New Hampshire Property & Casualty License Exam Questions and Answers Fully Solved
Risk pools - Answers Large groups of similar individuals
Law of Large Numbers - Answers We can predict fairly accurately what will happen to a large group of
similar individuals in a given time period. This allows insurers to calculate their probable losses and to
establish premiums
Acturaries - Answers Make mathematical predictions about things like how many of the people in any
given risk pool will have their home destroyed by a tornado
Principle of Indemnity - Answers The principle that insurance policies should provide a benefit no
greater than the loss suffered by an insured.
Insurable Interest - Answers Any financial interest in life or property such that, if the life or property
were lost or harmed, the insured would suffer financially.
True or false - Answers With property and casualty insurance polices, insurable interest must be present
at the time of the loss.
Pure risk - Answers A situation in which there are only the possibilities of loss, there is never the
possibility of a profit or financial gain.
Speculative risk - Answers a situation in which either profit or loss is possible
Which are insurable (pure or speculative risks) - Answers Pure
Static risk - Answers Insurable. Do not frequently fluctuate and result from a unchanging environment
(flood every 100 years)
dynamic risk - Answers Not insurable. Risk associated with change (new and fatal virus)
Fundamental risk - Answers Insurable. Affect entire groups of people or property within a society (flood,
earthquake)
Particular risk - Answers Usually insurable. Affect only the individual person or family and not the entire
community or society. (burglary)
Peril - Answers A peril is the actual cause of loss
Hazard - Answers a hazard is any condition that increases the possibility or severity of a loss
Physical Hazards - Answers the material, structural, environmental, operational features of an insured
risk that may create or increase the opportunity for injury or damage
Moral hazard - Answers a condition that increases the probability that a person will intentionally cause
or create a loss.
, Morale hazard - Answers a condition of inattention to, or disregard for, one's own life, health, property,
or behavior that increases the frequency or severity of a loss.
risk avoidance - Answers Risk avoidance simply means avoiding the hazard. For example, to avoid the
risk of an automobile accident or house fire, a person simply does not purchase a car or house
Transfer of Risk - Answers This is the most common and most popular method of handling risk. A person
can transfer their risk to an insurance company, in exchange for paying a regular
premium to the company.
sharing a risk - Answers Even when a risk is transferred to an insurer, it is common to share
some of the risk. For example, the deductibles and premiums an insured pays for insurance,
are a form of risk sharing. The insured accepts responsibility for a small portion of the risk,
while transferring the larger portion of the risk to the insurer
assumption of risk - Answers This is also known as risk retention or self-insurance. An individual
decides to do what creates a risk (buys a car or home) and retains the uncertainty of loss. If
the car is wrecked or the house burns, the individual will replace the car, rebuild the home
or do whatever he deems appropriate at his own expense
risk reduction of risk control - Answers Risk may be reduced by employing loss prevention
methods. For example, installing a sprinkler system in a building, or a person who quits
smoking and begins a planned weight loss program.
Underwriting - Answers is the process of selecting certain types of risks that have historically produced
a profit and rejecting those risks that have historically produced a loss. Sound underwriting
practices normally produce a favorable loss ratio for an insurance company. This means the
premium collected, minus claims paid and operating expenses, produces a profit for the insurer
adverse selection - Answers Adverse selection is the tendency of insureds with a greater-than-average
chance of loss to
purchase insurance.
Spreading the risk - Answers This can be achieved by insuring, during the same underwriting period,
either a very large number of similar risks, multiple insured locations, or activities with dissimilar risks.
Risk pools - Answers Large groups of similar individuals
Law of Large Numbers - Answers We can predict fairly accurately what will happen to a large group of
similar individuals in a given time period. This allows insurers to calculate their probable losses and to
establish premiums
Acturaries - Answers Make mathematical predictions about things like how many of the people in any
given risk pool will have their home destroyed by a tornado
Principle of Indemnity - Answers The principle that insurance policies should provide a benefit no
greater than the loss suffered by an insured.
Insurable Interest - Answers Any financial interest in life or property such that, if the life or property
were lost or harmed, the insured would suffer financially.
True or false - Answers With property and casualty insurance polices, insurable interest must be present
at the time of the loss.
Pure risk - Answers A situation in which there are only the possibilities of loss, there is never the
possibility of a profit or financial gain.
Speculative risk - Answers a situation in which either profit or loss is possible
Which are insurable (pure or speculative risks) - Answers Pure
Static risk - Answers Insurable. Do not frequently fluctuate and result from a unchanging environment
(flood every 100 years)
dynamic risk - Answers Not insurable. Risk associated with change (new and fatal virus)
Fundamental risk - Answers Insurable. Affect entire groups of people or property within a society (flood,
earthquake)
Particular risk - Answers Usually insurable. Affect only the individual person or family and not the entire
community or society. (burglary)
Peril - Answers A peril is the actual cause of loss
Hazard - Answers a hazard is any condition that increases the possibility or severity of a loss
Physical Hazards - Answers the material, structural, environmental, operational features of an insured
risk that may create or increase the opportunity for injury or damage
Moral hazard - Answers a condition that increases the probability that a person will intentionally cause
or create a loss.
, Morale hazard - Answers a condition of inattention to, or disregard for, one's own life, health, property,
or behavior that increases the frequency or severity of a loss.
risk avoidance - Answers Risk avoidance simply means avoiding the hazard. For example, to avoid the
risk of an automobile accident or house fire, a person simply does not purchase a car or house
Transfer of Risk - Answers This is the most common and most popular method of handling risk. A person
can transfer their risk to an insurance company, in exchange for paying a regular
premium to the company.
sharing a risk - Answers Even when a risk is transferred to an insurer, it is common to share
some of the risk. For example, the deductibles and premiums an insured pays for insurance,
are a form of risk sharing. The insured accepts responsibility for a small portion of the risk,
while transferring the larger portion of the risk to the insurer
assumption of risk - Answers This is also known as risk retention or self-insurance. An individual
decides to do what creates a risk (buys a car or home) and retains the uncertainty of loss. If
the car is wrecked or the house burns, the individual will replace the car, rebuild the home
or do whatever he deems appropriate at his own expense
risk reduction of risk control - Answers Risk may be reduced by employing loss prevention
methods. For example, installing a sprinkler system in a building, or a person who quits
smoking and begins a planned weight loss program.
Underwriting - Answers is the process of selecting certain types of risks that have historically produced
a profit and rejecting those risks that have historically produced a loss. Sound underwriting
practices normally produce a favorable loss ratio for an insurance company. This means the
premium collected, minus claims paid and operating expenses, produces a profit for the insurer
adverse selection - Answers Adverse selection is the tendency of insureds with a greater-than-average
chance of loss to
purchase insurance.
Spreading the risk - Answers This can be achieved by insuring, during the same underwriting period,
either a very large number of similar risks, multiple insured locations, or activities with dissimilar risks.
