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

Workers' compensation class codes reflect the inherent hazard of the type of work performed and are the primary driver of the manual rate applied to payroll.

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

Schedule rating allows underwriters to adjust rates for specific characteristics of an individual risk — such as building construction, protection, or management quality — that differ from the class average.

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 permissible loss ratio is 1 minus the expense ratio, representing the proportion of premium available to pay losses while still achieving profitability.

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

General liability premiums are most commonly based on gross sales for mercantile and service operations, or payroll for contracting risks, as these best correlate with liability exposure.

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

Loss development accounts for the fact that reported losses at any given point in time are not final; factors are applied to project incurred losses to their estimated ultimate values for accurate ratemaking.

(CU) Certified Underwriter Practice Test

(CU) Certified Underwriter Practice Test

CU Underwriting Pricing and Ratemaking 2