Study 3 The Application Process - LO

Question 1

Explain how oral and written applications are used to gather information needed to set up insurance policies.

Answer 1

• An application is a request for insurance
o Provides underwriters with information so they can
assess risks and calculate premiums
o Can be oral or written
• Written applications have some advantages

• Applicants have the duty to disclose and uphold utmost good faith
o Misrepresentations in applications can have serious
consequences, such as
• Denial of losses
• Voided insurance policies

Question 2

Describe the key types of information commonly requested on insurance applications.

Answer 2

• Applicants request insurance and provide information to insurers on their application
• Insurers assess applicant information and decide whether to accept risk and on what terms

• In addition to unique information for specific types of insurance, the following is generally required (8):
  o Named insured
  o Policy term
  o Subject of insurance
  o Loss payees
  o Loss history
  o Prior insurance
  o Broker’s report
  o Signatures

Question 3

Describe the agent’s and broker’s duties and responsibilities to clients in the application process.

Answer 3

• Intermediaries place and service clients’ business

• Intermediaries match the client with a potential market by:
o Qualifying them
o Gathering information regarding their
• Loss history
• Interests and hobbies
• Insurance needs

• Intermediaries may
o Place new coverage
o Amend or endorse existing coverage
o Set up additional policies
o Help clients by assessing needs and providing
advice
o Solicit information for application process
o Reveal unidentified or unique hazards that require
coverage

Question 4

Describe the agent’s and broker’s duties and responsibilities to insurers in the application process.

Answer 4

• Intermediaries qualify risks
o Act as “eyes and ears” of the insurer/underwriter

• Intermediaries provide underwriters with all material facts for a risk profile
o Especially verifying loss history, in addition to all
other aspects of an application

• Intermediaries must understand the following:
o Their duties to the insurer
o Their role in the application process
o Their frontline underwriting function for package
insurance policies

Question 5

Explain how applications are underwritten and rated.

Answer 5

• Underwriting is
o Selecting risks
o Rating (applying established rates to insured items)
o Done by underwriters or delegated intermediaries

• Risks can be
o Accepted
o Accepted subject to conditions
o Rejected

• Underwriter requires comprehensive and correct information to understand the risk, including:
o Physical and moral hazards
o Exposures
o Special factors applicable to the individual risk

• For unacceptable risks, underwriters may suggest ways to
o Improve the risk
o Amend the premium or coverage

• Underwriters may also add or deduct additional rating charges (where risk is more or less hazardous)
• Deviating from insurers’ underwriting guidelines can lead to losses and hardening of the insurance market