Underwriting and Rating Flashcards
6 cards from real Property And Casualty Insurance License practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 6 Underwriting and Rating flashcards as text
What does 'loss ratio' measure in insurance?
Answer: The ratio of losses incurred to premiums earned, measuring how much of premium is consumed by claims
The loss ratio is calculated by dividing incurred losses by earned premiums; a loss ratio of 60% means 60 cents of every premium dollar went to pay claims.
What is 'moral hazard' in insurance?
Answer: The increased tendency of an insured to act recklessly or dishonestly because they are covered by insurance
Moral hazard refers to the behavioral change that insurance can cause — knowing losses will be covered may reduce the insured's incentive to prevent them or may even encourage fraud.
What is 'morale hazard' (attitudinal hazard)?
Answer: Carelessness or indifference to potential loss because of insurance coverage
Morale hazard is the unconscious increase in risk-taking or lack of care that results from having insurance coverage, as opposed to the intentional fraud associated with moral hazard.
What is an 'ISO Commercial Lines Manual' (CLM) used for?
Answer: Providing standardized rules, forms, and rating instructions for commercial insurance
The ISO Commercial Lines Manual provides the standardized rating rules, classification codes, forms, and endorsements that insurers use to write commercial property and casualty coverage.
What is 'book of business' in insurance underwriting?
Answer: The total portfolio of policies written by an insurer or agent
A book of business refers to the entire collection of insurance policies that an insurer, agent, or underwriter manages and is responsible for.
What is 'facultative reinsurance'?
Answer: Reinsurance negotiated individually for a specific risk that doesn't fit the treaty
Facultative reinsurance is placed on a case-by-case basis for individual risks that exceed treaty limits or have unique characteristics requiring special treatment.