CPCU 520 - Chapter 4 - Combined - ZA

What are the steps in the underwriting decision-making process?

1) Evaluate loss exposures, 2) Determine underwriting alternatives, 3) select an underwriting alternative, 4) determine the appropriate premium, 5) Implement the underwriting decision, 6) Monitor the loss exposures

What four major modifications can be made or recommended to make a submission more acceptable to an underwriter?

1) require loss control measures, 2) change insurance rates, rating plans, or policy limits, 3) amend policy terms and conditions, 4) use facultative reinsurance

What are the steps in the underwriting decision making process?

1. Evaluate the loss exposures 2. Determine underwriting alternatives 3. Select an underwriting alternative 4. Determine the appropriate premium 5. Implement the underwriting decision 6. Monitor the loss exposures

What four major modifications can be made or recommended to make a submission more acceptable to an underwriter?

1. Require loss contol measures. 2. Change insurance rates, rating plans, or policy limits. 3. Amend policy terms and conditions. 4. Use facultative reinsurance.

Attitudinal or morale hazard

A condition of carelessness or indifference that increases the frequency or severity of loss.

Legal hazard

A condition of the legal environment that increases loss frequency or severity.

Moral hazard

A condition that increases the likelihood that a person will intentionally cause or exaggerate a loss.

Line underwriter

Underwriter who is primarily responsible for implementing the steps in the underwriiting process.

Book of business

A group of policies, also called a portfolio, with a common characteristic, such as territory or type of coverage, or all policies written by a particuliar insurer, producer, or agency.

Underwriting audit

A process in which members of an insurer's home office underwriting department examine files to see whether underwriters in branch or regional offices are following underwriting guidelines.

Retrospective rating

A ratemaking technique that adjusts the insured's premium for the current policy based on the insured's loss experience during the current period; paid losses or incurred losses may be used to determine loss experience.

Experience rating

A ratemaking technique that adjusts the insured's premium for the upcoming policy period based on the insured's experience for the current period.

Schedule rating

A rating plan that awards debits and credits based on specific categories, such as care and the condition of the premises or the training and selection of employees.

Adverse selection

A situation that occurs because people with the greatest probability of loss are the ones most likely to purchase insurance.

Physical hazard

A tangible condition of property, persons, or operations that increase the frequency or severity of the loss.

Explain how financial capacity affects underwriting policy

If a particular type of business is experiencing a level of losses that exceeds the level anticipated by the rate, the insurer might decide to stop pursuing that class of business. When establishing underwriting policy, insurers must also consider the effect of catastrophic losses and might decide to limit their writing of a given type of insurance in a particular territory

Staff underwriter

Underwriter who is usually located in the home office and who assists underwriting management with making and implementing underwriting policy.

Explain how financial capacity affects underwriting policy.

If a particuliar type of business is experiencing a levels of losses that exceeds the level anticipated by the rate, the insurer might decide to stop pursuing that class of business. When establishing underwriting policy, insurers must also consider the effects of catastrophic losses and might decide to limit their writing of a given type of insurance in a particuliar territory.

Explain the factors to consider in extending underwriting authority to producers

Insurer's philosophy, the experience and profitability of the producer, and the type of insurance involved

Explain how personnel and physical resources affects underwriting policy.

Insurers require a sufficient number of properly trained underwriters with specialized expertise in those types of insurance that the company provides. Insurers also must have personnel where they are needed.

Explain how personnel and physical resources affect underwriting policy

Insurers require a sufficient number of properly trained underwriters with specialized expertise in those types of insurance the company provides. Insurers also must have personnel where they are needed.

Distinguish between line and staff underwriting positions

Line underwriters are primarily responsible for implementing the steps in the underwriting process. Line underwriters are generally in branch or regional offices. Staff underwriting activities usually take place at the home-office level and involve assisting underwriting management with making and implementing underwriting policy

Distinguish between line and staff underwriter positions.

Line underwriters are primarily responsible for implementing the steps in the underwriting process. Line underwriters are generally in branch or regional offices. Staff underwriting activities usually take place at the home-office level and involve assisting underwriting management with making and implementing underwriting policy.

Describe the major staff underwriting activities.

Researching the market, researching and developing coverages, evaluating underwriting experience, reviewing and revising rate plans, formulating underwriting policy, preparing underwriting guides, conducting underwriting audits, and assisting in education and training.

IIA Insurance Company recognizes that the combined ratio should not be the sole measure used to evaluate underwriting performance. Describe other, nonfinancial measures available to IIA

Other measures available include reviewing adherence to selection and pricing standards; the product mix; the number of accommodated risks written; the retention ratio or the number of policies renewed out of the total available for renewal; and the success ratio that indicates how many policies were written out of the total number of quotations for coverage that were provided. Standards for service to producers are another measure of performance

Describe other non financial measures available to evaluate underwriting performance.

Other measures include reviewing adherence to selection and pricing standards; the product mix; the number of accomodated risks written; the retention ratio;the success ratio; Standards for service to producers are another measure of performance.

Describe the purpose of underwriting and the effect of adverse selection on the insurance selection process

Purpose of underwriting is to develop and maintain a profitable book of business for the insurer. Adverse selection occurs when applicants for insurance present a higher-than-average probability for loss. To minimize the effects of adverse selection, underwriters must select those risks that meet company guidelines and charge premiums that adequately reflect the policyholders' exposure to loss

Explain how regulation affects underwriting policy

Regulation affects rate levels and forms used by insurers. If rate levels within a territory are inadequate in relation to claim costs, an insurer might decide to withdraw from that type of insurance within the specific judgement

Explain how regulation affects underwriting policy.

Regulation affects rate levels and forms used by insurers. If rate levels within a territory are inadequate in relation to claim costs, an insurer might decide to withdraw from that type of insurance within the specific jurisdiction.

Describe the major staff underwriting activities

Researching the market, researching and developing coverages, evaluating underwriting experience, reviewing and revising rating plans, formulating underwriting policy, preparing underwriting guides, conducting underwriting audits, and assisting in education and training

Retention ratio

The percentage of insurance policies renewed.

Explain how reinsurance affects underwriting policy

The price and availability of reinsurance treaties might affect which type of insurance is written

Explain how reinsurance affects underwriting policy.

The price and availability of reinsurance treaties might affect which type of insurance is written.

Underwriting

The process of determining what loss exposures will be insured, for what of insurance, at what price and under what conditions.

What factors may affect an insurer's reliance on producers to field underwrite?

The producer involved, the types of business, and the marketing system used.

Describe the purpose of underwriting and the effect of adverse selection on the insurance selection process.

The purpose of underwriting is to develop and maintain a profitable book of business for the insurer. Adverse selection occurs when applicants for insurance present a higher-than-average probability for loss. To minimize the effects of adverse selection, underwriters must select those risks that meet company guidelines and charge premiums that adequately reflect the policyholders' exposure to loss.

Success ratio

The ratio of insurance policies written to those that have been quoted to applicants for insurance.

Explain why and how underwriting audits are usually conducted

These audits determine whether underwriters are properly implementing underwriting policy. They are conducted by one underwriter or a team of underwriters from the home office who review selected policies

Explain why and how underwriting audits are usually conducted.

These audits determine whether underwriters are properly implementing underwriting policy. They are conducted by one underwriter or a team of underwriters from the home office who review selected policies.

Explain the factors to consider in extending underwriting authority to producers.

These factors include the insurer's philosophy, the experience and profitability of the producer and the type of insurance involved.

Describe the major line underwriting activities.

Underwriters are responsible for implementing the steps in the underwriting process which include evaluating loss exposures, determining appropriate premiums, and monitoring loss exposures. Underwriters also assist in determining appropriate coverage and providing ongoing service to producers and policyholders.

Describe the major line underwriting activities

Underwriters are responsible for implementing the steps in the underwriting process, which include evaluating loss exposures, determining appropriate premiums, and monitoring loss exposures. Underwriters also assist with determing appropriate coverage and provide ongoing service to producers and policyholders

How do underwriting guides direct an insurer's underwriting activities?

Underwriting guides provide for structured decisions and identify the major elements that line underwriters should evaluate for each type of insurance

How do underwriting guides direct an insurers underwriting activities?

Underwriting guides provide for structured decisions and identify the major elements that line underwriters should evaluate for each type of insurance.

What factors may affect an insurer's reliance on producers to field underwriter?

the producer involved, the types of business, and the marketing system used