Ch 4

Question 0

What are the additional purposes underwriting serves to achieve profitability?

Answer 0

• Guarding against adverse selection
• Ensuring adequate policyholders’ surplus
• Enforcing underwriting guidelines

Question 1

What is the main purpose of underwriting?

Answer 1

To develop and maintain a profitable book of business.

Question 2

How do underwriters minimize the effects of adverse selection?

Answer 2

Underwriters minimize the effects of adverse selection by carefully selecting the applicants whose loss exposures they are willing to insure, charging appro- priate premiums for the applicants that they do accept with premiums that accurately reflect the loss exposures, and monitoring applications and books of business for unusual patterns of policy growth or loss.

Question 3

Under statutory accounting principles (SAP), an insurer’s total admitted assets minus its total liabilities. Formula: Assets - Liabilities

Answer 3

Policyholders’ Surplus

Question 4

Capacity

Answer 4

The amount of business an insurer is able to write, usually based on a comparison of the insurer’s written premiums to its policyholders’ surplus. The maximum safe premium volume based on surplus.

Question 5

Underwriting Authority

Answer 5

The scope of decisions that an underwriter can make without receiving approval from someone at a higher level. Limits the decisions an underwriter may make without approval from a superior. Authority levels vary by GRADE LEVEL.

Question 6

Line Underwriter

Answer 6

Underwriter who is primarily responsible for implementing the steps in the underwriting process. Makes direct operating decisions.

Question 7

Staff Underwriter

Answer 7

Underwriter who is usually located in the home office and who assists underwriting management with making and implementing underwriting policy. Advises, supports, and services line underwritings

Question 8

What limits an insured’s capacity?

Answer 8

Regulatory guidelines and the insurer’s own voluntary constraints.

Question 9

How do underwriters ensure adequacy of the policyholders’ surplus?

Answer 9

Adhering to underwriting guidelines, making certain that all loss exposures are correctly identified, and charging adequate premium for accepted applications.

Question 10

What is the main focus of staff underwriters and who do they work with?

Answer 10

Managing the risk selection process. They work with the line underwriters and coordinate decisions with other departments to manage the insurance product, pricing, an guidelines.

Question 11

What is the main focus of line underwriters and who do they work with?

Answer 11

Evaluating new submissions and renewal underwriting. They work with producers and applicants.

Question 12

Line underwriter activities.

Answer 12

• Select insured
• Classify and price accounts
• Recommend or provide coverage
• Manage a book of business
• Support producers and insureds
• Coordinate with marketing efforts

Question 13

Staff underwriter activities.

Answer 13

• Research the market
• Formulate underwriting policy
• Revise underwriting guidelines
• Evaluate loss experience
• Research and develop coverage forms
• Review and revise pricing plans
• Arrange treaty reinsurance
• Assist others with complex accounts
• Conduct underwriting audits
• Participate in industry associations
• Conduct education and training

Question 14

Which goals does effective account selection attain?

Answer 14

• avoid adverse selection
• charging adequate premiums or accounts with higher than average chance of loss.
• selecting better-than-average accounts for which the premium charged will be more than adequate
• rationing an insured’a available capacity to obtain an optimum spread of loss exposures by location, class, size of risk, and line of business.

Question 15

The process of grouping accounts with similar attributes so that they can be priced appropriately.

Answer 15

Classification.

Question 16

What happens if a risk is classified incorrectly?

Answer 16

If too high, insured may leave carrier.

If too low, premium is inadequate.

Question 17

Why do underwriters sometimes have to determine an applicant’s insurance needs?

Answer 17

Some applicants use alternate risk transfer for some exposures but use insurance for others. Underwriters have to ask questions to make sure there are no gaps. They may have to broaden coverage as a result.

Question 18

Why do underwriters sometimes have to narrow coverage?

Answer 18

Producers sometimes request broader coverage than the insurer offers. Instead if declining coverage, the insurer may propose higher deductibles or fewer causes of loss.

Question 19

An insurance policy that is specifically drafted according to terms negotiated between a specific insured (or group of insureds) and an insurer.

Answer 19

Manuscript policy.

Question 20

What do production underwriters do?

Answer 20

Confer personally with producers and assist them with developing accounts that are acceptable to the insurer.

Question 21

Staff underwriters’ market research includes an ongoing evaluation of which items?

Answer 21

• effects of adding or deleting entire types of business
• effects of expanding into additional states or retiring from states presently serviced
• optimal product mix in the book of business.
• premium volume goals

Question 22

A guide to individual and aggregate policy selection that supports an insurer’s mission statement.

Answer 22

Underwriting policy.

Question 23

Explain the factors to consider in extending underwriting authority to producers

Answer 23

Insurer’s philosophy, the experience and profitability of the producer, and the type of insurance involved

Question 24

Describe the purpose of underwriting and the effect of adverse selection on the insurance selection process

Answer 24

Purpose of underwriting is to develop and maintain a profitable book of business for the insurer. Adverse selection occurs when applicants for insurance present a higher-than-average probability for loss. To minimize the effects of adverse selection, underwriters must select those risks that meet company guidelines and charge premiums that adequately reflect the policyholders’ exposure to loss

Question 25

What factors may affect an insurer’s reliance on producers to field underwriter?

Answer 25

the producer involved, the types of business, and the marketing system used

Question 26

What are the steps in the underwriting decision-making process?

Answer 26

1) Evaluate loss exposures,
2) Determine underwriting alternatives,
3) select an underwriting alternative, 4) determine the appropriate premium,
5) Implement the underwriting decision,
6) Monitor the loss exposures

Question 27

What four major modifications can be made or recommended to make a submission more acceptable to an underwriter?

Answer 27

1) require loss control measures,
2) change insurance rates, rating plans, or policy limits,
3) amend policy terms and conditions,
4) use facultative reinsurance

Question 28

Distinguish between line and staff underwriting positions

Answer 28

Line underwriters are primarily responsible for implementing the steps in the underwriting process. Line underwriters are generally in branch or regional offices. Staff underwriting activities usually take place at the home-office level and involve assisting underwriting management with making and implementing underwriting policy

Question 29

Describe the major line underwriting activities

Answer 29

Underwriters are responsible for implementing the steps in the underwriting process, which include evaluating loss exposures, determining appropriate premiums, and monitoring loss exposures. Underwriters also assist with determing appropriate coverage and provide ongoing service to producers and policyholders

Question 30

Describe the major staff underwriting activities

Answer 30

Researching the market, researching and developing coverages, evaluating underwriting experience, reviewing and revising rating plans, formulating underwriting policy, preparing underwriting guides, conducting underwriting audits, and assisting in education and training

Question 31

Explain how financial capacity affects underwriting policy

Answer 31

If a particular type of business is experiencing a level of losses that exceeds the level anticipated by the rate, the insurer might decide to stop pursuing that class of business. When establishing underwriting policy, insurers must also consider the effect of catastrophic losses and might decide to limit their writing of a given type of insurance in a particular territory

Question 32

Explain how regulation affects underwriting policy

Answer 32

Regulation affects rate levels and forms used by insurers. If rate levels within a territory are inadequate in relation to claim costs, an insurer might decide to withdraw from that type of insurance within the specific judgement

Question 33

Explain how personnel and physical resources affect underwriting policy

Answer 33

Insurers require a sufficient number of properly trained underwriters with specialized expertise in those types of insurance the company provides. Insurers also must have personnel where they are needed.

Question 34

Explain how reinsurance affects underwriting policy

Answer 34

The price and availability of reinsurance treaties might affect which type of insurance is written

Question 35

How do underwriting guides direct an insurer’s underwriting activities?

Answer 35

Underwriting guides provide for structured decisions and identify the major elements that line underwriters should evaluate for each type of insurance

Question 36

Explain why and how underwriting audits are usually conducted

Answer 36

These audits determine whether underwriters are properly implementing underwriting policy. They are conducted by one underwriter or a team of underwriters from the home office who review selected policies

Question 38

IIA Insurance Company recognizes that the combined ratio should not be the sole measure used to evaluate underwriting performance. Describe other, nonfinancial measures available to IIA

Answer 38

Other measures available include reviewing adherence to selection and pricing standards; the product mix; the number of accommodated risks written; the retention ratio or the number of policies renewed out of the total available for renewal; and the success ratio that indicates how many policies were written out of the total number of quotations for coverage that were provided. Standards for service to producers are another measure of performance

Question 39

1-3 Describe the approaches underwriters take to ensure that the policies of accepted applicants adhere to underwriting guidelines.

Answer 39

If loss exposures, risks, or policy limits on an application exceed an underwriter’s authority, he or she will seek approval through supervisory and management ranks within the underwriting department.

Question 40

2-3. Some underwriting guides contain systematic instructions for handling particular classes of commercial accounts. Describe the instructions such guides might include.

Answer 40

Such underwriting guides identify specific hazards to evaluate, alternatives to consider, criteria to use when making the final decision, ways to implement the decision, and methods to monitor the decision. The guides may also provide pricing instructions and reinsurance-related information.

Question 41

2-4. Explain how staff underwriters are involved in the development of coverage forms

Answer 41

Staff underwriters work cooperatively with the actuarial and legal departments to develop new coverages and modify existing coverage forms developed by advisory organizations.

Question 42

3-1. Explain why it is important that underwriters operate within their assigned levels of underwriting authority.

Answer 42

Compliance with levels of authority ensures that the insurer accepts applicants within its underwriting policy.

Question 43

3-2. Describe how insurers communicate underwriting authority through underwriting guidelines.

Answer 43

A notation next to a specific classification in the underwriting guide might indicate that a senior underwriter must review and approve an application from that classification before it is processed further. Depending on the concerns that underwriting management places on a classification, underwriting approval might be required from the line underwriter’s branch manager or a staff underwriter at the home office.

Question 44

4-1. Describe the components of an insurer’s financial capacity.

Answer 44

An insurer’s financial capacity refers to the relationship between premiums written and the size of the policyholders’ surplus or the insurer’s net worth.

Question 45

4-2. Explain how rapid premium growth can cause insurers to experience excessive premium-to-surplus ratios.

Answer 45

Rapid premium growth results in a reduction in policyholders’ surplus to pay for expenses generated by that growth, due to conservative statutory accounting principles used in insurance. This constraint often precludes premium expansion unless the insurer purchases reinsurance or obtains more capital.

Question 46

4-3. Identify four ways that regulation may affect underwriting policy.

Answer 46

Regulation may affect underwriting policy in these ways:

1) Insurers must be licensed to write insurance in each state in which they do business.
2) Rates, rules, and forms must be filed with state regulators.
3) Underwriting guidelines are required to be filed in some states.
4) If consumer groups believe that the insurance industry has not adequately served certain geographic areas, regulatory focus on insurance availability can lead to requirements to extend coverage to loss exposures that an insurer might otherwise not write.

Question 47

4-4. Describe the types of underlying insurance forms that may concern reinsurers.

Answer 47

Reinsurers may expressly exclude reinsurance coverage for loss exposures covered by underlying manuscript forms developed for a particular insured or covered by underlying forms developed independently of an advisory organization.

Question 48

5-1. Explain how underwriting guidelines provide a structure for underwriting decisions.

Answer 48

Underwriting guidelines provide a structure for underwriting decisions by identifying the major considerations underwriters should evaluate for each type of insurance the insurer writes.

Question 49

5-2. Contrast routine underwriting decisions with nonroutine underwriting decisions.

Answer 49

Routine decisions are those for which the line underwriter clearly has decision-making authority according to the underwriting guidelines. Nonroutine decisions involve submissions that fall outside the underwriter’s authority.

Question 50

5-3. Explain how compliance with underwriting guidelines ensures adherence to reinsurance treaty limitations.

Answer 50

Compliance with underwriting guidelines ensures that coverage limits and accepted loss exposures will not exceed the insurer’s treaty reinsurance, because staff underwriters reflect those treaty limitations in the guidelines.

Question 51

5-4. Describe the potential advantages of using predictive modeling in making underwriting decisions.

Answer 51

Predictive modeling can provide a consistent way to review individual applications that improves the overall profitability of a book of business. It can also help in managing a large book of business for which conducting an in-depth underwriting review on every account would be too costly.

Question 52

5-5. Explain how underwriting audits provide staff underwriters with information on the effectiveness of existing underwriting guidelines.

Answer 52

Underwriting guidelines that are not being following may be either outdated or considered unrealistic, which could indicate that a critical review for updates is required.

Question 53

6-1. What are the steps in the underwriting process?

Answer 53

6-1. The underwriting process entails these six steps:

a. Evaluate the submission
b. Develop underwriting alternatives
c. Select an underwriting alternative
d. Determine an appropriate premium
e. Implement the underwriting decision
f. Monitor underwriting decisions

Question 54

6-2. List five principal sources of underwriting information.

Answer 54

Any five of these are principal sources of underwriting information:

1) producers
2) insurance applications,
3) inspection reports,
4) government records,
5) financial rating services,
6) loss data,
7) field marketing
8) personnel,
9) premium auditors,
10) claim files,
11) production records,
12) consultants’ reports.

Question 55

6-3. What four major modifications might an underwriter recommend to make a submission more acceptable?

Answer 55

An underwriter may suggest these modifications to a submission:

• Require loss control measures
• Change insurance rates, rating plans, or policy limits
• Amend policy terms and conditions
• Use facultative reinsurance

Question 56

6-4. What factors beyond the content of a submission itself must an underwriter consider before selecting an underwriting alternative?

Answer 56

The underwriter must consider these factors before selecting an alternative:
1) Underwriting authority-Whether the underwriter has the necessary underwriting authority
2) Supporting business-Whether an otherwise marginal submission might be acceptable if the other insurance components of the applicant’s account-the supporting business-are desirable
3) Mix of business-Whether accepting the application supports the insurer’s goals for mix of business
4) Producer relationships-Whether the relationship between the underwriter and the producer
is based on mutually shared goals
5) Regulatory restrictions-Whether any state regulations restrict underwriters’ ability to accept or renew business, and whether any federal and state privacy laws restrict the type and the amount of information about an applicant that an underwriter can obtain

Question 57

6-5. Why is it important for the underwriter to correctly classify each loss exposure in a submission when determining the appropriate premium?

Answer 57

Accurate classification ensures a pooling of loss exposures whose expected loss frequency and loss severity are similar. Misclassification can produce adverse results, including insufficient premium to cover losses and expenses, inability to sell policies because prices are higher than competitors’ prices, and charges that the insurer has violated regulations prohibiting unfair trade practices.

Question 58

6-6. Why should underwriters monitor underwriting results of territories or geographic areas?

Answer 58

Monitoring territorial underwriting results can help the insurer to target areas for future agency appointments in profitable regions. Poor results could indicate areas from which the insurer might withdraw or in which the insurer might raise rates, if permitted by regulators

Question 59

6-7. Rachel is a personal insurance underwriter for Acme Insurance Company, an insurer using the independent agency system. One day, she receives a request for automobile insurance from a client of one of Acme’s newly appointed agents. The applicant is a twenty-four-year-old single male who was previously insured by a direct writer. The application indicates no accidents or traffic violations in the previous three-year period. Rachel suspects that the field underwriting may have been inadequate and believes that additional information is needed because the applicant is new business for the company.

a. List the external and internal sources of underwriting information that Rachel might use to reach her decision.
b. What factors will determine how much and what kinds of information Rachel might request?

Answer 59

These answers apply to questions regarding Rachel’s underwriting decision:

a. Beyond the application, Rachel can use these sources to obtain additional underwriting information (other possible sources do not relate directly to personal auto insurance):
-The producer may have firsthand knowledge of the applicant and may know the applicant’s reputation in the community.
-Government records include motor vehicle reports, criminal court records, and civil court records. Motor vehicle records (MVRs) are a fundamental information source for auto underwriting.
-Production records of individual producers, indicating loss ratio, premium volume, mix of business, amount of supporting business, length of service, and industry experience, help underwriters make decisions about the quality of the applicants that the producer is submitting.
In personal auto underwriting, for example, the mix of business indicates whether
a particular producer is submitting an inordinately large percentage of young drivers or drivers with poor driving records.

b. The amount of time required to receive the information and the cost to acquire the information are important considerations. Underwriters must balance the degree of hazard with how much information is needed and the cost to acquire the information.

Question 60

7 -1. What do insurers use the combined ratio to measure?

Answer 60

7 -1. Insurers use the combined ratio to measure the success of underwriting activities.

Question 61

7-2. What would an underwriter conclude about each of the following combined
ratios?
a. A combined ratio of exactly 100 percent
b. A combined ratio of greater than 100 percent
c. A combined ratio of less than 100 percent

Answer 61

a. Exactly 100 percent-Every premium dollar is being used to pay claims and cover operating costs, with nothing remaining for insurer profit.
b. Greater than 100 percent-An underwriting loss occurs; more dollars are being paid out than are being taken in as premiums.

c. Less than 100 percent-An underwriting profit occurs; not all premium dollars taken in are
being used for claims and expenses.
7 -3. An insurer that becomes more restrictive

Question 62

7 -3. An insurer decides to make its underwriting criteria more restrictive. Explain how this change affects premium volume and the insurer’s combined ratio.

Answer 62

An insurer that becomes more restrictive in its underwriting criteria will usually see a reduction in premiums written. Because incurred losses remain outstanding from the prior period that had a less restrictive underwriting policy, the loss ratio component of the combined ratio will likely deteriorate.
With this reduction in premiums written, the expense ratio will increase, even though the
insurer’s underwriting expenses might have remained relatively unchanged.

Question 63

7 -4. List some aspects of an insurer’s operations that are affected by the underwriting cycle.

Answer 63

The underwriting cycle affects premium levels, capital allocation strategies, investment strategies, and insurer profitability.

Question 64

7-5. How do pricing standards benefit insurers?

Answer 64

Pricing standards enable insurers to determine levels of premium adequacy by comparing premiums charged to the established pricing standards. Insurers also track the extent to which their underwriters deviate from the insurer’s established pricing for specific classifications. This information might be useful in determining the extent to which the underwriter’s book of business is underpriced or overpriced and where pricing adjustments might be made, should market conditions
change.

Question 65

7 -6. Insurance Company has incurred underwriting expenses of $5 million, incurred losses and loss adjustment expenses of $14 million, net written premiums of $25 million, and earned premiums of $20 million.
a. Determine Insurance Company’s trade-basis combined ratio.
b. What does this ratio indicate regarding Insurance Company’s use of its
premium dollars?

Answer 65

These answers are based on Insurance Company’s financial data:
a. Insurance Company’s trade basis combined ratio would be calculated:

Incurred losses and Incurred
loss adjustment expenses/Earned premiums + incurred underwriting expenses/Net written premiums

14MM/20MM + 5MM/25MM = .70+.20 = .90 or 90%

b. The ratio indicates that Insurance Company has an underwriting profit because not all of its premium dollars are being used for claims and expenses.

Question 66

What effect does rapid growth have on policyholder surplus?

Answer 66

Results in a reduction of policyholder surplus to pay for expenses generated by that growth.

Question 67

Insurers seek to write lines of business that maximize return on equity. Which activities help realize maximization?

Answer 67

A. Setting return thresholds
B. redirecting focus on target business classes
C. Adjusting underwriting policy based on jurisdiction.

Question 68

Which method of calculating return on equity do stock insurers use and which do mutual insurers use?

Answer 68

Stock: SAP & GAAP
Mutual: SAP

Question 69

How can’t he availability and cost of reinsurance influence underwriting policy?

Answer 69

Reinsurance treaties may not cover certain lines, classes of business. Cost for some risks may be prohibitive.

Also concerned about underlying policy forms. May not cover manuscript forms.

Question 70

What are the 8 purposes of underwriting guidelines?

Answer 70

• Provide for structured decisions
• Ensure uniformity and consistency
• Synthesize insights and experience
• Distinguish between routine and nonroutine decisions.
•Avoid duplication of effort.
-Ensure adherence to reinsurance treaties and planned rate levels

-Support policy preparation and compliance

•Provide a basis for predictive models

Question 71

What are the purposes of underwriting audits?

Answer 71

1. determine if line underwriters are following underwriting policy.
2. promote uniformity and consistency in underwriting
   Standards
3. measure underwriting results
4. identify unused or conflicting guidelines

Question 72

How do predictive models work?

Answer 72

-multiple data variables of each risk are developed by using underwriting guidelines, insured’s loss experience, loss data collected from external sources, and underwriting expertise. The score created can help rank the likelihood of a loss and predict profit potential.

-

Question 73

What are the principal sources of underwriting information?

Answer 73

-producers (most relied upon)
-inspection reports
-government records
(MVR, RMV)
-financial rating services (Dun & Bradstreet, S&P)
-loss data (loss run)

Question 74

What information can loss runs provide?

Answer 74

Loss frequency and severity, types of losses, possible seasonality, trends in loss experience, and inductions of management’a attention to prompt loss reporting.

Question 75

What are some other sources of underwriting information?

Answer 75

• field marketing personnel
• premium auditor (examine operations, books to determine actual loss experience)
• claim files
• production records (producer’s loss ratio, premium volume, mix of business, amount of supporting business, length of service, industry experience. This shows quality of applicants.
• Consultants reports

Question 76

What is schedule rating?

Answer 76

Debits and credits are awarded to a submission based on categories of business characteristics, such as the are an condition of the premises and these selection and training of employees.

Question 77

Why are the factors that need to be considered when deleting an underwriting alternative?

Answer 77

• underwriting authority
• supporting business
• mix of business (distribution of individual policies that constitute a book of business of a producer, state, or region among the various type of insurance and classification of Insureds
• producer relationships
• regulatory regulations

Question 78

What are the three steps in implementing the underwriting decision?

Answer 78

Communicating the decision to the producer.

Issue documents (binder or certificate of insurance)

Record information - into database/system

Question 79

How does an underwriter monitor individual policies?

Answer 79

Usually involves trigger events such as adding a new driver or adding location, significant or unique losses.

The underwriter may need to decide whether to renew a policy.

Risk control and safety inspections may be followed up on to make sure they met requirements.

Premium audits may be conducted which may disclose larger loss exposures than originally contemplated, unacceptable operations, new products, new operations, or financial problems.

Question 80

How do underwriters monitor a book of business?

Answer 80

Evaluate for quality and profitability

a. Identify specific problems for each type of insurance, which can be subdivided into class of business, territory, producer, and other policy subgroups.
b. use premium and loss statistics to identify aggregate problems in deteriorating book of business.

Question 81

What factors can distort the combined ratio?

Answer 81

Changes in premium volume, major catastrophic losses, delays in loss reporting and loss development, the underwriting cycle

Question 82

How do changes in premium volume affect the combined ratio?

Answer 82

Restrictive underwriting leads to reduced premium volume. Claims are still paid from policies written during less restrictive underwriting. This leads to a higher combined ratio.

Question 83

How do distortions created by delays in loss reporting affect the combined ratio.

Answer 83

They reduce the value of the information provided by the combined ratio. Delays in loss reporting and settlement can result in an understatement of losses in one year and an overstatement in another year that appear in the combined ratio.

Question 84

How do distortions created by the underwriting cycle affect the combined ratio.

Answer 84

Soft Cycle/Underwriting losses: may need to increase rates and become more restrictive to increase profits to maintain the surplus. Lower premium volume would lead to higher combined ratio.

Question 85

How can an insurer reposition itself when underwriting cycles change?

Answer 85

With effective underwriting and financial management. The insurer would have to change underwriting guidelines and change its allocation of capital to underwriting.

Question 86

What are some nonfinancial measures used to measure an insurer’s results?

Answer 86

• Selection (adherence to selection guidelines)
• Product line or business mix (mix that fits with insurer’s appetite)
• Pricing (tracking extent of deviation from established pricing)
• Accomodated Accounts (excessive accomodations? What is insurer getting in return?)
• Retention ratio
• Hit ratio
• Service to producers (compare to targeted level of performance)
• Premium to underwriter (is underwriter assuming their share of work compared with other underwriters?)

Question 87

What can a low retention rate indicate?

Answer 87

Serious deficiencies in the way insurers do business, including poor service to producers, noncompetitive pricing, or unfavorable claims service.

Question 88

What is the “hit ratio?”

Answer 88

A nonfinancial measure used to determine how well underwriters (or the insurer as a whole) are meeting their sales goals. Ratio of policies written to policies quoted.

Question 89

What does a high “hit ratio” indicate?

Answer 89

• Competition is easing
• Rates are inadequate or lower than other carriers’
• Coverage is broader than other insurers
• Underwriter has the skill set for production underwriting
• Underwriting selection criteria are deteriorating
• An extremely good relationship exists between the insurer and the producer

Question 90

What does a low “hit ratio” indicate?

Answer 90

• Competition is decreasing.
• Rates are higher than other carriers’
• Coverage or forms are too restrictive
• Underwriter does not have the skill set for production underwriting
• Underwriting selection criteria are too stringent
• A poor relationship exists between the insurer and the producer

Question 91

An insurance company needs to hire an employee with knowledge of insurance policy forms and the ability to relate policy provisions to the loss exposures of individual policyholders. The person will also prepare premium quotes and process cancellations.Which one of the following employees would best suit the company’s needs?

Choose one answer.

A. Line underwriter
B. Staff underwriter
C. Producer
D. Premium auditor

Answer 91

Line underwriter

Question 92

Underwriting guidelines include acceptable approaches to evaluating applicants and the overall desirability of a particular type of risk or class of business. Which one of the following purposes of underwriting guidelines is served by these approaches?

Choose one answer.

A. Proper issuance
B. Uniformity of selection decisions
C. Structured decision making
D. Adherence to procedures

Answer 92

Uniformity of selection decisions

Question 93

Staff underwriters share research of the market responsibilities with actuarial and marketing departments. Research includes an ongoing evaluation of which one of the following?

Choose one answer.

A. Revision to coverage forms
B. Average loss ratio for a book of business
C. Optimal product mix in the book of business
D. The hit ratios by underwriter

Answer 93

C. Optimal product mix in the book of business

Question 94

Who will draft a manuscript policy or endorsement that is worded to address the specific needs of the insured?

Answer 94

Line underwriter

Question 95

Specialty insurers such as those offering surety bonds, aviation insurance, and livestock mortality insurance usually grant underwriting authority through the

Answer 95

Centralization of underwriting authority

Question 96

While developing goals for its book of business, an insurer’s staff decides to increase its market share of workers compensation insurance in the construction industry. This type of underwriting activity is known as

Answer 96

Formulating underwriting policy