ACE Risk Assessment & Underwriting 2

Question 1

Which ACORD form is primarily used to submit commercial property underwriting information to an insurer?

Accepted Answer

ACORD 125

Answer

ACORD 125 is the Commercial Insurance Application used to capture property and general liability risk data for underwriting.

Question 2

In underwriting, 'adverse selection' refers to which phenomenon?

Accepted Answer

Higher-risk individuals being more likely to seek coverage

Answer

Adverse selection occurs when those with higher risk exposure are disproportionately drawn to purchase insurance, skewing the insurer's risk pool.

Question 3

A 'schedule rating' modification in underwriting allows the underwriter to do what?

Accepted Answer

Adjust the manual rate based on individual risk characteristics

Answer

Schedule rating permits debits or credits to the manual rate to reflect specific risk features not captured in class rating.

Question 4

When reviewing a commercial risk, an underwriter finds the insured has no written safety program. This is best classified as which type of hazard?

Accepted Answer

Management hazard

Answer

Absence of a safety program reflects management hazard, indicating poor risk management practices that increase loss probability.

Question 5

Which underwriting concept describes the practice of spreading risk across many policyholders to minimize the impact of any single large loss?

Accepted Answer

Law of large numbers

Answer

The law of large numbers allows insurers to predict losses more accurately as the insured pool grows, stabilizing results.

(ACE) ACORD Certified Expert Practice Test