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CPCU510
Chapter 08
Question | Answer |
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Identify the six characteristics of an ideally insurable loss exposure. | 1. Pure risk 2. Fortuitous loss 3. Definite and measurable 4. Large number of similar exposure units 5. Independent and not catastrophic 6. Affordable |
Explain why insurance is designed to cover pure, not speculative risk. | The purpose of insurance is to indemnify the insured for a loss, not to enable the insured to profit from the loss. If the loss exposure has a possibility of gain, the insurance premium the insurer would have to charge would offset the potential gain. |
Identify the factors an insurer must be able to determine for a loss exposure to be definite in time, cause, and location. | 1. The event that led up to the loss 2. When that event or series of events occurred 3. Where that event occurred. |
Describe the types of losses an insurer might consider uninsurable because the premium charged would not be economically feasible. | Losses involving only low-severity losses and those involving a high frequency of loss. |
What are the two common sources of liability risk faced by many commercial organizations? | 1. Premises and operations liability 2. Products liability |
What is premises and operations liability? | Liability because of bodily injury or property damage caused by an accident on owned or rented premises or away from the premises if it arises out of the ongoing operations. |
What is products liability? | Liability because of bodily injury or property damage resulting from defective or inherently dangerous products. |
Compare the insurability of personnel losses caused by an employee's death and those caused by an employee's retirement. | Personnel losses caused by an employee's death generally exhibit the six characteristics of an ideally insurable loss exposure while an employee's retirement doesn't. |
Identify property loss factors used in determining the degree of insurability of personal residences for fire, windstorm, and flood causes of loss. | Insurers identify buildings with higher-than-normal hazards, guard against arson-for-profit, avoid excessive concentration of loss exposures, and ensure adequate diversification of exposures. |
Identify common sources of liability risk faced by individuals. | 1. Real property ownership 2. Personal property ownership liability loss exposure 3. Liability loss exposures arising from their behavior toward others |
Identify the bases on which government insurance programs vary. | 1. Purpose or rationale 2. Level of governmental involvement 3. Whether the program is run at the federal or state level |
The three categories of government insurance programs. | 1. Property-casualty insurance plans 2. Social insurance plans 3. Financial security plans |
Identify the major difference between the objectives of private market insurance and government provided insurance. | Private insurance seeks to provide actuarial equity and government provided insurance programs aim to provide social equity. |
Identify reasons for government involvement in insurance. | 1. To fulfill insurance needs unmet by private insurers 2. To compel people to buy a particular type of insurance 3. To obtain greater efficiency and/or provide convenience to insurance buyers 4. To achieve collateral social purposes |
Identify three levels of governmental participation in governmental insurance programs. | 1. Exclusive insurer 2. Partner with private insurers 3. Competitor to private insurer |
What is the relationship between continuous learning and competent performance? | Continuous learning is a prerequisite to competent performance. |
What is the most appropriate remedy for employer-employee disputes? | They are best resolved through the procedures established for this purpose within the organization or through civil legal action. The Code of Ethics is not a remedy for employer-employee disputes. |
The Board of Ethical Inquiry (BEI) will hear ethics complaints involving Rule R4.1 only under certain circumstances. What circumstances are specified in Guideline G4.1? | BEI will hear ethics complaint after all other remedies have been exhausted and either a proven violation caused unjust harm to another and brings substantial discredit on CPCU designation or it would be in public interest to take disciplinary action. |
How might a CPCU violate Rule R4.2? | By supporting changes in the insurance mechanism that would come at the expense of the public or by putting personal interest ahead of public interests. |