#1
What are residual markets in insurance?
Markets for second-hand insurance policies
Markets for high-risk individuals or properties that cannot obtain coverage in the standard insurance market
Markets for specialized insurance products
Markets for insurance derivatives
#2
Which of the following is a characteristic of residual markets?
They offer the lowest premiums
They provide coverage for standard risk individuals only
They are state-sponsored mechanisms
They exclude coverage for high-risk properties
#3
In which type of insurance market are residual markets most commonly found?
Life insurance
Health insurance
Property and casualty insurance
Travel insurance
#4
What role do insurance agents play in residual markets?
They assess risk and determine premiums
They provide coverage for standard risks only
They facilitate the placement of high-risk policies in residual markets
They regulate insurance markets
#5
Which of the following statements about residual markets is true?
They primarily cater to low-risk individuals
They are not regulated by government authorities
They are often funded by taxes or assessments
They exclude coverage for high-risk properties only
#6
What is the primary reason behind the existence of residual markets?
To maximize profits for insurance companies
To provide coverage for standard risks only
To address market failures and ensure availability of coverage for high-risk individuals or properties
To limit the number of insurance companies in the market
#7
What is the role of residual market entities?
To provide coverage for standard risks
To subsidize insurance premiums
To act as insurers of last resort
To regulate insurance markets
#8
Which of the following factors can contribute to the existence of residual markets?
High levels of competition among insurance companies
Low levels of risk in the population
Inadequate regulation of insurance markets
Availability of reinsurance
#9
What is adverse selection in the context of residual markets?
The process of selecting the most advantageous insurance policies
The tendency for high-risk individuals to seek coverage more than low-risk individuals
The process of rejecting insurance applications based on demographics
The process of selecting the most profitable insurance policies
#10
Which of the following is NOT a strategy used to manage residual market risk?
Reinsurance
Risk-based pricing
Government subsidies
Exclusion of high-risk individuals
#11
What distinguishes residual markets from the standard insurance market?
Residual markets have lower premiums
Residual markets cover only high-risk individuals
Residual markets provide coverage for standard risks
Residual markets are state-sponsored mechanisms for high-risk individuals or properties
#12
Which of the following is an example of a residual market entity?
Standard insurance company
Reinsurance company
State insurance pool
Insurance regulator
#13
How do insurance regulators typically manage residual markets?
By imposing strict eligibility criteria
By excluding high-risk individuals from coverage
By providing subsidies to insurance companies
By establishing state-sponsored insurance pools or associations
#14
What role does reinsurance play in residual markets?
To provide coverage for low-risk individuals
To spread the risk of high-risk policies among multiple insurers
To exclude high-risk individuals from coverage
To regulate insurance markets
#15
Which of the following is a potential consequence of a poorly managed residual market?
Increased availability of insurance coverage
Decreased insurance premiums
Market instability and adverse economic impacts
Lower profits for insurance companies
#16
What is the purpose of risk-based pricing in residual markets?
To offer uniform premiums to all policyholders
To charge higher premiums for low-risk individuals
To charge premiums based on the perceived risk of the insured
To exclude high-risk individuals from coverage
#17
How do residual markets contribute to financial stability?
By providing coverage only to low-risk individuals
By spreading risk across a broader pool of policyholders
By offering subsidies to insurance companies
By excluding high-risk individuals from coverage
#18
What is one way to reduce the reliance on residual markets?
By increasing eligibility criteria for standard insurance
By excluding low-risk individuals from coverage
By decreasing government regulation
By improving risk management and loss prevention