Risk & 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 Risk & Underwriting Principles flashcards as text
Which underwriting principle states that insureds should not profit from a loss beyond their actual financial damage?
Answer: Principle of indemnity
The principle of indemnity ensures the insured is restored to their pre-loss financial position but cannot gain a profit from the insurance claim.
An underwriter notices that a commercial property applicant has filed three fire claims in five years. This pattern is best described as:
Answer: A moral hazard indicator
Repeated fire claims suggest a moral hazard, where the insured's behavior or attitude may increase the likelihood of loss.
What does a 'scheduled rating' modification in commercial underwriting allow?
Answer: Debits or credits applied to a base rate based on specific risk characteristics
Scheduled rating lets underwriters adjust the base premium up or down based on individual risk factors such as management quality or premises condition.
In risk evaluation, 'severity' refers to:
Answer: The potential financial magnitude of a single loss
Severity measures the potential dollar impact of an individual loss event, distinct from frequency which measures how often losses occur.
Which condition makes a risk generally uninsurable in the standard market?
Answer: Loss that is already certain to occur
Insurance requires that a loss be fortuitous (uncertain); a loss that is already certain to occur removes the element of chance needed for insurability.
What is the primary purpose of an underwriting guide or manual?
Answer: To ensure consistency in risk selection and pricing decisions
Underwriting guides standardize risk selection criteria, pricing parameters, and coverage rules so underwriters apply consistent standards.
A risk that transfers potential loss to the insurer in exchange for a premium is exercising which risk management technique?
Answer: Risk transfer
Risk transfer shifts the financial consequences of a potential loss to another party—typically an insurer—through a contractual arrangement such as an insurance policy.