CU Core Underwriting Principles 2

Question 1

Which underwriting concept refers to the tendency of higher-risk individuals to seek insurance more than lower-risk individuals?

Accepted Answer

Adverse selection

Answer

Adverse selection occurs when those with greater risk are more likely to purchase insurance, skewing the insured pool toward higher-risk individuals.

Question 2

An underwriter applying the 'law of large numbers' is primarily trying to achieve which goal?

Accepted Answer

Make loss predictions more statistically reliable

Answer

The law of large numbers states that as the number of similar exposure units increases, actual losses tend to converge toward expected losses, improving predictability.

Question 3

What is the purpose of a deductible in an insurance policy from an underwriting perspective?

Accepted Answer

To reduce moral hazard and eliminate small nuisance claims

Answer

Deductibles make the insured bear a portion of the loss, reducing moral hazard by encouraging loss prevention and eliminating small claims that cost more to process than they pay.

Question 4

Which term describes the maximum amount an insurer will pay for all claims arising from a single occurrence?

Accepted Answer

Per-occurrence limit

Answer

A per-occurrence limit caps the insurer's liability for losses arising from one event, regardless of how many claimants are involved.

Question 5

In underwriting, what does 'hazard' refer to specifically?

Accepted Answer

A condition that increases the frequency or severity of loss

Answer

A hazard is a condition that increases either the likelihood or the magnitude of loss from a given peril, distinct from the peril itself.

(CU) Certified Underwriter Practice Test

(CU) Certified Underwriter Practice Test

CU Core Underwriting Principles 2