Exam (elaborations)
New Jersey Insurance Exam. Casualty Questions and Answers 2024
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New Jersey Insurance Exam. Casualty
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New Jersey Insurance Exam. CasualtyRisk - answer chance of loss; insured person, property or activity
Loss - answer unwelcomed and unplanned reduction ikn economic value
Direct Loss - answer The immediate result of an event caused by a covered peril. Loss
incurred due to direct damage to property as opposed to time element or other indirect
losses. Also used sometimes by captives to identify losses under policies directly
insured by the captive as opposed to losses assumed from a front company
Indirect Loss - answer More remote ramification than a direct loss, but it is still a result
of a loss from a covered peril. Loss resulting from direct damage to property- ex: income
and expense loss resulting from inability to use the damaged property
Exposure - answer state of being subjected to a possible loss because of some hazard
or contingency. Also used as a measure of the rating units or the premium base of a
risk.
Peril - answerdestructive event that insurance guards against
ex: fire, explosion, windstorm, flood, theft, collision
Hazard - answercondition that increases the likely occurrence of a peril or the likely
severity of a loss
Moral Hazards - answertendencies or traits of an individual that increase the chance of
a loss
ex: alcoholism, smoking, bad credit
Morale Hazard - answerindividual tendencies that arise from a state of mind, attitude, or
indifference to loss.
ex: not locking the car, driving recklessly
Physical Hazards - answerphysical conditions that increase the chance of a loss.
dangerous conditions or activities that increase the chance of injury or death
ex: slippery floors, unsanitary conditions, congested traffic, unguarded premises
Risk Managagement - answerprocess that uses any combination of five techniques:
1. avoiding the risk
2. controlling (reducing) the risk
3. sharing the risk
4. retaining the risk
5. transferring the risk
, Risk prevention - answerreduce the likelihood that a risk will occur
ex: shoveling snow off a sidewalk - less likely visitor will slip
Risk reduction - answermeasures that reduce the severity of any loss that does occur
ex: fire extinguishers to limit fire damage
Risk retention - answerPlanned assumption of risk by an insured through the use of
deductibles, deliberate non-insurance, and loss-sensitive plans where some, but not all,
risk is consciously retained rather than transferred
Insurable Risk - answera covered loss must be definite as to time, cause, and location,
must be clear that a loss occurred
value of the item must be measurable
must be accidental or outside of insureds control
non-catastrophic event
must be part of a large group of similar risks that the insurance company can use the
predict future losses
only pure risks, not speculative
Speculative risk - answerchance of gain or loss
Adverse Selection - answerthe tendency of persons with a higher-than-average chance
of loss to seek insurance at standard rates
Law of Large Numbers - answerA principle stating that the larger the number of similar
exposure units considered, the more closely the losses reported will equal the
underlying probability of loss.
Stock Insurance Companies - answerowned by stock holders who purchase shares of
stock as an investment - may pay stock dividends to their shareholders
Mutual Insurance Companies - answerowned by policyholders (no shareholders)
policyholders elect board of directors
participating insurers: policyholders participate in dividends
County mutuals - answerMutual companies that operate in a limited geographical area.
They originally only sold farm insurance, but now offer other types also.
Reciprocal insurer - answeran unincorporated group of individuals or organizations
(subscribers) that agree to pool risks for the purpose of paying the cost of retained
losses and purchasing reinsurance
managed by an attorney-in-fact
subscribers have contingent liability for paying the losses of the reciprocal, but if
adequate capital exists, nonassessable policies may be issued
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