Insurance Insurance Claims & Underwriting 1 — Questions and Answers
Question 1: What is the primary role of an insurance underwriter?
- Processing and paying claims
- Evaluating risk and determining whether to offer coverage and at what premium (Correct answer)
- Selling policies directly to consumers
- Investigating fraud on behalf of the insurer
Correct answer: Evaluating risk and determining whether to offer coverage and at what premium
An underwriter assesses the risk presented by an applicant and decides whether to accept it, modify terms, or decline coverage, and sets an appropriate premium.
Question 2: What does 'first notice of loss' (FNOL) refer to in the claims process?
- The final settlement offer made to the claimant
- The initial report made by the insured to the insurer notifying them of a loss (Correct answer)
- The underwriter's notice of a new risk
- The premium notice sent before renewal
Correct answer: The initial report made by the insured to the insurer notifying them of a loss
First notice of loss is the initial step in the claims process where the insured contacts the insurer to report that a covered loss has occurred.
Question 3: What is the purpose of an 'independent adjuster' in an insurance claim?
- To represent the insured in court
- To investigate and evaluate claims on behalf of the insurer, especially during high-volume events (Correct answer)
- To set the insurer's premium rates
- To audit the insurer's financial statements
Correct answer: To investigate and evaluate claims on behalf of the insurer, especially during high-volume events
Independent adjusters are hired by insurers on a contract basis to investigate and settle claims, often used during catastrophes when staff adjusters are overwhelmed.
Question 4: Which underwriting factor most directly measures the frequency and severity of past claims by an insured?
- Loss history (loss runs) (Correct answer)
- Credit score
- Policy expiration date
- Agent production volume
Correct answer: Loss history (loss runs)
Loss runs are a record of the insured's past claims, showing dates, descriptions, amounts paid, and reserves, which underwriters use to assess future risk.
Question 5: What is a 'proof of loss' document in the insurance claims process?
- A court judgment against the insurer
- A formal statement signed by the insured documenting the details and amount of their claim (Correct answer)
- The adjuster's estimate of repair costs
- The insurer's denial letter
Correct answer: A formal statement signed by the insured documenting the details and amount of their claim
A proof of loss is a sworn statement provided by the insured to the insurer that details the nature, cause, and dollar amount of a claim.
Question 6: What does 'adverse selection' mean in insurance underwriting?
- The insurer selects only low-risk applicants
- High-risk individuals are more likely to seek insurance than low-risk individuals, skewing the risk pool (Correct answer)
- The insured selects the most expensive policy available
- The insurer denies all applicants with prior claims
Correct answer: High-risk individuals are more likely to seek insurance than low-risk individuals, skewing the risk pool
Adverse selection occurs when people with higher-than-average risk are disproportionately represented among insurance applicants, threatening the insurer's profitability.
Insurance Insurance Claims & Underwriting 1
What is the primary role of an insurance underwriter?