CAIB 2 - Chapter 2 - Flashcards

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Questions and Answers

What is the role of brokers in the insurance process?

Brokers act as intermediaries between clients and insurers, handling communication, risk assessment, and submissions.

What is underwriting?

The process of evaluating and selecting risks for insurance.

What is an insurance submission?

The application and supporting documents outlining the risk characteristics to be insured.

What is risk classification?

Categorizing risks into groups based on shared characteristics, influencing premium pricing and coverage. Signup and view all the answers

What is adverse selection?

The tendency of higher-risk individuals to seek insurance more than lower-risk ones. Signup and view all the answers

What is the purpose of building construction classes in insurance?

Building construction, occupancy, and external exposures influencing risk. Signup and view all the answers

What is the role of loss experience data in insurance?

Historical claims data used to assess risks and set premiums. Signup and view all the answers

What are inspection reports used for in the insurance process?

Verification of physical characteristics, requiring applicant cooperation for proper risk assessment. Signup and view all the answers

What is the purpose of survey completion in the insurance process?

Identifying potential loss exposures, coverages, and underwriting information. Signup and view all the answers

What is binding coverage?

Process including inspections and submission of basic risk information to secure temporary coverage. Signup and view all the answers

A hard market is characterized by low premiums and wide availability of insurance.

False Signup and view all the answers

A soft market is characterized by high premiums and limited availability of insurance.

False Signup and view all the answers

What are two common types of protection in insurance?

Property and Casualty Signup and view all the answers

What are four functions of underwriters in the insurance process?

The functions of underwriters include reviewing applications, assessing risks, setting premiums, and determining coverage options. Signup and view all the answers

What is moral hazard?

The tendency of insured individuals to take more risks once they are insured, knowing that they are protected from financial losses. Signup and view all the answers

What is the difference between hard and soft markets in insurance?

Hard markets are characterized by high premiums and limited availability of insurance, while soft markets are characterized by lower premiums and wider availability. Signup and view all the answers

Study Notes

Broker's Role

Brokers act as intermediaries between clients and insurers, handling communication, risk assessment, and insurance application.

Underwriting Process

Evaluating and selecting risks for insurance.
Application and supporting documents outline risk characteristics.
Categorizing risks into groups based on shared characteristics.
Premium pricing and coverage are influenced by risk characteristics.
Higher-risk individuals are more likely to seek insurance.

Risk Classification

Categorizing risks according to shared characteristics.
This influences premium pricing and coverage.

Adverse Selection

Higher-risk individuals are more likely to seek insurance than lower-risk ones.

Physical Hazards

Building construction, occupancy, and external exposures influence risk.

Moral Hazard

Ethical behavior issues related to insurance claim misuse.

Building Construction Classes

Building types (e.g., fire resistive, non-combustible) affect risk assessment.

Loss Experience Data

Historical claims data is used to assess risks and set premiums.

Inspection Reports

Physical characteristics of the property are verified requiring applicant cooperation.

Survey Completion

Process includes inspections and submission of basic risk information to secure temporary coverage.

Binding Coverage

Temporary coverage is secured through inspections and submission of basic risk information.

Hard Market

High premiums and limited availability in the insurance market.

Soft Market

Lower premiums and wider availability in the insurance market.

Underwriter's Decision

Decisions regarding acceptance, modification, rejection, or deferral of insurance submissions are made.

Premium Pricing

Determining rates based on market conditions and risk.

Underwriting Guides

Insurance companies use these guides to ensure consistent risk selection.

Claims Information

Access to and use of historical claims data impacts underwriting.

Buildings Over 25 Years Old

This factor is considered in underwriting.

Types of Protection

Two types of protection are discussed.

Functions of Underwriters

Four functions are described.

Adverse Selection Definition

Defined within the context of insurance.

Risk Classification Utilization

When risk classification tools and methods are used.

Changes in Hard Markets

Characteristics of hard markets.

Moral Hazard Explanation

Description of moral hazard in the context of insurance.

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