Exam FAM Final Exam 2024

Exam FAM Final Exam 2024

1. What are the 2 principles that make insurance a viable product?: 1. Under the Law of Large Numbers, as the number of observations increases, the average of the results converges to the expected value. 2. Consumers are risk-averse so they are willing to pay more than their expected loss in premiums 2. What are the 6 criteria for an Insurable Risk?: 1.Economically feasible (Insurer should be able to cover the loss and all admin expenses) 2. Economic Value of the insurance should be calculable and enough data should be available so the insurer is highly confident in their calculations 3. Loss must be definite 4. Loss must be random in nature 5.Exposures in any rate class must be homogenous (same loss expectation or same probability of loss) 6. Exposure units should be spacially and temporally independent 3. What are the 2 main jurisdictions in the US for auto insurance?: 1. At-Fault (aka Tort) where fault must be proven in order for injured party to be compensated 2. No-Fault where fault does not need to be proven in order for injured party to be compensated 4. What is Section A of Auto Insurance Coverage?: Liability Coverage 5. What does the Liability section of Auto Insurance cover and what do the split limits mean?: - Bodily Injury - Property Damage - Legal fees (do not count towards liab limit) - Split limits: BI Per Person/BI Per Accident/PD Per Accident 6. What is the only section of Auto Insurance meant to cover a Third-Party?: - Section A (Liability Coverage) 7. What is Section B of Auto Insurance Coverage?: - Medical Payments (Tort or At-Fault, provides covg to policyholder if they are at fault) - PIP (No-Fault, provides covg to policyholder regardless of who is at fault) 8. What is Section C of Auto Insurance Coverage?: Uninsured/Underinsured Motorists: only kicks in when liable party has no or insufficient Section A coverage 9. What is Section D of Auto Insurance Coverage?: Coverage for Damage to Auto: - Collision Covg: compensate damages caused by colliding with an object (Section A PD covg applies if a third party is proven to be liable regardless of type of JD) - Other Than Collision (OTC): damages due to non-collision perils such as hail, theft, fire, vandalism (comprehensive coverage is when all except commonly excluded perils are covered, specific coverage is when only specified perils are covered)