Introduction to Underwriting

1.

1 point

Which of the following is ture about financial ratios?

Financial ratios are compared to other businesses in the same industry.

Financial ratios are compared to the same business in prior periods.

Financial ratios are compared relative to industry norms.

All of the above

2.

1 point

Arnarld Family Case. Misinformation, such as this, is not appreciated by Elliot Jones, underwriter, and he believes that it is a textbook example of

Subjective information

Objective information

Innuendo

Internal information

3.

1 point

Insureds are often able to obtain computer-generated listings of past losses that are given to prospective insureres for evaluation with submissions. This listing is referred to as

A loss run.

A claim audit.

A loss listing.

A premium audit.

4.

1 point

The primary purpose of underwriting

Is to reject accounts (risk)

Is to develop a profitable book of business

Is to increase the number of insureds so losses are more predictable

Is to avoid adverse selection

5.

1 point

Which one of following is true regarding property valuation?

Actual cash value is replacement cost plus depreciation

Replacement cost is the cost of repair or replace property

Acual cash value is the market value of property.

Replacement cost is considered to be the betterment of the insurd's condition and is not used in insurance.

6.

1 point

The insured's form of ownership

Makes a difference in the coverage provided by some liability policies.

Refers to the legth of time the insured has been in business.

Referes to the extent to which a lender has provided funds for the business.

Is an essential underwriting characteristic of an account.

7.

1 point

Hit ratio refers to

Retention success.

Loss severity.

Loss frequency.

Written-to-quoted ratio.

8.

1 point

Which of the following is ture about past losses?

Past lsoses are included in pricing programs for several lines of business.

Past losses are often used to gauge the adequacy of currrent premium levels for an account.

Past losses are usually a good indicator of future losses.

All of the above.

9.

1 point

Occupancy concerns of an underwriter would include which of the following?

The applicant operates a home-based business.

The applicant rents a room of his home to out-of-town executives as part of a bed and breakfast business.

The applicant builds roadsters in his garage

All of the above

10.

1 point

General liability insurance

Provides coverage for property damage or bodily injury to the public.

Provides an umbrella of coverage above liability, auto, and workers compensation liability insurance.

Provides coverage for damage to property owned by the insured.

Provides coverage for bodily injury to employees and members of the public

11.

1 point

Premium auditors

Are collection agents for the insurance company.

Evaluate loss exposures and communicate information to underwriters

Are state regulators who audit policy pricing.

Review collection agents for the insurance company.

12.

1 point

Leverage ratios

Indicate how much of the business's funds are provided by lenders.

Indicate how business activity is lifting the profits of a business.

Indicate how well the business is performing from the owner's perspective.

Indicate how much access the business has to cash and other liquid assets.

13.

1 point

Many insurers regularly order credit reports on applicants for which of the following reasons?

Because insurers want to know whether the applicant can afford the insurance

Because the insurers want to know whether the applicant is financially responsible

Because the insurers must comply with the Fair Credit Reporting Act

All of the above

14.

1 point

Mix-of-business

Refers to the underwriting profitablity of an underwriter's book of business.

Refers to the variety in the coverage amounts that insurers expect to develop in a book of business.

Refers to the amount of account turnover that insurers expect each year but want to manage.

Refers to goals established by insureres for their market stratagies in particular lines of business and classifications.

15.

1 point

A reinsurance transaction tailored to the needs of a specific account (risk) and its insurer is referred to as

Individual policy reinsurance

Treaty reinsurance

Acccount loss transfer reinsurance

Facultative reinsurance

16.

1 point

Which of the following is an example of an external exposure?

The applicant has a German Shepherd dogs as pets

The applicant's home has a swimming pool

The applican'ts home is immediately adjacent to his neighbor's home

The applicant's home is located in a remote area.

17.

1 point

Which of the following is true about hold harmless agreements?

Hold harmless agreements are noncontractual agreements.

Hold harmless agreements transfer responsibility for harm.

Hold harmless agreements are against public policy.

All of the above.

18.

1 point

Experience rating

Adjusts the price charged to in insured

Indicates the level of expertise of the insurer's underwriting technical staff

Is used after an insurer has offered an insurance product for a period of time

Adjusts prices charged insureds based on the insurer's loss experience

19.

1 point

Hess Case. Richard is aware that many new businesses fail and that restaurants, in particular, have high failure rates. The possibility that the public will not patronize Richard Hess's pizza delivery business is referred to as

A financial risk

A pure risk.

A speculative risk.

An enterprise risk.

20.

1 point

The use of subcontractors creates several insurance issues because of which of the following reason?

Subcontractors are employees who have more flexibilty in the work they perform.

Subcontractors are often held responsible for the misdirection they receive from contractors.

Contractors are resonsible for the poorly performed work of subcontractors.

All of the above

21.

1 point

All of the following are factors used in determining the public protection class of a municipality, EXCEPT:

Clear Space

Fire alarm communications

Water Supply

A fire department

22.

1 point

Factors affecting the hazard presented by an exposing building include all of the following, EXCEPT:

Relative heights of the buildings

Openings in the exposed and exposing buildings.

Fire protection services afforded the exposed and exposing buildings.

Construction types of the buildings.

23.

1 point

Spread of risk

Refers to purchasing reinsurance.

Refers to insuring a range of businesses.

Refers to raising the insured's deductible.

Refers to passing unprofitable accounts on to other insurers.

24.

1 point

Underwriting results are usually measured by using the

Loss ratio.

Combined ratio.

Underwriting expense ratio.

Underwriting ratio.

25.

1 point

The underwriting decision-making process

Is an unwavering structured approach to decision making

Precludes screening of applications

Emphasizes a comprehensive understanding of the insured

Is used to encourage sound decision making

26.

1 point

A customer service representative would usually be expected to do all of the following, EXCEPT:

Process changes requested by policyholders

Preview insurance applications to identify missing information and secure it before an underwriting evaluation

Respond to questions about an account (risk) from policyholders and others

Physically inspect accounts (risks) that underwriters want to learn more about

27.

1 point

Manuscript policies

Are prepared specifiacally for an insured

Insure valuable papers

Refer to the policy files used by underwriters

Are those developed witht the use of advisory organization forms

28.

1 point

Hess Case. When approached by an insurance agent regarding the purchase of insurance, Richard Hess comments that "insurance is like gambling; the insurer is betting that I will not have a loss." In which of the following ways do gambling and insurance differ?

Gambling involves an exchange of unequal values.

Gamblers usually create the risk.

Gambling risk can usually be quantified into odds.

All of the above.

29.

1 point

Which of the following is true about monitoring in underwriting?

It is often triggered by claim activity

It enambles the underwriter to second guess his or her initial decision.

It involves a cursory review of otehr underwriter's files to ensure compliance with underwriting guidelines.

All of the above

30.

1 point

Account underwriting means

The insurer has a focus on developing a commercial clientele.

Accepting a personal auto application with high-risk operators because the producer has requested acceptance as a personal favor.

Evaluating an application based on the merits of all of the their insurance needs.

Accepting an applicant because it recently implemented new loss control initiatives.

31.

1 point

COPE

Refers to the common causes of loss (perils) to which property accounts are most susceptible.

Is an acronym used by underwriters to remind themselves of the four pillars of property underwriting: collateral business, openness to implement loss control measures, pricing, and experience

Refers to factors underwriters consider when evaluating an account for property insurance coverage

Refers to the reflective process underwriters use to monitor accounts they have already written.

32.

1 point

Underwriters use probable maximum loss (PML) and amount subject

To determine the need for the creation of the fire division.

To recommend deductible amounts to insureds.

To gauge the likely severity of loss.

To determine the adequacy of the premiums.

33.

1 point

Financial reporting agencies, such as Dun & Bradstreet,

Perform financial analyses of insureds.

Perform premium audits.

Perform financial analyses to determine whether insureds over or underpaid their premiums.

All of the above

34.

1 point

Information about an applicant's prior insurer might indicate which of the following?

That the applicant was in the substandard market

That the applicant was previously uninsured

That the applicant was with an insurer with similar underwriting standards

All of the above

35.

1 point

Materials used in the construction of a building are graded based on which of the following?

Their cost to replace or repair.

Their resistance to fire.

Their resistance to windstrom.

All of the above.

36.

1 point

Underwriters can often offer unacceptable insureds alternatives to outright rejection. These alternatives are referred to by underwriters as

Modifications

Adjustments

Suggestions

Couteroffers

37.

1 point

Arnold Family Case. Although alleged crime family connections are difficult to discover, an underwriter would consider such a relationship--were it true--to be a

Physical hazard

Morale hazard

Criminal hazard

Moral hazard

38.

1 point

All of the following are underwriting considerations for a property floater, EXCEPT:

Potential for harming the public

Protective devices

Where property is kept when not in use

Property value

39.

1 point

Which of the following is true about the ways in which general liability can be offered?

It can be offered on a claims-made basis or an occurance basis.

If offered on a claims-made basis, it provides coverage for claims made during the policy period.

If offered on an coccurance basis, it provides coverage for accidents that occur during the policy period.

All of the above.

40.

1 point

The Commerical Lines Manual (CLM) Classification Table

Provides rates for the listed classifications.

Lists workers compensation classifications alphabetically.

Provides rating information for all lines of insurance.

Provides rating information for several lines of insurance.

41.

1 point

When the insurance marketplace experiences a period of competition, the insurance industry referes to it as

A hard market

A buyer's market

A soft market

A competitive market

42.

1 point

Hess Case. Because Richard Hess has been a friend with the insurance agent for a number of years, Richard asks the agent for a "special discount" that will lower the premium below legitimate levels. Which of the following is true about such requests to bend the pricing and classification rules of an unsurer?

These requests require all other insureds to subsidize the imporperly priced or classified accounts.

These requests are referred to as "accommodations"

These requests require a specific, but routine, filing with the state insurance department.

All of the above.

43.

1 point

The Best's Underwriting Guide (BUG) does which of the following?

Provides a definitive approach to underwriting certain types of business

Provides statistical information on all classifications.

Provides an overview of various types of businesses.

All of the above

44.

1 point

Which of the following is true about underwriting?

Underwriting is the process of making account (risk) selection decisions

Underwriting had its origins in the coffee houses of London, where shipowners and investors met.

Underwriting is technically the responsibility of an insurer's chief executive officer.

All of the above

45.

1 point

Underwriters are usually most concerned about

Loss severity, because large losses generally indicate underwriting error in applying guidlines.

Loss frequency, because it is possible to control loss frequencey

Loss frequency, because frequent losses can be as significant as severe losses.

Loss severity, because severity problems generally mask loss frequency problems.

46.

1 point

Financial ratios

Are used to establish an account's deductible level.

Are used to determine whether the account can afford the loss control recommendations suggested by the insurer.

Are often used to gauge an accoun'ts management ability.

Are subjective information that is subject to interpretation.

47.

1 point

Which of the following is true about age, sex, and marital status?

They are examples of rating factors used to price a submission for personal auto insurance

They are prohibited from use as rating factors for personal auto insurance in some states

They are examples of underwriting factors used to evaluate a submission for personal auto insurance

All of the above

48.

1 point

All of the following are operations exposures, EXCEPT:

A homeowner is injured when he slips on a wet floor while a plumber is fixing a leak.

A child is scalded with hot water after a plumber switches the cold and hot water supply lines.

A customer trips on a carpet rip while at the plumber's office paying a bill.

Flooring is marred by a torch after a plumber sweats a pipe during a repair.

49.

1 point

Which of the following is true about insurance?

All of the above

It is a system in which losses are shared

It is a form of legalized gambling

It is a type of budgeting

50.

1 point

An insurer that insures only podiatrists (food doctors) would be an example of which of the following?

Niche underwriting

Commercial underwriting

Spread of risk

All of the above