CIA Risk Assessment & Underwriting 2

Question 1

Which underwriting principle states that insured parties should not profit from an insurance claim beyond their actual loss?

Accepted Answer

Indemnity

Answer

The principle of indemnity requires that insurance restore the insured to their pre-loss financial position without allowing them to profit from a claim.

Question 2

An underwriter is evaluating a commercial property in a flood zone. Which factor would MOST significantly increase the risk tier assigned?

Accepted Answer

Proximity to a 100-year floodplain

Answer

Location within or near a designated 100-year floodplain is a primary geographic risk factor that substantially elevates flood loss probability.

Question 3

What is the primary purpose of a schedule rating modification in commercial underwriting?

Accepted Answer

To adjust the base rate up or down for specific risk characteristics

Answer

Schedule rating allows underwriters to apply debits or credits to the manual rate based on individual risk features not captured in the class rate.

Question 4

In property underwriting, 'moral hazard' is best described as:

Accepted Answer

Intentional acts or dishonesty by the insured that increase risk

Answer

Moral hazard involves dishonest character or intent, such as an insured deliberately causing a loss or misrepresenting facts to obtain coverage.

Question 5

Which loss ratio formula is used by underwriters to evaluate profitability of a line of business?

Accepted Answer

(Incurred losses / Earned premiums) × 100

Answer

The loss ratio divides incurred losses by earned premiums and multiplies by 100 to express losses as a percentage of premium income.

(CIA) Certified Insurance Appraiser Practice Test

(CIA) Certified Insurance Appraiser Practice Test

CIA Risk Assessment & Underwriting 2