ALU 202 CHAPTER 2 UPDATED ACTUAL QUESTIONS
AND CORRECT ANSWERS
Question:
1. Cost-Benefit Studies
Answer:
Provide objective evidence needed to evaluate the cost-effectiveness of
underwriting requirements and the underwriting process.
Question:
2. Following the Herd Instinct
Answer:
Following age/amount thresholds used by peer companies for ordering
requirements.
Question:
3. Uniquely Protective
Answer:
An underwriting requirement that is credited as "solely responsible" for
uncovering adverse information
Question:
4. "Sentinel Effect"
Answer:
Deters proposed insured's with known or suspected impairments or abnormal lab
findings from applying for insurance. Or causes them to apply for amounts below
requirement threshold limits.
Question:
5. Steps in Conducting a Cost- Benefit Study
Answer:
1- Select random sample of cases
2 -Cases subject to full underwriting
3 - Decide what to record
4 - Estimate cost-benefit or cost effectiveness of each requirement
5 - Recording should be done by a small group of underwriters to assume
uniformity
6 - Expenses, in addition to the fee for the requirement itself, should be included
7 - The study can also be designed to provide other information (ex. time to
obtain requirements, time to process various types of applications, actual expense
of UW requirements compared to assumed)
AND CORRECT ANSWERS
Question:
1. Cost-Benefit Studies
Answer:
Provide objective evidence needed to evaluate the cost-effectiveness of
underwriting requirements and the underwriting process.
Question:
2. Following the Herd Instinct
Answer:
Following age/amount thresholds used by peer companies for ordering
requirements.
Question:
3. Uniquely Protective
Answer:
An underwriting requirement that is credited as "solely responsible" for
uncovering adverse information
Question:
4. "Sentinel Effect"
Answer:
Deters proposed insured's with known or suspected impairments or abnormal lab
findings from applying for insurance. Or causes them to apply for amounts below
requirement threshold limits.
Question:
5. Steps in Conducting a Cost- Benefit Study
Answer:
1- Select random sample of cases
2 -Cases subject to full underwriting
3 - Decide what to record
4 - Estimate cost-benefit or cost effectiveness of each requirement
5 - Recording should be done by a small group of underwriters to assume
uniformity
6 - Expenses, in addition to the fee for the requirement itself, should be included
7 - The study can also be designed to provide other information (ex. time to
obtain requirements, time to process various types of applications, actual expense
of UW requirements compared to assumed)
