Insurance Underwriting Process Quiz

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Questions and Answers

Which of the following is NOT a step in the audit process?

Assign liability for non-compliance (correct)

Select the auditors

Ensure results are reported to relevant managers

Define the audit criteria and scope

What type of insurance specifically addresses low probability, high-cost events?

Reinsurance

General liability insurance

Catastrophe insurance (correct)

Retrocession insurance

In the context of insurance, what does retrocession refer to?

The portion of risk not retained by the company (correct)

A secondary insurer covering part of a primary insurer's losses

An insurance company refusing to pay a claim

A type of investment account for insurance companies

Who holds the primary responsibility for conducting an incident investigation?

The front-line supervisor Signup and view all the answers

Which of the following is the first step of the Hierarchy of Controls?

Elimination Signup and view all the answers

What is the primary focus of an underwriter when evaluating a submission?

Understanding the risks associated with the applicant Signup and view all the answers

Which of the following is NOT one of the possible actions an underwriter can take after evaluating a submission?

Accept without any conditions Signup and view all the answers

When an underwriter selects the best underwriting alternative, what is primarily considered?

The submission’s adherence to risk management strategies Signup and view all the answers

What is a significant consequence of rejecting a submission for an underwriter?

Incurring expenses without obtaining premium or commission Signup and view all the answers

Which step must occur immediately after an underwriting decision is made?

Communicating the decision to the producer Signup and view all the answers

Which of the following best describes the role of pricing within the underwriting process?

An important factor that influences acceptance of an applicant Signup and view all the answers

What is the primary purpose of monitoring underwriting decisions after implementation?

To assess the performance of the underwriting decisions over time Signup and view all the answers

Which factor is NOT a consideration in personal auto underwriting?

Fuel efficiency Signup and view all the answers

Which of the following is a primary source of personal auto underwriting information?

Driver records Signup and view all the answers

What aspect is included in commercial auto liability underwriting considerations?

Special industry classifications Signup and view all the answers

Which piece of information is LEAST relevant for assessing a property's risk in underwriting?

Interest rates Signup and view all the answers

Which of the following is NOT an aspect of the commercial auto physical damage underwriting considerations?

Driver training programs Signup and view all the answers

What best describes the process of rating in insurance underwriting?

Applying rates and determining policy premiums Signup and view all the answers

Which source does NOT provide supplemental information for underwriting?

General public opinions Signup and view all the answers

What is a moral hazard in the context of insurance risk?

Conditions that lead to intentional loss Signup and view all the answers

What does a loss run typically detail?

An insured's history of claims Signup and view all the answers

Which of the following is NOT considered a source of information for identifying personal loss exposures in umbrella applications?

Consumer credit scores Signup and view all the answers

What is the primary purpose of predictive modeling in underwriting?

To determine liability loss potential Signup and view all the answers

Which factor is crucial for an underwriter when determining eligibility for specific operations?

Underwriting guidelines Signup and view all the answers

Which element is essential for underwriters to evaluate when reviewing underlying insurance?

Coverage limits and deductibles Signup and view all the answers

What unusual situation can potentially lead to significant liability losses for property owners?

A person's dog biting a neighbor Signup and view all the answers

When might an underwriter require higher underlying limits of liability?

For specific loss exposures with greater risk Signup and view all the answers

Which of the following is NOT a method underwriters use to analyze losses?

Market analysis Signup and view all the answers

In which scenario might an insurer only provide umbrella coverage over their own primary policies?

When the insurer has a predominant interest in the exposure Signup and view all the answers

Which element is essential for compliance during the underwriting process?

Referencing underwriting guidelines Signup and view all the answers

Which predictive modeling aspect incorporates multiple variables to anticipate future outcomes?

Historical data blending with behaviors Signup and view all the answers

What does ALE stand for and how is it calculated?

Annualised Loss Expectancy, calculated as ARO * SLE Signup and view all the answers

Which of the following is NOT a step in the risk prioritization process?

Implement mitigation strategies immediately Signup and view all the answers

In which scenario would risk acceptance be the most appropriate strategy?

When the cost of controls outweighs the value of the equipment Signup and view all the answers

What is the primary goal of risk controls?

To reduce risks and be cost-effective Signup and view all the answers

Which type of controls restricts physical access to information or facilities?

Physical controls Signup and view all the answers

What defines residual risks?

Risks that are not worth addressing but are covered by disaster recovery Signup and view all the answers

Which of the following statements is true regarding administrative controls?

They cover personnel security and risk management. Signup and view all the answers

Which action represents risk transfer?

Taking out insurance to cover potential losses. Signup and view all the answers

What is a sign of risk rejection?

Refusing to acknowledge that a risk exists at all. Signup and view all the answers

Study Notes

Risk Management

Risk is the possibility of loss or injury.
Risk Management is the process for managing risk to achieve objectives.
Insurable Risk is risk that meets insurance company criteria.
Insurance is paid protection against injury or property damage.
Uninsurable Risk is unacceptable to insurance companies due to minimizing harm.
Controllable Risk can be managed to minimize harm.
Uncontrollable Risk cannot be controlled to minimize harm.
Pure Risk involves loss only, no gain.
Economic Risk is the likelihood of financial loss.
Human Risk is harm due to mistakes or dishonesty.
Natural Risk is the potential for catastrophes (e.g., flood, earthquake).
Premium is the price paid for insurance coverage.
Peril is a possible cause of loss.
Hazard increases the chance of loss through peril.
Insurance Policy is a contract between a party and an insurance company.

Actual Cash Value

The value of an asset when new, minus depreciation.

Depreciation

The decline in value of an asset.

Financial Responsibility Law

Law requiring drivers to pay for damages caused in an accident.

Compulsory Insurance Law

Law requiring drivers to have a minimum amount of car insurance.

No-Fault Insurance

Insurance where drivers collect damages from their own insurer, regardless of fault.

Claim

Request for payment for covered damages.

Deductible

Amount a policyholder must pay before insurance covers a claim.

Real Property

Property attached to land (e.g., houses, businesses).

Personal Property

Movable possessions (e.g., furniture, jewelry).

Renters Insurance

Covers loss or damage to renters' possessions.

Standard Fire Policy

Covers damage due to fire or lightning.

Extended Coverage

Additional protection beyond basic insurance.

Homeowners Policy

Covers damage to property and personal items, plus liability protection, including living expenses during a home's destruction.

Rider

An addition to an insurance policy, covering specific property or damages.

Replacement Value

The full cost of repairing or replacing something, regardless of depreciation.

Life Insurance

Insurance paid to designated people upon death.

Proceeds

The face value of a life insurance policy

Beneficiary

Person receiving insurance policy proceeds.

Cash-Value Insurance

Insurance with savings and death benefits.

Term Insurance

Time-limited insurance coverage.

Coinsurance

Percentage of medical costs a policyholder pays.

Copayment

Fee paid each time a service is used.

Pre-Existing Condition

Serious health condition before obtaining health insurance.

Health Maintenance Organization (HMO)

Health care organization with fixed-fee centers.

Preferred Provider Organization (PPO)

Group of doctors and hospitals with agreed fees.

Medicare

Federal health insurance for elderly.

Medicaid

Federal health insurance for low-income individuals.

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Description

Test your knowledge on the insurance underwriting process with this quiz. Explore key concepts such as incident investigation, audit steps, and the role of pricing in underwriting decisions. Perfect for students and professionals in the insurance field.