AU 60 - Complete Set Exam Questions With Complete
Solutions
What are some examples of adverse selection and how can commercial underwriters
minimize the effects of it?
1.3 - Answer-1. Business owners in areas prone to coastal storms purchase windstorm
coverage or increase their limits only before hurricane season—when they expect
severe losses.
2. A disproportionate percentage of business owners in an earthquake-prone zone
purchase earthquake insurance, compared with other business owners.
**Underwriters minimize the effects of adverse selection by carefully selecting
applicants to insure, charging appropriate premiums for the accepted loss exposures,
and monitoring applications and books of business for unusual patterns of policy growth
or loss and making any needed adjustments.
/.Book of Business
1.3 - Answer-A group of policies with a common characteristic, such as territory or type
of coverage, or all policies written by a particular insurer or agency.
/.Underwriting
1.3 - Answer-The process of selecting insureds, pricing coverage, determining
insurance policy terms and conditions, and then monitoring the underwriting decisions
made.
** Underwriters are an insurer's guard against adverse selection
/.Adverse Selection
1.3 - Answer-In general, the tendency for people with the greatest probability of loss to
be the ones most likely to purchase insurance.
/.Policyholders' Surplus
1.3 - Answer-Under statutory accounting principles (SAP), an insurer's total admitted
assets minus its total liabilities.
/.Catastrophe Model
1.4 and 1.14 - Answer-A type of computer program that estimates losses from future
potential catastrophic events
** These models help insurers determine whether they are charging appropriate
premiums for property exposures, have adequate surplus to handle claims from
property losses, and should purchase reinsurance.
/.Capacity
,1.4 - Answer-The amount of business an insurer is able to write, usually based on a
comparison of the insurer's written premiums to its policyholders' surplus.
/.Field/line underwriters vs. corporate underwriters
1.5 - Answer-Underwriters in the field evaluate individual insurance applications and
policy renewals and manage their own books of business. They are responsible for
much of the day-to-day operation of the insurer's underwriting process and are, in many
ways, the public face of the Underwriting Department.
Meanwhile, underwriters at the corporate level make large-scale decisions about
coverage, pricing, lines of business, and the overall risk selection process. They
typically work with underwriters in the field and other departments to manage the
insurance product.
/.6 things that field underwriters do
1.5-1.6 - Answer-1. Select insureds
2. Ensure accurate classification and pricing
3. Recommend or provide coverage
4. Manage a book of business
5. Support producers and insureds
6. Support marketing objectives
/.9 things that corporate underwriters do
1.6-1.8 - Answer-1. Research the market
2. Formulate UND policy
3. Revise UND guidelines
4. Research and develop coverage forms
5. Review rates
6. Educate and train
7. Arrange reinsurance
8. Assist others with complex accounts
9. Conduct UND audits
/.Manuscript Policy (or manuscript endorsement)
1.8 - Answer-An insurance policy that is specifically drafted according to terms
negotiated between a specific insured (or group of insureds) and an insurer
/.Big Data
1.9 - Answer-Sets of data that are too large to be gathered and analyzed by traditional
methods.
/.Smart Product
1.9 - Answer-An innovative item that uses sensors; wireless sensor networks; and data
collection, transmission, and analysis to further enable the item to be faster, more
useful, or otherwise improved.
/.Internet of Things (IoT)
,1.9 - Answer-A network of objects that transmit data to each other and to central hubs
through the internet.
/.What are some sources of big data used by commercial underwriters?
1.9 - Answer-1. Smart products
2. Internet of Things
3. Telematics devices
4. Insurer's own loss exposure & pricing data
5. Regulators
6. Government orgs
7. Industry associations
8. Agents & brokers
9. Third-party databases
10. Social media
11. Internet
/.Artificial Intelligence (AI)
1.10 - Answer-Computer processing or output that simulates human reasoning or
knowledge
- powered by machine learning and deep learning tech
** Helpful by automating simple tasks, assessing and recommending risk selection,
predicting and processing claims, and detecting fraud
/.Machine Learning
1.10 - Answer-Artificial intelligence in which computers continually teach themselves to
make better decisions based on previous results and new data
- computer uses algorithms to parse data, gain insights from that data, and present
informed decisions based on what the data reveals
- machine continuously analyzes new and existing data to improve its decision making
- computer must perform a specific calculation with the data it receives and then
improve the accuracy of its calculations over time.
/.Deep Learning
1.10 - Answer-Insights into data use and processing gained by combining artificial
intelligence and machine learning. It is based on algorithms derived from artificial neural
networks
- an advanced and far more capable subset of machine learning
- the most humanlike AI
- have the advantage of being able to work with incomplete data as well as train
themselves to perform new tasks
/.Data Mining
1.12 - Answer-The analysis of large amounts of data to find new relationships and
patterns that will assist in developing business solutions
, ** Commercial UNDs use this to ID patterns or specific characteristics in a large group
of data or book of biz
/.Governments impose regulations to...
1.14 - Answer-prevent insurer insolvency
/.Are insurers allowed to discriminate against different groups of customers?
1.15 - Answer-It IS legal for insurers to discriminate against different groups of insureds
or applicants
- In insurance, discrimination isn't necessarily a negative term; it's a descriptive term
that means to distinguish, differentiate, or categorize
- Fair discrimination is needed to ensure that each insured pays for the risk it presents
to the insurer.
/.Unfair Discrimination
1.15 - Answer-Applying different standards or methods of treatment to insureds who
have the same basic characteristics and loss potential, such as charging higher-than-
normal rates for an auto insurance applicant based solely on the applicant's race,
religion, or ethnic background
/.To safeguard insurers' solvency and confirm that customers are treated equitably,
underwriting regulations may...
1.15 - Answer-dictate policy wording; constrain insurers' ability to accept, modify, or
decline loss exposures; limit allowable classifications of exposures; and restrict the
timing and conditions of coverage cancellations and nonrenewals.
/.Declination
1.15 - Answer-An insurer's refusal to provide coverage to an applicant who has made a
written request to the insurer or its producer, or a producer's refusal to forward such a
written request to an insurer.
/.Termination
1.15 - Answer-An insurer's cancellation of a policy during the policy term or nonrenewal
of coverage at the end of a policy term.
/.Notification Requirements
1.15 - Answer-Regulatory requirements relating to the timing and contents of an
insurer's notice to an insured of the declination, termination, and nonrenewal of
insurance coverage.
/.7 Examples of Underwriting-Related Unfair Trade Practices
1.16 - Answer-1. Discriminating unfairly when selecting loss exposures
2. Misclassifying loss exposures
3. Canceling or nonrenewing policies contrary to statutes, rules, and policy provisions
4. Using UND rules or rates that are not on file with or approved by the ins depts in the
states that the insurer does biz
Solutions
What are some examples of adverse selection and how can commercial underwriters
minimize the effects of it?
1.3 - Answer-1. Business owners in areas prone to coastal storms purchase windstorm
coverage or increase their limits only before hurricane season—when they expect
severe losses.
2. A disproportionate percentage of business owners in an earthquake-prone zone
purchase earthquake insurance, compared with other business owners.
**Underwriters minimize the effects of adverse selection by carefully selecting
applicants to insure, charging appropriate premiums for the accepted loss exposures,
and monitoring applications and books of business for unusual patterns of policy growth
or loss and making any needed adjustments.
/.Book of Business
1.3 - Answer-A group of policies with a common characteristic, such as territory or type
of coverage, or all policies written by a particular insurer or agency.
/.Underwriting
1.3 - Answer-The process of selecting insureds, pricing coverage, determining
insurance policy terms and conditions, and then monitoring the underwriting decisions
made.
** Underwriters are an insurer's guard against adverse selection
/.Adverse Selection
1.3 - Answer-In general, the tendency for people with the greatest probability of loss to
be the ones most likely to purchase insurance.
/.Policyholders' Surplus
1.3 - Answer-Under statutory accounting principles (SAP), an insurer's total admitted
assets minus its total liabilities.
/.Catastrophe Model
1.4 and 1.14 - Answer-A type of computer program that estimates losses from future
potential catastrophic events
** These models help insurers determine whether they are charging appropriate
premiums for property exposures, have adequate surplus to handle claims from
property losses, and should purchase reinsurance.
/.Capacity
,1.4 - Answer-The amount of business an insurer is able to write, usually based on a
comparison of the insurer's written premiums to its policyholders' surplus.
/.Field/line underwriters vs. corporate underwriters
1.5 - Answer-Underwriters in the field evaluate individual insurance applications and
policy renewals and manage their own books of business. They are responsible for
much of the day-to-day operation of the insurer's underwriting process and are, in many
ways, the public face of the Underwriting Department.
Meanwhile, underwriters at the corporate level make large-scale decisions about
coverage, pricing, lines of business, and the overall risk selection process. They
typically work with underwriters in the field and other departments to manage the
insurance product.
/.6 things that field underwriters do
1.5-1.6 - Answer-1. Select insureds
2. Ensure accurate classification and pricing
3. Recommend or provide coverage
4. Manage a book of business
5. Support producers and insureds
6. Support marketing objectives
/.9 things that corporate underwriters do
1.6-1.8 - Answer-1. Research the market
2. Formulate UND policy
3. Revise UND guidelines
4. Research and develop coverage forms
5. Review rates
6. Educate and train
7. Arrange reinsurance
8. Assist others with complex accounts
9. Conduct UND audits
/.Manuscript Policy (or manuscript endorsement)
1.8 - Answer-An insurance policy that is specifically drafted according to terms
negotiated between a specific insured (or group of insureds) and an insurer
/.Big Data
1.9 - Answer-Sets of data that are too large to be gathered and analyzed by traditional
methods.
/.Smart Product
1.9 - Answer-An innovative item that uses sensors; wireless sensor networks; and data
collection, transmission, and analysis to further enable the item to be faster, more
useful, or otherwise improved.
/.Internet of Things (IoT)
,1.9 - Answer-A network of objects that transmit data to each other and to central hubs
through the internet.
/.What are some sources of big data used by commercial underwriters?
1.9 - Answer-1. Smart products
2. Internet of Things
3. Telematics devices
4. Insurer's own loss exposure & pricing data
5. Regulators
6. Government orgs
7. Industry associations
8. Agents & brokers
9. Third-party databases
10. Social media
11. Internet
/.Artificial Intelligence (AI)
1.10 - Answer-Computer processing or output that simulates human reasoning or
knowledge
- powered by machine learning and deep learning tech
** Helpful by automating simple tasks, assessing and recommending risk selection,
predicting and processing claims, and detecting fraud
/.Machine Learning
1.10 - Answer-Artificial intelligence in which computers continually teach themselves to
make better decisions based on previous results and new data
- computer uses algorithms to parse data, gain insights from that data, and present
informed decisions based on what the data reveals
- machine continuously analyzes new and existing data to improve its decision making
- computer must perform a specific calculation with the data it receives and then
improve the accuracy of its calculations over time.
/.Deep Learning
1.10 - Answer-Insights into data use and processing gained by combining artificial
intelligence and machine learning. It is based on algorithms derived from artificial neural
networks
- an advanced and far more capable subset of machine learning
- the most humanlike AI
- have the advantage of being able to work with incomplete data as well as train
themselves to perform new tasks
/.Data Mining
1.12 - Answer-The analysis of large amounts of data to find new relationships and
patterns that will assist in developing business solutions
, ** Commercial UNDs use this to ID patterns or specific characteristics in a large group
of data or book of biz
/.Governments impose regulations to...
1.14 - Answer-prevent insurer insolvency
/.Are insurers allowed to discriminate against different groups of customers?
1.15 - Answer-It IS legal for insurers to discriminate against different groups of insureds
or applicants
- In insurance, discrimination isn't necessarily a negative term; it's a descriptive term
that means to distinguish, differentiate, or categorize
- Fair discrimination is needed to ensure that each insured pays for the risk it presents
to the insurer.
/.Unfair Discrimination
1.15 - Answer-Applying different standards or methods of treatment to insureds who
have the same basic characteristics and loss potential, such as charging higher-than-
normal rates for an auto insurance applicant based solely on the applicant's race,
religion, or ethnic background
/.To safeguard insurers' solvency and confirm that customers are treated equitably,
underwriting regulations may...
1.15 - Answer-dictate policy wording; constrain insurers' ability to accept, modify, or
decline loss exposures; limit allowable classifications of exposures; and restrict the
timing and conditions of coverage cancellations and nonrenewals.
/.Declination
1.15 - Answer-An insurer's refusal to provide coverage to an applicant who has made a
written request to the insurer or its producer, or a producer's refusal to forward such a
written request to an insurer.
/.Termination
1.15 - Answer-An insurer's cancellation of a policy during the policy term or nonrenewal
of coverage at the end of a policy term.
/.Notification Requirements
1.15 - Answer-Regulatory requirements relating to the timing and contents of an
insurer's notice to an insured of the declination, termination, and nonrenewal of
insurance coverage.
/.7 Examples of Underwriting-Related Unfair Trade Practices
1.16 - Answer-1. Discriminating unfairly when selecting loss exposures
2. Misclassifying loss exposures
3. Canceling or nonrenewing policies contrary to statutes, rules, and policy provisions
4. Using UND rules or rates that are not on file with or approved by the ins depts in the
states that the insurer does biz
