Deck 6: the Insurance Market: the Economic Problem

Question 1

All of the following are rights of insurance consumers except:

A)the right to accurate information
B)the right to have complaints heard
C)the right to affordable prices
D)the right to product development and improvement

Answer 1

C

Question 2

All the following are requirements for perfect competition except:

A)a well-established regulatory environment
B)numerous sellers, each holding a small market share
C)numerous well-informed consumers
D)a homogeneous, perfectly substitutable product

Answer 2

A

Question 3

The text suggests that insurance consumers should:

A)inform themselves about the company, policy, etc. to protect their own self interest
B)rely on government regulation to protect their interest, since insurance companies and policies cannot be understood by the public
C)rely on attorneys and the lawsuit process to protect themselves
D)rely on self regulation of insurance companies and the insurer's goodwill to protect their interest

Answer 3

A

Question 4

In choosing an insurance company,the most important factor is

A)how many dollars it pays for claims
B)the amount of liquid assets the insurer has
C)its financial strength
D)the state in which it is domiciled

Question 5

Given the following choices,the best advice for purchasing automobile insurance is

A)always buy full coverage
B)always buy the cheapest policy
C)choose the largest deductible you can reasonably afford
D)never buy auto insurance from a stock company

Question 6

The A.M.Best Company can help you to determine which of the following about your insurer?

A)Its reputation for settling claims
B)Its customer service rating
C)How many complaints have been filed against it
D)Its financial strength rating

Question 7

Which of the following Latin terms means "to stand by decisions," and conveys the idea that court decisions set precedents?

A)res ipsa loquitur
B)stare decisis
C)ab initio
D)in hoc stare

Question 8

Which of the following is true about the supply and demand curves for insurance?

A)the demand for insurance is very elastic and sensitive to price
B)as price declines, the demand for insurance increases dramatically
C)the supply of insurance increases dramatically with a decrease in the price
D)insurers will tend to reduce supply if the price is artificially increased or decreased

Question 9

The efficient insurance market requires all of the following conditions except:

A)numerous sellers and buyers
B)well-informed consumers
C)numerous purchase substitutes (homogeneity)
D)a government subsidy for lower-income citizens

Question 10

The individual consumer must ultimately deal with several issues to make an efficient purchase in the insurance market. Which of the following generally should not be a major consideration?

A)the type of policy covering the exposure(s)
B)the maximum amount of insurance coverage
C)the commission the agent will receive from the sale
D)the insurance agent's expertise

Question 11

Participants in the private insurance market include all of the following except:

A)insurance buyers
B)insurance companies
C)insurance regulators
D)the FDIC

Question 12

In most states the insurance commissioner is:

A)republican
B)democrat
C)appointed
D)elected

Question 13

Stare decisis means

A)to stand by decisions
B)to stand for decisiveness
C)to let the thing speak for itself
D)to stare indecisively

Question 14

All the following are true concerning FAIR (Fair Access to Insurance Requirements)plans except:

A)are one possible solution to the insurance availability problem
B)are found in only four states
C)are designed to deal with unavailability of property insurance
D)have not been profitable in most states most years

Question 15

One of the reasons higher prices will not always increase the supply of insurance is:

A)consumers will not buy insurance if prices are increased
B)the loss and therefore the expense ratio both will increase
C)the premiums to surplus ratio must be maintained at a reasonable level
D)the number of insurance contracts written by an insurer is totally regulated

Question 16

All of the following firms provide financial ratings of insurance companies except:

A)A)M. Best
B)Standard & Poors
C)Moody's
D)NASD

Question 17

Which of the following is a primary reason that insurance consumers are not well-informed?

A)insurers have not made much effort to inform consumers
B)the rewards of making informed decisions are not worth the cost of obtaining the needed information
C)state insurance regulators do not provide the needed information
D)insurance prices are so low that most consumers do not care to be informed

Question 18

Choose the true statement

A)FAIR plans were developed to provide insurance to automobile drivers when coverage is otherwise unavailable
B)FAIR plans are now found in all states
C)FAIR plans require that each property owner that requests it, be given an inspection of his property and an offer of insurance at an appropriate rate or written notice of improvements needed before insurance can be offered
D)In general, FAIR plans have shown underwriting gains in most states in most years

Question 19

Mr.Murray has asked you to help him choose an insurance company. Which of the following criteria would you not recommend that he take into consideration?

A)insurers financial strength
B)insurers claims service
C)insurers service both before and after a loss
D)the recommendation of at least two different insurance agents

Question 20

Prior to September 11,2001,property insurance policies:

A)covered terrorism
B)excluded terrorism from coverage
C)covered war
D)were very expensive

Question 21

Finding the lowest price is the first responsibility of the smart insurance consumer.

Question 22

The main thrust of state insurance regulation with respect to the consumer has been to protect consumers from abusive practices,and to protect them from insolvent insurers.

Question 23

The lack of availability of life insurance is a serious problem in the U.S.

Question 24

The insurance commissioner applies the state insurance code to regulated insurance companies and their activities.

Question 25

CFP stands for:

A)Chartered Financial Planner
B)Certified Financial Planner
C)Casualty Finance Professional
D)Claims and Financial Planner

Question 26

CLU stands for:

A)Chartered Life Underwriter
B)Casualty Life Underwriter
C)Claims Litigation Underwriter
D)Chartered Legal Underwriter

Question 27

CPCU stands for:

A)Certified Property and Casualty Underwriter
B)Claims, Property, and Casualty Underwriter
C)Chartered Property Casual Underwriter
D)Chartered Professional Claims Underwriter

Question 28

The text associates lack of product development with the lack of an informed consumer.

Question 29

When choosing the right amount of life insurance to purchase,the consumer should first consider:

A)how much money she can afford for monthly premiums
B)her financial goals and reasons for buying it in the first place
C)how many assets she already owns
D)none of the above

Question 30

Most markets involve two parties. How many does the insurance market have?

A)1
B)2
C)3
D)4

Question 31

The role of the court is to promote the consumer's interest,while the role of the insurance commissioner is to promote the insurer's interest.

Question 32

The insurance markets structure has no major flaws.

Question 33

New York's insurance law makes it illegal to make false statements or rumors about insurance companies.

Question 34

FAIR plans guarantee insurance to all applicants

Question 35

Why is it more difficult to choose a good life insurance policy than it is to choose a good auto insurance policy?

A)people don't like thinking about death or dying, and thus cannot be objective in the selection process
B)most people rarely need life insurance, while auto insurance is required by law
C)life insurance policies are not standardized, while many non-life policies are
D)both b & c above

Question 36

Comparison shopping for insurance is generally not worthwhile since very little price variation is found in either life or property insurance.

Question 37

Automobile insurance plans,also known as assigned risk plans,are designed to give discounts to good drivers who have had no insurance claims or motor vehicle tickets for at least three years.

Question 38

David and Kathy have asked you about A.M.Best Reports services. They specifically want to know if there are any criticisms of Best's and other rating agencies. You would be correct if you told them:

A)all the agencies tend to agree on the ratings for a given company, so it's difficult to compare them
B)ratings are merely estimates, and are no guarantee that the future of the insurer will remain the same
C)it only takes one letter grade to sum up the condition of a company
D)the ratings firms have almost never made mistakes in their assessments of companies, so they're due to make one any time now

Question 39

"Moody's Investor's Services" provides what type of information about insurers?

A)financial strength
B)average time it takes them to pay valid claims
C)daily stock price reports
D)complaint history

Question 40

Explain briefly why increasing or decreasing price artificially can decrease the supply of insurance.

Question 41

When the consumer purchases insurance,several key decisions are made.What are these key decisions?

Question 42

What is the purpose of an automobile insurance plan. How does an auto plan generally work?

Question 43

Briefly explain the role of the courts and the law in providing consumer protection relative to insurance products.