Risk Assessment & Underwriting Flashcards
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Read the first 7 Risk Assessment & Underwriting flashcards as text
Which ACORD form is primarily used to submit commercial property underwriting information to an insurer?
Answer: ACORD 125
ACORD 125 is the Commercial Insurance Application used to capture property and general liability risk data for underwriting.
In underwriting, 'adverse selection' refers to which phenomenon?
Answer: Higher-risk individuals being more likely to seek coverage
Adverse selection occurs when those with higher risk exposure are disproportionately drawn to purchase insurance, skewing the insurer's risk pool.
A 'schedule rating' modification in underwriting allows the underwriter to do what?
Answer: Adjust the manual rate based on individual risk characteristics
Schedule rating permits debits or credits to the manual rate to reflect specific risk features not captured in class rating.
When reviewing a commercial risk, an underwriter finds the insured has no written safety program. This is best classified as which type of hazard?
Answer: Management hazard
Absence of a safety program reflects management hazard, indicating poor risk management practices that increase loss probability.
Which underwriting concept describes the practice of spreading risk across many policyholders to minimize the impact of any single large loss?
Answer: Law of large numbers
The law of large numbers allows insurers to predict losses more accurately as the insured pool grows, stabilizing results.
In the context of ACORD standards, what does 'data element standardization' primarily benefit in the underwriting workflow?
Answer: It enables consistent data exchange between agencies and carriers
ACORD's standardized data elements ensure that information flows accurately and consistently between trading partners, reducing errors.
A surplus lines placement is typically required when what condition exists?
Answer: No admitted insurer is willing to write the risk
Surplus lines markets are accessed when standard admitted carriers decline to cover a risk due to its unusual or high-hazard nature.