1.11 Insurer Underwriting

Question 1

Underwriter

Answer 1

The underwriter’s primary responsibilities include the selection of risks by determining insurability. Insurable interest is also established at that time. The underwriter also determines the classification, or type of risk, and premium rating if a risk is accepted by the insurer.

Underwriting protects the insurer against adverse selection and risks that are more likely than average to suffer losses. The goal is to select risks that fall into the normal range of expected losses. The field underwriter is the producer.

Question 2

Underwriting Factors

Answer 2

A. Age
B. Gender
C. Tobacco use
D. Medical history and preexisting conditions
E. Hazardous hobbies and occupations

Question 3

Premium Assumptions

Answer 3

An adequate premium must be charged for the risk, based on the same factors used in evaluating the risk. Premium rates are considered inadequate when they do not cover projected losses and expenses. Rates must not be excessive or unfairly discriminatory.

Rate – The dollar amount charged for a particular unit of insurance, such as $5 per $1,000 of insurance

Premium – The total cost for the amount of insurance purchased

$50,000 of coverage = $5 rate x 50 (per $1,000 of insurance) for a $250 premium.