CU Risk Assessment and Selection 2 — Questions and Answers
Question 1: Which factor is considered a 'subjective' hazard in underwriting risk assessment?
- The age of a building's electrical system
- The attitude and character of the insured toward risk (Correct answer)
- The geographic location of the property
- The construction type of a structure
Correct answer: The attitude and character of the insured toward risk
Subjective hazard refers to the mental attitude or character of the insured that increases the likelihood of loss, such as carelessness or dishonesty.
Question 2: An underwriter reviewing a commercial property account notices the insured has filed 4 claims in 3 years, all for water damage. What underwriting action is MOST appropriate?
- Decline the account immediately without further review
- Request a loss control inspection focused on plumbing and drainage systems (Correct answer)
- Accept the account with no modifications
- Refer the account to a specialty market without investigation
Correct answer: Request a loss control inspection focused on plumbing and drainage systems
A pattern of similar losses warrants a targeted loss control inspection to identify and potentially correct the underlying cause before acceptance or modification.
Question 3: The insurance concept where an underwriter considers the entire book of business rather than individual risks is known as:
- Risk segmentation
- Portfolio underwriting (Correct answer)
- Individual risk rating
- Adverse selection management
Correct answer: Portfolio underwriting
Portfolio underwriting means evaluating how individual risks contribute to the overall balance and profitability of the insurer's entire book of business.
Question 4: A 'non-concurrent' policy condition exists when:
- Two insurers share the same policy period
- An insured has multiple policies with different terms covering the same risk (Correct answer)
- A policy covers multiple locations under one premium
- The policy limit equals the value of the insured property
Correct answer: An insured has multiple policies with different terms covering the same risk
Non-concurrent policies occur when multiple policies covering the same risk have different terms, conditions, or exclusions, potentially creating coverage gaps or disputes.
Question 5: Which underwriting tool provides the MOST comprehensive view of an applicant's personal insurance history?
- ISO ClaimSearch
- CLUE (Comprehensive Loss Underwriting Exchange) report (Correct answer)
- MVR (Motor Vehicle Report)
- Inspection report
Correct answer: CLUE (Comprehensive Loss Underwriting Exchange) report
A CLUE report provides a 7-year history of personal property and auto insurance claims, giving underwriters a detailed picture of the applicant's loss history.
Question 6: In underwriting, 'risk transfer' is best described as:
- Moving a risk from a preferred market to a standard market
- Shifting the financial consequences of a loss from one party to another through insurance (Correct answer)
- Transferring underwriting authority from a junior to a senior underwriter
- Reassigning a risk from one underwriting territory to another
Correct answer: Shifting the financial consequences of a loss from one party to another through insurance
Risk transfer is the fundamental insurance mechanism by which the financial burden of potential losses is shifted from the insured to the insurer in exchange for a premium.
Question 7: An underwriter applies a 'schedule rating' modification to a commercial account. This modification is based on:
- The insured's specific characteristics that differ from the average risk in the class (Correct answer)
- The overall loss ratio of the insurer's book of business
- Industry-wide loss statistics for the class code
- The producer's commission level
Correct answer: The insured's specific characteristics that differ from the average risk in the class
Schedule rating adjusts the manual premium up or down based on specific characteristics of the individual risk that make it better or worse than the average risk in its class.
CU Risk Assessment and Selection 2
Which factor is considered a 'subjective' hazard in underwriting risk assessment?