Question

6. Which of the following companies would be best suited for participating in an insurance pool?

Select one:

A. A large book seller with hundreds of local retail stores interested in insurance for their fleet of vehicles.

B. A construction company has had good results in a group captive but would like more control over their insurance program.

C. A multi-state Fortune 500 home supply company with adequate liquidity that is seeking workers’ compensation coverage for its 5,000 employees.

D. A local school district that is purchasing new buses and looking to reduce its insurance expense by joining a workers’ compensation pool.

7. If a captive insurer is established to provide coverage for loss exposures that the parent company has difficulty insuring privately, how does the captive insurer typically deal with such risks?

Select one:

A. By insuring difficult-to-insure loss exposures of other companies, effectively pooling the exposure

B. By capping the liability on a per-loss basis, with the parent company assuming losses above the liability cap

C. Through purchasing excess of loss reinsurance

D. Through purchasing proportional reinsurance

8. Why would you self-insure a risk? What risks are typically self-insured? What are the disadvantages of self-insurance?

Answer 1

6.

Ans - D

As the local school district is looking for reducing its insurance expense , pooling makes more sense as cost and risk gets distributed among workers.

7.

Ans - A

By pooling the exposure, captive insurer is mitigating the loss exposure

8.

Ans - A person self insures a risk to save money instead of paying premiums to an insurance company as a fixed expense where the money is gone forever.

Health risks are usually self insured.

Self insurance is risky in most cases and if self insured programs are wrongly managed it could put a company's assets at risk.