California Insurance Exam/ 516 Questions with
Definitive Solutions.
*McCarran Ferguson Act - Answer: Return supervisory power to the states
Financial Services Modernization Act of 1999 - Answer: Banks can do insurance
and insurance companies can do banking
1933 Class Steagall Act - Answer: Required banks to remain in banking and not do
insurance and insurance companies to remain in insurance and not do banking.
Pooling the risk - Answer: Distributing the risk over a large number of people.
*Law of large numbers - Answer: Having a large number of people in a pool helps
to correctly predict the outcome.
,Speculative risk - Answer: Hoping for a gain
Pure risk - Answer: Covering for losses. No gain. So it's insurable.
Underwriters - Answer: Determine if prospective clients fall into the normal
category or if they are more risky in one category or another.
- They classify risks and determine which categories the insured should be placed
- Adhesion: categories have been decided and approved in advance by the state in
conjunction with the insurance company.
- Categories of risks: Preferred (best premium rate), Standard, Substandard (most
expensive)
Peril - Answer: The actual incident happening
Hazard - Answer: - What causes the incident to happen. (e.g. your thoughts,
actions, habits?)
- 3 types
*Fair Credit Reporting Act - Answer: - Provides that the applicant for insurance be
informed that a consumer report may be requested
- A federal provision that requires privacy of a client's information
- Designed to promote accuracy, fairness, and privacy of information in the files of
every "consumer reporting agency"
- You must be told if information in your file has been used against you.
- You can find out what is in your file.
,- You can dispute inaccurate information with the CRA.
- Inaccurate information must be corrected or deleted.
- You can dispute inaccurate items with the source of the information.
- It is not required that the CRA name be disclosed if you are denied coverage
- Outdated information may not be reported.
- Access to your file is limited.
- Your consent is required for reports that are provided to employers, or reports
that contain medical information.
- You may choose to exclude your name from CRA lists for unsolicited credit and
insurance offers.
- You may seek damages from violators.
Physical Hazard - Answer: - Has to do with the body.
- Is the body going to live a normal length of time?
- Are there negatives due to health issues, hobbies, or profession?
*Moral Hazard - Answer: - Issues resulting from weakness of human behavior
- Does the person follow rules and laws of society?
- Dealing with the difference between right and wrong
*Morale Hazard - Answer: - Focus on hobbies and jobs
- Jump out of airplanes?
- Attitude towards the item insured and to act carelessly about it
, 4 Treatments of Risk - Answer: - Avoidance
- Reduction
- Retention
- Transference
*Risk Avoidance - Answer: Stopping the behavior all together. (e.g. stop smoking)
Risk Reduction - Answer: (e.g. smoking less cigarettes a day)
*Risk Retention - Answer: Doing nothing and retaining all the risk without any
outside assistance.
- "Self insuring" or retaining only a portion of the risk through paying deductibles
Risk Transference - Answer: Transferring the risk to an insurance company
Elements that makes risk insurable - Answer: - Loss must be due to chance
- Loss must be definite and measurable
- Loss must be predictable
- Loss cannot be catastrophic
- Loss exposures to be insured must be large (risk pooling and the law of large
numbers)
- Loss exposure must be randomly selected
Four ingredients to make contract - Answer: - Offer and Acceptance
- Consideration
Definitive Solutions.
*McCarran Ferguson Act - Answer: Return supervisory power to the states
Financial Services Modernization Act of 1999 - Answer: Banks can do insurance
and insurance companies can do banking
1933 Class Steagall Act - Answer: Required banks to remain in banking and not do
insurance and insurance companies to remain in insurance and not do banking.
Pooling the risk - Answer: Distributing the risk over a large number of people.
*Law of large numbers - Answer: Having a large number of people in a pool helps
to correctly predict the outcome.
,Speculative risk - Answer: Hoping for a gain
Pure risk - Answer: Covering for losses. No gain. So it's insurable.
Underwriters - Answer: Determine if prospective clients fall into the normal
category or if they are more risky in one category or another.
- They classify risks and determine which categories the insured should be placed
- Adhesion: categories have been decided and approved in advance by the state in
conjunction with the insurance company.
- Categories of risks: Preferred (best premium rate), Standard, Substandard (most
expensive)
Peril - Answer: The actual incident happening
Hazard - Answer: - What causes the incident to happen. (e.g. your thoughts,
actions, habits?)
- 3 types
*Fair Credit Reporting Act - Answer: - Provides that the applicant for insurance be
informed that a consumer report may be requested
- A federal provision that requires privacy of a client's information
- Designed to promote accuracy, fairness, and privacy of information in the files of
every "consumer reporting agency"
- You must be told if information in your file has been used against you.
- You can find out what is in your file.
,- You can dispute inaccurate information with the CRA.
- Inaccurate information must be corrected or deleted.
- You can dispute inaccurate items with the source of the information.
- It is not required that the CRA name be disclosed if you are denied coverage
- Outdated information may not be reported.
- Access to your file is limited.
- Your consent is required for reports that are provided to employers, or reports
that contain medical information.
- You may choose to exclude your name from CRA lists for unsolicited credit and
insurance offers.
- You may seek damages from violators.
Physical Hazard - Answer: - Has to do with the body.
- Is the body going to live a normal length of time?
- Are there negatives due to health issues, hobbies, or profession?
*Moral Hazard - Answer: - Issues resulting from weakness of human behavior
- Does the person follow rules and laws of society?
- Dealing with the difference between right and wrong
*Morale Hazard - Answer: - Focus on hobbies and jobs
- Jump out of airplanes?
- Attitude towards the item insured and to act carelessly about it
, 4 Treatments of Risk - Answer: - Avoidance
- Reduction
- Retention
- Transference
*Risk Avoidance - Answer: Stopping the behavior all together. (e.g. stop smoking)
Risk Reduction - Answer: (e.g. smoking less cigarettes a day)
*Risk Retention - Answer: Doing nothing and retaining all the risk without any
outside assistance.
- "Self insuring" or retaining only a portion of the risk through paying deductibles
Risk Transference - Answer: Transferring the risk to an insurance company
Elements that makes risk insurable - Answer: - Loss must be due to chance
- Loss must be definite and measurable
- Loss must be predictable
- Loss cannot be catastrophic
- Loss exposures to be insured must be large (risk pooling and the law of large
numbers)
- Loss exposure must be randomly selected
Four ingredients to make contract - Answer: - Offer and Acceptance
- Consideration
