Property And Casualty Insurance License Underwriting and Rating 1

Question 1

What is the primary purpose of underwriting in insurance?

Accepted Answer

To select and classify risks so that appropriate premiums are charged and adverse selection is avoided

Answer

To process claims quickly

Answer

To market policies to new customers

Answer

To invest premium dollars for profit

Question 2

What is 'adverse selection' in insurance?

Accepted Answer

The tendency for higher-risk individuals to seek insurance more than lower-risk individuals

Answer

The insurer's tendency to reject all risky applications

Answer

The insurer's practice of selecting only profitable markets

Answer

The insured's choice of the lowest-premium policy

Question 3

What is a 'rating bureau' in property and casualty insurance?

Accepted Answer

An organization that develops and files advisory loss costs and rating systems used by member insurers

Answer

A government agency that approves all rates

Answer

An entity that pays claims on behalf of insolvent insurers

Answer

A consumer bureau that rates insurer financial strength

Question 4

What are 'loss costs' in insurance rating?

Accepted Answer

The portion of the premium intended to cover expected claims, before loading for expenses and profit

Answer

The total expenses incurred processing claims

Answer

The deductibles retained by the insured

Answer

The reinsurance premiums paid by the insurer

Question 5

What is 'experience rating'?

Accepted Answer

Adjusting a premium based on the insured's own past loss experience

Answer

Rating based solely on industry-wide statistics

Answer

Setting rates based on the agent's experience level

Answer

Applying discounts for long-term policyholders only

Question 6

What is a 'schedule rating' modification?

Accepted Answer

Debits and credits applied to a base rate based on specific physical or operational characteristics of the risk

Answer

A rating plan that follows a fixed payment schedule

Answer

A rating plan for seasonal businesses

Answer

Automatic rate adjustments on policy anniversaries