Texas Surplus Lines Exam Prep

ESTIONS AND ANSWERS 5 5


TEXAS SURPLUS LINES EXAM PREP



Basic5Risk5and5Loss5Factors5-5ans--✔✔Risk,5Loss,5Hazards,5Perils,5Exposure

Risk5-5ans--
✔✔The5chance5of5loss5and5uncertainty.5The5term5"risk"5also5refers5to5the5insured5per
son,5property,5or5activity.5A5insured5person,5property,5or5activity5is5also5known5as5a5"s
ubject."

Loss5-5ans--✔✔A5loss5is5an5unwelcome5and5unplanned5reduction5in5economic5value.

Direct5Loss5-5ans--✔✔The5immediate5result5of5an5event5caused5by5a5covered5peril.

Indirect5Loss5-5ans--✔✔Loss5that5is5a5result5or5consequence5of5a5direct5loss.

Exposure5-5ans--✔✔The5state5of5being5subject5to5a5possible5loss

Peril5-5ans--✔✔Destructive5events5that5Insurance5guards5against.5Examples5include:
Fire
Explosion
Windstorm5(NS,5W/H)
Flood
Theft
Collision

Hazard5-5ans--
✔✔A5hazard5is5a5condition5that5increases5the5likely5occurrence5of5a5peril5or5the5likely5
severity5of5a5loss.5There5are535types5of5hazards5(MMP):5Moral,5Morale,5and5Physical.

Moral5(Bad5Habits)5-5ans--
✔✔Moral5hazards5are5the5tendencies5or5traits5of5an5individual5that5increase5the5chanc
e5of5a5loss.5Alcoholism,5smoking,5and5bad5credit5are5examples5of5moral5hazards.

Morale5(Carelessness)5-5ans--
✔✔Morale5hazards5are5also5individual5tendencies,5but5they5arise5from5a5state5of5mind
,5attitude,5or5indifference5to5loss.5Not5locking5one's5car5or5driving5recklessly5are5exam
ples5of5morale5hazards.

, Physical5Hazards5(Objects)5-5ans--
✔✔Physical5hazards5are5physical5conditions5that5increase5the5chance5of5loss.5For5ex
ample,5potholes5on5freeways5and5streets,5slippery5floors,5unsanitary5conditions,5conge
sted5traffic,5and5unguarded5premises.

Risk5Management5-5ans--
✔✔People5are5exposed5to5risks5every5day.5How5they5deal5with5them5is5called5risk5ma
nagement,5a5process5that5uses5any5combination5of5five5risk5management5techniques:
Avoiding5the5risk
controlling5(reducing)5the5risk
Sharing5the5risk
Retaining5the5risk
Transferring5the5risk

Risk5Avoidance5-5ans--
✔✔One5way5to5manage5a5risk5is5simply5to5avoid5it.5For5example,5those5who5do5not5o
wn5a5car5avoid5the5risk5of5having5a5car5being5stolen5or5damaged.

Risk5Control5-5ans--
✔✔If5a5risk5cannot5be5avoided,5it5may5be5controllable5through5risk5prevention5or5risk5r
eduction5measures.

Risk5Prevention5-5ans--
✔✔Risk5prevention5measures5reduce5the5likelihood5that5a5loss5will5occur.5For5exampl
e,5shoveling5snow5off5a5sidewalk5makes5it5less5likely5a5visitor5will5slip5and5fall.

Risk5Reduction5-5ans--
✔✔Risk5reduction5measures5reduce5the5severity5of5any5loss5that5does5occur.5Having5
fire5extinguishers5does5not5keep5fires5from5starting,5but5when5available5and5used,5the
y5often5limit5fire5damage.

Risk5Sharing5(Pooling)5-5ans--
✔✔Sharing5the5burden5of5a5loss5with5others5is5one5of5the5oldest5ways5to5manage5risk
.5Under5a5risk-
sharing5arrangement,5groups5share5the5financial5burden5of5a5loss5suffered5by5any5me
mber5of5the5group.5Pooling5is5a5modern5example5of5risk5sharing.

Risk5Retention5(Doing5nothing5option)5-5ans--
✔✔Risk5retention5is5simply5accepting5a5risk5and5dealing5with5a5loss5using5personal5fu
nds.5With5Insurance5policies,5deductibles5are5a5risk5retention5device.5Deductibles5shift
5small5losses5to5the5policy-owner,5leaving5the5Insurance5to5cover5more5serious5losses.


Risk5Transfer5(Modern5Insurance)5-5ans--
✔✔Modern5Insurance5is5based5on5the5risk5management5technique5called5risk5transfer
.5In5exchange5for5paying5a5premium,5an5individual5or5business5can5transfer5the5risk5of