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 is the primary purpose of underwriting in insurance?
Answer: To select and classify risks so that appropriate premiums are charged and adverse selection is avoided
Underwriting evaluates applicants, classifies risks into appropriate groups, and determines whether and at what price to offer coverage, protecting the insurer's book of business.
What is 'adverse selection' in insurance?
Answer: The tendency for higher-risk individuals to seek insurance more than lower-risk individuals
Adverse selection occurs when those most likely to suffer a loss disproportionately seek insurance, threatening the insurer's ability to price coverage fairly.
What is a 'rating bureau' in property and casualty insurance?
Answer: An organization that develops and files advisory loss costs and rating systems used by member insurers
Rating bureaus like ISO (Insurance Services Office) collect industry loss data, develop advisory loss costs, and file rating systems that member insurers can adopt or modify.
What are 'loss costs' in insurance rating?
Answer: The portion of the premium intended to cover expected claims, before loading for expenses and profit
Loss costs (also called pure premiums) represent the actuarially projected cost of claims per exposure unit, which insurers then load with their own expense and profit factors.
What is 'experience rating'?
Answer: Adjusting a premium based on the insured's own past loss experience
Experience rating modifies a policyholder's premium up or down based on their individual loss history relative to what was expected for their class.
What is a 'schedule rating' modification?
Answer: Debits and credits applied to a base rate based on specific physical or operational characteristics of the risk
Schedule rating allows underwriters to manually adjust premiums based on specific favorable or unfavorable characteristics of the risk not captured in the class rate.