Chap008 - Chapter 8 Insurance Pricing I. Multiple Choice 1....

Info iconThis preview shows pages 1–4. Sign up to view the full content.

View Full Document Right Arrow Icon
Chapter 8 Insurance Pricing I. Multiple Choice 1. A “fair” premium will take into account all of the following except : a. expected claim costs b. what other insurers are charging c. investment income d. administrative costs Answer: b Type: K 2. A hard insurance market is characterized by: a. increasing prices b. stable prices c. falling prices d. readily available coverage Answer: a Type: K 3. State rating systems in which insurers can change rates without regulatory restrictions are called: a. competitive b. prior approval c. strictly regulated d. experience rated Answer: a Type: K 4. Which of the following is not a common (short-term) outcome of temporary rate suppression? a. insurers suffer losses b. insurers reduce supply c. insurers curtail investments d. insurers raise premiums Answer: d 46
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Type: A 5. A cross-subsidy in insurance occurs when: a. different lines of insurance (e.g. auto and homeowners) are priced so that those with higher administrative costs subsidize those with lower administrative costs. b. each risk class pays a premium that is appropriate for their level of risk. c. buyers in different risk groups pay the same premium and lower risk buyers subsidize the higher risk buyers. d. insurance is designed to encourage a change in behavior of risky buyers. Answer: c Type: K 6. Insurers who are trying to classify insurance buyers into risk categories must weigh the benefits of accurate risk classification against: a. the societal cost of risk b. loss of business from classifying high risks into more costly policy pools c. the costs of collecting and evaluating information necessary for classification d. changes in buyer behavior that might result from classification Answer: c Type: A 7. The overall process of assessing the expected claim costs for buyers, determining the applicable rate, and deciding whether to offer coverage is known as: a. underwriting b. classification c. schedule rating d. retrospective experience rating Answer: a Type: K 8. Which of the following types of insurance will have the longest claim tail? a. homeowners b. automobile physical damage (collision) c. auto liability d. employee medical coverage Answer: c Type: A 47
Background image of page 2
9. All else equal, if an insurer expects that rates of return on investments are increasing, the fair premium will be: a. unaffected b. decreasing c. increasing d. none of the above Answer: b Type: A 10. An insurer sells a policy today for which the expected end-of-year claim cost is
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 4
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 7

Chap008 - Chapter 8 Insurance Pricing I. Multiple Choice 1....

This preview shows document pages 1 - 4. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online