CAIB 2 Chapter 2 Practice test 2
Questions With Comprehensive answers
Define 'adverse selection' - CORRECT ANSWER-This happens when only those
accounts exposed to certain perils are the accounts applying for coverage such as
those near rivers are the only accounts applying for flood coverage
What are four functions performed by underwriters - CORRECT ANSWER-1) Risk
selection
2) Risk classification
3) Rating and rate making
4) Policyholder's services
Define 'Risk Classification" - CORRECT ANSWER-Taking all accounts similar to each
other and placing them in categories based on their likelihood for loss
What is the main advantage of risk classification? - CORRECT ANSWER-This allows
insurers to calculate proper premiums to charge
Identify an internal source underwriters utilize when rate making - CORRECT
ANSWER-Staff inspectors
Identify an external source underwriters utilize when rate making - CORRECT
ANSWER-Insurer's Advisory Organization (IAO)
What are two influences that cause premiums to change from year to year? -
CORRECT ANSWER-i) Increasing claims paid due to inflation
ii) Rates return on insurance company's investments
What are characteristics of soft markets? - CORRECT ANSWER-Heavy competition
among insurers as well as lower premiums
Questions With Comprehensive answers
Define 'adverse selection' - CORRECT ANSWER-This happens when only those
accounts exposed to certain perils are the accounts applying for coverage such as
those near rivers are the only accounts applying for flood coverage
What are four functions performed by underwriters - CORRECT ANSWER-1) Risk
selection
2) Risk classification
3) Rating and rate making
4) Policyholder's services
Define 'Risk Classification" - CORRECT ANSWER-Taking all accounts similar to each
other and placing them in categories based on their likelihood for loss
What is the main advantage of risk classification? - CORRECT ANSWER-This allows
insurers to calculate proper premiums to charge
Identify an internal source underwriters utilize when rate making - CORRECT
ANSWER-Staff inspectors
Identify an external source underwriters utilize when rate making - CORRECT
ANSWER-Insurer's Advisory Organization (IAO)
What are two influences that cause premiums to change from year to year? -
CORRECT ANSWER-i) Increasing claims paid due to inflation
ii) Rates return on insurance company's investments
What are characteristics of soft markets? - CORRECT ANSWER-Heavy competition
among insurers as well as lower premiums
