Underwriting- Write it Right! - CE

Surplus Treaty

The reinsurer agrees to accept a specified amount of insurance on each application that exceeds a certain level, known as the retention level or net retention level.

Excess-Loss Treaty Reinsurance

The reinsurer agrees to accept losses above a specified amount, up to a maximum amount.

Experience Merit Rating

When the experience of the insured over a specified period is used, the applicant is generally asked about relevant behavior or occurrences applicable to the insurance coverage.

Underwriting outsourcing is typically done for the following reasons EXCEPT:

When the insurer has not developed underwriting rules for a particular class of insurance it issues.

Flex-rating system

An insurer may establish rates within a stated range or band of rates without prior approval from the state insurance department. The insurer must always comply with the state laws that require that rates are adequate.

Health Insurance

Insurance that protects against financial loss due to sickness or bodily injury. Also known as "accident and health" or "accident and sickness".

Property Coverage

Insurance which provides protection against the risk of financial loss due to property damage.

Scheduled Merit Rating

Manual rates are used as the base rate, and rates are added or subtracted from this base rate based on amounts determined for various risk characteristics.

Underwriting

based on a variety of criteria, established by each insurer and regulated by state and federal law.

Merit Rating

Manual rates are used and then modified based on specific characteristics of the risks.

Appraisal

A calculation of the value of the property, loss or damage.

Guaranteed Issue

A concept used in health, disability, and life insurance underwriting. It means that anyone who applies for the guaranteed issue policy will be accepted; no denials based on preexisting med. conditions. Often present in group plans

Reinsurance Pools

A group of insurers that jointly underwrite risks. Generally are formed to provide insurance for high risk, high limit coverage.

Insurable Risk

A loss must: arise from pure risk, be definable, be calculable, not occur to many people simultaneously, and not be intentional.

Factors in underwriting

Age, sex, health & health history, occupation & occupation history, financial condition, personal habits such as smoking or drinking, size of the policy, current insurance in force.

Open competition system

Also known as a no-file system, the insurance dept. does not require rates to be filed or approved. The insurer is allowed to set rates based on its own experience or based on rates supplied by a rate bureau.

Application

An insurance form completed using information from the prospective insured, pertaining to the risk to be insured.

Hazard

An insurance term used to describe conditions that increase risk.

Indemnity

An underlying insurance principle that precludes the insured from making a profit on a loss. When one is indemnified, one is reimbursed for the amount of the loss, and no more.

Facultative Reinsurnace

Called street reinsurance; utilized when an application is received by the direct writer that exceeds its maximum underwriting standard.

Definable Loss

Can be defined in terms of cause, time, place and amount.

Facultative Reinsurance

Case by case basis

Applying the same rates to everyone in an insurance pool is known as:

Community rating

Elements of a Valid Contract

Consideration, agreement, competent parties, legal purpose or legal subject matter.

Treaty Reinsurance

Effected through an ongoing agreement between the direct write and the reinsurer.

Gramm-Leach-Bliley Act

Enacted Nov. 12, 1999; also known as the Financial Services Modernization Act. This act is broad in scope and regulates many aspects of financial transactions. States that each financial institution has an affirmative and continuing obligation to respect the privacy of its customers and to protect the security and confidentiality of those customer's nonpublic personal information.

5 methods that may be used by states regarding the setting and use of p & c rates:

Flex-rating, prior approval, open competition, file-and-use, and use-and-file laws.

Henry applied for a health insurance policy as part of an employee group. It was issued with no requirement for med. underwriting. Henry's health policy is:

Guaranteed issue

Legal Purpose

In prop. insurance, a contract with an illegal purpose may be one entered into in conjunction with a contract with an arson to burn the property insured.

Treaty Reinsurance

Involves an ongoing agreement between the ceding insurer and the reinsurer.

An insurer is asked to underwrite a large, outdoor music festival for liability and property risks. the insurer is one of a few that provides insurance for this type of event. Which type of rate determination method is the insurer most likely to use?

Judgment rating

What type of application is being underwritten that involves evaluating past losses, judgments and settlements in terms of the likelihood of re-occurrence in order to determine relative future risk?

Liability insurance

Experience, retrospective, and scheduled are each forms of:

Merit rating

Prior approval system

Most commonly used; the insurer files the rates it intends to use with the insurance dept. prior to using these rates.

Calculable Loss

Must be able to calculate both actual and expected losses.

Pure Risk

One which cannot result in the possibility of gain.

Competent Parties

Ones having the legal capacity to enter into a contract.

When a state insurance dept. does not require rates to be filed or approved for a type of insurance product, and the insurer uses its own experience in setting rates, the rate system is known as:

Open competition

National Association of Insurance Commissioners

Organization comprised of state insurance commissioners which drafts model insurance regulation and collects and reports stats and other info on the insurance industry.

Manual Rating

Pre-determined rates found in manuals are used to set rates for each policy.

Which of the following is NOT a factor in determining premium rates for an applicant? a. risk characteristics b. state law c. race d. policy benefits selected by the applicant

Race

Judgment Rating

Refers to the underwriter using his or her own knowledge and experience to determine the rate that should be assigned to the applicant.

Privacy Laws

Regulate and limit the ways in which information may be collected and use. They also regulate how and when collected information may be disseminated to others, if at all.

A method that provides a way for an insurer to take on risks that are larger, or take on a larger number of similar risks, that it would otherwise be able to is:

Reinsurance

File-and-use

Requires that rates and rate changes be filed by the insurance company, but the insurer may use them immediately.

Federal Privacy Laws that were passed between 1970-1990s

Right to Financial Privacy Act of 1978 Privacy Protection Act of 1980 Cable Communications Policy Act of 1984 Electronic Communications Privacy Act of 1986 Video Privacy Protection Act of 1998 Telephone Consumer Protection Act of 1991 Health Insurance Portability and Accountability Act of 1996

Consideration

Something of value that induces the parties involved into making a contractual agreement. Consideration may be monetary, or can be in the form of a promise or an act. In an insurance contract, premium is the consideration.

Quota Share Treaty Reinsurance

The ceding insurer and the reinsurer agree that each will share policies on a specified percentage basis. Both the premium and the loss are shared based on this percentage.

Use-and-file

The insurer must file rates with the insurance dept., but does so for informational purposes only.

In reinsurance, which party is the "ceding insurer"?

The insurer who originally wrote the policies.

Insurability

The overall acceptability of an individual as an insurance risk.

When a general partnership wants to purchase a commercial property and casualty package policy, what document should be checked by the licensee to determine whether the person signing the insurance application has authority to transact insurance on behalf of the partnership?

The partnership agreement

Dividend

The payment of surplus to policyholders due to favorable experience related to return, mortality rates, and/or expense charges.

Reinsurance

The transfer of all or a portion of the insurance written by one insurer to another insurer.

Retrospective Merit Rating

The underwriter reviewing the loss experience during the policy period and setting a rate based on that loss experience.

What is the process of determining whether an insured is an acceptable risk, and if so at what premium rate the insured will be accepted?

Underwriting

Once a property casualty insurance policy is issued:

Underwriting factors are monitored at renewal

An insurer issues life policies to two persons with the same health characteristics, sex, and age. Each policy has a $500,000 death benefit. However, the insurer charges one of the insureds a higher amount because of his race. The insurer is guilty of:

Unfair discrimination

A group health plan governed by the ACA's provisions requires all enrollees to be genetically tested as a condition for enrollment. The plan:

is in violation of the law

Underwriting

is the function of evaluating the subject of insurance, whether a person, property, profession, business, or other entity, and determining whether to insure it.

When a group of property casualty insurers agree to jointly underwrite high risk coverage aviation coverage, the insurers will form:

reinsurance pools

Which federal act governs the use of consumer reports, such as a credit rating agency report?

the Fair Credit Reporting Act

The most important insurance underwriting resource is:

the application.

The amount of insurance a direct writer retains under a reinsurance agreement is known as:

the retention level