Property And Casualty Insurance License Underwriting and Rating 3

Question 1

What does 'loss ratio' measure in insurance?

Accepted Answer

The ratio of losses incurred to premiums earned, measuring how much of premium is consumed by claims

Answer

The loss ratio is calculated by dividing incurred losses by earned premiums; a loss ratio of 60% means 60 cents of every premium dollar went to pay claims.

Question 2

What is 'moral hazard' in insurance?

Accepted Answer

The increased tendency of an insured to act recklessly or dishonestly because they are covered by insurance

Answer

Moral hazard refers to the behavioral change that insurance can cause — knowing losses will be covered may reduce the insured's incentive to prevent them or may even encourage fraud.

Question 3

What is 'morale hazard' (attitudinal hazard)?

Accepted Answer

Carelessness or indifference to potential loss because of insurance coverage

Answer

Morale hazard is the unconscious increase in risk-taking or lack of care that results from having insurance coverage, as opposed to the intentional fraud associated with moral hazard.

Question 4

What is an 'ISO Commercial Lines Manual' (CLM) used for?

Accepted Answer

Providing standardized rules, forms, and rating instructions for commercial insurance

Answer

The ISO Commercial Lines Manual provides the standardized rating rules, classification codes, forms, and endorsements that insurers use to write commercial property and casualty coverage.

Question 5

What is 'book of business' in insurance underwriting?

Accepted Answer

The total portfolio of policies written by an insurer or agent

Answer

A book of business refers to the entire collection of insurance policies that an insurer, agent, or underwriter manages and is responsible for.

Property And Casualty Insurance License Practice Test

Property And Casualty Insurance License Practice Test

Property And Casualty Insurance License Underwriting and Rating 3