AU 60 Chapter 1 Test Questions and Answers All Correct
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Course
AU 60
Institution
AU 60
AU 60 Chapter 1 Test Questions and Answers All Correct
Purpose of underwriting guidelines (8) - Answer- 1. structured decisions
2. ensure uniformity and consistency
3. synthesize insights and experience
4. distinguish between routine and nonroutine decisions
5. avoid duplication of effort
6...
AU 60 Chapter 1 Test Questions
and Answers All Correct
Purpose of underwriting guidelines (8) - Answer- 1. structured decisions
2. ensure uniformity and consistency
3. synthesize insights and experience
4. distinguish between routine and nonroutine decisions
5. avoid duplication of effort
6. ensure adherence to reinsurance treaties and planned rate levels
7. support policy preperation and compliance
8. provide a basis for predictive models
predictive modeling - Answer- incorporates underriting thought processes with
underwriting guidelines by assigning a rank or score to all of the variables presented by
an account and its loss exposures
expert systems (knowledge based systems) - Answer- most frequently used in personal
lines and small commercial lines insurance but their ability to handle larger commercial
accounts is growing
loss exposure - Answer- any condition or situation that presents a possibility of loss,
whether or not an actual loss occurs
hazard - Answer- a condition that increases the frequency or severity of a loss
underwriting process steps (6) - Answer- 1. evaluate the submission
2. develop underwriting alternatives
3. select an underwriting alternative
4. determine an appropriate premium
5. implement the underwriting decision
6. monitor underwriting decisions
Three types of underwriting information - Answer- essential information
desireable information
available information
principal sources of underwriting information - Answer- producers
applications
inspection reports
government records
financial rating services
, loss data
field marketing personnel
premium auditor
claim files
production records
consultants reports
Estimated loss potentials (ELP) - Answer- rate development factors used for operations
with unique charcteristics or for which inadequate statistical experience exists / ELP's
are multiplied by loss cost multipliers to develop rates
rated classification - Answer- rate classifications provided by the ISO Commercial Lines
Manual that describe operations with unique characteristics or for which inadequate
statistical experience exists
experience rating - Answer- uses policyholder's past loss experience to develop a
premium modification factor to adjust the manual rate upward or downward
schedule rating - Answer- awards debits and credits to a submission based on
categories of business characteristics
retrospective rating - Answer- uses the current year as the experience period to develop
the experience modification factor / premium is subject to a specified minimum and
maximum
facultative reinsurance - Answer- reinsurance of individual loss exposures in which the
primary insurer chooses which loss exposures to submit to the reinsurer, and the
reinsurer can accept or reject any loss exposures submitted
Four underwriting alternatives - Answer- 1. require risk control measures
2. change insurance rates, rating plans or policy limits
3. amend policy terms and conditions
4. use facultative reinsurance
adverse selection - Answer- the tendency for people with the greatest probability of loss
to be the ones most likely to purchase insurance
underwriting function serves these purposes - Answer- guarding against adverse
selection, ensuring adequate policyholders surplus, and enforcing underwriting
guidelines
policyholders surplus - Answer- under statutory accounting principles (SAP), an
insurer's total admitted assets minus its total liabilities
capacity - Answer- amount of business an insurer is able to write, usually based on a
comparison of the insurer's written premiums to its policyholders surplus
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