CU Risk & Underwriting Principles 2

Question 1

Which underwriting principle states that insureds should not profit from a loss beyond their actual financial damage?

Accepted Answer

Principle of indemnity

Answer

The principle of indemnity ensures the insured is restored to their pre-loss financial position but cannot gain a profit from the insurance claim.

Question 2

An underwriter notices that a commercial property applicant has filed three fire claims in five years. This pattern is best described as:

Accepted Answer

A moral hazard indicator

Answer

Repeated fire claims suggest a moral hazard, where the insured's behavior or attitude may increase the likelihood of loss.

Question 3

What does a 'scheduled rating' modification in commercial underwriting allow?

Accepted Answer

Debits or credits applied to a base rate based on specific risk characteristics

Answer

Scheduled rating lets underwriters adjust the base premium up or down based on individual risk factors such as management quality or premises condition.

Question 4

In risk evaluation, 'severity' refers to:

Accepted Answer

The potential financial magnitude of a single loss

Answer

Severity measures the potential dollar impact of an individual loss event, distinct from frequency which measures how often losses occur.

Question 5

Which condition makes a risk generally uninsurable in the standard market?

Accepted Answer

Loss that is already certain to occur

Answer

Insurance requires that a loss be fortuitous (uncertain); a loss that is already certain to occur removes the element of chance needed for insurability.

(CU) Certified Underwriter Practice Test

(CU) Certified Underwriter Practice Test

CU Risk & Underwriting Principles 2