Hawaii Insurance License Practice Exam

What term describes a situation where an insurance company is financially unable to meet its obligations?

1. Underwriting deficiency

2. Insurer insolvency

3. Claim denial

4. Loss adjustment

The correct answer is: Insurer insolvency

The situation where an insurance company is financially unable to meet its obligations is referred to as insurer insolvency. This term specifically indicates that the insurer does not have enough assets to cover its liabilities, meaning it cannot pay claims or fulfill its contractual commitments to policyholders. Insurer insolvency is a critical concept in the insurance industry, as it can have significant repercussions for policyholders, including the potential loss of coverage and the need for state guaranty funds to step in and cover claims up to certain limits. Understanding this term is essential for insurance professionals, as it highlights the importance of the financial health of insurance companies and the regulatory measures in place to monitor their solvency. Other terms like underwriting deficiency, claim denial, and loss adjustment, while relevant to different aspects of insurance, do not accurately describe the financial failure of an insurer to meet its obligations. Underwriting deficiency pertains to issues in the underwriting process, claim denial relates to situations where claims are not honored, and loss adjustment involves the process of settling claims and determining the amount to be paid.