AINS 101 CORRECT TEST PAPER QUESTIONS AND
ANSWERS RATED A+
✔✔What are the three main reasons insurance is regulated? - ✔✔Protect consumers,
maintain insurer solvency, and prevent destructive competition
✔✔What is solvency? - ✔✔An insurer's ability to meet its financial obligations of policy
owners, insureds, and beneficiaries. (Makes sure there is enough cash on hand to pay
for future claims)
✔✔What are revenues? - ✔✔Part of an Insurer's income statement that comes primarily
from premiums paid by policy holders
✔✔What are incurred losses? - ✔✔Losses that happened over the year
✔✔What are expenses? - ✔✔Part of an insurer's income statement that include losses
from claims, cost associated with paying claims, and underwriting
✔✔What is net income? - ✔✔Part of an insurer's income statement that is the Net
Underwriting (Gain) + Net Investment Income
✔✔What is the biggest source of revenue for insurance companies? - ✔✔Earned
premiums
✔✔What are unearned premiums? - ✔✔Premiums that have not yet happened or been
paid
✔✔What is a policy term? - ✔✔The date the policy is issued to when the policy expires
✔✔What is an insurer's balance sheet? - ✔✔This gives a snapshot of insurers financial
position at a specific point in time (Includes assets and liabilities)
,✔✔What are admitted assets? - ✔✔Assets that are liquid and can easily be turned into
cash (Stocks, bonds, real estate)
✔✔What are non-admitted assets? - ✔✔Assets that cannot be easily turned into cash
(overdue premiums)
✔✔What are liabilities? - ✔✔The responsibility to pay policyholders claims
✔✔What is polciyholder's surplus? - ✔✔Difference between assets and liabilities (This
gives the best indication of overall financial health)
✔✔What is combined ratio? - ✔✔loss ratio + expense ratio
✔✔What does a combined ratio of 95 mean? - ✔✔For every premium dollar 5 cents
was made.
✔✔What is a loss ratio? - ✔✔How much of the premium dollar is used to pay losses and
loss adjustment expenses
✔✔What is an expense ratio? - ✔✔How much of each premium dollar issued to pay
insurer expenses
✔✔What is the equation for loss ratio? - ✔✔Incurred Losses/Earned Premiums
✔✔What is the equation for expense ratio? - ✔✔Incurred underwriting expenses/Written
Premiums
✔✔How is insurance marketed? - ✔✔Independent agents/brokers, exclusive agencies,
direct writer, and distribution channels
✔✔What is another word for agents/brokers? - ✔✔Producers
✔✔What is the difference between a broker and agent? - ✔✔Brokers represent
customers while an agent represents insurers (multiple). Brokers are not legal reps of
the insurer and cannot commit insurer to write a policy generally.
✔✔What are expiration lists? - ✔✔Lists with policyholders information
✔✔What is an exclusive agency? - ✔✔Agency contrated to sell insurance for one
insurer or group of insurers, can only sell policies from one insurer, issuing policies,
collecting premiums and processing claims are done by them, and they do not have
expiration lists.
, ✔✔What is the Direct Writer system? - ✔✔Insurer uses its own employees as
producers, similar to exclusive agencies since they can only rep one insurer (they own
the expiration lists)
✔✔What are some new ways that isnurance is being sold today? - ✔✔Digitally, call
centers, direct response, group marketing, and finanical institutions
✔✔What are the main things that underwriters do? - ✔✔Evaluate risk, select insureds,
price coverage, determine policy terms and conditions, and monitor underwriting
decisions (Minimize adverse selection, ensure adequate policyholder's surplus, and
enforce UW guidelines)
✔✔What is minimizing adverse selection? - ✔✔Carefully selecting applicants with loss
exposures willing to insure done by charging appropriate premiums
✔✔What is ensuring adequate policyholder's surplus? - ✔✔This increases surplus and
protects insureds by charging adequate premiums, following underwriting guidelines,
and effectively evaluating and selecting loss exposures
✔✔What do risk control professionals and auditors provide? - ✔✔Field inspection
reports on premises and operations of new/existing insureds
Descriptions of operations that can help classify loss exposures
Technical info on fire and health hazards of new building materials and production
procedures
New loss exposures at premises
Changes in insureds commercial operations
✔✔What are the main things field/line underwriters do? - ✔✔Select insureds, ensure
accurate classification and pricing, recommend or provide coverage, manage a book of
business, support producers and insureds, and support marketing objectives
✔✔What do staff/corporate underwriters do? - ✔✔Research the market, formulate UW
policy, revise UW guidelines, develop coverage forms, review rates, educate and train
field UWs, arrange reinsurance, assist with complex accounts, and conduct underwriting
audits
✔✔What are the steps in the underwriting process? - ✔✔1. Evaluate the submission
2. Develop underwriting alternatives
3. Select an underwriting alternative
4. Determine an appropriate premium
5. Implement the underwriting decision
✔✔What happens in the first step of the underwriting process? - ✔✔Evaluate the
submission/application - application from a producer is looked at by an underwriter, and
many things are evaluated
ANSWERS RATED A+
✔✔What are the three main reasons insurance is regulated? - ✔✔Protect consumers,
maintain insurer solvency, and prevent destructive competition
✔✔What is solvency? - ✔✔An insurer's ability to meet its financial obligations of policy
owners, insureds, and beneficiaries. (Makes sure there is enough cash on hand to pay
for future claims)
✔✔What are revenues? - ✔✔Part of an Insurer's income statement that comes primarily
from premiums paid by policy holders
✔✔What are incurred losses? - ✔✔Losses that happened over the year
✔✔What are expenses? - ✔✔Part of an insurer's income statement that include losses
from claims, cost associated with paying claims, and underwriting
✔✔What is net income? - ✔✔Part of an insurer's income statement that is the Net
Underwriting (Gain) + Net Investment Income
✔✔What is the biggest source of revenue for insurance companies? - ✔✔Earned
premiums
✔✔What are unearned premiums? - ✔✔Premiums that have not yet happened or been
paid
✔✔What is a policy term? - ✔✔The date the policy is issued to when the policy expires
✔✔What is an insurer's balance sheet? - ✔✔This gives a snapshot of insurers financial
position at a specific point in time (Includes assets and liabilities)
,✔✔What are admitted assets? - ✔✔Assets that are liquid and can easily be turned into
cash (Stocks, bonds, real estate)
✔✔What are non-admitted assets? - ✔✔Assets that cannot be easily turned into cash
(overdue premiums)
✔✔What are liabilities? - ✔✔The responsibility to pay policyholders claims
✔✔What is polciyholder's surplus? - ✔✔Difference between assets and liabilities (This
gives the best indication of overall financial health)
✔✔What is combined ratio? - ✔✔loss ratio + expense ratio
✔✔What does a combined ratio of 95 mean? - ✔✔For every premium dollar 5 cents
was made.
✔✔What is a loss ratio? - ✔✔How much of the premium dollar is used to pay losses and
loss adjustment expenses
✔✔What is an expense ratio? - ✔✔How much of each premium dollar issued to pay
insurer expenses
✔✔What is the equation for loss ratio? - ✔✔Incurred Losses/Earned Premiums
✔✔What is the equation for expense ratio? - ✔✔Incurred underwriting expenses/Written
Premiums
✔✔How is insurance marketed? - ✔✔Independent agents/brokers, exclusive agencies,
direct writer, and distribution channels
✔✔What is another word for agents/brokers? - ✔✔Producers
✔✔What is the difference between a broker and agent? - ✔✔Brokers represent
customers while an agent represents insurers (multiple). Brokers are not legal reps of
the insurer and cannot commit insurer to write a policy generally.
✔✔What are expiration lists? - ✔✔Lists with policyholders information
✔✔What is an exclusive agency? - ✔✔Agency contrated to sell insurance for one
insurer or group of insurers, can only sell policies from one insurer, issuing policies,
collecting premiums and processing claims are done by them, and they do not have
expiration lists.
, ✔✔What is the Direct Writer system? - ✔✔Insurer uses its own employees as
producers, similar to exclusive agencies since they can only rep one insurer (they own
the expiration lists)
✔✔What are some new ways that isnurance is being sold today? - ✔✔Digitally, call
centers, direct response, group marketing, and finanical institutions
✔✔What are the main things that underwriters do? - ✔✔Evaluate risk, select insureds,
price coverage, determine policy terms and conditions, and monitor underwriting
decisions (Minimize adverse selection, ensure adequate policyholder's surplus, and
enforce UW guidelines)
✔✔What is minimizing adverse selection? - ✔✔Carefully selecting applicants with loss
exposures willing to insure done by charging appropriate premiums
✔✔What is ensuring adequate policyholder's surplus? - ✔✔This increases surplus and
protects insureds by charging adequate premiums, following underwriting guidelines,
and effectively evaluating and selecting loss exposures
✔✔What do risk control professionals and auditors provide? - ✔✔Field inspection
reports on premises and operations of new/existing insureds
Descriptions of operations that can help classify loss exposures
Technical info on fire and health hazards of new building materials and production
procedures
New loss exposures at premises
Changes in insureds commercial operations
✔✔What are the main things field/line underwriters do? - ✔✔Select insureds, ensure
accurate classification and pricing, recommend or provide coverage, manage a book of
business, support producers and insureds, and support marketing objectives
✔✔What do staff/corporate underwriters do? - ✔✔Research the market, formulate UW
policy, revise UW guidelines, develop coverage forms, review rates, educate and train
field UWs, arrange reinsurance, assist with complex accounts, and conduct underwriting
audits
✔✔What are the steps in the underwriting process? - ✔✔1. Evaluate the submission
2. Develop underwriting alternatives
3. Select an underwriting alternative
4. Determine an appropriate premium
5. Implement the underwriting decision
✔✔What happens in the first step of the underwriting process? - ✔✔Evaluate the
submission/application - application from a producer is looked at by an underwriter, and
many things are evaluated
