ABC Risk Assessment & Underwriting 3

Question 1

Which document formally outlines an insurer's guidelines for acceptable risks, coverage limits, and rating criteria for its underwriters?

Accepted Answer

Underwriting guidelines

Answer

Underwriting guidelines (or manuals) set the standards and authority levels within which individual underwriters must operate when evaluating submissions.

Question 2

A facultative reinsurance arrangement differs from a treaty arrangement primarily because:

Accepted Answer

Each risk is negotiated individually rather than covered automatically under a standing agreement

Answer

Facultative reinsurance is placed risk-by-risk at the reinsurer's discretion, whereas treaty reinsurance automatically covers all risks within defined parameters.

Question 3

The combined ratio in insurance underwriting is calculated as:

Accepted Answer

Loss ratio plus expense ratio

Answer

A combined ratio below 100% indicates underwriting profitability; above 100% means the insurer is paying out more in losses and expenses than it collects in premiums.

Question 4

An underwriter discovers that a commercial auto fleet applicant has five at-fault accidents in 36 months. The MOST appropriate response is to:

Accepted Answer

Decline or surcharge the risk based on the adverse loss history

Answer

A poor loss history is a primary underwriting red flag; declining or applying a significant surcharge protects the insurer's book of business.

Question 5

What is the purpose of a site inspection or risk survey in the commercial underwriting process?

Accepted Answer

To verify application information and identify physical hazards not disclosed by the applicant

Answer

A field inspection allows the underwriter or a risk engineer to confirm stated facts and uncover conditions that could affect the acceptance, rating, or coverage terms.

(ABC) Accredited Business Communicator Practice Test

(ABC) Accredited Business Communicator Practice Test

ABC Risk Assessment & Underwriting 3