Risk & Underwriting Principles Flashcards
7 cards from real CU 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 & Underwriting Principles flashcards as text
What is the primary function of the Insurance Services Office (ISO) in property-casualty underwriting?
Answer: Developing standardized policy forms, loss costs, and statistical reporting plans used by member insurers
ISO develops and files standard policy language, advisory loss costs, and industry statistical databases that member insurers use as a foundation for their own products and pricing.
An underwriter applies an 'experience modification factor' to a workers' compensation policy. What does this factor reflect?
Answer: The insured's actual loss experience compared to expected losses for its industry class
The experience modification (e-mod) compares an insured's actual claim history to the expected losses for similarly classified employers, rewarding favorable experience with credits and penalizing poor experience with debits.
Which concept explains why pooling many independent, similar risks reduces the uncertainty of average losses for an insurer?
Answer: Law of large numbers
The law of large numbers states that as the number of similar independent exposures increases, actual results converge toward the expected (average) outcome, making losses more predictable.
A 'hold harmless agreement' in a contract shifts liability to one party. How does this affect underwriting?
Answer: It may increase the insured's liability exposure, requiring the underwriter to evaluate additional contractual liability risk
When an insured agrees to hold another party harmless, they assume that party's potential liability, which can expand the insured's exposure beyond their own negligence.
In casualty underwriting, 'occurrence' vs. 'claims-made' refers to:
Answer: Whether coverage is triggered by when the injury/damage occurred or when the claim is first reported
Occurrence policies cover events that happen during the policy period regardless of when the claim is filed, while claims-made policies cover claims first reported during the policy period.
What is the purpose of an underwriting audit conducted by a reinsurer on a ceding company?
Answer: To verify that the ceding company's underwriting standards and practices align with treaty terms and expectations
Reinsurers conduct audits to ensure the ceding insurer is applying agreed-upon underwriting criteria and not ceding risks that fall outside treaty terms.
Which term describes the underwriting practice of limiting the total insured value written in a single geographic area to reduce catastrophe exposure?
Answer: Geographic concentration control (spread of risk)
Controlling geographic concentration ensures that a single catastrophe event (hurricane, earthquake) cannot generate losses across an excessive share of the insurer's portfolio.