CIP - C120 Underwriting Essentials Exam and
Answers
1. An underwriter is evaluating a commercial property policy for a manufacturing facility
that uses flammable chemicals. The facility has a sprinkler system that is 10 years old and
has not been inspected in the last 5 years. Which of the following best describes the
underwriting approach?
A. Accept the risk with no modifications because the sprinkler system exists.
B. Decline the risk due to the lack of recent sprinkler inspection.
C. Accept the risk subject to a warranty requiring immediate inspection and upgrade of the sprinkler
system.
D. Accept the risk but apply a significant premium surcharge for the outdated sprinkler system.
Answer: C
2. In the context of reinsurance, which type of treaty is most appropriate for an insurer
seeking to protect against catastrophic losses from a single event, such as a hurricane?
A. Quota share treaty
B. Surplus share treaty
C. Excess of loss treaty
D. Facultative reinsurance
Answer: C
3. An underwriter is reviewing a workers' compensation policy for a construction
company. The experience modification factor (EMR) is 1.25. Which of the following is the
most accurate interpretation?
A. The company's loss experience is 25% better than the average for its class.
B. The company's premium will be reduced by 25% due to poor loss experience.
C. The company's loss experience is 25% worse than the average for its class.
D. The company's premium will be increased by 125% due to excellent loss experience.
Answer: C
4. Which of the following best describes the concept of 'adverse selection' in insurance
underwriting?
A. The tendency of insurers to select only low-risk individuals.
B. The tendency of high-risk individuals to seek insurance more than low-risk individuals.
C. The process of selecting risks that are profitable for the insurer.
D. The regulatory requirement to insure all applicants regardless of risk.
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,Answer: B
5. An underwriter is assessing a directors and officers (D&O) liability policy for a
technology startup. Which of the following factors would most likely lead to a higher
premium?
A. A strong history of profitability and low debt.
B. A board of directors with extensive industry experience.
C. A recent initial public offering (IPO) with high volatility.
D. Comprehensive internal controls and compliance programs.
Answer: C
6. In property insurance, what is the primary purpose of a 'coinsurance clause'?
A. To ensure the insured carries insurance at least equal to a specified percentage of the property's
value.
B. To allow the insurer to share losses with other insurers.
C. To reduce the premium for the insured by sharing risk.
D. To require the insured to pay a percentage of each loss.
Answer: A
7. An underwriter is evaluating a commercial general liability (CGL) policy for a
restaurant. Which of the following scenarios would most likely be excluded under the
standard CGL form?
A. A customer slips on a wet floor and breaks an arm.
B. A chef is injured while using a kitchen knife.
C. A food critic gets food poisoning from contaminated shellfish.
D. A delivery driver causes an accident while making a delivery.
Answer: B
8. Which of the following is a key difference between a 'claims-made' and an 'occurrence'
policy form?
A. Claims-made policies cover claims reported during the policy period, while occurrence policies
cover incidents that occur during the policy period regardless of when reported.
B. Occurrence policies are only used for property insurance, while claims-made are for liability.
C. Claims-made policies are cheaper because they have no retroactive date.
D. Occurrence policies require a discovery period, while claims-made do not.
Answer: A
9. An underwriter is pricing a cyber liability policy for a healthcare provider. Which of the
following is the most significant risk factor?
A. The number of employees.
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, B. The type of data stored (e.g., PHI).
C. The age of the computer hardware.
D. The location of the business.
Answer: B
10. In the context of underwriting, what does the term 'moral hazard' refer to?
A. The risk that an insured will intentionally cause a loss to collect insurance proceeds.
B. The risk that an insured will be careless because they have insurance.
C. The risk that an insurer will act unethically.
D. The risk that economic conditions will lead to increased claims.
Answer: A
11. In the context of life insurance underwriting, a proposed insured with a history of
successfully treated stage II colon cancer (Dukes B, no nodal involvement) 8 years ago, now
with normal annual surveillance colonoscopies and carcinoembryonic antigen (CEA) levels,
applies for a $2 million policy. Which of the following best describes the underwriting
decision most aligned with current evidence-based guidelines?
A. Postpone until 10-year disease-free survival is achieved, as stage II colon cancer carries significant
late recurrence risk beyond 5 years.
B. Offer standard rates, as Dukes B colon cancer with complete resection and negative surveillance for
8 years has a mortality risk indistinguishable from the general population.
C. Offer a table-rated policy (e.g., Table B) due to the increased long-term risk of second primary
cancers and cardiovascular toxicity from adjuvant chemotherapy.
D. Decline the application, as any history of invasive malignancy within 10 years is unacceptable for a
policy of this size.
Answer: B
12. An underwriting guideline for disability income insurance states that for applicants
with a body mass index (BMI) of 35-39.9 (Class II obesity), the minimum rating is a 25%
premium surcharge. However, an applicant with a BMI of 38 also has well-controlled
hypertension (BP <140/90 on one medication) and no other impairments. The underwriter
is considering whether to increase the surcharge beyond 25%. Which of the following
actuarial principles best supports maintaining the 25% surcharge?
A. Comorbidity loading is additive; the presence of hypertension mandates an additional surcharge
regardless of control.
B. The combined effect of obesity and hypertension is multiplicative, requiring a surcharge of at least
50%.
C. Well-controlled hypertension in the context of Class II obesity does not significantly increase
disability risk beyond obesity alone, as the primary driver is mechanical and metabolic effects of
obesity.
D. The 25% surcharge is a minimum; the underwriter has discretion to increase it based on judgment,
but actuarial tables do not support a higher loading for this combination.
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Answers
1. An underwriter is evaluating a commercial property policy for a manufacturing facility
that uses flammable chemicals. The facility has a sprinkler system that is 10 years old and
has not been inspected in the last 5 years. Which of the following best describes the
underwriting approach?
A. Accept the risk with no modifications because the sprinkler system exists.
B. Decline the risk due to the lack of recent sprinkler inspection.
C. Accept the risk subject to a warranty requiring immediate inspection and upgrade of the sprinkler
system.
D. Accept the risk but apply a significant premium surcharge for the outdated sprinkler system.
Answer: C
2. In the context of reinsurance, which type of treaty is most appropriate for an insurer
seeking to protect against catastrophic losses from a single event, such as a hurricane?
A. Quota share treaty
B. Surplus share treaty
C. Excess of loss treaty
D. Facultative reinsurance
Answer: C
3. An underwriter is reviewing a workers' compensation policy for a construction
company. The experience modification factor (EMR) is 1.25. Which of the following is the
most accurate interpretation?
A. The company's loss experience is 25% better than the average for its class.
B. The company's premium will be reduced by 25% due to poor loss experience.
C. The company's loss experience is 25% worse than the average for its class.
D. The company's premium will be increased by 125% due to excellent loss experience.
Answer: C
4. Which of the following best describes the concept of 'adverse selection' in insurance
underwriting?
A. The tendency of insurers to select only low-risk individuals.
B. The tendency of high-risk individuals to seek insurance more than low-risk individuals.
C. The process of selecting risks that are profitable for the insurer.
D. The regulatory requirement to insure all applicants regardless of risk.
Page 1
,Answer: B
5. An underwriter is assessing a directors and officers (D&O) liability policy for a
technology startup. Which of the following factors would most likely lead to a higher
premium?
A. A strong history of profitability and low debt.
B. A board of directors with extensive industry experience.
C. A recent initial public offering (IPO) with high volatility.
D. Comprehensive internal controls and compliance programs.
Answer: C
6. In property insurance, what is the primary purpose of a 'coinsurance clause'?
A. To ensure the insured carries insurance at least equal to a specified percentage of the property's
value.
B. To allow the insurer to share losses with other insurers.
C. To reduce the premium for the insured by sharing risk.
D. To require the insured to pay a percentage of each loss.
Answer: A
7. An underwriter is evaluating a commercial general liability (CGL) policy for a
restaurant. Which of the following scenarios would most likely be excluded under the
standard CGL form?
A. A customer slips on a wet floor and breaks an arm.
B. A chef is injured while using a kitchen knife.
C. A food critic gets food poisoning from contaminated shellfish.
D. A delivery driver causes an accident while making a delivery.
Answer: B
8. Which of the following is a key difference between a 'claims-made' and an 'occurrence'
policy form?
A. Claims-made policies cover claims reported during the policy period, while occurrence policies
cover incidents that occur during the policy period regardless of when reported.
B. Occurrence policies are only used for property insurance, while claims-made are for liability.
C. Claims-made policies are cheaper because they have no retroactive date.
D. Occurrence policies require a discovery period, while claims-made do not.
Answer: A
9. An underwriter is pricing a cyber liability policy for a healthcare provider. Which of the
following is the most significant risk factor?
A. The number of employees.
Page 2
, B. The type of data stored (e.g., PHI).
C. The age of the computer hardware.
D. The location of the business.
Answer: B
10. In the context of underwriting, what does the term 'moral hazard' refer to?
A. The risk that an insured will intentionally cause a loss to collect insurance proceeds.
B. The risk that an insured will be careless because they have insurance.
C. The risk that an insurer will act unethically.
D. The risk that economic conditions will lead to increased claims.
Answer: A
11. In the context of life insurance underwriting, a proposed insured with a history of
successfully treated stage II colon cancer (Dukes B, no nodal involvement) 8 years ago, now
with normal annual surveillance colonoscopies and carcinoembryonic antigen (CEA) levels,
applies for a $2 million policy. Which of the following best describes the underwriting
decision most aligned with current evidence-based guidelines?
A. Postpone until 10-year disease-free survival is achieved, as stage II colon cancer carries significant
late recurrence risk beyond 5 years.
B. Offer standard rates, as Dukes B colon cancer with complete resection and negative surveillance for
8 years has a mortality risk indistinguishable from the general population.
C. Offer a table-rated policy (e.g., Table B) due to the increased long-term risk of second primary
cancers and cardiovascular toxicity from adjuvant chemotherapy.
D. Decline the application, as any history of invasive malignancy within 10 years is unacceptable for a
policy of this size.
Answer: B
12. An underwriting guideline for disability income insurance states that for applicants
with a body mass index (BMI) of 35-39.9 (Class II obesity), the minimum rating is a 25%
premium surcharge. However, an applicant with a BMI of 38 also has well-controlled
hypertension (BP <140/90 on one medication) and no other impairments. The underwriter
is considering whether to increase the surcharge beyond 25%. Which of the following
actuarial principles best supports maintaining the 25% surcharge?
A. Comorbidity loading is additive; the presence of hypertension mandates an additional surcharge
regardless of control.
B. The combined effect of obesity and hypertension is multiplicative, requiring a surcharge of at least
50%.
C. Well-controlled hypertension in the context of Class II obesity does not significantly increase
disability risk beyond obesity alone, as the primary driver is mechanical and metabolic effects of
obesity.
D. The 25% surcharge is a minimum; the underwriter has discretion to increase it based on judgment,
but actuarial tables do not support a higher loading for this combination.
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