CU Underwriting Pricing and Ratemaking 2

Question 1

In commercial lines underwriting, which rating factor typically has the MOST significant impact on workers' compensation premiums?

Accepted Answer

Industry classification (class code)

Answer

Number of years in business

Answer

Geographic location of headquarters

Answer

Annual revenue of the company

Question 2

An underwriter applies a schedule rating credit of 15% to a commercial property risk. What is the basis for this type of modification?

Accepted Answer

Specific physical or managerial characteristics that differ from the average risk in the class

Answer

The insured's favorable loss history over the prior three years

Answer

Regulatory mandated discounts for long-term policyholders

Answer

Competitor pricing pressure in the market

Question 3

What does the 'permissible loss ratio' represent in the loss ratio ratemaking method?

Accepted Answer

The target loss ratio that allows for recovery of expenses and a profit margin

Answer

The maximum loss ratio allowed by state regulators

Answer

The actual loss ratio achieved in the prior policy year

Answer

The industry average loss ratio for the line of business

Question 4

Which exposure base is most commonly used for general liability insurance rating?

Accepted Answer

Gross sales or payroll, depending on the operation

Answer

Number of vehicles

Answer

Square footage of premises

Answer

Number of employees

Question 5

What is 'loss development' and why is it important in ratemaking?

Accepted Answer

The growth of reported losses over time as claims mature to their ultimate value

Answer

The process of marketing insurance products to new customers

Answer

The increase in premium rates due to inflation

Answer

The expansion of coverage territory by an insurer

Question 6

An underwriter reviewing a large account uses 'experience rating modification.' A mod factor of 0.85 means the insured will:

Accepted Answer

Pay 85% of the manual premium

Answer

Pay 15% more than the manual premium

Answer

Receive a 15% credit on the next renewal

Answer

Have claims capped at 85% of expected losses

Question 7

Which statement best describes 'minimum premium' in underwriting pricing?

Accepted Answer

The floor amount charged for a policy regardless of how low calculated premium would otherwise be

Answer

The lowest rate the state allows an insurer to charge

Answer

The rate charged to the least risky class of business

Answer

The premium before any surcharges or credits are applied