Resource Qestions Ch 7-9

Study 7:

• The insurer's bucket of premium includes premium, pure premium, acquisition cost, commission, and admin expense.
• Other expenses for which the insurer needs to allocate premium include development factor, trend factors, and admin expense.
• Underwriting loss can be offset through investments.
• Ratemaking for insurance is different from pricing other businesses because it is based on loss data and prices must be set before costs are known.
• The role of the actuary regarding ratemaking is to use statistical techniques to develop the forecast of rates needed to provide sufficient premium for future losses.
• Ratemaking differs from rating in that ratemaking is the process of developing the overall pricing strategy for an insurance company, while rating is the application of that strategy to individual policyholders.
• The major components of any rate include anticipated cost of settling claims, acquisition costs of the business, and admin costs.
• The two conditions for rate adequacy are actuary forecast and sample being representative of the population.
• The number and nature of rating classes should be chosen carefully to ensure accurate pricing.
• Exposure base is used to calculate the amount of insurance coverage needed for a particular risk, while unit is the specific amount of the exposure base.

Study 8:

• Cultivating relationships with other underwriters is beneficial for consultation on unfamiliar risks.
• Facultative reinsurance is required for hazardous occupancies, risks in unprotected areas, risks with potential catastrophic loss, liability risks with long-tail losses, and risks with high value.
• Underwriting credit is established by sharing a mix of risks with the facultative reinsurer and demonstrating extensive knowledge on the risks.
• There is tension between underwriters and brokers during the insurance buying process, which can be relieved by building a professional and strong relationship with mutual respect.
• A good relationship with the risk manager is important as they have in-depth knowledge of the risk and can provide critical information to the underwriter.
• Maintaining a good relationship with the claims and loss control departments provides insights on the risk's loss experience and recommendations for risk improvement.
• The legal department can help the underwriter understand the legal implications of policy wording.
• It is not easy for the underwriter to have a customer focus due to the need to say no to customers and maintain logical and fair decision-making.
• Centralized insurers have a more entrepreneurial approach while decentralized insurers have more consistency in decision-making.
• Mergers and acquisitions can affect the underwriting function, particularly if the companies involved have different corporate cultures, UW types, marketing strategies, or lines of business.

Study 9:

• Companies can be sales-focused or underwriting-driven, which affects the way they underwrite risks.
• Sales-driven companies tend to underwrite large volumes of personal lines risks using rigid line guides.
• Underwriting-driven companies tend to underwrite large and complex industrial risks.
• Underwriting should focus on quality of risk over quantity
• Foreign parentage affects underwriting strategy due to cultural and economic differences
• Technology has made the underwriting process more efficient but also creates information overload
• Social trends affecting insurance include sexual abuse lawsuits, aging population, and environmental contamination
• Privacy concerns impact insurers due to the risk of personal information breaches and identity theft
• Recent judicial trends, such as Walkerton and toxic mold cases, affect underwriting decisions
• The state of the economy can impact underwriting through changes in risk and hazards.

This quiz covers important topics related to insurance underwriting, including the components of a premium, the difference between ratemaking and rating, the importance of relationships with other underwriters and departments within an insurance company, and the impact of technology and social trends on underwriting. Test your knowledge on key concepts and strategies for successful underwriting in the insurance industry.