QUIZ2

17. All of the following are the typical reasons to consider surplus line policies, EXCEPT:

• a. Client wants the least expensive policy and agent believes that the surplus lines market will offer the lowest pricing.

• b. Client is requesting coverage limits that exceed the standard companies' underwriting guidelines.

• c. Client's building exceeds the age, loss history, location, and cancellation history.

• d. Client's business is considered "outside the box" of underwriting for standard insurance companies such as Pet Insurance or Hole in One insurance.

Answer explanation

Explanation: Surplus lines policies are usually not the least expensive insurance policies if the admitted/standard markets are willing to write the insurance coverages. Surplus Lines will be less expensive or the only option to get coverage on client businesses that are considered "outside the box" of underwriting for standard insurance companies (specialty insurance). Also, a clients' past history for cancellations of nonpayment or underwriting reasons may prevent standard markets from writing their insurance. Age, location and loss history may prevent standard markets from offering coverage while surplus lines companies can offer insurance coverages and pricing acceptable to clients.

What are surplus lines?

• a. Insurance that covers international risks.

• b. Insurance that provides coverage for international, marine, and standard companies needing insurance.

• c. Insurance that insures risks that have been declined by standard underwriting and pricing processes of admitted insurance companies.

• d. Insurance that offers pricing alternatives for risks with the least expensive insurance coverages in the marketplace.

Answer explanation

Explanation: Surplus lines are insurance which fill a need in the marketplace for products which insure risks that have been declined by standard underwriting and pricing processes of admitted insurance companies.

Surplus lines are called the “safety valve” of the insurance industry.  Price alone does not dictate if client would be eligible for surplus lines coverages.

Which of the following persons or entities would qualify as a "messenger" under a commercial crime coverage part Outside the Premises if the insured's money is stolen while in transit to be deposited in a bank?

• a. Armored car company

• b. Contract delivery company

• c. Employee of the insured

• d. Both B and C

June recently found out her employee had taken $500 out of the cash register to pay for her rent. Which insuring agreement would cover June?

• a. Employee Theft or Dishonesty

• b. Inside the Premises: Theft of Money and Securities

• c. Forgery or Alteration

• d. Both a and b

Answer explanation

Explanation: June will be covered under Employee Theft or Dishonesty because an employee was responsible for stealing the money at her business. This coverage only applies to employees. Inside the Premises: Theft of Money and Securities covers money which is stolen, disappeared, or destroyed by someone other than an employee. Forgery or Alteration provides coverage for someone who has altered a check or other documents, without the 

While driving to work, Mary was involved in a car accident with another driver who was at fault. She experienced soft tissue injury resulting from whiplash, and for some time, dealt with pain walking, sitting and doing regular tasks. She developed headaches as a result of the pain and discomfort. Mary wants to make a claim for pain and suffering, beyond the medical costs associated with treatment of her whiplash. What type of damages is pain and suffering?

• a. Special damages

• b. Liquidated damages

• c. General damages

• d. Punitive damages

Answer explanation

Explanation: In personal injury cases, general damages are compensation for intangible losses from bodily injury, like pain and suffering and emotional distress, which do not have a set or easily ascertainable monetary cost. Special damages, on the other hand, are damages like medical costs or costs associated with a body shop fixing dents in a car, which are more ascertainable. To determine the value of general damages, like pain and suffering, insurance adjusters will use methods, like the Multiplier Method or the Per Diem Method. The Multiplier Method will apply a multiplier, like 1.5 up to 5, to the cost of the medical bills, for example. The Per Diem Method may be used for shorter term pain and suffering and involves the adjuster coming up with a dollar amount for each day the claimant experienced pain and suffering.

Which of the following statements about the Terrorism Risk Insurance Act (TRIA) are true regarding Commercial insurance policies written in the United States?

• a. All applicants requesting eligible commercial lines of property and casualty coverage must be offered terrorism coverage upon entering into a commercial policy.

• b. Insurers must provide applicants a disclosure form that explains the terrorism coverage available and pricing.

• c. Applicants can either accept or reject the terrorism coverage for their commercial policies.

• d. All of the above.

Answer explanation

Explanation: The TRIA is a federally mandated law that applies to all 50 states. The current TRIA requirement is in force until December 31, 2027. The TRIA requires that terrorism coverage be offered to all eligible commercial property/casualty insurance policies that are written or renewed. Insurance companies require their clients to sign a form either rejecting or accepting the terrorism coverage. The agent is usually responsible for collecting the signed forms from the clients. The form must explain the terrorism coverage being offered and the price for the premium for the terrorism coverage if accepted by the client.

Your results for this test follow:

1.

George owns an old row home in an inner-city high crime area. His house burns down. The replacement value less depreciation is $180,000, but George only receives $65,000 from his insurance. The policy does not provide a face value for the home. He takes the insurance company to court, but the court determines this amount accurately reflects the value of the loss. How was the loss valued by the insurance?

• a. Stated value

• b. Market value

• c. Actual cash value

• d. Replacement value

The __________ clause in a property insurance contract requires the insured to carry insurance equal to a stated percentage of the insurable value.

• a. Deductible

• b. Coinsurance

• c. Pro Rata

• d. Excess insurance

Answer explanation

Explanation: Coinsurance is the requirement to carry a certain amount of insurance on a property. If this requirement is not met it can reduce the amount paid by the insurer in the event of a loss.

All of the following are types of insurance companies, except:

• a. Mutual

• b. Captive

• c. Stock

• d. Ceding

Answer explanation

Explanation: The ceding company is the company transferring risk to a reinsurance company. It is not a type of insurance company. Mutual, Captive, and Stock companies are different types of insurance companies.

Jean's auto insurance policy states limits of 250/500/100. What is the maximum it will pay for bodily injury per accident?

• a. $250,000

• b. $500,000

• c. $100,000

• d. $850,000

Answer explanation

Explanation: Auto insurance limits are stated in terms of bodily injury and property damage. 250/500/100 means Jean has $250,000 in bodily injury coverage per person, $500,000 bodily injury per accident, and $100,000 of property damage coverage per accident.