Core Underwriting Principles Flashcards
7 cards from real CU practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Core Underwriting Principles flashcards as text
When an underwriter 'non-renews' a policy rather than cancelling it mid-term, the primary reason is usually:
Answer: Mid-term cancellation is often restricted by state law, making non-renewal the practical exit
Many states restrict mid-term cancellation to specific grounds after the policy has been in force beyond a brief initial period, so underwriters use non-renewal at expiration as the standard exit strategy.
What is 'experience rating' in commercial underwriting?
Answer: Adjusting premiums based on the insured's own past loss history relative to expected losses
Experience rating modifies a prospective premium by comparing the insured's actual past losses to the expected losses for its class, rewarding good loss history with credits.
Which underwriting action is most appropriate when a risk has one unacceptable characteristic but is otherwise desirable?
Answer: Exclude the unacceptable exposure or add an endorsement to address it
Underwriters can exclude a specific hazard or modify coverage terms via endorsement rather than declining the entire account, preserving a profitable relationship while managing the problematic exposure.
Which document formally outlines the underwriting guidelines and risk appetite for a specific line of business?
Answer: Underwriting manual
An underwriting manual contains the rules, eligibility criteria, rating procedures, and authority levels that guide underwriters in evaluating and pricing risks for a given line.
In property underwriting, 'coinsurance' is a provision that penalizes an insured who:
Answer: Insures property for less than a required percentage of its value
Coinsurance clauses require the insured to carry coverage equal to a specified percentage (commonly 80%) of property value; underinsurance results in the insured bearing a proportionate share of any partial loss.
What is the primary function of a 'binder' in the underwriting process?
Answer: A binder provides temporary evidence of coverage until the formal policy is issued
A binder is a temporary agreement that provides immediate insurance coverage until the formal policy is prepared and delivered, protecting the insured during the interim period.
Which loss development concept do underwriters use to project ultimate losses from immature claims data?
Answer: Loss development factors (link ratios)
Loss development factors, derived from historical patterns of how reported losses grow over time, are applied to current immature loss data to project ultimate claim costs.