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RMIN4000 FINAL EXAM BROWN
Questions and Correct Answers
Lannister Insurance Company insures 200,000 vehicles. In 2019,
they paid a total of $136,000,000 in collision losses to the owners
of 16,000 of those vehicles. What was Lannister's collision loss
frequency in 2019? Ans: 0.08 (16k/200k)
Lannister Insurance Company insures 200,000 vehicles. In 2019,
they paid a total of $136,000,000 in collision losses to the owners
of 16,000 of those vehicles. What was Lannister's collision loss
severity in 2019? Ans: 8500 (136M/16K)
Michael Scott owns a condominium in Scranton, PA. A fire breaks
out when his girlfriend, Jan, is dancing and knocks over a candle.
The fire damages the condo and Michael's most prized possession
- his plasma TV. The damage to Michael's plasma TV is considered
a(n): Ans: direct loss
What is the most important step in the risk management process?
Ans: Step 1: identify loss exposures
I have a high deductible ($2,200) in my health insurance plan. The
high deductible is an example of which type of risk management
technique? Ans: retention
Insurance is the most appropriate risk management technique for
which of the following types of loss exposures? Ans: high
severity, low frequency
Review
The Very Good Building & Development Company is a general
contractor (builder). Due to difficulty finding affordable workers
compensation insurance (covering employee injuries), Very Good
established its own insurance company based in Vermont for the
© 2025 All rights reserved
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purpose of insuring Very Good's workers compensation loss
exposures. The company that Very Good formed is called a Ans:
captive insurer
Jim Halpert and his wife, Pam, are selling the home they've lived in
for the past seven years. They are aware of an electrical problem in
the home that they do not want to fix because it would be
expensive. Potential buyers of the home are unaware of the
electrical problem. This is an example of: Ans: Asymmetric
Information
All of the following are examples of operational risks EXCEPT:
a) changing conditions in financial markets
b) employment practices
c) customer service
d) supply chain Ans: A
Heisenberg Insurance has a home office in Albuquerque, New
Mexico and they specialize in insuring chemical manufacturers.
Heisenberg is owned by its policyholders and any annual profits
are distributed through rate reductions. Which type of insurer is
Heisenberg? Ans: mutual insurer
Reubens work in insurance sales. He sells insurance through
several different unrelated insurance carriers that he legally
represents. What is Reuben's job? Ans: independent agent
Who handles the ratemaking function within insurance
companies? Ans: Actuaries
Agent Michael Scarn sells insurance for the Federal Bureau of
Insurance (FBI). He is quoting a property insurance policy for
Samuel Chang, the owner of an office building. The office building
is 15,000 square feet and FBI charges a gross rate of $25 per 100
square feet. What is the gross premium for the property policy
© 2025 All rights reserved
, 3 | Page
covering the office building? Ans: 3750 (15K feet/ 100 feet =
150ft * 25$ = 3750$)
Antonio is employed by an insurance company. He reviews
applications to determine whether his company should insure the
applicant. Antonio assigns the applicant to a rating category based
on the applicant's degree of risk. Antonio is a(n): Ans: underwriter
Walter White is the owner of A1A Car Wash. Jesse Pinkman is a
regular A1A customer. One day, while waiting for his car to be
washed, Jesse slipped on a wet spot on the floor and injured his
back. As a result of his injury, he threatens to file suit against Walt
and A1A Car Wash. Walt quickly notifies his insurer to start the
claim process. This is an example of a: Ans: third party claim
O'Houlihan Wrenches is a tool manufacturer. They have asked
Average Joe Insurance to insure their new $40 million
manufacturing facility. Because of the high amount of coverage
needed, the Average Joe's underwriter has indicated that they'll
need to check with their reinsurer, Globo Re, to determine if they
can obtain a reinsurance policy to specifically cover the
manufacturing facility. Which type of reinsurance does Average
Joe Insurance need for the manufacturing facility? Ans:
Facultative
Average Joe Insurance has entered into a Surplus Share
reinsurance agreement with Globo Re. The reinsurance treaty
covers Average Joe's Commercial Property line of business and
includes a $250,000 retention. Average Joe insures a gymnasium
for $1,500,000. The owners of the gymnasium pay Average Joe
$15,000 in premium for the policy covering the factory. If the
factory sustained a $600,000 loss, how much is Globo Re
responsible for? Ans: 500,000 (250,000/1,500,000} * 600,000)
Who is responsible for regulating the insurance industry? Ans:
individual states
What is the actual cash value of a 5 year old refrigerator with a 10
year useful life? It cost $1,500 when originally purchased, but
© 2025 All rights reserved
, 4 | Page
costs $2,000 brand new today? Ans: 1000 (5/10=50%
depreciation) so ACV=RC-DEPR so 2000-1000=1000
Johnny and Moira Rose borrowed $150,000 from Rosebud National
Bank to help fund the purchase of a new home. The home serves
as collateral for the loan. Rosebud National has an insurable
interest in the home based on Ans: being a secured creditor
Jason is the owner of a liquor store. With the insurance policy
covering the liquor store, there is a provision stating that the
liquor store must have a working burglar alarm at all times in
order for insurance coverage to apply. What is this an example of?
Ans: warranty
The insurance company drafts and prints the policy contract. The
insured must accept the entire contract; they cannot insist that
some of the policy language be changed. Which legal characteristic
of an insurance contract is this describing? Ans: contract of
adhesion
Vincent recently broke his arm and had to go to the Emergency
Room. The resulting medical bills were $2,000. Vincent's health
insurance includes a $1,000 deductible and an 80-20 coinsurance
clause. How much will his insurance company pay for the medical
bills? Ans: 800 (2000-1000=1000 * .8= 800)
Samir is using the Needs Approach to determine how much life
insurance to buy. He has calculated the following: cash needs of
$30,000, income needs of $170,000, and special needs of
$200,000. His current assets total $50,000. Based on the Needs
Approach, how much life insurance does Samir need? Ans:
350,000
If you have a limited budget to spend on life insurance, but you
want to maximize the amount of life insurance you have, which
type would be most appropriate? Ans: Term Life Insurance
Each time I visit my primary care physician, my healthcare plan
requires me to pay $25. The $25 I pay is Ans: copayment
© 2025 All rights reserved
RMIN4000 FINAL EXAM BROWN
Questions and Correct Answers
Lannister Insurance Company insures 200,000 vehicles. In 2019,
they paid a total of $136,000,000 in collision losses to the owners
of 16,000 of those vehicles. What was Lannister's collision loss
frequency in 2019? Ans: 0.08 (16k/200k)
Lannister Insurance Company insures 200,000 vehicles. In 2019,
they paid a total of $136,000,000 in collision losses to the owners
of 16,000 of those vehicles. What was Lannister's collision loss
severity in 2019? Ans: 8500 (136M/16K)
Michael Scott owns a condominium in Scranton, PA. A fire breaks
out when his girlfriend, Jan, is dancing and knocks over a candle.
The fire damages the condo and Michael's most prized possession
- his plasma TV. The damage to Michael's plasma TV is considered
a(n): Ans: direct loss
What is the most important step in the risk management process?
Ans: Step 1: identify loss exposures
I have a high deductible ($2,200) in my health insurance plan. The
high deductible is an example of which type of risk management
technique? Ans: retention
Insurance is the most appropriate risk management technique for
which of the following types of loss exposures? Ans: high
severity, low frequency
Review
The Very Good Building & Development Company is a general
contractor (builder). Due to difficulty finding affordable workers
compensation insurance (covering employee injuries), Very Good
established its own insurance company based in Vermont for the
© 2025 All rights reserved
, 2 | Page
purpose of insuring Very Good's workers compensation loss
exposures. The company that Very Good formed is called a Ans:
captive insurer
Jim Halpert and his wife, Pam, are selling the home they've lived in
for the past seven years. They are aware of an electrical problem in
the home that they do not want to fix because it would be
expensive. Potential buyers of the home are unaware of the
electrical problem. This is an example of: Ans: Asymmetric
Information
All of the following are examples of operational risks EXCEPT:
a) changing conditions in financial markets
b) employment practices
c) customer service
d) supply chain Ans: A
Heisenberg Insurance has a home office in Albuquerque, New
Mexico and they specialize in insuring chemical manufacturers.
Heisenberg is owned by its policyholders and any annual profits
are distributed through rate reductions. Which type of insurer is
Heisenberg? Ans: mutual insurer
Reubens work in insurance sales. He sells insurance through
several different unrelated insurance carriers that he legally
represents. What is Reuben's job? Ans: independent agent
Who handles the ratemaking function within insurance
companies? Ans: Actuaries
Agent Michael Scarn sells insurance for the Federal Bureau of
Insurance (FBI). He is quoting a property insurance policy for
Samuel Chang, the owner of an office building. The office building
is 15,000 square feet and FBI charges a gross rate of $25 per 100
square feet. What is the gross premium for the property policy
© 2025 All rights reserved
, 3 | Page
covering the office building? Ans: 3750 (15K feet/ 100 feet =
150ft * 25$ = 3750$)
Antonio is employed by an insurance company. He reviews
applications to determine whether his company should insure the
applicant. Antonio assigns the applicant to a rating category based
on the applicant's degree of risk. Antonio is a(n): Ans: underwriter
Walter White is the owner of A1A Car Wash. Jesse Pinkman is a
regular A1A customer. One day, while waiting for his car to be
washed, Jesse slipped on a wet spot on the floor and injured his
back. As a result of his injury, he threatens to file suit against Walt
and A1A Car Wash. Walt quickly notifies his insurer to start the
claim process. This is an example of a: Ans: third party claim
O'Houlihan Wrenches is a tool manufacturer. They have asked
Average Joe Insurance to insure their new $40 million
manufacturing facility. Because of the high amount of coverage
needed, the Average Joe's underwriter has indicated that they'll
need to check with their reinsurer, Globo Re, to determine if they
can obtain a reinsurance policy to specifically cover the
manufacturing facility. Which type of reinsurance does Average
Joe Insurance need for the manufacturing facility? Ans:
Facultative
Average Joe Insurance has entered into a Surplus Share
reinsurance agreement with Globo Re. The reinsurance treaty
covers Average Joe's Commercial Property line of business and
includes a $250,000 retention. Average Joe insures a gymnasium
for $1,500,000. The owners of the gymnasium pay Average Joe
$15,000 in premium for the policy covering the factory. If the
factory sustained a $600,000 loss, how much is Globo Re
responsible for? Ans: 500,000 (250,000/1,500,000} * 600,000)
Who is responsible for regulating the insurance industry? Ans:
individual states
What is the actual cash value of a 5 year old refrigerator with a 10
year useful life? It cost $1,500 when originally purchased, but
© 2025 All rights reserved
, 4 | Page
costs $2,000 brand new today? Ans: 1000 (5/10=50%
depreciation) so ACV=RC-DEPR so 2000-1000=1000
Johnny and Moira Rose borrowed $150,000 from Rosebud National
Bank to help fund the purchase of a new home. The home serves
as collateral for the loan. Rosebud National has an insurable
interest in the home based on Ans: being a secured creditor
Jason is the owner of a liquor store. With the insurance policy
covering the liquor store, there is a provision stating that the
liquor store must have a working burglar alarm at all times in
order for insurance coverage to apply. What is this an example of?
Ans: warranty
The insurance company drafts and prints the policy contract. The
insured must accept the entire contract; they cannot insist that
some of the policy language be changed. Which legal characteristic
of an insurance contract is this describing? Ans: contract of
adhesion
Vincent recently broke his arm and had to go to the Emergency
Room. The resulting medical bills were $2,000. Vincent's health
insurance includes a $1,000 deductible and an 80-20 coinsurance
clause. How much will his insurance company pay for the medical
bills? Ans: 800 (2000-1000=1000 * .8= 800)
Samir is using the Needs Approach to determine how much life
insurance to buy. He has calculated the following: cash needs of
$30,000, income needs of $170,000, and special needs of
$200,000. His current assets total $50,000. Based on the Needs
Approach, how much life insurance does Samir need? Ans:
350,000
If you have a limited budget to spend on life insurance, but you
want to maximize the amount of life insurance you have, which
type would be most appropriate? Ans: Term Life Insurance
Each time I visit my primary care physician, my healthcare plan
requires me to pay $25. The $25 I pay is Ans: copayment
© 2025 All rights reserved
