Chap010 - Chapter 10 Insurability of Risk, Contractual...

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Chapter 10 Insurability of Risk, Contractual Provisions, and Legal Doctrines I. Multiple Choice 1. Which of the following is not a factor that limits the insurability of risk? a. moral hazard b. adverse selection c. competition d. administrative and capital costs Answer: c Type: K 2. The reason that higher premium loadings generally lead to lower demand for insurance coverage is that: a. the fair premium becomes too large relative to the expected cost of not purchasing insurance. b. people don’t like insurers to make too much profit. c. exposures with low severity always have high administrative costs. d. exposures with high frequency are less likely to be insurable. Answer: a Type: K 3. Which of the following types of exposures are most likely to be insured on an individual basis? a. exposures with high severity and low frequency b. exposures with low severity and low frequency c. exposures with high severity and high frequency d. exposures with low severity and high frequency Answer: a Type: K 4. The primary limiting factor on the insurability of highly correlated loss exposures is a. high administrative costs b. high capital costs c. the moral hazard problem d. adverse selection 59
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b Type: A 5. The conditions necessary for moral hazard to arise in insurance contracts include all of the following except : a. The expected losses must depend in part on the insured’s behavior b. The insurer must have some ability to impact the insured’s behavior c. It must be costly for the insurer to observe policyholder behavior d. It must be costly for the insurer to measure the impact of policyholder behavior on expected claim costs Answer: b Type: K 6. Which of the following is not a method of reducing the impact of moral hazard on expected claim costs? a. deductibles b. experience rating c. careful risk classification d. careful investigation of claims Answer: c Type: K 7. Insurers use deductibles to: a. reduce claims processing costs b. reduce moral hazard problems c. mitigate adverse selection problems d. all of the above Answer: d Type: K 8. Health insurance policies often have coinsurance provisions that require the policyholder to pay a. a minimum amount of claims in a given year before the insurance company will be responsible for payment. b.
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This note was uploaded on 10/24/2011 for the course IDS 472 taught by Professor Wang during the Spring '10 term at UChicago.

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Chap010 - Chapter 10 Insurability of Risk, Contractual...

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