CPCU 520 Ch. 1 exam with solutions

CPCU 520 Ch. 1 exam with solutions
Co-operative |insurers |- |correct |answer |-insurers |owned |by |their |policyholders |and |usually |formed |
to |provide |insurance |protection |to |their |policyholders |at |minimum |cost. |mutual |insurance |
companies, |reciprocal |exchanges, |and |fraternal |organizations |are |examples |of |cooperative |insurers.



Identify |the |five |major |goals |an |insurer |usually |sets. |- |correct |answer |-1. |earn |a |profit

2. |meet |customer |needs

3. |comply |with |legal |requirements

4. |diversify |risk

5. |fulfill |duty |to |society



Explain |how |the |goal |of |meeting |customers' |needs |can |conflict |with |the |goal |of |earning |a |profit. |- |
correct |answer |-1. |in |some |cases, |offering |high |quality |insurance |at |a |price |that |the |customer |can |
afford |may |not |generate |the |profit |that |the |insurer |needs |to |attract |and |retain |capital

2. |providing |training, |operating |automated |call |centers, |and |maintaining |current |IT |tech |can |also |be
|costly |and |conflict |with |achieving |the |profit |goal |in |the |near |term




Explain |how |inefficiency |can |prevent |an |insurer |from |meeting |its |major |goals. |- |correct |answer |-1. |
inefficient |insurers |are |at |a |disadvantage |when |competing |with |efficient |ones. |this |competitive |
weakness |might |prevent |them |from |meeting |their |profit |and |service |goals, |which |can |lead |to |an |
inability |to |meet |humanitarian |or |societal |goals

2. |prevent |an |insurer |from |adequately |meeting |its |customers' |needs |and, |in |extreme |cases, |can |
lead |to |insolvency |and |a |consequent |failure |to |meet |legal |and |regulatory |goals



Identify |the |external |constraints |on |an |insurer's |ability |to |meet |its |major |goals. |- |correct |answer |--
regulation

-rating |agencies

-public |opinion

-competition

-economic |conditions

, proprietary |insurer |- |correct |answer |-insurer |formed |for |the |purpose |of |earning |a |profit |for |its |
owners



mutual |insurer |- |correct |answer |-an |insurer |that |is |owned |by |its |policyholders |and |formed |as |a |
corporation |for |the |purpose |of |providing |insurance |to |them



Fair |Access |to |Insurance |Requirements |(FAIR) |plans |- |correct |answer |-an |insurance |pool |through |
which |private |insurers |collectively |address |an |unmet |need |for |property |insurance |on |urban |
properties, |especially |those |susceptible |to |loss |by |riot |or |civil |commotion



residual |market |- |correct |answer |-the |term |referring |collectively |tot |insurers |and |other |
organizations |that |make |insurance |available |through |a |shared |risk |mechanism |to |those |who |cannot
|obtain |coverage |in |the |admitted |market




surplus |lines |broker |- |correct |answer |-a |person |or |firm |that |places |business |with |insurers |not |
licensed |(nonadmitted) |in |the |state |in |which |the |transaction |occurs |but |that |is |permitted |to |write |
insurance |because |coverage |is |not |available |through |standard |market |insurers.



independent |agency |and |brokerage |marketing |system |- |correct |answer |-an |insurance |marketing |
system |under |which |producers |(agents |or |brokers), |who |are |independent |contractors, |sell |
insurance, |usually |as |representatives |of |several |unrelated |insurers.



direct |writer |marketing |system |- |correct |answer |-an |insurance |marketing |system |that |uses |sales |
agents |(or |sales |representatives) |who |are |direct |employees |of |the |insurer.



exclusive |agency |marketing |system |- |correct |answer |-an |insurance |marketing |system |under |which |
agents |contract |to |sell |insurance |exclusively |for |one |insurer |(or |for |an |associated |group |of |insurers).



distribution |channel |- |correct |answer |-the |channel |used |by |the |producer |of |a |product |or |service |to |
transfer |that |product |or |service |to |the |ultimate |customer.



Identify |the |four |classifications |that |may |be |used |to |distinguish |property-casualty |insurers |from |one
|another. |- |correct |answer |--legal |form |of |ownership