Underwriting and Rating Flashcards
6 cards from real Property And Casualty Insurance License practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 6 Underwriting and Rating flashcards as text
What is a 'surplus lines' insurer?
Answer: A non-admitted insurer that covers risks that admitted carriers won't write
Surplus lines insurers are not licensed (admitted) in a state but are authorized to write coverage for unusual or hard-to-place risks that admitted carriers decline.
What is a 'residual market' or 'assigned risk plan' for auto insurance?
Answer: A mechanism to provide coverage to drivers who cannot obtain insurance in the voluntary market
Assigned risk plans (also called auto insurance plans) assign high-risk drivers who are rejected by the voluntary market to participating insurers on a rotational basis.
What does 'filed rate' mean in insurance regulation?
Answer: A rate submitted to and approved by the state insurance department before use
In prior-approval states, insurers must file rates with the state insurance department and receive approval before using them; in file-and-use states, rates are filed and can be used immediately.
What is 'combined ratio' in insurance?
Answer: The sum of the loss ratio and expense ratio, measuring underwriting profitability
The combined ratio equals the loss ratio plus the expense ratio; a combined ratio below 100% indicates underwriting profit, while above 100% indicates an underwriting loss.
What is a 'retrospective rating plan'?
Answer: A plan where the final premium is adjusted after the policy period based on the insured's actual losses
Under a retrospective rating plan, the insured pays an initial estimated premium, which is later adjusted based on actual losses incurred during the policy period, within minimum and maximum limits.
What is 'reinsurance' and why do insurers purchase it?
Answer: Insurance that one insurer buys from another to spread risk and protect against catastrophic losses
Reinsurance allows primary insurers to transfer portions of their risk to reinsurers, stabilizing earnings, protecting surplus, and enabling them to write more business.