Assignment 8 - Steps in the Underwriting Process

An underwriter receives a renewal application for a property quote from his producer. The applicant has had a series of small losses in the recent past. The underwriter is debating whether to reject the submission or quote it with a property deductible of $5,000. During which one of the following steps in the underwriting process is the underwriter involved? Select one: A. Developing underwriting alternatives B. Evaluating the submission C. Monitoring underwriting decisions D. Implementing the underwriting decision

A. Developing underwriting alternatives

During which one of the following steps in the underwriting process would an underwriter request a loss control visit to a prospective policyholder's location? Select one: A. Evaluating the submission B. Determining underwriting alternatives C. Monitoring the loss exposures D. Implementing the underwriting decision

A. Evaluating the submission

All of the following are principal sources of underwriting information, EXCEPT: Select one: A. Producers B. Underwriting authority reports C. Financial rating services D. Applications

B. Underwriting authority reports

The Bakery, an applicant for commercial property insurance, has experienced a series of property losses over the past three years. In order to find this applicant viable, the underwriter agrees to increase the property deductible. This type of underwriting modification is known as Select one: A. Requiring risk control measures. B. Using schedule rating modifications. C. Amending policy terms and conditions. D. Using facultative reinsurance.

C. Amending policy terms and conditions.

A rating plan available to commercial insurance applicants that awards debits and credits to a submission based on specific categories is known as a(n) Select one: A. Retrospective rating plan. B. Financial rating plan. C. Schedule rating plan. D. Experience rating plan.

C. Schedule rating plan.

The final, and ongoing, step in the underwriting process is monitoring underwriting decisions. Which one of the following statements is correct with respect to this process? Select one: A. Because underwriters do not have the resources necessary for constant monitoring of all individual policies, existing policies are reviewed only upon renewal. B. Renewal underwriting is typically more time-consuming than new business underwriting as claim reports and risk control reports must be reviewed. C. The underwriter is tasked with monitoring both individual policies and books of business to ensure that satisfactory results are achieved. D. Underwriters will generally not concern themselves with changes in the nature of the insured's business when monitoring the insured's policy.

C. The underwriter is tasked with monitoring both individual policies and books of business to ensure that satisfactory results are achieved.

Once an underwriter has evaluated a submission, selected and applied any appropriate modifications, and determined the premium, the next step is to implement the underwriting decision. To implement the decision, the underwriter should first Select one: A. Record data about the applicant and the policy. B. Prepare and issue an invoice to the insured. C. Issue a binder and prepare certificates of insurance. D. Communicate the decision to the producer.

D. Communicate the decision to the producer.

Rating agencies such as Dun & Bradstreet (D&B) provide Select one: A. Information about business operations' safety records. B. Aggregate loss experience data. C. Data on motor vehicle reports. D. Data on the applicant's financial status.

D. Data on the applicant's financial status.

An applicant for commercial property insurance is found unacceptable by an underwriter due to the nature of its operations and the construction of the building it occupies. If the applicant installs an automatic fire-extinguishing sprinkler system, the underwriter will approve the application. This type of underwriting modification is known as Select one: A. Changing insurance rates, rating plans, or policy limits. B. Requiring risk control measures. C. Using facultative reinsurance. D. Amending the policy terms and conditions.

B. Requiring risk control measures.

The underwriter must evaluate each underwriting alternative carefully and select the optimal one under the circumstances. Which one of the following is true regarding the selection of an alternative? Select one: A. Underwriters should decline accounts they expect will have losses. B. Underwriters should ensure that accepting a submission supports the insurer's goals for mix of business. C. Underwriters should avoid evaluating all lines of business from an applicant as a whole. D. Underwriters should look for reasons to reject submissions.

B. Underwriters should ensure that accepting a submission supports the insurer's goals for mix of business.

An underwriter may accept a submission as is, reject the submission, or make a counteroffer to accept the submission subject to modifications. Which one of the following statements is correct with respect to these modifications? Select one: A. Amendments to policy terms and conditions are prohibited by state regulation as a means for an insurer to make a counteroffer. B. Using a different rating plan can provide pricing flexibility so that the underwriter can properly price a submission based on its loss exposures. C. Treaty reinsurance is used by underwriters to reinsure classes of business with atypical loss exposures. D. Because insurers are unable to verify whether or not an applicant has implemented risk control measures, counteroffers cannot require them.

B. Using a different rating plan can provide pricing flexibility so that the underwriter can properly price a submission based on its loss exposures.

Which one of the following is an underwriting evaluation tool that uses Global Positioning System (GPS) tracking to collect and analyze data regarding driver behavior and vehicle use? Select one: A. Telematics B. Predictive modeling C. Catastrophe modeling D. Predictive analytics

A. Telematics

The first step in the underwriting process is evaluating the submission. Which one of the following statements is correct with respect to that evaluation? Select one: A. Underwriters must understand the activities, operations, and character of each applicant. B. The goal is for underwriters to obtain as much information as possible about each submission they review. C. Expert underwriting systems allow for automated decision making for all commercial lines submissions. D. The application is the only principal source of underwriting information for most submissions.

A. Underwriters must understand the activities, operations, and character of each applicant.