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

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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: 3. State rating systems in which insurers can change rates without regulatory restrictions are called: 4. Which of the following is not a common (short-term) outcome of temporary rate suppression? 46
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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: 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:
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