CIA CIA Insurance Market Analysis & Pricing

Question 1

In insurance pricing, the 'pure premium' represents:

Accepted Answer

The portion of premium needed to cover expected losses only, excluding expenses and profit

Answer

The pure premium is the actuarially calculated portion of the premium needed solely to cover expected losses, before adding expense loadings and profit margin.

Question 2

A CIA appraiser analyzing insurance market conditions notes a 'hard market.' This is characterized by:

Accepted Answer

High premiums, restrictive coverage, and limited insurer capacity

Answer

A hard market is characterized by rising premiums, tighter underwriting standards, reduced coverage availability, and limited insurer capacity due to prior losses or capital constraints.

Question 3

Which rating factor most directly influences the premium for a homeowner's property insurance policy in the US?

Accepted Answer

Credit score where permitted, construction type, and geographic location

Answer

Homeowner's property premiums are primarily driven by credit-based insurance scores where allowed, construction type, age of home, and geographic location including proximity to hazards.

Question 4

The combined ratio in insurance is calculated as:

Accepted Answer

Loss ratio plus expense ratio

Answer

The combined ratio equals the loss ratio plus the expense ratio; a combined ratio below 100% indicates an underwriting profit, while above 100% indicates an underwriting loss.

Question 5

In insurance market analysis, 'adverse selection' refers to:

Accepted Answer

Higher-risk individuals disproportionately seeking insurance, skewing the insured pool toward poorer risks

Answer

Adverse selection occurs when higher-risk individuals are more likely to purchase insurance than lower-risk individuals, causing the insured pool to skew toward worse risks than the insurer anticipated.

(CIA) Certified Insurance Appraiser Practice Test

(CIA) Certified Insurance Appraiser Practice Test

CIA CIA Insurance Market Analysis & Pricing