Chapter 1

Question 1

What is the most famous example of coffee houses that were important centers of social, intellectual, and commercial activity?

Answer 1

Lloyd’s of London which was previously called Edwards Lloyds coffee house

Question 2

What would people look for going to Lloyds of London?

Answer 2

At the time, a person looking for insurance, or an agent acting as today’s insurance brokers, would circulate in a coffee house a document describing, for example, a ship and its cargo, crew, and designation. Underneath the description of risk and the proposed terms, merchants or other people of means who wanted to assume part of the risk for the buyer would sign their names and the amounts of risk they were willing to assume.

Question 3

How did the workers of the Lloyds of London become known as an underwriter?

Answer 3

These people came to be known as underwriters for the practice of literally writing their names underneath the documents text. In effect, the insurer and underwriter were the same, with insurance being transacted directly between buyer and seller.

Question 4

Definition of insurance

Answer 4

A contract in which one party, the insurer, for monetary consideration agrees to reimburse another, the insured, for loss or liability for a loss on a defined subject caused by specified hazards or perils

Question 5

What is the function of underwriting

Answer 5

As the personal element of vying for business disappeared over time, groups of would be risk barriers formed the early insurance companies, and intermediaries arose to negotiate terms between the parties.

Question 6

How did underwriting evolve

Answer 6

As the modern insurance industry took shape, companies became more specialized in the risks they assume. Accordingly, underwriters themselves became more specialized in the lines of insurance known today, such as property, liability, crime, boiler and machinery, professional liability, automobile, and business interruption insurance, to name a few. The underwriters job has remained essentially unchanged throughout, to access and modify or reject risk.

Question 7

What is an underwriter?

Answer 7

Essentially, an underwriter is an insurance professional employee to accept or reject risk on behalf of the insurer. The most important way in which to define an underwriter is in terms of risk.

Question 8

Underwriter defined in book

Answer 8

One - the insurance company or group The underwrites or ensures a particular risk

2 - the individual within an insurance company whose responsibility it is to accept or reject business in a particular line in which what she specializes and, in this way, choose the risk her principles are prepared to underwrite

Question 9

Risk defined

Answer 9

The chance of loss. Specifically, the possible loss or destruction of property or the possible incurring of liability. Sometimes referred to as the subject of insurance contract

Question 10

Why are underwriters the heart of insurance?

Answer 10

An insurer assumes a risk on behalf of an insured for a premium period to survive and make a profit, the insurer must offer coverage to ensure that, as a group, are likely to incur Less in losses then pay in premiums for their coverage. Therefore, the insurer must seek in church that pose acceptable risks of losses but avoided church that pose unacceptable risks of loss. And insurer needs trained professionals to choose from among the perspective Insurance presented to it - that is, to accept or reject on behalf of the insurer. Underwriters are those trained professionals

Question 11

Investor of capital

Answer 11

An underwriter is responsible for investing shareholder capital. The risk of loss to an insurer is the risk that it’s capital may be depleted by a loss for which it must indemnify an insured. Therefore, in accepting our rejecting risk on behalf of an insurer, underwriters are in effect investing the insurers capital in those risks they accept and decline to invest capital in those risks they reject

Question 12

To survive and make a profit, the insurer must offer coverage to insured that, as a group, are likely to incur less and losses then pay in premiums for their coverage. To build a profitable portfolio such insurds needs a strategic plan. That plan will involve identifying five types of things list them

Answer 12

• types of risk the insurer wants to pursue
• the lines of insurance it wants to underwrite
• The reinsurance it can arrange
• The amount of insurance it will offer for risk of different types and sizes
• The approach it will take to pricing, among other considerations

Question 13

Define line guide

Answer 13

A listing of the maximum amounts of exposure and insurance companies prepared to accept on various classes of risk

Question 14

List 7 specific criteria an underwriter must consider in the line guide

Answer 14

• licensing
• types of business
• lines of insurance
• territory
• capacity
• reinsurance
• pricing

Question 15

In the line guide criteria describe licensing

Answer 15

This is where the Insurer is licensed to accept business.

Question 16

In the line guide describe types of business

Answer 16

Some inters seek a broad range of business, from homeowners to businesses, from smallest, such as corner grocery stores, to large risks, such as schedules of commercial real estate, and from ordinary occupancies, such as dentist office, to hazardous occupancies, such as chemical manufacturers. Other insurers May expertise in a segment of the broader market and may cater to a specific niche

Question 17

In the line guide explosion the criteria of lines of insurance

Answer 17

Does the insurer offer all lines of insurance to its insurance or only some? One insurer may offer only automobile insurance, another may offer automobile insurance along with property insurance and liability insurance, still another may not write automobile insurance at all. Some insurers offer charity bonds, some do not. Some insure specialize in aviation insurance, some in boiler and machinery insurance.

The lines of insurance oven ensure or offers are aspects of two criteria or elements of its strategic plan, licensing and types of business. Whether the insurer is federally, provincial, or territorily license, it can offer only those lines of insurance specified in its license. The lines of Insurance underwriters are authorized to offer affect the types of business they pursue.

Question 18

Explain territory for the criteria of guidelines

Answer 18

One consideration for any underwriter is the geographical area or territory in which a risk is located. Some territories may be more prone than others to certain kinds of environment hazards, such as wind storms are flooding or earthquakes. Some territories are urban, others are rural. For those reasons, there is an overlap and underwriting considerations between territory and types of business. There are also overlaps between territory and other underwriting consideration such as capacity, pricing, and reassurance.

Question 19

Under the guideline criteria explain capacity

Answer 19

1. the occupancy of the risk - the nature of some businesses pose inherently greater risks of loss or damage than others. For example, and explosive manufacturer would be more hazardous than a retail shoe store.
2. The level of public fire protection - the fire underwriters survey grades each municipality in Canada on a scale from 1 to 10 based on the availability and affectedness of fire hydrants, the water supply and water pressure, and the expertise and the response time of its fire department. A table of limits might describe Town grades 1-4 as protected and assigned and the category the maximum amount of insurance allowed on the best risks. Town grades of 5-8 might be described as semi-protected and town grades 9-10 are unprotected.

3 type of construction Dash statistics show the chances for a total loss of a building from a fire or natural catastrophe significantly depend on the buildings construction. Wood frame structures for example tend to suffer more frequent and severe losses from such perils then do concrete structures.

Question 20

Define reinsurance

Answer 20

Reinsurance is Insurance purchased by an insurance company from another insurance company to provide a protection against large losses on cases it has already insured. Essentially, insurance for insurance companies. A transaction in which one party, the reinsurer, and consideration of a premium paid to it, agrees to indemnify another party, the reinsured, for part or all of the liability assumed by the reinsure under a policy of insurance that it has issued. The reinsurance may also be referred to as the original or primary insurer or the ceding company.

Question 21

Describe facultative reinsurance

Answer 21

Reinsurance of risks on an individual case-by-case basis subject to acceptance or rejection by the insurer

Question 22

Describe treaty

Answer 22

An agreement between an insurance company and reinsurer. The reinsure automatically accepts a portion of the seating company’s liability for a specified class or classes of business. Terms of the agreement are set forth within, for example, premium payment, loss limits etc

Question 23

List 3 “special situations” pg. 1-8 exhibit

Answer 23

1. Sprinklered risks: increase construction class by one category
2. Catastrophe-exposed areas: maximum $5,00,000 any one risk
3. Vacant buildings: 50% of table limits, to a maximum of 4,000,000

Question 24

Book of business

Answer 24

Generally related to joint ventures, the book of business refers to when a smaller brokerage owns its own book of business and enters into partnership with a larger organization. The larger group has access to the new book of business, and the smaller broker retains the right to repurchase the full ownership of the book of business

Question 25

Describe pricing with the line guide

Answer 25

An underwriter accepts risk on behalf of an insurer in exchange for premium. It is premium that allows an insurer to survive and make profit. The underwriter must try to ensure that the premium of the interior receives its proportionate with the risk of the underwriter accepts on the insurance behalf.

Question 26

Define file underwriter and compare and contrast with portfolio underwriter

Answer 26

File underwriter - an underwriter responsible for underwriting individual risks

Portfolio underwriter- underwriter responsible for groups of risk

Question 27

What does the phrase giving brokers the open mean?

Answer 27

Insurers are “ giving brokers the pen “ or vesting under writing authority in their brokers within specified limits. Those limits are typically those in the inters line guide, so brokers under this arrangements are themselves applying the line guide. As a result, insurers underwriters are increasingly becoming portfolio managers, overseeing the books of business being underwritten by their assigned brokers. Even when they do not have underwriting authority, brokers must do frontline or field underwriting to anticipate the questions that underwriters will ask and to present them with risks and terms they are willing to accept

Question 28

Applying the line guide to assessing the risk list 6 things to be considered

Answer 28

1. Length of time in business - who is the applicant ? If the applicant is a business, for example, how long has the business been in operation? Is it financially stable? Is it well managed ?
2. Type of loss - what kinds of loss might an applicant incur? The applicant might suffer third party losses or first party losses
3. Perils - what events in the course of an applicant’s commercial operation or personal life could give rise to a first party loss or to third party loss arising from legal liability loss to another
4. Physical hazards - what physical hazards does the risk have that make loss of some kind more likely ? Is an inspection of the risk required to identify and measure the hazards ?
5. Moral hazard - does the risk present a moral hazard?
6. Required information - how much information is needed to make a decision? Is the information on the applicant form enough by itself or is an inspection report needed? Our financial statements required? Any further information about pass lawsuit? how much time and money are available to acquire the needed information

Question 29

Underwriters tend to look for ways to underwrite risk, however when an underwriter will reject risk is based on 3 considerations list them

Answer 29

1. The risk is of a class not permitted by the line guide or in some other way falls short of minimum requirements specified in the line guide
2. Market conditions are competitive considerations require it.

Example: the insurance cycle turns towards a hard market after a period of access capacity in the market that has spurred intense competition for business between insurers and driven premium rights below profitable levels.

3. The risk is, on its own merits, too flawed to be accepted, and it is not possible to negotiate terms on which the risk could be made acceptable

Question 30

List 4 tools by underwriters to modify risk to allow them to cover the risk

Answer 30

1. Deductibles
2. Premium rates
3. Modifications of coverage
4. Implementation of recommendations by the loss control department to improve the risk

Question 31

True or false underwriting decisions are only made once?

Answer 31

False Dash even for a single risk, decisions are made not just once when terms are negotiated and the risk is accepted. Rather, the processes continual, the opportunities to reassess the risk arising when a loss occurs, when a request is made miss term for some change to the wording or other policy term, and when the policy term expires the underwriter must consider whether to renew coverage and on what terms

Question 32

Define speculative risk

Answer 32

An insurance term for a situation where the possibility of either a financial loss or a financial gain exists, such as in purchasing shares, or betting on horses. Speculative risk is usually not insurable, unlike pure risk

Question 33

Pure risk

Answer 33

A situation involving a chance of loss, or no loss but no chance of gain

Question 34

What are the two questions to determine if a risk is insurable?

Answer 34

Is there a chance of loss?

Is there a chance of profit?

Question 35

List 3 types of insurable risk

Answer 35

1. Personal risks
2. Property risks
3. Liability risks

Question 36

What does personal risks encompass? List 4 things

Answer 36

1. Death
2. Physical disability
3. Old age
4. Unemployment

Question 37

What does property risks encompass?

Answer 37

Property risks and compass a chance of loss arising from the destruction of or damage to property.

1. Direct losses are those involving damage to or destruction of the property insured
2. Indirect losses occur because of direct losses

Question 38

What does liability risks encompass?

Answer 38

Liability risks encompass the chance of loss arising from an individual’s obligation to pay damages because the injury or death of another or damage to another’s property.

• his or her conduct
• the operation of automobiles, aircrafts, boats, snowmobiles, trains, trucks, and so on
• the ownership or occupancy of property
• the manufactured products
• the rendering of professional services

Question 39

List the 3 Classes of insurance

Answer 39

1. Personal lines - the insurance relating to individuals and their private capacity. Included are the home and its contents, automobiles, seasonal dwellings, boats, jewelry, first, vacation travel insurance, major medical and surgery cost, and so on
2. Commercial lines - the insurance relating to commercial operations, such as stores, professional offices, trucking operations, construction vehicles and contractors, and many other similar businesses
3. Special risks - the insurance related to Marine exposure, aviation, high risk and industrial operations