Independent Adjuster Set - Exam Solution Manual Fully Solved Latest Update 2025
Pure Risk - Answers Is any risk which can result in either a neutral outcome or a negative outcome. This
is what one normally thinks of as "risk.
Speculative Risk - Answers ny risk which can result in a positive outcome. An example could be a high
stakes poker game where one can have a positive outcome, quadruple your money, a neutral outcome,
leave with the same amount of money that you came with, or a negative outcome, you lose everything.
Another example is starting a new business. There is a chance that the business will take off, a positive
outcome, and a chance that the business will fail, a negative outcome.
This risk, unlike pure risk, cannot be insured.
Exposure - Answers is a measure of vulnerability to loss, usually expressed in dollars or units. Essentially,
refers to any opportunity for a "loss" to occur.
Hazard - Answers a condition or situation that increases the probability of loss or magnifies the damage
from a loss. Inadequate maintenance of a building or a lack of proper safety equipment in a factory both
qualify as this.
three basic types of hazards: - Answers physical
moral
morale
physical hazard - Answers something tangible that increases the chances of harm or damage happening
to something the insured party has an insurable interest in.
Inadequate maintenance of a building or a lack of proper safety equipment in a factory both qualify as
this type of hazard. This hazards include anything material, operational, or occupational that increases
the potential for harm to befall someone or something that is the subject of an insurable interest.
moral hazard - Answers Has to do with an insured party taking actions that are hazardous because that
party has insurance.
For example: when an insured party begins to actively behave in a more reckless or irresponsible
manner after being insured.
For example, a business owner may decide to use shoddy wiring since the building is insured against
electrical fires. Since the business owner does not actually incur the losses associated with a fire, due to
the presence of an insurance policy, the business owner decides that he can save money by using
inferior wiring.
,morale hazard - Answers is a result of an insured party's indifference or lack of concern about
safeguarding something that is covered by an insurance policy.
For example, a homeowner who stops locking his door when he leaves his house, after getting an
insurance policy for his possessions, would represent a morale hazard to the insurer.
Peril - Answers something that causes a loss. A fire that burns half a storefront, a car accident involving
the company car, or an identity theft scam that ends up taking significant sums from a company are all
classified as this
Loss - Answers defined as the injury or damage sustained by the insured as the result of one or more of
the accidents or misfortunes against which the insurer has agreed to indemnify the insured. To
"indemnify" means to make whole or compensate for a loss.
Avoidance - Answers involves not performing an activity that could carry risk.
One example might be closing down a business after several "unavoidable" accidents.
Another example would be not buying a property or business in order to avoid taking on the legal
liability that comes with it. An even more extreme example would be not flying in order to avoid the
risks of the airplane being hijacked.
Retention - Answers known as acceptance of risk.
Essentially the business owner identifies and acknowledges the existence of a specific risk, accepts the
consequences of that risk and budgets for handling that risk in case it should occur.
Sharing - Answers Involves reducing the impact of the risk by sharing it among multiple parties, such
other companies in the same or a related field or, for that matter, by purchasing some forms of
insurance.
One example of risk sharing would be to outsource a dangerous part of a job to another company that
has more expertise in that area.
Another example is when an insurer arranges to reinsure a policy or set of policies.
It is important to note that sharing risk does not actually transfer risk.
Reduction - Answers This method of managing risk involves reducing the severity of the loss or the
chances that it will occur in the first place.
An excellent example would be the installation of sprinkler systems to prevent the spread of fire. This
would reduce the severity of the loss.
Transfer - Answers This method involves shifting the risk to another party.
The main way this is achieved is the establishment of an insurance policy.
,Adverse Selection - Answers This means that only people who are most likely to face the risk will insure
themselves and the insurance company will end up paying large amounts as claims settlements resulting
in losses or reductions in profits.
Insurable Interest - Answers is an insured party's personal and economic stake in the continued
existence and functioning of something that is covered by an insurance policy.
In other words, the holder of the insurance policy gains a benefit from the thing that the policy relates
to. If the insured thing was to be damaged or destroyed the policyholder would suffer some kind of
significant loss. For example, someone who has a car insurance policy has an insurable interest in the
car. The car provides a definite benefit to the policyholder.
Law of Large Numbers - Answers is a method which allows insurance companies to estimate the amount
of occurrences of loss that will happen in a given period of time.
Reinsurance - Answers Contracts that take place between an assuming company, and the reinsured or
ceding company. The second insurer agrees to pay a share of some of the claims the primary insurer
would be responsible for, and the primary insurer agrees to pay a premium to the reinsurer for this
service.
two types of reinsurance: - Answers facultative and treaty
Facultative - Answers When this arrangement is made for a single risk, the agreement between the
original insurer The reinsurance can be for a single risk or defined package of risks, which allows the
reinsurer to do its own underwriting. Once purchased, it changes only through mutual agreement of
insurer and reinsurer.
Treaty: - Answers This type of reinsurance is less common, more open-ended, doesn't allow for
individual underwriting, and usually applies to policies not yet written within the same class. Whenever
the reinsurer agrees to indemnify the ceding company for a portion of all risks within a specific class of
insurance policies, it is a form of treaty reinsurance. . A contract such as a flood insurance policy may
require a percentage of risk to be transferred through treaty reinsurance to take into account the
likelihood that numerous claims would happen simultaneously.
Types of Insurers - Answers Stock, Mutual, Reciprocal, Fraternal, Lloyd's, Reinsurers, Excess and Surplus
Lines, Risk Retention Groups, Self Insurers, The United States Government as Insurer
The Terrorism Risk Insurance Act - Answers defined acts of terrorism (must be certified as such, not be
an act of war, and cause at least $5 million in insured property and casualty losses, etc.) and imposed
certain obligations on insurers. Administered by the Treasury Department, this program provides a
system of reimbursement for losses that result from official acts of terrorism.
The intention of TRIA - Answers first, to protect consumers by dealing with disruptions in the market.
Second, this program was intended to make sure that property and casualty insurance coverage for acts
of terrorism was available and affordable
, DP-1 - Answers basic policy, covers fire, lightning, explosion
DP-2 - Answers Broad, damage by burglars, falling objects, accidental discharge, freezing of home
systems, damage caused by ice, sleet, snow
DP-3 - Answers Special, all perils except ones specifically excluded
reasons to cancel Auto Insurance - Answers
Parts of Surety bond - Answers Principal "This is the party required to provide the bond." Obligee - This
is the party requiring the bond. It would be the owner of the construction project that requires bonds. In
the case of a license or permit bond, the obligee is almost always a state or a municipality. The bond is in
place for the protection of the obligee, not the principal. Surety - The Surety is the insurance company.
The surety bond is for the protection of the obligee. If the surety has to pay a claim, the surety will look
to the principal for reimbursement. Unlike an insurance policy, if the surety has to pay out on a bond it
will look to the principal to be made whole.
NFIP
National Flood Insurance Program Deductable - Answers 1000
Subrogation - Answers The process by which an insurer can, after it has paid a loss under the policy,
recover the amount paid from any party (other than the insured) who caused the loss or is otherwise
legally liable for the loss.
Agreed Value - Answers A property policy with a provision agreed upon by the insurer and insured as to
the amount of insurance that represents a fair valuation for the property at the time the insurance is
written.
HO-3 (special form) - Answers Provides protection for dwelling and other structures on an open peril
basis and personal property is covered only for broad perils
HO-6 (unit owners form) - Answers designed for the owners of condominium units and cooperative
apartments
profit ratio formula - Answers profit/net sales
Loss Ratio - Answers A ratio that measures losses and loss adjustment expenses against earned
premiums and that reflects the percentage of premiums being consumed by losses.
benefit of ratio - Answers
Part B auto insurance - Answers Medical Payments
Advertising Injury - Answers Coverage in the CGL that covers losses caused by oral or written material
that slanders or libels, violates privacy rights or infringes on copyrights, titles or slogans.
Pure Risk - Answers Is any risk which can result in either a neutral outcome or a negative outcome. This
is what one normally thinks of as "risk.
Speculative Risk - Answers ny risk which can result in a positive outcome. An example could be a high
stakes poker game where one can have a positive outcome, quadruple your money, a neutral outcome,
leave with the same amount of money that you came with, or a negative outcome, you lose everything.
Another example is starting a new business. There is a chance that the business will take off, a positive
outcome, and a chance that the business will fail, a negative outcome.
This risk, unlike pure risk, cannot be insured.
Exposure - Answers is a measure of vulnerability to loss, usually expressed in dollars or units. Essentially,
refers to any opportunity for a "loss" to occur.
Hazard - Answers a condition or situation that increases the probability of loss or magnifies the damage
from a loss. Inadequate maintenance of a building or a lack of proper safety equipment in a factory both
qualify as this.
three basic types of hazards: - Answers physical
moral
morale
physical hazard - Answers something tangible that increases the chances of harm or damage happening
to something the insured party has an insurable interest in.
Inadequate maintenance of a building or a lack of proper safety equipment in a factory both qualify as
this type of hazard. This hazards include anything material, operational, or occupational that increases
the potential for harm to befall someone or something that is the subject of an insurable interest.
moral hazard - Answers Has to do with an insured party taking actions that are hazardous because that
party has insurance.
For example: when an insured party begins to actively behave in a more reckless or irresponsible
manner after being insured.
For example, a business owner may decide to use shoddy wiring since the building is insured against
electrical fires. Since the business owner does not actually incur the losses associated with a fire, due to
the presence of an insurance policy, the business owner decides that he can save money by using
inferior wiring.
,morale hazard - Answers is a result of an insured party's indifference or lack of concern about
safeguarding something that is covered by an insurance policy.
For example, a homeowner who stops locking his door when he leaves his house, after getting an
insurance policy for his possessions, would represent a morale hazard to the insurer.
Peril - Answers something that causes a loss. A fire that burns half a storefront, a car accident involving
the company car, or an identity theft scam that ends up taking significant sums from a company are all
classified as this
Loss - Answers defined as the injury or damage sustained by the insured as the result of one or more of
the accidents or misfortunes against which the insurer has agreed to indemnify the insured. To
"indemnify" means to make whole or compensate for a loss.
Avoidance - Answers involves not performing an activity that could carry risk.
One example might be closing down a business after several "unavoidable" accidents.
Another example would be not buying a property or business in order to avoid taking on the legal
liability that comes with it. An even more extreme example would be not flying in order to avoid the
risks of the airplane being hijacked.
Retention - Answers known as acceptance of risk.
Essentially the business owner identifies and acknowledges the existence of a specific risk, accepts the
consequences of that risk and budgets for handling that risk in case it should occur.
Sharing - Answers Involves reducing the impact of the risk by sharing it among multiple parties, such
other companies in the same or a related field or, for that matter, by purchasing some forms of
insurance.
One example of risk sharing would be to outsource a dangerous part of a job to another company that
has more expertise in that area.
Another example is when an insurer arranges to reinsure a policy or set of policies.
It is important to note that sharing risk does not actually transfer risk.
Reduction - Answers This method of managing risk involves reducing the severity of the loss or the
chances that it will occur in the first place.
An excellent example would be the installation of sprinkler systems to prevent the spread of fire. This
would reduce the severity of the loss.
Transfer - Answers This method involves shifting the risk to another party.
The main way this is achieved is the establishment of an insurance policy.
,Adverse Selection - Answers This means that only people who are most likely to face the risk will insure
themselves and the insurance company will end up paying large amounts as claims settlements resulting
in losses or reductions in profits.
Insurable Interest - Answers is an insured party's personal and economic stake in the continued
existence and functioning of something that is covered by an insurance policy.
In other words, the holder of the insurance policy gains a benefit from the thing that the policy relates
to. If the insured thing was to be damaged or destroyed the policyholder would suffer some kind of
significant loss. For example, someone who has a car insurance policy has an insurable interest in the
car. The car provides a definite benefit to the policyholder.
Law of Large Numbers - Answers is a method which allows insurance companies to estimate the amount
of occurrences of loss that will happen in a given period of time.
Reinsurance - Answers Contracts that take place between an assuming company, and the reinsured or
ceding company. The second insurer agrees to pay a share of some of the claims the primary insurer
would be responsible for, and the primary insurer agrees to pay a premium to the reinsurer for this
service.
two types of reinsurance: - Answers facultative and treaty
Facultative - Answers When this arrangement is made for a single risk, the agreement between the
original insurer The reinsurance can be for a single risk or defined package of risks, which allows the
reinsurer to do its own underwriting. Once purchased, it changes only through mutual agreement of
insurer and reinsurer.
Treaty: - Answers This type of reinsurance is less common, more open-ended, doesn't allow for
individual underwriting, and usually applies to policies not yet written within the same class. Whenever
the reinsurer agrees to indemnify the ceding company for a portion of all risks within a specific class of
insurance policies, it is a form of treaty reinsurance. . A contract such as a flood insurance policy may
require a percentage of risk to be transferred through treaty reinsurance to take into account the
likelihood that numerous claims would happen simultaneously.
Types of Insurers - Answers Stock, Mutual, Reciprocal, Fraternal, Lloyd's, Reinsurers, Excess and Surplus
Lines, Risk Retention Groups, Self Insurers, The United States Government as Insurer
The Terrorism Risk Insurance Act - Answers defined acts of terrorism (must be certified as such, not be
an act of war, and cause at least $5 million in insured property and casualty losses, etc.) and imposed
certain obligations on insurers. Administered by the Treasury Department, this program provides a
system of reimbursement for losses that result from official acts of terrorism.
The intention of TRIA - Answers first, to protect consumers by dealing with disruptions in the market.
Second, this program was intended to make sure that property and casualty insurance coverage for acts
of terrorism was available and affordable
, DP-1 - Answers basic policy, covers fire, lightning, explosion
DP-2 - Answers Broad, damage by burglars, falling objects, accidental discharge, freezing of home
systems, damage caused by ice, sleet, snow
DP-3 - Answers Special, all perils except ones specifically excluded
reasons to cancel Auto Insurance - Answers
Parts of Surety bond - Answers Principal "This is the party required to provide the bond." Obligee - This
is the party requiring the bond. It would be the owner of the construction project that requires bonds. In
the case of a license or permit bond, the obligee is almost always a state or a municipality. The bond is in
place for the protection of the obligee, not the principal. Surety - The Surety is the insurance company.
The surety bond is for the protection of the obligee. If the surety has to pay a claim, the surety will look
to the principal for reimbursement. Unlike an insurance policy, if the surety has to pay out on a bond it
will look to the principal to be made whole.
NFIP
National Flood Insurance Program Deductable - Answers 1000
Subrogation - Answers The process by which an insurer can, after it has paid a loss under the policy,
recover the amount paid from any party (other than the insured) who caused the loss or is otherwise
legally liable for the loss.
Agreed Value - Answers A property policy with a provision agreed upon by the insurer and insured as to
the amount of insurance that represents a fair valuation for the property at the time the insurance is
written.
HO-3 (special form) - Answers Provides protection for dwelling and other structures on an open peril
basis and personal property is covered only for broad perils
HO-6 (unit owners form) - Answers designed for the owners of condominium units and cooperative
apartments
profit ratio formula - Answers profit/net sales
Loss Ratio - Answers A ratio that measures losses and loss adjustment expenses against earned
premiums and that reflects the percentage of premiums being consumed by losses.
benefit of ratio - Answers
Part B auto insurance - Answers Medical Payments
Advertising Injury - Answers Coverage in the CGL that covers losses caused by oral or written material
that slanders or libels, violates privacy rights or infringes on copyrights, titles or slogans.
