ABC Risk Assessment & Underwriting 2

Question 1

Which underwriting principle states that an insurer should not profit more from a loss than the actual financial harm suffered?

Accepted Answer

Indemnity

Answer

The principle of indemnity ensures the insured is restored to their pre-loss financial position, preventing profit from insurance claims.

Question 2

An underwriter reviews a commercial property application and notes the building lacks a sprinkler system. This finding is best described as a:

Accepted Answer

Physical hazard

Answer

A physical hazard is a tangible condition—such as the absence of fire suppression equipment—that increases the probability or severity of a loss.

Question 3

What does a loss ratio measure in underwriting performance evaluation?

Accepted Answer

Incurred losses divided by earned premiums

Answer

The loss ratio (incurred losses ÷ earned premiums) is a primary metric underwriters use to assess the profitability of a book of business.

Question 4

A prospective insured conceals a prior arson conviction on a commercial fire application. This violates which insurance contract doctrine?

Accepted Answer

Utmost good faith (uberrimae fidei)

Answer

Uberrimae fidei requires both parties to disclose all material facts honestly; concealing relevant criminal history voids this obligation.

Question 5

Which of the following best describes adverse selection in the context of underwriting?

Accepted Answer

High-risk individuals disproportionately seeking insurance coverage

Answer

Adverse selection occurs when those with higher-than-average risk are more motivated to purchase coverage, skewing the insurer's risk pool negatively.

(ABC) Accredited Business Communicator Practice Test

(ABC) Accredited Business Communicator Practice Test

ABC Risk Assessment & Underwriting 2