Risk Assessment & Underwriting Flashcards

In insurance technology, telematics-based auto underwriting adjusts premiums based on driving behavior data. Which privacy regulation most directly governs the collection of this data in the US?

Answer: State-level privacy laws such as CCPA

Telematics data collection is primarily governed by state privacy laws like CCPA, which regulate what behavioral data can be collected and how it must be disclosed.

A fintech uses psychometric testing as part of its SMB loan underwriting. What is the primary risk management justification for this approach?

Answer: It captures entrepreneurial risk attitudes not reflected in financial data

Psychometric assessments aim to predict repayment intention and risk tolerance in borrowers who lack traditional credit histories.

When stress-testing a fintech lending portfolio, which macroeconomic scenario is MOST relevant to assess correlated credit risk?

Answer: A severe recession with 10% unemployment and 30% housing price decline

Severe recession scenarios test portfolio resilience to correlated defaults across borrower segments, which is the most critical stress scenario for credit portfolios.

In structured fintech lending, what does 'excess spread' represent as a risk buffer?

Answer: The difference between the portfolio interest rate and investor coupon, absorbed first by losses

Excess spread is the first-loss buffer in securitization structures, absorbing defaults before they reach investor tranches.

A robo-advisor fintech assesses client risk tolerance through an online questionnaire. Under FINRA suitability rules, what is the PRIMARY limitation of relying solely on this tool?

Answer: Self-reported risk tolerance may not match actual behavioral response to losses

Clients frequently overestimate their risk tolerance in calm markets, and questionnaire responses may not predict actual behavior during drawdowns.

Which loss given default (LGD) factor is MOST unique to unsecured fintech consumer loans compared to traditional bank loans?

Answer: Near-zero recovery due to absence of collateral and low legal pursuit economics

Unsecured fintech consumer loans typically have LGD near 100% since there is no collateral and collection costs often exceed recoverable amounts for small balances.

A fintech platform uses device fingerprinting during loan applications. What risk does this address in the underwriting process?

Answer: First-party fraud and synthetic identity detection

Device fingerprinting helps identify suspicious application patterns, multiple applications from the same device, and synthetic identity fraud signals.