Risk Assessment & Underwriting Flashcards
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Read the first 7 Risk Assessment & Underwriting flashcards as text
Which term describes the process by which an insurer spreads catastrophic risk exposure across geographic regions to avoid concentrated losses from a single event?
Answer: Geographic diversification / risk spreading
Geographic diversification reduces the impact of a single catastrophe (e.g., hurricane, earthquake) on the insurer's total portfolio by ensuring risks are spread across varied locations.
An umbrella liability policy is designed primarily to:
Answer: Provide additional limits above the exhausted limits of underlying primary policies
Umbrella policies activate when the primary policy's limits are fully exhausted, providing a higher overall ceiling on liability protection.
In personal lines auto underwriting, a 'points' system most commonly assigns values based on:
Answer: At-fault accidents, moving violations, and DUI convictions to adjust premium
Points systems translate driving record events into numerical charges that increase premiums to reflect the elevated accident probability associated with each infraction.
What is the role of an actuarial rate filing in the underwriting cycle?
Answer: To establish state-approved premium rates using statistical loss data and projected trends
Actuaries file rate changes with state regulators, supporting them with loss data, trend factors, and expense loadings to ensure rates are adequate, not excessive, and not unfairly discriminatory.
A surplus lines insurer is typically used when:
Answer: The risk cannot be placed in the admitted (standard) market due to unusual characteristics or capacity shortfalls
Excess and surplus (E&S) lines carriers accept non-standard or high-hazard risks that admitted carriers decline, operating with greater pricing and form flexibility.
Which of the following best illustrates the underwriting concept of 'risk selection'?
Answer: Declining to write habitational risks with more than 25% vacant units
Risk selection is the process by which underwriters accept, modify, or reject risks based on established criteria to maintain a profitable, balanced portfolio.
When an underwriter 'non-renews' a policy at expiration rather than cancelling mid-term, the primary advantage is:
Answer: The insurer avoids mid-term notice requirements and the obligation to refund unearned premium pro-rata
Non-renewal at expiration sidesteps the stricter notice periods and potential pro-rata refund requirements that mid-term cancellations trigger under most state insurance regulations.