AINS 101 - Course Quiz Questions With Complete Solutions

1. Loss ratio - ANSWER A ratio that measures losses and loss adjustment expenses against earned premiums and that reflects the percentage of premiums being consumed by losses 2. Loss reserve - ANSWER An estimate of the amount of money the insurer expects to pay in the future for losses that have occurred. 3. Loss run - ANSWER A report detailing an insured's history of claims that have occurred over a specific period, valued as of a specific date 4. Mutual insurer - ANSWER An insurer that is owned by its policyholders and formed as a corporation for the purpose of providing insurance to them. 5. Policyholder surplus - ANSWER An insurer's assets minus its liabilities, which represents its net worth 6. Predictive modeling - ANSWER A process in which historical data based on behaviors and events is blended with multiple variables and used to construct models of anticipated future outcomes. 7. Premium - ANSWER The price of the insurance coverage provided for a specified period 8. Principal - ANSWER The party in an agency relationship that authorizes the agent to act on that party's behalf. 9. Principle of indemnity - ANSWER The principle that insurance policies should provide a benefit no greater than the loss suffered by an insured. 10. Producer - ANSWER Any of several kinds of insurance personnel who place insurance and surety business with insurers and who represent either insurers or insureds, or both. 11. Property-casualty insurance - ANSWER One of the two main sectors of the insurance industry, encompassing numerous types of insurance, most of which cover the financial consequences of damage to one's own property or legal liability to others 12. Punitive damages - ANSWER A payment awarded by a court to punish a defendant for a reckless, malicious, or deceitful act to deter similar conduct; the award need not bear any relation to a party's actual damages 13. Pure risk - ANSWER A chance of loss or no loss, but no chance of gain 14. Rate - ANSWER The price per exposure unit for insurance coverage 15. 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 16. Reinsurance - ANSWER The transfer of insurance risk from one insurer to another through a contractual agreement under which one insurer (the reinsurer) agrees, in return for a reinsurance premium, to indemnify another insurer (the primary insurer) for some or all of the financial consequences of certain loss exposures covered by the primary's insurance policies 17. Risk management - ANSWER The process of making and implementing decisions that will minimize the adverse effects of accidental losses on an organization 18. Salvage rights - ANSWER The insurer's rights to recover and sell or otherwise dispose of insured property on which the insurer has paid a total loss or a constructive total loss 19. Solvency - ANSWER The ability of an insurer to meet its financial obligations as they become due, even those resulting from insured losses that may be claimed several years in the future 20. Special damages - ANSWER A form of compensatory damages that awards a sum of money for specific, identifiable expenses associated with the injured person's loss, such as medical expenses or lost wages. 21. Speculative risk - ANSWER A chance of loss, no loss, or gain 22. Stock insurer - ANSWER An insurer that is owned by its stockholders and formed as a corporation for the purpose of earning a profit for the stockholders. 23. Subrogation - ANSWER 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. 24. Surplus lines insurer - ANSWER A non admitted insurer that is eligible to insure risks that have been exported by a surplus lines licensee in accordance with a surplus lines law 25. Telematics - ANSWER The use of technological devices to transmit data via wireless communication and GPS tracking. 26. Unearned premium reserve - ANSWER An insurer liability representing the amount of premiums received from policyholders that are not yet earned. 27. Underwriting - ANSWER The process of selecting insureds, pricing coverage, determining insurance policy terms and conditions, and then monitoring the underwriting decisions made. 28. Underwriting guidelines (underwriting guide) - ANSWER A written manual that communicates an insurer's underwriting policy and that specifies the attributes of an account that an insurer is willing to insure 29. Broker - ANSWER An independent producer who represents insurance customers 30. Brokerage - ANSWER Compensation in the form of a flat fee or a commission that is paid by the reinsurer to the reinsurance intermediary for services provided 31. Capacity - ANSWER The amount of business an insurer is able to write, usually based on a comparison of the insurer's written premiums to its policyholders' surplus 32. Catastrophe model - ANSWER A type of computer program that estimates losses from future potential catastrophic events 33. Certificate of insurance - ANSWER A brief description of insurance coverage prepared by an insurer or its agent and commonly used by policyholders to provide evidence of insurance 34. Claim - ANSWER A demand by a person or business seeking to recover from an insurer for a loss that may be covered by an insurance policy 35. Claimant - ANSWER A party that makes a claim and that can be either a first-party claimant or a third-party claimant. 36. Claims representative - ANSWER A person responsible for investigating, evaluating, and settling claims 37. Combined ratio - ANSWER A profitability ratio that indicates whether an insurer has made an underwriting loss or gain 38. Compensatory damages - ANSWER A payment awarded by a court to reimburse a victim for actual harm 39. Condition - ANSWER Any provision in an insurance policy that qualifies an otherwise enforceable promise of the insurer. 40. Conditional contract - ANSWER A contract that one or more parties must perform only under certain conditions. 41. Contract of adhesion - ANSWER Any contract in which one party must either accept the agreement as written by the other party or reject it 42. Contract of indemnity - ANSWER A contract in which the insurer agrees, in the event of a covered loss, to pay an amount directly related to the amount of the loss 43. Damages - ANSWER Money claimed by, or a monetary award to, a party who has suffered loss or injury for which another party is legally responsible 44. Declarations page - ANSWER An insurance policy information page or pages providing specific details about the insured and the subject of the insurance 45. Deductible - ANSWER A portion of a covered loss that is not paid by an insurer 46. Depreciation - ANSWER The reduction in value caused by the physical wear and tear or technological or economic obsolescence of property. 47. Direct writer marketing system - ANSWER An insurance marketing system that uses sales agents (or sales representatives) who are direct employees of the insurer. 48. Distribution channel - ANSWER The necessary people and physical facilities to support the sale of insurance products and services. 49. Earned premiums - ANSWER The portion of the written premiums that apply to the part of the policy period that has already occurred. 50. Exclusion - ANSWER A policy provision that eliminates coverage for specified exposures 51. Exclusive agency marketing system - ANSWER An insurance marketing system under which agents contract to sell insurance exclusively for one insurer (or for an associated group of insurers). 52. Expense ratio - ANSWER An insurer's incurred underwriting expenses for a given period divided by its written premiums for the same period 53. Exposure unit - ANSWER The unit of measure (for example, area, gross receipts, payroll) used to determine an insurance policy premium 54. Fortuitous loss - ANSWER A loss that is accidental and unexpected 55. General damages - ANSWER A monetary award to compensate a victim for losses, such as pain and suffering, that do not involve specific measurable expenses. 56. Income Statement - ANSWER The financial statement that reports an organization's profit or loss for a specific period by comparing the revenues generated with the expenses incurred to produce those revenues. Indemnify - ANSWER To restore a party who has sustained a loss to the same financial position that party held before the loss occurred Independent agency - ANSWER A business, operated for the benefit of its owner (or owners) that sells insurance, usually as a representative of several unrelated insurers.