M80 Underwriting Practice Exam Guide 2024/2025

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Questions and Answers

What does the delay of an insured in producing reports and requesting postponements indicate to the underwriter?

Pre-inception physical and post-inception moral hazards.
Post-inception moral and physical hazards plus potential post-loss moral hazard. (correct)
Pre-inception and post-inception moral hazards.
Post-inception moral and physical hazards only.

What is the expected number of claims if the probabilities for one to five claims are 0.1, 0.1, 0.3, 0.2, and 0.3, respectively?

3.7 (correct)
3.3
3.5
3.9

In what situations is the mode a more relevant measure of average than the median?

When the data consists of nominal categories.
When the data relates to monetary values rather than time periods.
When there are extreme outliers in the data.
When there is no obvious middle value. (correct)

What must an underwriter do to assess risk over time after determining exposure for a household risk?

Compare the premium with similar risks in the market. (C) Signup and view all the answers

What can be deduced from the set of data: 3, 5, 10, 14, 22, 25, 28, 35, and 42?

The median is 22. (C) Signup and view all the answers

What is indicated by a list of insurance data: 10, 20, 20, 30, 40, 60, and 60?

The arithmetic mean equals the median average. (A) Signup and view all the answers

What type of claims does fraudulent behavior typically encompass?

Deliberately concealed previous claims. (C) Signup and view all the answers

What does a higher frequency of claims generally indicate about a risk?

The risk may require higher premiums to account for potential losses. (A) Signup and view all the answers

What is the impact of a cancellation clause in Rob's insurance policy?

It also allows cancellation by the insurer. (C) Signup and view all the answers

What responsibility must a broker understand when considering becoming a Managing General Agent?

It will effectively hold the underwriting pen of the insurer. (A) Signup and view all the answers

Why would an underwriter delegate authority to a specialist coverholder?

To maximise profitability and reduce reinsurance costs. (A) Signup and view all the answers

What channel is most likely used by a large manufacturer of sweets to buy property and liability insurance?

Via an intermediary. (D) Signup and view all the answers

What is a primary role of the Insurance Fraud Enforcement Department regarding illegal intermediaries?

To identify altered client information and invalid policy documents. (D) Signup and view all the answers

When expanding into an overseas territory, what risk factors should a large UK insurer primarily consider?

Cultural, financial and political. (A) Signup and view all the answers

What should insurers aim to identify to combat the issue of professional enablers?

Claims where criminal gangs have deliberately caused vehicles to crash. (D) Signup and view all the answers

What type of risk exposure should insurers evaluate when entering a new market?

Cultural sensitivities. (D) Signup and view all the answers

What does the presence of both modal averages being 20 and 60 indicate about the data set?

There are two distinct groups in the data. (B) Signup and view all the answers

What conclusion can an underwriter draw when the standard deviation of claims has increased over time?

There is increasing uncertainty in claims experience. (A) Signup and view all the answers

What does using the relative frequency method by underwriter X imply about their approach to claims assessment?

They assume historical trends will continue. (C) Signup and view all the answers

When analyzing claims experience, why is an underwriter encouraged to use a large sample size rather than a homogeneous database?

It captures variability in claims that smaller datasets cannot. (C) Signup and view all the answers

If an underwriter observes a higher premium level correlating with profitability, what misunderstanding might they have?

That low premium means low profitability. (D) Signup and view all the answers

In assessing the insurance data of values 5, 10, 10, 20, and 30, what would be the correct interpretation of the median?

The median is 15. (A) Signup and view all the answers

What is a key implication when the incidence of fraud is reducing, according to claims data?

Profitability is likely decreasing. (D) Signup and view all the answers

What can be concluded about the modal average in the given insurance data set?

It reflects the most frequently occurring value. (D) Signup and view all the answers

Flashcards

Moral Hazard (Post-Inception)

A situation where an insured's behavior changes after a policy is taken out due to insurance coverage, leading to an increased risk of claim.

Expected Value of Claims

Average number of claims predicted for a given period or scenario by multiplying each possible value by its probability, then summing those values.