AU60 EXAM QUESTIONS WITH
VERIFIED ANSWERS
security interest - ANSWER-An interest in property (real or personal) that allows the
property to be sold on default to satisfy the debt for which the security interest was
given.
risk management - ANSWER-the process of making an implementing decisions that
enable an organization to optimize its level of risk
enterprise risk management - ANSWER-An approach to managing all of an
organization's key business risks and opportunities with the intent of maximizing
shareholder value.
employee - ANSWER-A person hired to perform services for another under the
direction and control of the other party, called the employer.
consideration - ANSWER-something of value of bargained for and exchanged by the
parties to a contract
contract of hire - ANSWER-the agreement between an employers and employee to
assume an employment relationship from which both parties reasonably expect to
derive some benefit; may be express or implied
Professional Employer Organization (PEO) - ANSWER-a company that leases
workers to small or medium sized client companies to supply the clients permanent
workforce, making the client an indirect employer; these relationships create
insurance implications related to employee status
Independant Contractor - ANSWER-a person (or organization) hired to perform
services without being subject to the hirer's direction and control regarding work
details
general contractor - ANSWER-An independent contractor who obtains the primary
contract for a project and either completes all the work or subcontracts portions (or
all) of the work to other independent contractors who specialize in such work.
Subcontractor (specialty contractor) - ANSWER-an independent contractor who
specializes in a particular kind of work and who is engaged by a general contractor
to perform a particular portion of the general contractor's contract
Cyber risk loss exposure - ANSWER-Any condition that presents the possibility of
financial loss to an organization from property, net income, or liability losses as a
consequence of advanced technology transmissions, operations, maintenance,
development, or support.
pricing - ANSWER-the process of setting a price for a product or service and
establishing the terms and conditions for the insurance agreement
,rate - ANSWER-The price per exposure unit for insurance coverage
loss costs - ANSWER-the portion of the rate that covers projected claim payments
and loss adjusting expenses
Loss adjustment expense (LAE) - ANSWER-The expense that an insurer incurs to
investigate, defend, and settle claims according to the terms specified in the
insurance policy.
premium - ANSWER-the price of the insurance coverage provided for a specified
period
DuPont Indentity - ANSWER-an analysis of ROA and ROE by breaking them down
into their component ratios
insurable interest - ANSWER-An interest in the subject of an insurance policy that is
not unduly remote and that would cause the interested party to suffer financial loss if
an insured event occurred.
named insured - ANSWER-A person, corporation, partnership, or other entity
identified as an insured party in an insurance policy's declarations page.
Sole Proprietorship - ANSWER-a form of business in which one person own the
business assets and is personally liable for the business debts
partnership - ANSWER-a for-profit business entity jointly owned by two or more
persons who share ownership and profits (or losses), although not necessarily on an
equal basis
corporation - ANSWER-an entity organized under law and entitled to the same rights
as a person, distinct from its owners
shareholder - ANSWER-an individual owner whose liability is limited to his or her
investment in the corporation
unincorporated association - ANSWER-A voluntary association of individuals acting
together under a common name to accomplish a lawful purpose.
wrap-up - ANSWER-A risk management program for large construction projects in
which the sponsor selects coverages for all contractors and subcontractors working
on the project, enabling participating contractors to reduce their bid by the cost of the
coverage it provides.
loss payee - ANSWER-A party entitled to share in whatever loss payment an insured
receives.
vicarious liability - ANSWER-A legal responsibility that occurs when one party is held
liable for the actions of a subordinate or associate because of the relationship
between the two parties.
,rate manual - ANSWER-A resource for classifying accounts and developing
premiums for given types of insurance; includes necessary rules, factors, and
guidelines to apply those rates.
endorsement - ANSWER-A document that amends an insurance policy.
class rate - ANSWER-a type of insurance rate that applies to all insureds in the
same rating category or rating class
Pure Premium Method - ANSWER-a method for calculating insurance rates using
estimates of future losses and expenses, including a profit and contingencies factor
pure premium - ANSWER-the average amount of money an insurer must charge per
exposure unit in order to be able to cover the total anticipated losses for that line of
business
loss ratio method - ANSWER-A method for determining insurance rates based on a
comparison of actual and expected loss ratios
Judgement ratemaking method - ANSWER-A method for determining insurance
rates that relies heavily on the experience and knowledge of an actuary or an
underwriter who makes little or no use of loss experience data
retrospective rating plan - ANSWER-A rating plan that adjusts the insured's premium
for the current policy period based on the insured's loss experience during the
current period; paid losses or incurred losses may be used to determine loss
experience.
Experience modification factor - ANSWER-A factor that tailors manual rates to an
insured's experience based on the insured's payroll and loss record of certain prior
years.
Credibility Factor - ANSWER-the factor applied in ratemaking to adjust for the
predictive value of loss data and used to minimize the variations in the rates that
result from purely chance variations in losses
Paid loss retrospective rating plan - ANSWER-A retrospective rating plan in which
the insured pays a deposit premium at the beginning of the policy period and makes
additional payments, usually monthly, to reimburse the insurer for the insured's
losses as they are paid and in which the total amount paid is subject to the minimum
and maximum premium.
schedule rating plan - ANSWER-A rating plan that awards debits and credits based
on specific categories, such as the care and condition of the premises or the training
and selection of employees, to modify the final premium to reflect factors that the
class rate does not include.
, individual risk premium modification plan (IRPM) - ANSWER-A rating plan that
allows underwriters to modify property premiums based upon specific risk
characteristics not reflected in the class rate.
Expense modification - ANSWER-an insurance rating plan that modifies the expense
portion of an insureds rate to reflect the actual cost of providing coverage to that
insured
rebating - ANSWER-The practice of giving a portion of the producer's commission or
some other financial advantage to an individual as an inducement to purchase the
policy
Large deductible plan - ANSWER-A rating plan whereby the insured assumes a
substantial per accident or per occurrence deductible, generally ranging from
$100,000 up to $1 million.
availability - ANSWER-a social goal of insurance that states insurance is accessible
to those who want or need it
affordability - ANSWER-A social goal of insurance that states that a ceiling placed on
rates keeps coverage available so people can purchase it, that rates are determined
so that they transfer a portion of the costs of coverage from high-risk insureds to the
remaining insureds, or that a subsidy from outside the insurance mechanism offsets
premiums that are deemed unaffordable.
simplicity - ANSWER-a social goal of insurance stating that a rate must be
reasonably simple to develop and modify
underwriting audit - ANSWER-A review of underwriting files to ensure that individual
underwriters are adhering to underwriting guidelines.
moral hazard - ANSWER-A condition that increases the likelihood that a person will
intentionally cause or exaggerate a loss.
Morale hazard (attitudinal hazard) - ANSWER-A condition of carelessness or
indifference that increases the frequency or severity of loss.
production underwriter - ANSWER-an insurer employee who works in the insurer's
office in an underwriting position but also travels to visit and maintain rapport with
agents and sometimes clients
the principle purpose of underwriting is to
A. decline to insure those applicants with risk of incurring a severe loss
B. develop and maintain a profitable book of business for the insurer
C. educate producers regarding the insurer's underwriting guidelines
D. insure only those applicants with minimal or no loss exposure - ANSWER-B.
develop and maintain a profitable book of business for the insurer
VERIFIED ANSWERS
security interest - ANSWER-An interest in property (real or personal) that allows the
property to be sold on default to satisfy the debt for which the security interest was
given.
risk management - ANSWER-the process of making an implementing decisions that
enable an organization to optimize its level of risk
enterprise risk management - ANSWER-An approach to managing all of an
organization's key business risks and opportunities with the intent of maximizing
shareholder value.
employee - ANSWER-A person hired to perform services for another under the
direction and control of the other party, called the employer.
consideration - ANSWER-something of value of bargained for and exchanged by the
parties to a contract
contract of hire - ANSWER-the agreement between an employers and employee to
assume an employment relationship from which both parties reasonably expect to
derive some benefit; may be express or implied
Professional Employer Organization (PEO) - ANSWER-a company that leases
workers to small or medium sized client companies to supply the clients permanent
workforce, making the client an indirect employer; these relationships create
insurance implications related to employee status
Independant Contractor - ANSWER-a person (or organization) hired to perform
services without being subject to the hirer's direction and control regarding work
details
general contractor - ANSWER-An independent contractor who obtains the primary
contract for a project and either completes all the work or subcontracts portions (or
all) of the work to other independent contractors who specialize in such work.
Subcontractor (specialty contractor) - ANSWER-an independent contractor who
specializes in a particular kind of work and who is engaged by a general contractor
to perform a particular portion of the general contractor's contract
Cyber risk loss exposure - ANSWER-Any condition that presents the possibility of
financial loss to an organization from property, net income, or liability losses as a
consequence of advanced technology transmissions, operations, maintenance,
development, or support.
pricing - ANSWER-the process of setting a price for a product or service and
establishing the terms and conditions for the insurance agreement
,rate - ANSWER-The price per exposure unit for insurance coverage
loss costs - ANSWER-the portion of the rate that covers projected claim payments
and loss adjusting expenses
Loss adjustment expense (LAE) - ANSWER-The expense that an insurer incurs to
investigate, defend, and settle claims according to the terms specified in the
insurance policy.
premium - ANSWER-the price of the insurance coverage provided for a specified
period
DuPont Indentity - ANSWER-an analysis of ROA and ROE by breaking them down
into their component ratios
insurable interest - ANSWER-An interest in the subject of an insurance policy that is
not unduly remote and that would cause the interested party to suffer financial loss if
an insured event occurred.
named insured - ANSWER-A person, corporation, partnership, or other entity
identified as an insured party in an insurance policy's declarations page.
Sole Proprietorship - ANSWER-a form of business in which one person own the
business assets and is personally liable for the business debts
partnership - ANSWER-a for-profit business entity jointly owned by two or more
persons who share ownership and profits (or losses), although not necessarily on an
equal basis
corporation - ANSWER-an entity organized under law and entitled to the same rights
as a person, distinct from its owners
shareholder - ANSWER-an individual owner whose liability is limited to his or her
investment in the corporation
unincorporated association - ANSWER-A voluntary association of individuals acting
together under a common name to accomplish a lawful purpose.
wrap-up - ANSWER-A risk management program for large construction projects in
which the sponsor selects coverages for all contractors and subcontractors working
on the project, enabling participating contractors to reduce their bid by the cost of the
coverage it provides.
loss payee - ANSWER-A party entitled to share in whatever loss payment an insured
receives.
vicarious liability - ANSWER-A legal responsibility that occurs when one party is held
liable for the actions of a subordinate or associate because of the relationship
between the two parties.
,rate manual - ANSWER-A resource for classifying accounts and developing
premiums for given types of insurance; includes necessary rules, factors, and
guidelines to apply those rates.
endorsement - ANSWER-A document that amends an insurance policy.
class rate - ANSWER-a type of insurance rate that applies to all insureds in the
same rating category or rating class
Pure Premium Method - ANSWER-a method for calculating insurance rates using
estimates of future losses and expenses, including a profit and contingencies factor
pure premium - ANSWER-the average amount of money an insurer must charge per
exposure unit in order to be able to cover the total anticipated losses for that line of
business
loss ratio method - ANSWER-A method for determining insurance rates based on a
comparison of actual and expected loss ratios
Judgement ratemaking method - ANSWER-A method for determining insurance
rates that relies heavily on the experience and knowledge of an actuary or an
underwriter who makes little or no use of loss experience data
retrospective rating plan - ANSWER-A rating plan that adjusts the insured's premium
for the current policy period based on the insured's loss experience during the
current period; paid losses or incurred losses may be used to determine loss
experience.
Experience modification factor - ANSWER-A factor that tailors manual rates to an
insured's experience based on the insured's payroll and loss record of certain prior
years.
Credibility Factor - ANSWER-the factor applied in ratemaking to adjust for the
predictive value of loss data and used to minimize the variations in the rates that
result from purely chance variations in losses
Paid loss retrospective rating plan - ANSWER-A retrospective rating plan in which
the insured pays a deposit premium at the beginning of the policy period and makes
additional payments, usually monthly, to reimburse the insurer for the insured's
losses as they are paid and in which the total amount paid is subject to the minimum
and maximum premium.
schedule rating plan - ANSWER-A rating plan that awards debits and credits based
on specific categories, such as the care and condition of the premises or the training
and selection of employees, to modify the final premium to reflect factors that the
class rate does not include.
, individual risk premium modification plan (IRPM) - ANSWER-A rating plan that
allows underwriters to modify property premiums based upon specific risk
characteristics not reflected in the class rate.
Expense modification - ANSWER-an insurance rating plan that modifies the expense
portion of an insureds rate to reflect the actual cost of providing coverage to that
insured
rebating - ANSWER-The practice of giving a portion of the producer's commission or
some other financial advantage to an individual as an inducement to purchase the
policy
Large deductible plan - ANSWER-A rating plan whereby the insured assumes a
substantial per accident or per occurrence deductible, generally ranging from
$100,000 up to $1 million.
availability - ANSWER-a social goal of insurance that states insurance is accessible
to those who want or need it
affordability - ANSWER-A social goal of insurance that states that a ceiling placed on
rates keeps coverage available so people can purchase it, that rates are determined
so that they transfer a portion of the costs of coverage from high-risk insureds to the
remaining insureds, or that a subsidy from outside the insurance mechanism offsets
premiums that are deemed unaffordable.
simplicity - ANSWER-a social goal of insurance stating that a rate must be
reasonably simple to develop and modify
underwriting audit - ANSWER-A review of underwriting files to ensure that individual
underwriters are adhering to underwriting guidelines.
moral hazard - ANSWER-A condition that increases the likelihood that a person will
intentionally cause or exaggerate a loss.
Morale hazard (attitudinal hazard) - ANSWER-A condition of carelessness or
indifference that increases the frequency or severity of loss.
production underwriter - ANSWER-an insurer employee who works in the insurer's
office in an underwriting position but also travels to visit and maintain rapport with
agents and sometimes clients
the principle purpose of underwriting is to
A. decline to insure those applicants with risk of incurring a severe loss
B. develop and maintain a profitable book of business for the insurer
C. educate producers regarding the insurer's underwriting guidelines
D. insure only those applicants with minimal or no loss exposure - ANSWER-B.
develop and maintain a profitable book of business for the insurer
