CIA CIA Insurance Market & Industry Practices 1 — Questions and Answers
Question 1: What distinguishes a 'admitted' insurer from a 'non-admitted' (surplus lines) insurer in the US?
- Admitted insurers only cover commercial risks; non-admitted cover personal lines
- Admitted insurers are licensed by the state and subject to rate/form regulation; non-admitted operate outside standard state regulation (Correct answer)
- Non-admitted insurers are government-backed; admitted are private
- Admitted insurers offer only life insurance products
Correct answer: Admitted insurers are licensed by the state and subject to rate/form regulation; non-admitted operate outside standard state regulation
Admitted carriers are licensed by and subject to state rate and form regulation, while non-admitted (surplus lines) carriers are not bound by the same rules and cover risks that standard markets decline.
Question 2: The principle of 'indemnity' in insurance means the insured should:
- Profit significantly from every covered loss
- Be restored to approximately the same financial position as before the loss, no better and no worse (Correct answer)
- Receive full replacement value regardless of the property's age
- Always receive a cash payout equal to policy limits
Correct answer: Be restored to approximately the same financial position as before the loss, no better and no worse
Indemnity is the foundational insurance principle that limits recovery to the insured's actual financial loss, preventing unjust enrichment.
Question 3: What is an 'insurance binder' in US property insurance practice?
- A physical folder holding all policy documents
- A temporary, short-term agreement confirming coverage is in force while the formal policy is being issued (Correct answer)
- A discount certificate for multi-policy holders
- A state-required document for policy renewals only
Correct answer: A temporary, short-term agreement confirming coverage is in force while the formal policy is being issued
A binder is a temporary, legally binding confirmation of insurance coverage issued before the formal policy is prepared and delivered.
Question 4: In the US insurance market, 'reinsurance' primarily serves to:
- Allow policyholders to switch carriers mid-term
- Enable primary insurers to transfer a portion of their risk to another insurer to manage exposure (Correct answer)
- Provide direct coverage to end consumers at lower premiums
- Guarantee state-mandated minimum coverage limits
Correct answer: Enable primary insurers to transfer a portion of their risk to another insurer to manage exposure
Reinsurance is insurance purchased by insurers to spread risk, protect against catastrophic losses, and stabilize their underwriting results.
Question 5: Which professional designation is specifically relevant to property and casualty claims and appraisal work in the US?
- Chartered Financial Analyst (CFA)
- Associate in Claims (AIC) (Correct answer)
- Certified Public Accountant (CPA)
- Project Management Professional (PMP)
Correct answer: Associate in Claims (AIC)
The Associate in Claims (AIC) designation, offered by The Institutes, is specifically focused on property and casualty claims handling and appraisal skills.
Question 6: What is the function of an insurance 'deductible' in loss settlements?
- It increases the payout the insurer owes the policyholder
- It is the amount the insured must pay out-of-pocket before insurance benefits apply (Correct answer)
- It sets the maximum amount an insurer will pay on a claim
- It is a penalty assessed for late premium payments
Correct answer: It is the amount the insured must pay out-of-pocket before insurance benefits apply
The deductible is the portion of the loss the insured absorbs before the insurance policy begins paying, incentivizing loss prevention and reducing premium costs.
CIA CIA Insurance Market & Industry Practices 1
What distinguishes a 'admitted' insurer from a 'non-admitted' (surplus lines) insurer in the US?