WISCONSIN INSURANCE EXAM
Risk - Answers -Not Knowing what will happen in the future and the possibility the
outcome will be negative
Defined As:
Chance of Loss
Possibility of Loss
Uncertainty of Loss
Types of Loss - Answers -1. Financial
-Loss of house to loss of life
2. Non-Financial
-Loss of Friendship
Speculative Risk - Answers -I win or I lose
Pure Risk - Answers -I lose or I do not lose
Peril - Answers -The actual cause of a loss
Natural, Human, Economical, etc
Hazard - Answers -Situations or factors that may increase the possibility of a loss
Common Types:
Physical - Bad Breaks, ice on sidewalk
Moral - Dishonest Tendencies
Morale - Having a careless attitude because of coverage
Legal - Federal and/or state regulations must be followed
The process of risk management - Answers -1. Identify the Objectives
2. Identify the Risks
3. Evaluate the Risks
How to deal with risk - Answers -Avoid (Don;t fly, hang glide, mountain climb etc)
Retain (Self insure)
Transfer (Social vehicle for insurance)
Share (incorporate or add a partner)
Reduce (install fire alarms, stop smoking, etc)
Rules of Risk Management - Answers -1. Don't Risk more than you can afford to lose
2. Consider the odds
, 3. Don't risk a lot for a little
4. Priority for purchasing insurance
Pooling - Answers -Spread of risk
Law of Large numbers - Answers -Allows for predictability of risk
Assessable Policy - Answers -Policyholder takes risk of loss
Non-Assessable Policy - Answers -Transfer risk taking to a 3rd party (Insurance
Company)
Insurable Risk - Answers -1. Losses reasonable to predict
2. Losses must be definite and measurable
3. Losses must not be catastrophic
4. Losses must use randomness of selection
5. Losses avoid adverse selection
Adverse selection - Answers -Trying to get a policy for events that are already
occurring, or are knowingly going to happen (Life insurance policy before committing
suicide, home insurance while a fire is destroying home, etc)
Three Methods of Purchasing Insurance - Answers -1. From an
"approved/authorized/admitted"
- Domestic insurer, foreign insurer, alien insurer
2. Direct Placement
- Applicant crosses the state boundaries and buts a policy "direct" from the insurance
company
3. Surplus Lines Intermediary
- A surplus lines intermediary that is authorized by the WI OCI to place certain unusual
risks with a non approved insurance company
Stock Insurers - Answers -1. Stockholders are owners
2. They elect board members
3. Board selects officers
4. For profit
5. Dividend returns, if any, are a return of profits
- Taxable
- Not Guaranteed
Mutual Insurers - Answers -1. Policyholders are the owners
2. Policies can be:
- Assessable
- Non-Assessable
3. Dividends, If any, are a return of premiums
- Not taxable
Risk - Answers -Not Knowing what will happen in the future and the possibility the
outcome will be negative
Defined As:
Chance of Loss
Possibility of Loss
Uncertainty of Loss
Types of Loss - Answers -1. Financial
-Loss of house to loss of life
2. Non-Financial
-Loss of Friendship
Speculative Risk - Answers -I win or I lose
Pure Risk - Answers -I lose or I do not lose
Peril - Answers -The actual cause of a loss
Natural, Human, Economical, etc
Hazard - Answers -Situations or factors that may increase the possibility of a loss
Common Types:
Physical - Bad Breaks, ice on sidewalk
Moral - Dishonest Tendencies
Morale - Having a careless attitude because of coverage
Legal - Federal and/or state regulations must be followed
The process of risk management - Answers -1. Identify the Objectives
2. Identify the Risks
3. Evaluate the Risks
How to deal with risk - Answers -Avoid (Don;t fly, hang glide, mountain climb etc)
Retain (Self insure)
Transfer (Social vehicle for insurance)
Share (incorporate or add a partner)
Reduce (install fire alarms, stop smoking, etc)
Rules of Risk Management - Answers -1. Don't Risk more than you can afford to lose
2. Consider the odds
, 3. Don't risk a lot for a little
4. Priority for purchasing insurance
Pooling - Answers -Spread of risk
Law of Large numbers - Answers -Allows for predictability of risk
Assessable Policy - Answers -Policyholder takes risk of loss
Non-Assessable Policy - Answers -Transfer risk taking to a 3rd party (Insurance
Company)
Insurable Risk - Answers -1. Losses reasonable to predict
2. Losses must be definite and measurable
3. Losses must not be catastrophic
4. Losses must use randomness of selection
5. Losses avoid adverse selection
Adverse selection - Answers -Trying to get a policy for events that are already
occurring, or are knowingly going to happen (Life insurance policy before committing
suicide, home insurance while a fire is destroying home, etc)
Three Methods of Purchasing Insurance - Answers -1. From an
"approved/authorized/admitted"
- Domestic insurer, foreign insurer, alien insurer
2. Direct Placement
- Applicant crosses the state boundaries and buts a policy "direct" from the insurance
company
3. Surplus Lines Intermediary
- A surplus lines intermediary that is authorized by the WI OCI to place certain unusual
risks with a non approved insurance company
Stock Insurers - Answers -1. Stockholders are owners
2. They elect board members
3. Board selects officers
4. For profit
5. Dividend returns, if any, are a return of profits
- Taxable
- Not Guaranteed
Mutual Insurers - Answers -1. Policyholders are the owners
2. Policies can be:
- Assessable
- Non-Assessable
3. Dividends, If any, are a return of premiums
- Not taxable
