Insurance Contracts & Underwriting Flashcards
6 cards from real BCP practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 6 Insurance Contracts & Underwriting flashcards as text
What is 'underinsurance' and why is it problematic in property insurance?
Answer: Insuring property for less than its full value, causing proportional claim reductions under the average clause
Underinsurance occurs when property is insured for less than its full value. Under the average clause, any claim is reduced proportionally (sum insured / actual value × loss), meaning the insured effectively self-insures the shortfall.
What is 'facultative reinsurance'?
Answer: Reinsurance arranged on a case-by-case basis for individual risks
Facultative reinsurance is arranged on a case-by-case basis for individual risks. The cedant offers the risk and the reinsurer has the 'faculty' (option) to accept or decline it, unlike treaty arrangements.
What is a 'treaty reinsurance' arrangement?
Answer: An agreement where the cedant automatically cedes and the reinsurer automatically accepts a defined portfolio of risks
Treaty reinsurance is an automatic arrangement where the cedant agrees to cede, and the reinsurer agrees to accept, all risks falling within a defined class or portfolio, without individual negotiation for each risk.
What does 'retention' mean in the context of reinsurance?
Answer: The amount of each risk the cedant (primary insurer) keeps for its own account
Retention is the amount or proportion of each risk that the cedant (primary insurer) keeps on its own account. Losses up to the retention are borne entirely by the cedant; amounts above are passed to the reinsurer.
What is the purpose of a 'tariff' in insurance underwriting?
Answer: A standardized set of premium rates published for certain classes of insurance, providing consistency in pricing
A tariff is a standardized set of premium rates for certain insurance classes, ensuring pricing consistency across the market. Singapore has moved away from many tariffs toward a free-market rating approach.
What is 'risk survey' and why is it conducted before underwriting large risks?
Answer: A physical inspection and assessment of the proposed risk to gather underwriting information and identify risk improvements
A risk survey involves physical inspection of the proposed risk (e.g., a factory or commercial property) to gather detailed underwriting information, assess hazards, and identify risk improvement recommendations before the insurer decides to accept.