What is the primary role of underwriting in insurance?
Underwriting assesses risks and determines appropriate premiums to ensure the insurer's financial stability.
What is a risk in underwriting?
Risk refers to the uncertainty regarding financial loss in an insurance context.
Why is risk classification important in underwriting?
Risk classification ensures that individuals or businesses with similar risk profiles are grouped together for appropriate premium pricing.
What is 'adverse selection' in insurance?
Adverse selection occurs when individuals most likely to experience loss are the ones most eager to buy insurance, increasing the insurer's risk.
What is the purpose of underwriting guidelines?
Underwriting guidelines provide standards and procedures to maintain consistency and manage risk effectively.
Which factor is NOT typically considered during risk assessment?
Risk assessment usually considers occupation, health, lifestyle, and financial history, but marketing preferences are not relevant.
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What is the objective of risk pooling in insurance?
Risk pooling spreads the financial impact of individual losses among many policyholders, making insurance affordable.
Which document summarizes the underwriting decision?
The underwriting report contains a summary of the applicant’s risk profile and the recommended action.
What does 'moral hazard' mean in underwriting?
Moral hazard refers to the possibility that the behavior of the insured changes because they have insurance protection.