CPCU 520 Practice Test Questions with correct Answers

Which one of the following functional areas of Keithly can assist Alex with this audit's irregularity? - Answer- Special Investigation Unit Which one of the following best describes a FAIR plan and its insureds? - Answer- State-run plans with cost spread among private insurers in the state Which one of the following departments provides information to the underwriting department to assist in selecting and rating risks? - Answer- Risk control All corporations are obligated to promote the well-being of society. At the minimum, this obligation demands that the insurer should - Answer- Avoid causing any public harm. Which one of the following insurer functions includes calculating insurance rates, developing rating plans, estimating loss reserves, and providing predictive modeling services? - Answer- Actuarial Property-casualty insurers can be classified in which one of the following ways? - Answer- Licensing status Which one of the following statements is correct with regard to an insurer's goals? - Answer- A proprietary insurer must earn competitive profits to raise the capital needed to operate. The United States regulatory framework has evolved over time into which one of the following approaches used by insurance regulators today? - Answer- Risk-focused approach Which one of the following statements regarding licensing of insurers or insurance personnel is true? - Answer- Some states permit the insurance commissioner to deny a license to an otherwise worthy applicant if the commissioner believes that no additional insurers are needed in the state. Which one of the following statements is correct? - Answer- If insurers become insolvent, future claims might not be paid and the insurance protection already paid for might become worthless. One way state insurance regulators help to protect consumers is by reviewing insurance policy forms to determine whether they benefit consumers and - Answer- Comply with state consumer protection laws. Every state insurance department is headed by a state insurance commissioner, a director, or by a - Answer- Superintendent. How often does the National Association of Insurance Commissioners (NAIC) meet to discuss important problems and issues in insurance regulation? - Answer- Three times a year Which one of the following statements is correct? - Answer- An insurer does not know what its actual expenses will be when a policy is sold. Filip is quoting to get Osakri's business and is not concerned with the adequacy of Mellfor's coverage with actual cash value on contents. Filip's behavior involving Osakri is known as - Answer- Twisting. All states attempt to ensure that continuous auto insurance coverage is available to consumers by - Answer- Restricting the rights of insurers to cancel or nonrenew personal auto insurance policies Under the terms of her agency contracts, the insurers forward policies promptly to Rhonda's customers and send a premium invoice with the policy. Insureds are instructed to remit premium payments to their insurer. The insurers calculate Rhonda's commissions and forward those commission payments to her monthly. Rhonda is operating under which one of the following payment procedures? - Answer- Direct bill basis Omicron Manufacturing has approached Delta Insurance Brokerage to develop and implement a voluntary insurance program for life, health, and disability insurance for Omicron's employees. Delta puts together a program in which employees receive the coverage at discounted rates, and premiums are deducted from the employees' paychecks. Omicron and Delta are using which one of the following types of group marketing to offer this program? - Answer- Franchise marketing The principal method of determining a prospect's insurance needs is through - Answer- Completing a risk management review for the prospect. An agency bill process in which the producer is usually not required to pay the insurer until the premium is collected from the policyholder is known as - Answer- The item basis. Which one of the following statements is true regarding traditional marketing systems for insurance? - Answer- A principal characteristic that distinguishes one traditional marketing system from another is the ownership of policy expirations. Which one of the following insurance consumer groups would have the most risk financing alternatives available to them? - Answer- National accounts Martin Insurance Company targets international manufacturers of specialty products. Its insureds place a high value on producer expertise, responsiveness, and confidentiality. Martin wants to expand into similar markets. Which one of the following insurance marketing distribution systems is most appropriate for Martin Insurance Company? - Answer- Direct writer Tania, an underwriting trainee for Keithly Insurance Company, has received a new homeowners application for Nanami. The home is to be insured for $150,000. It is a frame house with a swimming pool and trampoline in the back yard. The grass needs mowing and the shrubbery needs trimming. Nanami has a marginal credit score. What is Tania's first step in underwriting the policy for Nanami? - Answer- Check to see if she has the underwriting authority to make the decision. Which one of the following is a major constraint of underwriting policy? - Answer- Reinsurance Once an underwriter has evaluated a submission, selected and applied any appropriate modifications, and determined the premium, the next step is to implement the underwriting decision. To implement the decision, the underwriter should first - Answer- Communicate the decision to the producer. A management control tool used to determine whether line underwriters are properly implementing underwriting policy is known as an underwriting - Answer- Audit Which one of the following statements is correct with respect to estimating losses for use in the ratemaking process? - Answer- Rates are based on incomplete loss experience. Which one of the following statements is true regarding the establishment of loss reserves? - Answer- Case reserves are established by the claim department while IBNR reserves are established by actuaries. The amount included in the insurance rate to protect insurers against the possibility that actual claims or expenses will exceed projections is referred to as - Answer- The loading for profits and contingencies. Which one of the following statements is correct with respect to increased limits factors in liability insurance? - Answer- Data used in developing insurance rates for basic coverage limits include only losses associated with the basic coverage limit. Which one of the following is a benefit of contingent surplus notes as an alternative to traditional reinsurance? - Answer- They increase a primary insurer's assets without increasing its liabilities. Which one of the following statements is correct with regard to the use of facultative reinsurance? - Answer- The treaty reinsurer is usually willing to allow the primary insurer to remove high-hazard loss exposures from the treaty by using facultative reinsurance. Pro rata reinsurance is the appropriate choice when which one of the following is the main concern related to a primary insurer's rapid growth? - Answer- Drain on policyholders' surplus Westfork Insurance has a surplus share treaty with Durham Reinsurance and retains a line of $50,000. The treaty contains nine lines. Which one of the following represents that maximum amount of coverage Westfork can write for a single building under the treaty? - Answer- Westfork's retention is $50,000. The treaty contains nine lines: $50,000 x 9 = $450,000. Westfork's $50,000 + $450,000 = $500,000 Which one of the following statements is correct regarding insurance regulatory constraints on growth? - Answer- From a regulator's perspective, if an insurer's ratio of written premium to policyholders' surplus exceeds 3 to 1, the insurer is selling more insurance than is prudent relative to the size of its net worth. Which one of the following best defines the term "direct writing reinsurer"? - Answer- A reinsurer whose employees deal directly with primary insurers Which one of the following statements is correct with respect to successfully aligning an insurer's business and information technology (IT) strategy? - Answer- Competent business analysts who speak the languages of business and technology can help bridge any communication gap. Weaknesses in data security allow risks from three sources: internal, external, and collusive. Which one of the following statements is correct with respect to a source of risk? - Answer- When an organization implements appropriate segregation of duties, it restricts operations-level employees' ability to steal an asset and conceal the theft by altering computer records Some organizations face the threat of espionage. Which one of the following statements is correct with respect to that threat? - Answer- Managers can acquire a competitor's financial, production, or employee records, by gaining access to computerized data. Insurers can use information technology (IT) to gain competitive advantage. Which one of the following statements is correct with respect to gaining competitive advantage? - Answer- IT intelligence gives insurers better insight for underwriting, product development, and pricing A document management system (DMS) stores, organizes, and retrieves image files. Which one of the following statements is correct with respect to a DMS? - Answer- At some insurers, producers, field claims representatives, and others can access electronic files directly. Information technology (IT) can help insurers increase operational efficiency. Which one of the following would enable field claim representatives at a storm site to access policy information, transmit claims information, and settle losses or make partial payments immediately so that displaced families could return to their homes as soon as possible? - Answer- Low cost mobile technology A database management system (DBMS) is a group of programs that organizes data. Which one of the following statements is correct with respect to a DBMS? - Answer- A DBMS collects data for reuse in other systems, such as premium billing, finance, and claims.