Resource Qestions Ch 7-9
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Questions and Answers

What is the role of the actuary regarding ratemaking?

  • To determine pricing for individual policyholders
  • To develop the overall pricing strategy for an insurance company (correct)
  • To allocate premium for development factor, trend factors, and admin expense
  • To offset underwriting loss through investments

    • What is the role of the actuary in ratemaking?

  • To determine the price of individual policies
  • To develop the overall pricing strategy for an insurance company (correct)
  • To calculate the amount of insurance coverage needed for a particular risk
  • To provide insights on the risk's loss experience and recommendations for risk improvement

    • What is the role of the actuary in ratemaking?

  • To set prices after costs are known
  • To allocate premium for development factor and trend factors
  • To use statistical techniques to develop the forecast of rates needed for future losses (correct)
  • To determine the number and nature of rating classes

    • What are the major components of any rate?

    <p>The anticipated cost of settling claims, the acquisition costs of the business, and admin costs</p> Signup and view all the answers

    What is the difference between ratemaking and rating?

    <p>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</p> Signup and view all the answers

    What is the exposure base used for in insurance?

    <p>To calculate the amount of insurance coverage needed for a particular risk</p> Signup and view all the answers

    What is the purpose of facultative reinsurance?

    <p>To provide coverage for risks with potential catastrophic loss</p> Signup and view all the answers

    What are the two conditions for rate adequacy?

    <p>Actuary forecast and sample being representative of the population</p> Signup and view all the answers

    What is the difference between ratemaking and rating?

    <p>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</p> Signup and view all the answers

    Which risks require facultative reinsurance?

    <p>Risks with potential catastrophic loss</p> Signup and view all the answers

    What is the impact of mergers and acquisitions on the underwriting function?

    <p>It can affect the underwriting function if the companies involved have different corporate cultures, UW types, marketing strategies, or lines of business</p> Signup and view all the answers

    What is exposure base used for in underwriting?

    <p>To calculate the amount of insurance coverage needed for a particular risk</p> Signup and view all the answers

    What is underwriting credit?

    <p>The demonstration of extensive knowledge on the risks</p> Signup and view all the answers

    When is facultative reinsurance required?

    <p>For hazardous occupancies, risks in unprotected areas, risks with potential catastrophic loss, liability risks with long-tail losses, and risks with high value</p> Signup and view all the answers

    What is the difference between ratemaking and rating?

    <p>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</p> Signup and view all the answers

    What is the impact of foreign parentage on underwriting strategy?

    <p>It causes cultural and economic differences</p> Signup and view all the answers

    What is underwriting credit?

    <p>The establishment of credit with a facultative reinsurer by sharing a mix of risks and demonstrating extensive knowledge on the risks</p> Signup and view all the answers

    What is the exposure base used for in underwriting?

    <p>To calculate the amount of insurance coverage needed for a particular risk</p> Signup and view all the answers

    How can underwriters relieve tension with brokers during the insurance buying process?

    <p>By building a professional and strong relationship with mutual respect</p> Signup and view all the answers

    How can underwriting loss be offset?

    <p>Through investments</p> Signup and view all the answers

    What is the impact of mergers and acquisitions on the underwriting function?

    <p>It can lead to more consistency in decision-making</p> Signup and view all the answers

    What is the impact of foreign parentage on underwriting strategy?

    <p>It affects underwriting strategy due to cultural and economic differences</p> Signup and view all the answers

    What is the purpose of the exposure unit in insurance?

    <p>To calculate the amount of insurance coverage needed for a particular risk</p> Signup and view all the answers

    What is the difference between sales-driven and underwriting-driven companies?

    <p>Sales-driven companies tend to underwrite large volumes of personal lines risks using rigid line guides, while underwriting-driven companies tend to underwrite large and complex industrial risks</p> Signup and view all the answers

    What are the two conditions for rate adequacy?

    <p>Actuary forecast and sample being representative of the population</p> Signup and view all the answers

    What social trends are affecting insurance?

    <p>Sexual abuse lawsuits and environmental contamination</p> Signup and view all the answers

    What is the tension between underwriters and brokers during the insurance buying process?

    <p>Underwriters want to say no to customers, while brokers want to say yes to customers</p> Signup and view all the answers

    How does the state of the economy impact underwriting?

    <p>It causes changes in risk and hazards</p> Signup and view all the answers

    Study Notes

    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.

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    Description

    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.

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