Unit Test ?s- Underwriting Basics

When available, the best source for an applicants driving record is?

An MVR (Motor Vehicle Record)

Which of the following is usually considered to be the single most important personal auto insurance risk characteristic?

Driving record

Which of the following is likely to be a good source of accurate information about the financial stability of a commercial applicant?

Dun and Bradstreet, Inc. (one of several companies that rates the financial condition of businesses)

Under what type of reinsurance agreement is no specific amount of insurance ceded, but the reinsurer shares in the premium and losses?

Excess of loss

The crucial risk characteristics for commercial liability insurance are?

personal characteristics, business reputation, physical condition of the premises, and type of operations or services.

The crucial risk characteristics for commercial property risks are?

building condition, type of occupancy, amount of insurance, and financial condition.

Coverage is requested on a 40 year old restored, 3 story, single family brick dwelling, The property also includes a storage barn that has no lock and a chain link fence around the backyard. The dwelling's replacement value is $125,000. Which of the following characteristics of this dwelling might be of particular concern to an underwriter?

Condition of the dwelling

An applicant for a personal auto policy has had 3 speeding tickets during the past 3 year. This applicant would probably be considered?

A substandard risk

Which of the following criteria is "NOT" used by underwriters when they evaluate the consequences of the underwriting alternatives?

Line Limits

An engineering report indicates that the electrical wiring in the applicant's building was not up to the city's building code. What type of hazard, if any, is this?

Physical Hazard

What is the prevailing standard for determining whether to reunderwrite a book of business for loss frequency?

The insurance company's standard underwriting guidelines.

An underwriter and a producer with a poor loss ratio are reviewing the producer's book of business. How will this business probably be underwritten?

The underwriter and the producer will look at each account individually and decide what, if any, underwriting action is required.

When reinsurance is provided in layers, what is the usual rule for determining the point at which each surplus treaty goes into effect?

The upper limit of each successive surplus treaty is used up before the next surplus treaty goes into effect.

Two basic types of reinsurance are?

Treaty and facultative

In what type of physical hazard situation, if any, is a deductible most likely to be an effective control?

When the hazard is within the applicants control

When risks are otherwise acceptable, what should underwriters do about morale hazards?

Attempt to find ways to control those hazards so the risks are acceptable

Which of the following situations that result in in-force underwriting indicates a frequency-of-loss problem?

An insured autos have been insured by the same company for 10 years. During the past 3 years, the insured had submitted 4 auto physical damage claims, 1 bodily injury claim, and 3 property damage claims.

The most subjective information underwriters might receive is likely to come from?

Moral reports

Which of the following is an external exposure hazard?

Neighboring chemical manufacturing plant

Which of the following businesses probably has the greatest exposure to liability losses because of its type of business operation?

Prescription drug manufacturer

Four producers have the following producer loss ratios for the past 3 years. In each case, the most recent ratio is listed last. Which producer's book of business probably needs reunderwriting?

57.9%, 66.5%, 83.2% - The producers loss ratio has increased every year over the 3 year period, breakeven point is between 60-65%, the producers book of business is performing very poorly.

When an underwriter wants to accept a risk and knows a moral hazard might exist, but the policy being applied for has no provision to control that hazard, what option, if any, does the underwriter have?

Add specific exclusions to the policy

When evaluating information about risks, underwriters know that?

All information must be considered as a whole, relative to the specific situation.

Underwriters should directly communicate their decisions to accept risks with modifications to the producers, rather then allowing them to discover those modifications when the policies are issued, to?

Allow both the producers and the applicants to understand the reasons for those modifications.

A producer wants an underwriter to accept a marginal personal auto policy risk because all of the insured's commercial lines coverages are with the same insurance company. In addition, the state has a compulsory insurance law for motorists. This is an example of which criteria for evaluation alternative underwriting actions?

Both producer pressure and supporting lines of business

Which of the following terms is commonly applied to an underwriter who is physically located in and underwrites from a home or branch office of an insurance company?

Company Underwriter

Considering only the risk characteristic of business reputation, which of the following businesses would probably be an unacceptable risk for commercial liability insurance?

Complaints about an applicants company have been filed with the state attorneys general's office by over 50 customers in the past 3 years.

What 3 characteristics are vital to good communications between underwriters and other people?

Comprehensibility, credibility, and relevance

A families personal auto policy covers 2 standard cars and a sports car. The sports car, which is driven by the family's teenage children, has been involved in 2 serious auto accidents during the past 2 years. The underwriters best option for handling this account would be to?

Continue the policy only if the insured agrees to omit the sports car from coverage.

Which of the following is NOT a risk characteristic used to evaluate personal auto risks?

Drivers education level

An underwriter looks at an applicants risk characteristics and the characteristics of the property to be covered. Which step of the underwriting process is this underwriter performing?

Evaluate the information

The primary function of underwriting is to?

Make a profit for the insurance company

When underwriters make underwriting decisions, they should?

Make the best decisions they can with the information they have, as quickly as possible.

What is redlining?

Refusing to write insurance for people who are located in certain geographical areas.

The tool through which some of the risks an insurance company had assumed under its contracts of insurance are transferred to one or several other insurance companies in exchange for a premium is called?

Reinsurance

The process of determining which risks are acceptable so there is a good spread of risk is called?

Risk selection

Receiving adverse information about an applicants personal living habits from only one of the several sources contacted for this information is likely a sign that?

The adverse information may be incorrect or exaggerated

In a reinsurance transaction, the retention amount is?

The amount of liability a ceding company does not cede to a reinsurer.

About which of the following situations involving homeowners insurance would the underwriter be particularly concerned?

The chimney on an applicants home is missing many bricks, 2 basement windows are broken, and the lock on the garage door is broken. ***The home is in disrepair and can present physical hazards.

An underwriter might ask questions about whether an older dwellings wiring and plumbing have been updated to determine?

The condition of the dwelling.