CU - Certified Underwriter Regulatory and Ethical Frameworks Questions and Answers

Question 1

An underwriter reviewing a life insurance application notices the applicant has a high-risk occupation but fails to disclose a known history of a chronic illness.
Invoking the principle of 'utmost good faith' (uberrimae fidei), what is the most likely and ethically sound action for the insurer?

Accepted Answer

Void the policy due to material misrepresentation.

Answer

Increase the premium to account for the occupational risk only.

Answer

Issue the policy but add an exclusion rider for the specific illness.

Answer

Approve the policy as is, since some information was provided correctly.

Question 2

The Gramm-Leach-Bliley Act (GLBA) imposes several requirements on financial institutions, including insurance companies, to protect consumer information. Which of the following is a key provision of the GLBA that directly impacts the underwriting process?

Accepted Answer

Requiring insurers to provide consumers with an annual notice of their privacy policies and practices.

Answer

Mandating that all insurance policies be written in plain language.

Answer

Setting minimum capital and surplus requirements for insurers.

Answer

Prohibiting discrimination in the setting of premium rates based on credit history.

Question 3

An underwriter for an auto insurer uses an algorithm that incorporates credit-based insurance scores to help determine premium rates. To comply with the Fair Credit Reporting Act (FCRA), what must the insurer do if it charges a higher premium based in whole or in part on the consumer's credit report?

Accepted Answer

Provide an adverse action notice to the applicant.

Answer

Obtain written consent from the applicant before accessing their credit report.

Answer

Send the applicant a copy of their full credit report.

Answer

Report the applicant to the credit bureau for having a poor score.

Question 4

Which of the following scenarios best illustrates a violation of the principle of 'insurable interest'?

Accepted Answer

A person taking out a property insurance policy on their neighbor's house, hoping to profit if it burns down.

Answer

A business purchasing a life insurance policy on its CEO.

Answer

An individual buying a life insurance policy on their spouse.

Answer

A lender requiring a borrower to obtain property insurance on a mortgaged home.

Question 5

The National Association of Insurance Commissioners (NAIC) Model Unfair Trade Practices Act defines numerous actions as unfair or deceptive. Which of the following is a primary example of an unfair trade practice specifically related to underwriting?

Accepted Answer

Refusing to insure a property solely based on its geographic location, without sound actuarial justification.

Answer

Requiring a medical examination for a large life insurance policy.

Answer

Using age and gender as factors in life insurance premium calculations.

Answer

Delaying a decision on an application to gather more necessary information.

Question 6

An underwriter is faced with an ethical dilemma: a long-time, profitable agent has submitted an application for a client who is a borderline risk. The agent is pressuring the underwriter to approve the policy, implying that future business depends on it. What is the most ethical course of action for the underwriter?

Accepted Answer

Adhere strictly to the company's established underwriting guidelines and assess the risk objectively.

Answer

Approve the policy to maintain the valuable relationship with the agent.

Answer

Deny the policy immediately without further review to avoid the conflict of interest.

Answer

Approve the policy but charge a significantly higher premium than guidelines suggest to offset the pressure.

An underwriter reviewing a life insurance application notices the applicant has a high-risk occupation but fails to disclose a known history of a chronic illness.Invoking the principle of 'utmost good faith' (uberrimae fidei), what is the most likely and ethically sound action for the insurer?

An underwriter reviewing a life insurance application notices the applicant has a high-risk occupation but fails to disclose a known history of a chronic illness.
Invoking the principle of 'utmost good faith' (uberrimae fidei), what is the most likely and ethically sound action for the insurer?