AU 60 - Assignment 3 - Underwriting Information

Premium audit

Methodical examination of a policyholder's operations, records, and books of account to determine the actual exposure units and premium for insurance coverages already provided.

D. Request a risk control report.

When underwriters want someone other than the producer submitting an application to make a physical inspection of an account, they usually A. Conduct the inspection or request that another underwriting team member conduct the inspection. B. Engage the services of a private inspection firm that reports on physical as well as financial aspects of the account. C. Request the records of the prior insurer. D. Request a risk control report.

D. All of the above

Which of the following statements regarding the role of the producer in underwriting an account is (are) true? A. With first-hand knowledge of the account, the producer can answer many questions for the underwriter. B. The extent of the producer's familiarity with the prospect influences the credibility of the information on the application. C. Producers should understand the type of accounts the insurer prefers, as well as the insurer's underwriting guidelines. D. All of the above

Front-line underwriter

A producer performing account selection before submitting the account to the insurer.

risk control report

A ____ contains information gathered specifically at the request of the underwriter by an insurer representative who visits the account and makes a report of his or her findings.

Application

A legal document that provides information obtained directly from an applicant requesting insurance and that an insurer can use for underwriting and claim handling purposes.

Loss history

A listing of past claims, including the date of occurrence, the line of business, the type or description of the claim, the date of the claim, the amount paid, the amount reserved, and the claim's current status.

Experience rating plan

A rating plan that increases or reduces the premium for a future period based on the insured's own loss experience for a period in the recent past.

Risk control report

A record that contains account information gathered as a result of a physical inspection by an insurer's risk control representative specifically at the request of an underwriter.

A. Best's Underwriting Guide

Alex has been a commercial underwriter for two years. He has received a multi-lines submission for a company in an industry that he is not very familiar with. Which one of the following external resources would give Alex a general description of the industry's operations and the level of hazard by line of insurance? A. Best's Underwriting Guide B. Fire Protection Handbook C. Dun & Bradstreet Report D. Scopes Manual

B. Insurance department fines

All of the following are consequences to an applicant who provides false information on an insurance application, EXCEPT: A. Criminal penalties B. Insurance department fines C. Civil penalties

B. Valuation guides

All of the following are internal sources of underwriting information, EXCEPT: A. Insurer files B. Valuation guides C. Risk control reports D. Marketing representatives

Fee for service company

An independent contractor who specializes in loss control work and who is paid for each loss control survey performed.

C. Exposures.

An underwriter analyzing historical loss data for loss frequency trends must also evaluate historical A. Financial statements. B. Premiums. C. Exposures. D. Inflation rates.

A. Dun & Bradstreet report

An underwriter concerned with an account's growth potential and ability to pay future premiums should use which one of the following external sources? A. Dun & Bradstreet report B. Insurance Services Office's Premium Audit Advisory Service C. Account's Web site D. Marshall & Swift evaluation

C. Building construction

An underwriter has been asked to review a commercial package application for a four-story apartment building. Which one of the following pieces of information would the underwriter consider essential? A. Loss history B. Payment history C. Building construction D. Physical inspection

D. Statutes in many states limit an insurer's right to cancel to a brief period of time.

Because of the expense of risk control reports and the importance of making a quick decision on a new submission, underwriters sometimes approve a submission subject to a favorable risk control report. Why is it critical that the underwriter receive the report quickly after the policy's inception date? A. The underwriter can quickly revise the pricing and billing. B. Competition has limited time to revise its proposal to the applicant. C. The applicant has time to decide if they want to correct any problems before the renewal. D. Statutes in many states limit an insurer's right to cancel to a brief period of time.

A. The application.

Because underwriters must gather and process information efficiently, they should make the best possible use of the information immediately available. The two sources of information that are available as soon as the underwriter receives a submission are the producer and A. The application. B. The insured. C. Risk control reports. D. Motor vehicle reports (MVRs).

A. Valuation guides

Commercial property and inland marine underwriters are most likely to use which one of the following external sources of information? A. Valuation guides B. Internet C. Government records D. Financial reporting services

Loss severity

The amount of loss, typically measured in dollars, for a loss that has occurred.

B. Premium auditor

Emma is a workers compensation underwriter. She has been advised that one of her insureds is expanding its operations, and she is not sure how to classify the new payroll. Which one of the following of her fellow employees should Emma go to for help? A. Claims adjuster B. Premium auditor C. Risk control representative D. Producer

D. All of the above

For commercial property and inland marine insurance, the underwriter must verify the values of insured property for which of the following reasons? A. If the value shown on the application is too low, the underwriter will not receive sufficient premium. B. If the value on the application is too high, the insured will pay for coverage it does not need. C. If the policy limit exceeds the value of the property, the insured might be tempted to cause a loss intentionally or might not protect the property from loss. D. All of the above

C. To actuarially develop a premium specific to the exposure

For most accounts, the information provided on the application is sufficient to make an underwriting decision. An underwriter might want additional information for all of the following reasons, EXCEPT: A. To handle complex accounts or ones that present a relatively high degree of risk B. To investigate conflicting information C. To actuarially develop a premium specific to the exposure D. To collect missing information

B. The producer

For obtaining information regarding an account, upon which one of the following do underwriters most rely? A. The applicant B. The producer C. The claim representative D. The underwriting manager

B. Essential.

From an underwriting perspective, most of the information that is requested on a commercial application would be considered A. Proprietary. B. Essential. C. Desirable. D. Available.

B. To confirm or update the loss history provided by the insured

If an account is experienced rated, for which of the following reasons might an underwriter have to contact the prior carrier? A. To establish a safety program for the account B. To confirm or update the loss history provided by the insured C. To appoint a risk manager for the account D. All the above

C. How the value of the information to underwriting decisions must be weighed relative to its expense and its timeliness.

Information efficiency refers to A. How quickly an underwriter can obtain missing information. B. How cost-effectively an underwriter can obtain missing information. C. How the value of the information to underwriting decisions must be weighed relative to its expense and its timeliness. D. How underwriters can make faster decisions with complete applications.

C. Operational hazards on premises

Information provided by financial reporting services can be used by underwriters to assess all of these types of data, EXCEPT: A. Potential growth of a business B. Policyholder's ability to pay premiums C. Operational hazards on premises D. Company's soundness of management.

D. The number of vehicles per year

James, a commercial lines underwriter, is reviewing an applicant with a large fleet of vehicles for auto coverage. The producer submitted a five year loss summary that includes the number of losses, the amount paid, and the amount reserved per year. James is concerned because both the number of losses and the amount incurred has increased each of the last three years. Which one of the following additional pieces of information would help James determine if losses are really trending upward? A. The drivers' motor vehicle records for each year B. The name of the prior insurer for each year C. A break-down of liability and physical damage losses per year D. The number of vehicles per year

C. Many insurer information systems use codes or brief text messages to describe losses.

Loss information from the prior insurer may not always be particularly helpful because A. The prior insurer may misrepresent or misinterpret prior loss information. B. Past losses are generally not a good indicator of the types of future losses an account will present. C. Many insurer information systems use codes or brief text messages to describe losses. D. Prior insurers have no interest in supplying information to competitors.

A. Motor vehicle reports

Lucas is a commercial underwriter reviewing an automobile insurance application for Jancy Marketing (Jancy). Jancy provides its sales representatives with vehicles to use for business purposes only. The producer states that Jancy has a strong vehicle maintenance program and strict driver selection criteria. Lucas does not have the time or resources to order a risk control report. Which one of the following sources of underwriting information should Lucas use to confirm that Jancy's driver selection program is in place? A. Motor vehicle reports B. Central Analysis Bureau C. Loss history D. Best's Underwriting Guide

A. Document earlier decisions and can greatly reduce the amount of work the new application requires.

Most insurers have some system for keeping previous applications for which they declined to write insurance. These files can be valuable in evaluating new business because they A. Document earlier decisions and can greatly reduce the amount of work the new application requires. B. Are indicative of material misrepresentation on the part of an applicant. C. Eliminate the need to re-underwrite the same account. D. Allow the underwriter to decline the account again without further review.

C. Make risk selection decisions

Rating manuals are used by underwriters to accomplish all of the following tasks, EXCEPT: A. Classify accounts properly B. Rate accounts properly C. Make risk selection decisions D. Identify attributes that make a difference in the price charged

B. Best's Underwriting Guide

Rene Worthington is a commercial underwriter whose expertise is in underwriting retail exposures. Rene has been asked to underwrite an account for a business in the cosmetic industry with which she has little experience. Where may Rene find general information about the cosmetic industry? A. The commercial application B. Best's Underwriting Guide C. In the loss history reports relating to the account D. ACORD

C. Fee for service company

Tania, a commercial property underwriter, has received a new business application for Pravalt Properties (Pravalt). The producer is expecting a quick decision. Three of the properties owned by Pravalt have high values and are located in relatively rural areas. Tania has no specific concerns with the properties, but the underwriting guidelines require that she obtain risk control reports. Which one of the following would be the most timely and cost effective source of the reports? A. Producer B. Marketing representative C. Fee for service company D. Risk control representative

Information efficiency

The balance that underwriters must maintain between the hazards presented by the account and the information needed to underwrite it.

Replacement cost

The cost to repair or replace property using new materials of like kind and quality with no deduction for depreciation.

Loss frequency

The number of losses that occur within a specified period.

Frequency

The underwriter also examines loss frequency and loss severity. Although both are important, ____ is usually a better indicator of future loss experience.

C. Producer.

The underwriter's primary source of dependable information about an account is the A. Applicant. B. Current insurer C. Producer. D. Claims adjuster.

C. Frequency is usually controllable.

Underwriters closely examine loss frequency and severity. Which of the following statements is (are) true regarding frequency and severity? A. Severity refers to the number of losses over a particular period. B. Severity is usually a better indicator of future loss experience. C. Frequency is usually controllable. D. All of the above

C. An account's propensity to report claims

Underwriters should occasionally order a credit report after the account has been accepted and a policy issued. A credit report may be used to indicate the existence of each of the following conditions, EXCEPT: A. Large buildup of inventory B. Lower rating than previous listing C. An account's propensity to report claims D. Debt in excess of net worth

C. Potential for future automobile accidents

Underwriters use insurance applicants' financial and credit analysis reports as indicators of all of the following, EXCEPT: A. Ability to pay premiums B. Moral and morale hazards C. Potential for future automobile accidents D. Financial strength and soundness of management

C. Best's Underwriting Guide

Vincent has been a commercial lines underwriter for less than one year. He has received a new business application for Mellfor Manufacturing (Mellfor). Vincent is not familiar with the manufacturing process used by Mellfor and would like to order a physical inspection. Which one of the following would provide Vincent with general information about the manufacturing process and might avoid the need for a physical inspection? A. Dun & Bradstreet report B. Insurer's underwriting guidelines C. Best's Underwriting Guide D. Predictive analytics

D. Information that is not absolutely necessary but would be helpful in evaluating the account

Which one of the following accurately describes information underwriters would categorize as desirable when evaluating the need for additional information? A. Information that is absolutely necessary to arrive at the decision B. Information that may or may not be helpful C. Information that is not worth making any special effort to obtain D. Information that is not absolutely necessary but would be helpful in evaluating the account

A. Insurance advisory organizations

Which one of the following external sources of underwriting information is more likely to be used by an underwriter in the pricing phase, than in risk-selection decisions? A. Insurance advisory organizations B. Applicant's Web site C. Financial reporting services D. Government reports

B. Insureds' Web sites

Which one of the following external sources of underwriting information should be used to confirm information, rather than as a primary source of the underwriting decision? A. Motor vehicle reports B. Insureds' Web sites C. Dun & Bradstreet reports D. Court records

A. Central Analysis Bureau

Which one of the following financial reporting services focuses on the trucking industry? A. Central Analysis Bureau B. Dun & Bradstreet C. Experian D. Equifax

D. Marketing representative

Which one of the following insurer employees is responsible for establishing goals for producers and training them in insurer policies and procedures? A. Underwriter B. Human resources representative C. Premium auditor D. Marketing representative

C. Risk control representative

Which one of the following insurer employees would be best qualified to answer an underwriter's technical questions about an applicant's operations? A. Premium auditor B. Producer C. Risk control representative D. Claim representative

Rating manuals

____ are the primary source of information used by underwriters to classify and rate accounts properly and identify attributes that make a difference in the price charged the insured.

Actual cash value (ACV)

Cost to replace property with new property of like kind and quality less depreciation.

C. Three

How many years of loss experience, not including the current year, are required by most experience rating plans? A. One B. Two C. Three D. Five

Essential Information

It is helpful for underwriters to make a distinction between information that is essential to their decisions and information that is not. Underwriters use these categories intuitively or consciously when determining whether the additional information should be obtained: ____—information that is absolutely necessary to arrive at the decision

Desirable Information

It is helpful for underwriters to make a distinction between information that is essential to their decisions and information that is not. Underwriters use these categories intuitively or consciously when determining whether the additional information should be obtained: ____—information that is not absolutely necessary but would be helpful in evaluating the account if the information can be obtained at an acceptable cost and without any undue delay

Available Information

It is helpful for underwriters to make a distinction between information that is essential to their decisions and information that is not. Underwriters use these categories intuitively or consciously when determining whether the additional information should be obtained: ____—information that may or may not be helpful and is not worth making any special effort to obtain

A. Central Analysis Bureau

Johanna is a commercial lines underwriter. She has received a new business application for Hallbinger Trucking (Hallbinger). The application indicates that the trucks travel a maximum radius of 100 miles. When she accesses Hallbinger's Web site, Johanna notices that they service areas that are over 100 miles away. Which one of the following would be a reliable external resource for Johanna to use to confirm Hallbinger's filings? A. Central Analysis Bureau B. Securities and Exchange Commission C. Dun & Bradstreet D. Marshall & Swift

B. Motor vehicle reports on drivers

Laura is reviewing a commercial auto application for a company that owns a large fleet of local delivery trucks. Which one of the following pieces of underwriting information would be desirable, but not essential? A. Three years of loss experience B. Motor vehicle reports on drivers C. List of vehicles to be insured D. Coverage limits and deductibles

B. The applicant purchased a higher physical damage deductible.

Maria, a commercial lines underwriter, is reviewing an applicant with a large fleet of vehicles for auto coverage. The producer submitted a five year loss summary that includes the number of losses, the amount paid and the amount reserved by year. The loss summary also separates auto liability and physical damage losses. The number of vehicles insured has been consistent over the five year period. During her loss analysis Maria notes that the auto liability loss frequency and severity has been fairly consistent, but the average physical damage losses have been lower for the last three years. Maria's review of detailed loss runs could confirm that which one of the following changes is the most likely reason for the drop in physical damage losses? A. The applicant improved its driver training program. B. The applicant purchased a higher physical damage deductible. C. The applicant is doing its own repair work. D. The vehicles are older and less expensive to repair.

A. Historical loss frequency is usually a better indicator of future loss experience than severity.

Which one of the following statements is true regarding loss trend analysis? A. Historical loss frequency is usually a better indicator of future loss experience than severity. B. The current year losses are the best indication of future loss experience. C. Historical premiums and losses are needed for loss trend analysis. D. Loss severity is usually more controllable by the applicant than loss frequency.

D. Insurer's underwriting guidelines

Vincent has been a commercial lines underwriter for less than one year. He has received a new business application for Mellfor Manufacturing (Mellfor). Vincent is not familiar with the manufacturing process used by Mellfor and would like to order a physical inspection. Which one of the following would provide direction to Vincent on the use of resources for a physical inspection? A. Best's Underwriting Guide B. Predictive analytics C. Mellfor's Web site D. Insurer's underwriting guidelines

A. Paydex

Which one of the following Dun & Bradstreet report scores shows how promptly the company pays its bills relative to terms? A. Paydex B. Credit score class C. Hazard index D. Financial stress class

C. Premium auditor

Which one of the following insurer representatives is most likely to meet with the insured, see their operations, and review their financial operations on an annual basis? A. Claim representative B. Risk control representative C. Premium auditor D. Marketing representative

D. Claim representative

Which one of the following insurer representatives often meets with the insured in difficult circumstances, but can provide the underwriter with valuable information? A. Marketing representative B. Another underwriter C. Risk control representative D. Claim representative

B. Internet

Which one of the following is a good source of low-cost available information for underwriters? A. Current policy B. Internet C. Application D. Physical inspection

A. A producer decides not to proceed with a prospective client after seeing the operations.

Which one of the following is an example of a producer acting as a front line underwriter? A. A producer decides not to proceed with a prospective client after seeing the operations. B. A producer gives a premium indication after meeting with a prospective client. C. A producer makes coverage recommendations to a prospective client. D. A producer provides limited account information in an effort to get a lower price for a prospective client.

A. Quicker response

Which one of the following is the primary benefit of using the services of an independent contractor who specializes in risk control work to inspect properties, rather than the insurer's risk control representative? A. Quicker response B. Customized reports C. Customer contact D. Independent opinion of risk

C. Application

Which one of the following should provide an underwriter with most of the essential information needed to arrive at a decision on a new business applicant? A. Loss history B. Physical inspection C. Application D. Web site

D. Appraisal of values

Aaron is a property underwriter for Cromley Insurance Company (Cromley). He received a new business submission for a company that currently has auto coverage with Cromley. The producer is expecting Aaron to offer a quick proposal on the property coverage because he has access to the information in the auto file. Which one of the following important sources of property underwriting information would be missing from the auto file? A. Safety consciousness B. Loss history C. Financial analysis D. Appraisal of values

C. To postpone a decision

All of the following are reasons that an underwriter might want to obtain information in addition to the application, EXCEPT: A. To collect missing information B. To verify information C. To postpone a decision D. To investigate conflicting information

D. Insurer's withdrawal from state

An underwriter is reviewing an ACORD Commercial Insurance Application which indicates that coverage has been declined, canceled, or nonrenewed during the past three years. Which one of the following reasons would be least relevant to the current underwriting decision? A. Failure to implement risk control recommendations B. Nonpayment of premium C. Loss experience D. Insurer's withdrawal from state

fee for service (Fee for service companies usually have as many insurers as customers, and can provide risk control reports at a reasonable cost relative to what an insurer would pay for an employee to develop the information.)

Another approach to controlling the cost of using risk control reports is to purchase the services of an independent contractor who specializes in risk control work. These specialists are often referred to as ____ companies.

D. Prior insurer's withdrawal from the applicant's state of operations

Cynthia is reviewing an ACORD commercial application for automobile insurance. The applicant responded "yes" to the question of whether coverage has been declined, canceled, or nonrenewed during the past three years. All of the following explanations for cancellation or nonrenewal would likely affect the desirability of the account from an underwriting standpoint, EXCEPT: A. Nonpayment of premium B. Too many losses with prior insurer C. Unwillingness to implement prior insurer's risk control recommendations D. Prior insurer's withdrawal from the applicant's state of operations

C. 10-K report

Pauline is underwriting an account for a publicly traded company, Discovery Products. She is hoping to find extensive financial information as well as a detailed history of the company, description of current operations, and if possible, Discovery Products' plans for the future. Which one of the following sources of information would best provide Pauline with the information she is seeking? A. Motor vehicle reports (MVRs) B. Real estate records C. 10-K report D. Court records

A. Marketing representative

Samuel is a commercial accounts underwriter working on a new application with five buildings located within the same territory. Samuel would like a photo of each building, and some nontechnical information about the condition of the parking lots and the neighboring buildings. Which one of the following would be the most cost effective source of this information? A. Marketing representative B. Another underwriter C. Claims representative D. Risk control representative

D. They are the most frequently used outside source of information for auto insurance.

Which one of the following statements regarding motor vehicle reports (MVRs) is true? A. They are primarily used in personal lines auto underwriting. B. They can be relied upon to be accurate and complete. C. They are not particularly useful in predicting an account's future losses. D. They are the most frequently used outside source of information for auto insurance.

B. Motor vehicle reports

Which one of the following types of government records do underwriters use most frequently? A. Securities and Exchange Commission 10-K B. Motor vehicle reports C. Real estate records D. Court records