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
What is 'surplus lines' insurance, and when does an underwriter typically place coverage in the surplus lines market?
Answer: Surplus lines covers risks that admitted carriers decline; used when standard market capacity or appetite is unavailable
Surplus lines (non-admitted) insurers are not licensed in the state but are approved to write coverage for risks that admitted carriers cannot or will not accept, providing market capacity for hard-to-place risks.
What does 'insurable interest' require of the policyholder?
Answer: The policyholder must face a genuine financial loss if the insured event occurs
Insurable interest requires that the policyholder would suffer a real financial loss if the insured event occurred, preventing insurance from being used as a wagering instrument.
An underwriter reviewing a commercial property submission notes the building has no automatic sprinkler system. This is best classified as:
Answer: A physical hazard
A physical hazard is a tangible condition of the property or environment that increases the likelihood or severity of loss, such as the absence of fire suppression systems.
What is the purpose of an 'umbrella' or 'excess' liability policy in a commercial insurance program?
Answer: To provide additional limits above the underlying primary policy limits
An umbrella or excess liability policy activates after the underlying primary policy limits are exhausted, providing additional coverage layers for catastrophic or large liability losses.
Which term describes the process by which an insurer recovers claim payments from a negligent third party after paying its insured?
Answer: Subrogation
Subrogation is the legal right of the insurer to step into the insured's shoes and pursue recovery from a negligent third party responsible for the loss, after the insurer has paid the claim.
In underwriting, 'facultative reinsurance' differs from 'treaty reinsurance' in that:
Answer: Facultative is negotiated on a risk-by-risk basis; treaty covers a defined portfolio automatically
Facultative reinsurance involves individual negotiation and placement for a single risk, while treaty reinsurance automatically covers all risks falling within the agreed parameters of the treaty.
When underwriters refer to a risk as 'preferred,' they typically mean:
Answer: The risk has characteristics that make it more desirable than average, warranting better rates or terms
A preferred risk exhibits characteristics—such as excellent loss history, strong risk management, or favorable physical features—that make it more attractive than the standard class average.