Risk Assessment and Selection 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 Risk Assessment and Selection flashcards as text
A surplus lines broker is used when:
Answer: The risk cannot be placed with admitted carriers due to its nature, size, or loss history
Surplus lines markets serve risks that admitted carriers decline due to unusual hazards, poor loss history, or coverage needs that fall outside standard policy forms.
Under the principle of 'utmost good faith' (uberrimae fidei), the applicant is required to:
Answer: Disclose all material facts relevant to the risk, even those not specifically asked about
Utmost good faith requires the applicant to proactively disclose all material facts that could influence the underwriter's decision, not merely answer the questions asked.
When an underwriter uses 'experience rating,' the primary data source is:
Answer: The individual insured's own historical loss experience
Experience rating uses the specific insured's own past loss experience to modify the manual rate, rewarding better-than-average loss performers and penalizing worse-than-average ones.
A 'combined ratio' above 100% indicates that an insurer:
Answer: Is paying out more in losses and expenses than it is collecting in premiums
A combined ratio above 100% means the insurer's losses plus expenses exceed premiums collected, indicating an underwriting loss that must be offset by investment income to achieve overall profitability.
The 'law of large numbers' is fundamental to insurance because it:
Answer: Allows insurers to predict losses with greater accuracy as the number of insured units increases
The law of large numbers states that as the number of similar, independent exposure units increases, actual loss experience tends to converge toward predicted (expected) loss experience.
An underwriter is evaluating a habitational risk and notices several units are occupied by Section 8 tenants. The underwriter's consideration of this factor must comply with:
Answer: The Fair Housing Act and state insurance anti-discrimination laws
Using Section 8 status as a proxy for protected class characteristics (race, national origin) violates the Fair Housing Act and state insurance anti-discrimination laws prohibiting unfair underwriting practices.
Which of the following is an example of 'physical' hazard in property underwriting?
Answer: Outdated knob-and-tube electrical wiring in a building
A physical hazard is a tangible condition that increases the probability of loss, such as outdated wiring, faulty plumbing, or flammable materials stored improperly.