3. Practices of Underwriting

Question 1

A … are policies with various sections combined into one document.

Answer 1

multi-peril policy

Question 2

Commercial lines insurance focuses on insuring …

Answer 2

businesses & business related losses

Question 3

Describe the six factors that are taken into account when underwriting domestic insurance.

Answer 3

1. Good Faith principle
2. Age
3. Income
4. Health (if life-insurance)
5. Insurable interest
6. Insured amount

Question 4

Describe the process of arranging cover, from application to payment of a premium.

Answer 4

1. The person wanting the cover need to apply for it.
2. In the process of applying for the cover information will be gathered and verified. All relevant information needs to be disclosed.
3. The underwriter will determine the risk, the premium and terms & conditions for the person applying and whether they will accept the cover or not.
4. The underwriter can then decline, accept at standard terms or accept with special terms.
5. The proposal form with the offer will need to be signed by the person applying.
6. After that the policy will issue and the process of premium collection will take place.

Question 5

Name five sections in a multi-peril policy that can be included?

Answer 5

1. fire
2. buildings
3. theft
4. accidental damage
5. money

Question 6

Personal lines insurance focuses on individuals insuring their …

Answer 6

cars, personal belongings, etc.

Question 7

The 6 purposes of an insurance proposal is:

Answer 7

1. to provide information
2. to make a legal offer
3. to provide a quotation
4. to describe the cover
5. to advertise
6. to establish a warranty

Question 8

The principle of utmost good faith applies to insurance contracts.

• the underwriter uses the facts to decide on the (1)… and even whether to accept the risk or not.
• the insured should pay his fair share into the common pool. This can not happen without (2)…

Answer 8

(1) premium, terms & conditions

(2) good faith

Question 9

(1)… deals with under-insurance. The rule states that the under-insured individual is entitled to (2)… , subject to the maximum limit of the policy.

Answer 9

(1) Average

(2) the full amount of loss

Question 10

… makes sure that the person can not claim more that what the insurable asset is worth. Therefore also not making a profit.

Answer 10

Contribution

Question 11

… makes sure that the person does not make a profit from the loss because he would not be able to claim from his own insurer as well as the third party insurer. Therefore not making a profit.

Answer 11

Subrogation

Question 12

… is all about putting the person back into his financial position before the loss. So therefore the person can not make a profit from a loss.

Answer 12

Indemnity

Question 13

… simply means the insured will be put back in the financial position before his financial loss.

Answer 13

Indemnity