
increases, the more likely it is to predict a particular outcome.
9. Insurable Interest - ANSWER Insurable interest must exist in every
enforceable insurance contract. Depending upon the contract, it must exist at
the time of application or at the time of loss. *only policy that does not
require insurable risk at the time of loss is "life or health" policies.
10.4 Elements of a legal Contract - ANSWER 1) Competent parties- Insurer
and insured must have legal capacity to enter into a contract. Those without
legal capacity include: A. Minors *Exceptions do exist such as for the
purchase of auto insurance. B. The mentally incompetent or incapacitated.
C. Persons under the influence of drugs or alcohol.
2) Legal Purpose- All parties must enter in good faith and all parties to a
contract must enter it for a legal purpose; public policy cannot be violated by a
legal contract.
3) Agreement- One party must make and communicate an offer to the party and
the second party must accept that offer. A. offer- the offer for entering an
insurance contract is the application submitted by the applicant. B. Acceptance-
The acceptance of an insurance contract takes place when the insurance
company agrees to issue insurance. A counteroffer by the insurance company is
not acceptance until the applicant accepts the counteroffer.
4) Consideration- something of value is exchanged the exchange of an act for a
promise. (Ex: The consideration made by the applicant is the premium and the
consideration made from the insurer is its promise to pay for covered losses.)
,11.Aleatory Contract - ANSWER The exchange of value is unequal. Insured's
premium payment is less than the potential benefit to be received in the
event of a loss. The insured's payment in the event of a loss may be much
greater, or much less (Ex: $0 in the event a loss doesn't occur), than the
insured's premium payment.
12.Apparent Authority - ANSWER Authority created when the producer
exceeds the authority expressed in the agency contract. This occurs when
insurer does nothing to counter the public impression that such authority
exist. (Ex: company supplied signs, business cards and letter head.)
13.Implied Authority - ANSWER Authority the public assumes the producer
has. An example would be the business activities of providing quotes,
completing applications and accepting premiums on behalf of the insurer.
14.Captive Agent - ANSWER Also known as exclusive agent, this means they
represent only one company.
15.Independent Agent - ANSWER This means they can represent more than
one company.
16.Producer's responsibility to the insurer: - ANSWER 1) Fiduciary duty to the
insurer in all respects, especially when handling premium funds.
2) Must keep premium funds in a trust account separate from other funds and
forward to insurer promptly.
3) Must report any material facts that may affect underwriting.
4) Responsible for soliciting, negotiating, selling, and cancelling the insurance
policies with the insurer.
5) Duty to only recommend the purchase of only suitable policies.
, 17.Producer's responsibilities to the insured: - ANSWER 1) Forward premiums
to insurer on a timely basis.
2) Seek and gain knowledge of the applicant’s insurance needs.
3) Review and evaluate the applicant's current insurance coverage, limits and
risks.
4) Serve the best interests of the applicant or insured, although producers
represent the insurer.
5) Recommend coverage from the perspective of the producer.
18.Federal Regulations Under The Fair Credit Reporting Act: - ANSWER 1)
Protects consumer privacy- A. Ensures data collected is confidential,
accurate, relevant and used for a proper and specific purpose. B. Protects the
public from overly intrusive information collection practices.
2) When an application is taken, it must inform applicant a credit report (from
consumer reporting agency) will be obtained. The purpose of this to determine
the financial and moral status of an applicant ( for variety of purposes such as
employment screening, insurance underwriting or loan approvals).
3) Applicant has the right to review the report.
4) Insurer obligations - A. insurer is not responsible for correcting inaccuracies
on any reports. B. If an applicant is denied coverage because of inaccurate
information they are entitled to certain rights.
19.Risk - ANSWER A. A condition where the chance, likelihood, probability
or potential for a loss exist.
B. Uncertainty Concerning a loss.
*Their are 2 types of risk*
20.Speculative Risk - ANSWER Situations where there is a chance for loss,
gain; or neither loss nor gain to occur. An example of speculative risk is
gambling. Speculative risk cannot be insured.
Licensing Actual Exam Study
Questions with Elaborate Answers
1. What is a Broker? - ANSWER A broker is someone who acts on behalf of
the insured in negotiating insurance, their for a broker has no binding
authority, however brokers are considered to be a collector of premiums.
2. What is an agent (producer)? - ANSWER An agent is a person who acts on
behalf of an insurance company with whom they are contracted. Agents
have binding authority, this authority stems from 3 separate authority.
3. Expressed Authority - ANSWER This is the actual written agency contract.
4. Morale Hazard - ANSWER Attitude that increases the probability of loss.
(Ex: indifference or carelessness of leaving one's house or vehicle
unlocked.)
5. Loss Exposure - ANSWER Condition of being at risk of a loss. Purely by
existing, property and people are at risk for loss.
6. Managing Risk - ANSWER Minimize the possibility of a loss. Ways to
manage risk: STARR- Sharing, Transfer, Avoidance, Reduction, Retention
7. STARR - ANSWER managing risk: Sharing- Investments of a large number
of people may be pooled by use of a corporation or partnership. Transfer-
Transferring the risk from one party to another, such as from consumer to
insurance company. Avoidance- Elimination of risk, avoid the activity that
, gives rise to the chance of loss. Reduction- Minimizing the chance of loss,
but not preventing the risk. Retention- Assume the responsibility for loss,
self insure the entire loss or a portion of the loss by choosing deductibles is a
method of retention.
8. Law of large Numbers - ANSWER As the number of units in a group
increases, the more likely it is to predict a particular outcome.
9. Insurable Interest - ANSWER Insurable interest must exist in every
enforceable insurance contract. Depending upon the contract, it must exist at
the time of application or at the time of loss. *only policy that does not
require insurable risk at the time of loss is "life or health" policies.
10.4 Elements of a legal Contract - ANSWER 1) Competent parties- Insurer
and insured must have legal capacity to enter into a contract. Those without
legal capacity include: A. Minors *Exceptions do exist such as for the
purchase of auto insurance. B. The mentally incompetent or incapacitated.
C. Persons under the influence of drugs or alcohol.
2) Legal Purpose- All parties must enter in good faith and all parties to a
contract must enter it for a legal purpose; public policy cannot be violated by a
legal contract.
3) Agreement- One party must make and communicate an offer to the party and
the second party must accept that offer. A. offer- the offer for entering an
insurance contract is the application submitted by the applicant. B. Acceptance-
The acceptance of an insurance contract takes place when the insurance
company agrees to issue insurance. A counteroffer by the insurance company is
not acceptance until the applicant accepts the counteroffer.
4) Consideration- something of value is exchanged the exchange of an act for a
promise. (Ex: The consideration made by the applicant is the premium and the
consideration made from the insurer is its promise to pay for covered losses.)
,11.Aleatory Contract - ANSWER The exchange of value is unequal. Insured's
premium payment is less than the potential benefit to be received in the
event of a loss. The insured's payment in the event of a loss may be much
greater, or much less (Ex: $0 in the event a loss doesn't occur), than the
insured's premium payment.
12.Apparent Authority - ANSWER Authority created when the producer
exceeds the authority expressed in the agency contract. This occurs when
insurer does nothing to counter the public impression that such authority
exist. (Ex: company supplied signs, business cards and letter head.)
13.Implied Authority - ANSWER Authority the public assumes the producer
has. An example would be the business activities of providing quotes,
completing applications and accepting premiums on behalf of the insurer.
14.Captive Agent - ANSWER Also known as exclusive agent, this means they
represent only one company.
15.Independent Agent - ANSWER This means they can represent more than
one company.
16.Producer's responsibility to the insurer: - ANSWER 1) Fiduciary duty to the
insurer in all respects, especially when handling premium funds.
2) Must keep premium funds in a trust account separate from other funds and
forward to insurer promptly.
3) Must report any material facts that may affect underwriting.
4) Responsible for soliciting, negotiating, selling, and cancelling the insurance
policies with the insurer.
5) Duty to only recommend the purchase of only suitable policies.
, 17.Producer's responsibilities to the insured: - ANSWER 1) Forward premiums
to insurer on a timely basis.
2) Seek and gain knowledge of the applicant’s insurance needs.
3) Review and evaluate the applicant's current insurance coverage, limits and
risks.
4) Serve the best interests of the applicant or insured, although producers
represent the insurer.
5) Recommend coverage from the perspective of the producer.
18.Federal Regulations Under The Fair Credit Reporting Act: - ANSWER 1)
Protects consumer privacy- A. Ensures data collected is confidential,
accurate, relevant and used for a proper and specific purpose. B. Protects the
public from overly intrusive information collection practices.
2) When an application is taken, it must inform applicant a credit report (from
consumer reporting agency) will be obtained. The purpose of this to determine
the financial and moral status of an applicant ( for variety of purposes such as
employment screening, insurance underwriting or loan approvals).
3) Applicant has the right to review the report.
4) Insurer obligations - A. insurer is not responsible for correcting inaccuracies
on any reports. B. If an applicant is denied coverage because of inaccurate
information they are entitled to certain rights.
19.Risk - ANSWER A. A condition where the chance, likelihood, probability
or potential for a loss exist.
B. Uncertainty Concerning a loss.
*Their are 2 types of risk*
20.Speculative Risk - ANSWER Situations where there is a chance for loss,
gain; or neither loss nor gain to occur. An example of speculative risk is
gambling. Speculative risk cannot be insured.
