Components of Surplus Lines
In the simplest case, a policy premium is calculated by multiplying the applicable insurance rate by the
Select one:
A. Deductible multiplier.
B. Applicable coverage factor.
C. Number of exposure units.
D. Policy limits.
C. Number of exposure units.
The town of Williamston is planning a baseball tournament and a barbecue to celebrate its centennial anniversary. Unfortunately, town managers and unionized workers are in wage negotiations, and there is a risk that a strike might force the town to cancel the celebrations. Which one of the following surplus lines products would best meet the town's needs?
Select one:
A. Event cancellation insurance
B. Business interruption and extra expense insurance
C. Special events liability insurance
D. Weather insurance
A. Event cancellation insurance
Many states’ surplus lines laws do not place any restrictions on the types of insurance that can be placed with a surplus lines insurer. However, some states’ surplus lines laws do prohibit the export of specified coverages such as
Select one:
A. Umbrella liability insurance.
B. Homeowners insurance.
C. Life insurance.
D. Businessowners insurance.
C. Life insurance.
Which one of the following is formed under the U.S. Liability Risk Retention Act of 1986 to insure owners from the same industry and must be chartered and licensed as a liability insurance company under the laws of at least one U.S. state?
Select one:
A. An insurance pool
B. A rent-a-captive
C. A group captive
D. A risk retention group (RRG)
D. A risk retention group (RRG)
What term matches this definition?
The amount of business an insurer is able to write, usually based on a comparison of the insurer's written premiums to its policyholders' surplus.
Capacity
Which one of the following types of insureds would benefit most from risk control services?
Select one:
A. Homeowners
B. Clothing retailers
C. Manufacturers
D. Accounting firms
C. Manufacturers
When faced with a straight-forward, high-capacity property risk valued at $100 million, which one of the following approaches will a surplus lines intermediary often take?
Select one:
A. Arrange for layered property coverage
B. Issue a difference in conditions (DIC) policy
C. Write only the primary layer of coverage
D. Provide coverage on a single, high-limit policy
A. Arrange for layered property coverage
Which one of the following do some states’ surplus lines laws prohibit exporting to the surplus lines market?
Select one:
A. Mortgage guaranty insurance
B. Inland marine insurance
C. Commercial property insurance
D. Commercial crime insurance
A. Mortgage guaranty insurance
Which one of the following statements is correct with respect to competition between surplus lines insurers and residual markets?
Select one:
A. Residual markets generally offer the same coverages and limits as surplus lines insurers but at a significantly lower price.
B. Generally, states do not permit consumers that cannot secure coverage in the admitted market to choose between residual market plans and surplus lines insurance.
C. Residual markets typically provide better risk control services, claim services, and other customer services than surplus lines insurers.
D. Often, the surplus lines market is more attractive than the residual market because of the coverage terms and choice of limits that surplus lines insurers provide.
D. Often, the surplus lines market is more attractive than the residual market because of the coverage terms and choice of limits that surplus lines insurers provide.
What term matches this definition?
The exposure to liability for bodily injury or property damage due to the ownership, occupancy, or use of the premises.
Premises liability
Property-casualty insurers frequently provide which one of the following types of services to insureds as part of the insurance product?
Select one:
A. Investment services
B. Risk control services
C. Security services
D. Strategic planning services
B. Risk control services
A surplus lines policy that covers on an "all-risks" basis to fill gaps in the insured's commercial property coverage, especially flood and earthquake coverage, is referred to as a
Select one:
A. High-capacity policy.
B. Secondary coverage policy.
C. Layered coverage policy.
D. Difference in conditions (DIC) policy.
D. Difference in conditions (DIC) policy.
Which one of the following statements is correct with respect to a law that effectively precludes the export of a particular coverage to the surplus lines market?
Select one:
A. International shipping regulations specify that aircraft coverage must be obtained from admitted insurers.
B. Auto financial responsibility laws commonly require that the mandated coverage be obtained from an admitted insurer.
C. Workers compensation laws ordinarily require employers to obtain all of their workers compensation insurance from admitted insurers.
D. Federal transport laws prohibit the export of transportation insurance to the surplus lines market.
B. Auto financial responsibility laws commonly require that the mandated coverage be obtained from an admitted insurer.
Residual market products can compete with surplus lines insurance products. Which one of the following statements is correct with respect to residual markets?
Select one:
A. State legislators may create a residual market when surplus lines insurers are unwilling to meet the public’s demand for certain types of insurance.
B. Mandatory participation in residual markets means admitted insurers cover policyholders previously rejected by the admitted market.
C. Surplus lines insurers are generally exempt from participation in residual markets in states in which they are licensed.
D. States typically prohibit coverage deemed to be essential, such as workers compensation insurance, from being placed in a residual market.
B. Mandatory participation in residual markets means admitted insurers cover policyholders previously rejected by the admitted market.
What term matches this definition?
a promise made by an insured that guarantees compliance with the insurer's conditions.
warranty
The rate an insurer charges for a particular product is based on
Select one:
A. Loss costs, expenses, and contingencies.
B. Loss costs, expenses, contingencies, and profits.
C. Loss costs.
D. Loss costs and expenses.
B. Loss costs, expenses, contingencies, and profits.
A surplus lines underwriter has received an insurance application for an apartment building. Tenants and guests have made a number of liability claims against the applicant for scalds they suffered from hot water taps. The underwriter believes she can write the account profitably if she can ensure the hot water in the building's taps is kept at or below 120° F. Which one of the following would be the most effective way to accomplish this?
Select one:
A. Add a $5,000 liability deductible
B. Increase the policy premium
C. Send to a risk control inspector to the building
D. Add a warranty to the policy
D. Add a warranty to the policy
The surplus lines laws of most states allow the placement of certain types of risks or coverages with a nonadmitted insurer to be exempt from surplus lines regulation. Which one of the following statements is correct with respect to these exemptions?
Select one:
A. Brokers placing exempted risks are not required to have a surplus lines license.
B. The exempted risks or coverages may still be subject to the diligent search requirement.
C. Federal laws prohibit the collection of premium tax on exempted risks and coverages.
D. Railroads engaged in interstate commerce are generally not exempt.
B. The exempted risks or coverages may still be subject to the diligent search requirement.
Which one of the following statements is correct with respect to the National Flood Insurance Program (NFIP)?
Select one:
A. NFIP insureds that require coverage beyond the available limits can obtain excess coverage from the surplus lines market.
B. National flood insurance is available to owners of property in communities that are exposed to loss by flood.
C. Where NFIP coverage is available, surplus lines insurers can usually compete successfully with NFIP rates.
D. The maximum limit of building coverage available under the NFIP regular program for a single-family dwelling is $100,000.
A. NFIP insureds that require coverage beyond the available limits can obtain excess coverage from the surplus lines market.
What term matches this definition?
The term referring collectively to insurers and other organizations that make insurance available through a shared risk mechanism to those who cannot obtain coverage in the admitted market.
Residual market
The rate for property policy $0.50 and exposure unit is each $100 of insured value. If limit of insurance is $100,000… what is the premium?
A. $10,000
B. $1,000
C. $500
D. $5,000
C. $500
Which one of the following statements is correct with respect to coverage for organizations that do business over the Internet?
Select one:
A. There is nothing businesses can do to prevent cyber attack or reduce the associated loss potential.
B. Most businesses can usually obtain the cyber risk coverage they require in the admitted market.
C. Cyber risk coverage is typically limited to paying net income losses resulting from denial-of-service attacks.
D. Because of its expertise in handling unusual risks, the surplus lines market has been able to respond to this new coverage need.
D. Because of its expertise in handling unusual risks, the surplus lines market has been able to respond to this new coverage need.
Laws may exempt some placements with nonadmitted insurers from compliance with surplus lines laws.Which one of the following best describes a reason why some types of insurance are exempt?
Select one:
A. The property or operations insured are usually situated inside the regulating state and are therefore subject to other state regulation.
B. These exemptions typically involve excess insurance purchased as part of a qualifying self-insurance plan.
C. Some of these types of insurance are purchased primarily by sophisticated buyers that do not need the protection provided by regulation.
D. Many of these types of insurance are relatively simple to underwrite and price and do not require a great degree of specialization or expertise.
C. Some of these types of insurance are purchased primarily by sophisticated buyers that do not need the protection provided by regulation.
Residual market products can compete with surplus lines insurance products. Which one of the following statements is correct with respect to residual markets?
Select one:
A. State legislators may create a residual market when surplus lines insurers are unwilling to meet the public’s demand for certain types of insurance.
B. Mandatory participation in residual markets means admitted insurers cover policyholders previously rejected by the admitted market.
C. Surplus lines insurers are generally exempt from participation in residual markets in states in which they are licensed.
D. States typically prohibit coverage deemed to be essential, such as workers compensation insurance, from being placed in a residual market.
B. Mandatory participation in residual markets means admitted insurers cover policyholders previously rejected by the admitted market.
What term matches this definition?
Policy that covers on an “all-risks” basis to fill gaps in the insured’s commercial property coverage, especially gaps in flood and earthquake coverage.
Difference in conditions (DIC) policy, or DIC insurance