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7.5 Review and Practice

  1. How do agents and brokers differ?
  2. After hearing the advice that it is usually best to buy life insurance from a person who has been in the business at least five years, a life insurance company general agent became upset and said rather vehemently, “How do you think we could recruit an agency force if everybody took your advice?” How would you answer that question?
  3. Is the inherently discriminatory nature of underwriting acceptable from a public policy standpoint? Would shifting to a primarily behavior-based approach to risk assessment be feasible?
  4. What actuarial adjustments are built into the pricing of life insurance premiums?
  5. Occasionally, Insurer X will reinsure part of Insurer Y’s risks, and Insurer Y will reinsure part of Insurer X’s risks. Doesn’t this seem like merely trading dollars? Explain.

  6. What is the relationship between the following functions within an insurance company?

    1. Marketing and underwriting
    2. Underwriting and actuarial
    3. Actuarial and investment
    4. Legal and underwriting
    5. Claims and marketing
    6. Claims adjusting and actuarial

  7. Your acquaintance, Nancy Barns, recently commented to you that she and her husband want to reevaluate their homeowner’s insurance. Nancy said that it seemed the only time they ever had any contact with their present insurance agency was when a premium was due. Nancy asked if you knew of a good agency.

    1. Help Nancy set up standards to evaluate and choose a good agent.
    2. Review with her the standards of education and experience required of an agent, including the CPCU designation.

  8. Read the box, Note 7.38 "Problem Investments and the Credit Crisis", in this chapter and respond to the following questions:

    1. Use the asset and liabilities of life insurers in their balance sheets to explain why losses in mortgage-backed securities can hurt the net worth of insurers.
    2. Insurance brokers have been very busy since the troubles of AIG became public knowledge. Why are these brokers busier? What is the connection between AIG’s troubles and the work of these brokers?
    3. What is the cause of AIG’s problems? Explain in the context of assets and liabilities.

  9. Respond to the following:

    1. If you have an auto policy with insurer XYZ that is deeply hurt by both mortgage-backed securities and Hurricane Ike, do you have any protection in case of losses to your own auto (not caused by another driver)? Explain in detail.
    2. If you have an auto policy with insurer XYZ that is deeply hurt by both mortgage-backed securities and Hurricane Ike, do you have any protection in case of losses to your own auto and to your body from an accident that was caused by another driver (you are not at fault)? Explain in detail.

  10. You are reading the Sunday newspaper when you notice a health insurance advertisement that offers the purchase of insurance through the mail and the first month’s coverage for one dollar. The insurance seems to be a real bargain.

    1. Are there any problems you should be aware of when buying insurance through the mail?
    2. Explain how you could cope with the problems you listed above if you did purchase coverage through the mail.