How Does Underwriting Work?

As an experienced underwriter, Rick has learned to make every effort to avoid a mistake that can produce insufficient premium to cover losses, or pricing that isn't competitive. Which one of the following underwriting mistakes can often cause these issues?

Misclassifying exposures

Which one of the following statements is correct regarding the interaction between risk control and other insurer functions?

A risk control evaluation can make the difference between the applicant's being rejected or accepted by the underwriter

Bob is shopping for auto insurance. Insurance Company A's rating system determines that Bob should be charged $800 per auto. If Bob is looking to insure four autos, what premium will he be charged by Insurance Company A?

$3,200

Shelton manufacturing has $1 million in annual sales, its liability insurance is priced per 1,000 of sales, and the per-unit rate is $0.50. What is Shelton Manufacturing's liability insurance premium?

$500. Calculated at 1,000 units ($1 million sales / price per $1,000) * $0.50 rate = $500

Clare is a commercial lines underwriter. She always tries to follow underwriting guidelines, effectively evaluate loss exposures, and charge adequate premiums. By doing these things, Clare's goal is to ensure

Adequate policyholders' surplus

Insuring individuals with a high probability of loss at a cost lower than the insurer would normally charge for that risk because it wasn't aware of the actual risk involved is known as

Adverse selection

Which one of the following is a temporary agreement providing insurance coverage until the formal policy is issued?

Binder

Aimee recently accepted a job in the Underwriting department at Noble Insurance Company. Her responsibilities will include developing coverage forms, arranging reinsurance agreements, and conducting underwriting audits. Which one of the following is the title of Aimee's new job?

Corporate Underwriter

Which of the following is the first step in the underwriting process?

Evaluate the submission

Which one of the following is the fundamental measure of loss exposure used in insurance rating?

Exposure unit

Produce, such as apples or grapes, may be priced by the unit or by the pound. In insurance, these measures are similar to

Exposure units

Brian works in the Underwriting department for DGH Insurance. In addition to carefully selecting insureds, he works with producers and premium auditors to ensure accurate classification and pricing. Brian is a

Field underwriter

Anna was reviewing an all-lines submission for SP Markets. SP Markets owns and operates 5 small grocery stores located in the suburbs of Boston. The stores all seem to be well maintained and clean. While the overall loss experience on the account is good relative to the indicated premium, the loss runs show a frequency of small general liability claims from customer slips and falls. Rather than reject the application for SP Markets, Anna would like to suggest a coverage modification to the producer that could make the application acceptable and possibly add value for the insured. Which one of the following is a good coverage modification for Anna to suggest?

Propose the general liability coverage at a lower premium level, but apply a small deductible

Tony now works at the corporate level for Newtown Insurance. He is considered a staff underwriter. Which one of the following is primarily a responsibility of staff underwriters?

Revise underwriting guidelines

Which of the following statements is correct regarding the interaction between risk control and other insurer functions?

Risk control personnel can assist underwriters in modifying a new applicant's loss exposures to meet eligibility requirements

Jill works in the field for Goshen Mutual as a line underwriter. Which one of the following is primarily a responsibility of line underwriters?

Select insureds

The size of an employer's loss exposure for workers compensation insurance is based on

The amount of its payroll