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C16 The Business Of Insurance- Chapter 1-6 Exam With 100% Correct Answers
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C16 The Business Of Insurance- Chapter 1-6 Exam With 100% Correct Answers
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C16 The Business Of Insurance- Chapter1-6 Exam With 100% Correct Answers
Listitheitwoifundamentaliprinciplesiofiinsurance.i-iCorrectiAnswer-
1.iTheipremiumsiofitheimanyiareiuseditoipayitheilossesiofitheifew.
2.iTheipremiumsishallibeicommensurateiwithitheiriski(mustichargeianiap
propriateipremiumiforitheirisk.)
(thereimustibeianiappropriateibalanceiofipremiumsiandiclaimsipaid)
Whyiwouldianiinsurerispreadirisksioveridiverseigeographiciareas?i-
iCorrectiAnswer-
1.iRisksispreadioveriailargerigeographiciareaisoftenitheiburdeniofilocaliz
edidisastersioniinsurers.
2.iForiexample,iaisevereiwindstormiinioneipartiofitheicountryiwouldihav
eiaidevastatingieffectionianiinsureriwhoihadiconcentratediitsirisksiinithisi
oneiarea.
Whatiisiairiskipool?i-iCorrectiAnswer-
1.iAiriskipooliisiaisharingiandispreadingiofiriskibetweeniinsurersiandire-
insurers.
2.iFormediriskipoolsiareisyndicatesiofiinsuranceiorireinsuranceicompani
esithatihaveiorganizeditoiunderwriteiaiparticulaririskiorigroupiofisimilarir
isks.
,Explainitheilawiofilargeinumbers.i-iCorrectiAnswer-
TheiLawiofiLargeiNumbersiisiaimathematicaliformulaithatistatesithatithei
degreeiofiuncertaintyiisireducediasitheinumberiofieventsiincreases.iInsu
rersirelyionilossiforecastsiusingidataifromilargeigroupsiofisimilaririsks.iRis
ksimustibeiappropriatelyipriceditoimakeisureisufficienticapitalientersith
eipooliofifundsitoiaccommodateipayingiouticlaims.
Defineiadverseiselection.i-iCorrectiAnswer-
describesitheiprocessibyiwhichipotentialipolicyholdersiuseitheiriprivatei
knowledgeiofitheiriownihighileveliofiriskiwhenidecidingiwhetheriorinotit
oibuyiinsurance.iHighiriskiindividualsiwillibuyimoreiinsuranceiandipayiaic
omparativelyihighirateiofipremiumiifiallowediwhileilowiriskiclientsimigh
tinotibuyianyiinsuranceibecauseitheipriceiisitooihighiandimightigoitoitheic
ompetition.
Iniinsurance,iwhatiisiaitail?i-iCorrectiAnswer-
Aitailirefersitoitheiamountiofitimeibetweenianiincidentianditheidetermin
ationiofiaiclaim.iAishortitaililineiisiwhereitheiinjuryioridamageiisiknowniq
uiteiquickly.iForiexampleipropertyidamageiiniaimotorivehicleiaccident.iA
ilongitailiisiwhereiaiclaimimayibeiseparatedifromitheicircumstancesithati
causediitibyiasimanyiasi10-
20+iyears.imanyiProductilinesifalliintoithisicategory.
NameithreeiconcernsiofiAutoiReinsurersiasiitirelatesitoiLong-
tailiLiabilities.i-iCorrectiAnswer-
Theithreeiareasioficoncernsiareisevereiinjuries,ilongitailitrendsiiniprioriac
cidentsiandiinadequateiservingsiatitheiprimaryiinsuranceilevel.i
,Primaryiinsuranceicompaniesirelyionireinsurersitoibackistopiautoicovera
geiespeciallyiforiCATiclaimsi(1imill+).iRecentlyithereihaveibeenilightiCATi
claimsiwhichihaveicausediaiminorirateiincreaseiinireinsurance.iGeneralii
ncreasesiiniclaimsiexceedingi2-
5imillioniinitheipasti10iyears.iPredictingilong-
tailipricingiincreaseiisidifficultibecauseiclaimsiwillibeiopenimanyiyearsibe
foreisettlement.iAlsoiseenilateireportingiofiCATiclaimsiafteribeingirecog
nizediandireported.
Listi9iwaysithatiinsuranceibenefitsisociety.i-iCorrectiAnswer-
Thei9ibenefitsiarei(BDRiMMiPPiFL).
Banksiofferimortgagesioniinsuredibuildingsi
Developersimoreiwillingitoiadvanceifundsitoicontractorsioniprojectsigua
ranteedibyisuretyibonds
RetailersiareimoreiwillingitoiacceptiRisksiofioperatingiwheniinsuredi
Manufacturersimoreiwillingitoishipigoodsiwhenitheyipurchaseiliabilityii
nsurancei
Membersiofisocietyisanctioniuseiofiautoiwheniinsuredi
Providesipeaceiofimind
providesifinancialisecurityi
Facilitatesieconomicigrowthi
Lawyers,idoctors,iarchitects,iengineersimoreiwillingitoiprovideiservicesi
whenitheyiareiinsurediagainstiliabilityiandimalpractice
, Whyiisithereiaineediforiresidualimarketimechanisms?i-iCorrectiAnswer-
ResidualiMarketiisiailastiresortiforiconsumers.iitipertainsitoirisksithatiarei
highileveliiniwhichitheiconsumericannotifindiinsuranceiinitheimainstrea
mimarket.iEveryiinsurerilicenseditoiwriteiAutomobileiInsuranceiinitheiF
AiindustriesihasitoifollowitheirulesisetioutibyitheiBoardiofiDirectorsiwithi
regardsitoiscope,itermsiandistandardioficoverage.iFAidoesinotiissueipolic
ies,ibutiratheridesignatesiinsuranceicompaniesitoiofferispecificiservicesi
andiclaimsihandling.
Inipropertyiandicasualtyiinsurance,iwhatiareitheitwoitraditionalimethod
siofidistributioniandihowidoitheyidiffer?i-iCorrectiAnswer-
1.iIndependentibroker/agents:i
-
MostiinsuranceibusinessiwritteniiniCanadaihasibeeniplacedithroughibro
kersiwhichihasiitsirootsiinitheiBritishisystem
-
Theisizeiofitheicountryiandiitsisparseiandidispersedipopulationihasimade
ibroker-
basedibusinessiaimoreipracticalioption.iEconomicaliandiefficientiwayifor
iinsurersitoimarketitheiriproducts
2.iDirectiresponseimethod:
-
hybridiofidirectirightiofidistributingiinsuranceidirectlyitoiconsumersibyiu
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