AINS 21 Chapter Five Review Questions with Correct Answers
Question 1:
Describe the approaches underwriters take to minimize the effects of adverse selection.
To minimize the effects of adverse selection, underwriters carefully select the applicants whose
loss exposures they are willing to insure, charge premiums that accurately reflect the loss
exposures for those applicants they select, and monitor applications and books of business for
unusual patterns of policy growth or loss.
Describe the approaches underwriters take to ensure the adequacy of policyholders' surplus.
Underwriters ensure the adequacy of policyholders' surplus by adhering to underwriting
guidelines, making certain that all loss exposures are correctly identified, and charging
adequate premiums for the applications that are accepted.
Describe the approaches underwriters take to ensure that the policies of accepted applicants
adhere to underwriter guidelines.
Answer:
If loss exposures, risks, or policy limits on an application exceed an underwriter's authority, he
or she will seek approval through supervisory and management tanks within the underwriting
department.
Question 2:
Describe the goals of effective account selection by line underwriters.
Answer:
Effective account selection by line underwriters is essential to attaining these goals: (1)
Avoiding adverse selection; (2) Charging adequate premiums for accounts with a
higher-than-average chance of loss; (3) Selecting better-than-average accounts for which the
premium charged will be more than adequate; (4) Rationing an insurer's available capacity to
obtain an optimum spread of loss exposures by location, class, size of risk, and line of business
Question 3:
Describe the line underwriter responsibility of account classification.
Answer:
Line underwriters are responsible for account classification, which is the process of grouping
accounts with similar attributes so that they can be priced appropriately.
, Question 4:
How do line underwriters respond to requests from producers and applicants who want to
know how coverage will respond to a particular type of loss?
Answer:
Line underwriters respond to requests from producers and applicants who want to know how
coverage will respond to a particular type of loss by explaining the types of losses the coverage
forms are designed to cover and the endorsements that must be added to provide the coverage
desired.
Identify examples of goals for a book of business that a line underwriter works to help achieve.
The line underwriter works to ensure that each book of business achieves established goals,
such as product mix, loss ratio, and written premium.
Question 5:
Explain why line underwriters have an active interest ensuring that producers' and insureds'
needs are met.
Answer:
Line underwriters have an active interest in ensuring that producers' and insureds' needs are
met because customer service activities and underwriting are often interwoven.
Provide examples of items for which staff underwriters engage in ongoing research to evaluate.
Question 6:
Items for which staff underwriters engage in ongoing research to evaluate include these:
(1) Effect of adding or deleting entire lines of business; (2) Effect of expanding into additional
states or retiring from states presently serviced; (3) Optimal product mix in the book of
business; (4) Premium volume goals.
Identify examples of items that may be included in underwriting guidelines.
Answer:
Some underwriting guidelines include systematic instructions for handling particular classes of
commercial accounts. Such guidelines may identify specific hazards to evaluate, alternative to
consider, criteria to use when making the final decision, ways to implement the decision, and
methods to monitor the decision. The guidelines may also provide pricing instructions and
reinsurance-related information.
Question 7:
When evaluating an insurer's loss experience, what products do staff underwriters usually
target for analysts?
Answer:
When evaluating an insurer's loss experience, staff underwriters usually target for analysis
insurance products that have losses greater than those anticipated.
Question 1:
Describe the approaches underwriters take to minimize the effects of adverse selection.
To minimize the effects of adverse selection, underwriters carefully select the applicants whose
loss exposures they are willing to insure, charge premiums that accurately reflect the loss
exposures for those applicants they select, and monitor applications and books of business for
unusual patterns of policy growth or loss.
Describe the approaches underwriters take to ensure the adequacy of policyholders' surplus.
Underwriters ensure the adequacy of policyholders' surplus by adhering to underwriting
guidelines, making certain that all loss exposures are correctly identified, and charging
adequate premiums for the applications that are accepted.
Describe the approaches underwriters take to ensure that the policies of accepted applicants
adhere to underwriter guidelines.
Answer:
If loss exposures, risks, or policy limits on an application exceed an underwriter's authority, he
or she will seek approval through supervisory and management tanks within the underwriting
department.
Question 2:
Describe the goals of effective account selection by line underwriters.
Answer:
Effective account selection by line underwriters is essential to attaining these goals: (1)
Avoiding adverse selection; (2) Charging adequate premiums for accounts with a
higher-than-average chance of loss; (3) Selecting better-than-average accounts for which the
premium charged will be more than adequate; (4) Rationing an insurer's available capacity to
obtain an optimum spread of loss exposures by location, class, size of risk, and line of business
Question 3:
Describe the line underwriter responsibility of account classification.
Answer:
Line underwriters are responsible for account classification, which is the process of grouping
accounts with similar attributes so that they can be priced appropriately.
, Question 4:
How do line underwriters respond to requests from producers and applicants who want to
know how coverage will respond to a particular type of loss?
Answer:
Line underwriters respond to requests from producers and applicants who want to know how
coverage will respond to a particular type of loss by explaining the types of losses the coverage
forms are designed to cover and the endorsements that must be added to provide the coverage
desired.
Identify examples of goals for a book of business that a line underwriter works to help achieve.
The line underwriter works to ensure that each book of business achieves established goals,
such as product mix, loss ratio, and written premium.
Question 5:
Explain why line underwriters have an active interest ensuring that producers' and insureds'
needs are met.
Answer:
Line underwriters have an active interest in ensuring that producers' and insureds' needs are
met because customer service activities and underwriting are often interwoven.
Provide examples of items for which staff underwriters engage in ongoing research to evaluate.
Question 6:
Items for which staff underwriters engage in ongoing research to evaluate include these:
(1) Effect of adding or deleting entire lines of business; (2) Effect of expanding into additional
states or retiring from states presently serviced; (3) Optimal product mix in the book of
business; (4) Premium volume goals.
Identify examples of items that may be included in underwriting guidelines.
Answer:
Some underwriting guidelines include systematic instructions for handling particular classes of
commercial accounts. Such guidelines may identify specific hazards to evaluate, alternative to
consider, criteria to use when making the final decision, ways to implement the decision, and
methods to monitor the decision. The guidelines may also provide pricing instructions and
reinsurance-related information.
Question 7:
When evaluating an insurer's loss experience, what products do staff underwriters usually
target for analysts?
Answer:
When evaluating an insurer's loss experience, staff underwriters usually target for analysis
insurance products that have losses greater than those anticipated.
