Risk Assessment & Underwriting Flashcards
7 cards from real ACE practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Risk Assessment & Underwriting flashcards as text
When underwriting a contractors risk, which factor is most critical in determining the appropriate general liability classification?
Answer: The type of work performed and annual gross receipts
Contractor GL classifications are driven by the nature of operations and payroll or receipts, which reflect the scale and hazard of the work.
In a manuscript policy form, the underwriting risk primarily shifts in which direction compared to a standard ISO form?
Answer: Greater interpretive risk falls on the insurer since the form is non-standard
Manuscript forms lack the judicial precedent and industry testing of standard forms, so ambiguous language disputes more often favor the insured and burden the insurer.
Which of the following best defines 'pure premium' in underwriting rating methodology?
Answer: The portion of premium allocated solely to expected losses per unit of exposure
Pure premium equals expected incurred losses divided by the units of exposure, representing only the loss cost component before loading for expenses and profit.
An underwriter reviewing a habitational risk notes 30% of units are vacant. This primarily elevates which concern?
Answer: Higher likelihood of vandalism, arson, and undetected damage
High vacancy rates in apartments or commercial buildings create elevated moral hazard and increase the risk of vandalism, arson, and maintenance-related losses.
Under ACORD's data standards, what role does the 'ACORD AL3' format serve in insurance transactions?
Answer: It is an EDI transaction set used for personal lines data exchange
ACORD AL3 is a legacy EDI standard specifically designed for personal lines insurance data exchange between agents and carriers.
Which underwriting term describes the maximum amount of insurance an insurer will write on a single risk before requiring reinsurance?
Answer: Line size
An insurer's 'line' is the maximum net retention it will carry on any one risk; exposures beyond the line are ceded to reinsurers.
When an ACORD-compliant submission includes a 'loss run,' what specific underwriting purpose does this document serve?
Answer: It provides a chronological record of the insured's prior claims to assess loss experience
Loss runs are insurer-generated reports detailing past claims by date, type, and amount, giving underwriters insight into the risk's actual loss history.