AU 60 - COMPLETE SET QUESTIONS
& ANSWERS 100% CORRECT
What are some examples of adverse selection and how can commercial
underwriters minimize the effects of it?
1.3 - ANSWER1. 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 - ANSWERA group of policies with a common characteristic, such as territory or
type of coverage, or all policies written by a particular insurer or agency.
Amad, a new underwriter, knows that determining which risks are best suited for
coverage requires collaboration with multiple departments. How should he begin to
foster collaboration? - ANSWERAmad should begin by developing an understanding
of each unit and its work environment. By learning how cross-company work
processes interact, Amad will better be able to create a plan for collaborating
effectively.
Korey is an underwriter in the field. He just evaluated an application for insurance
and determined that the producer requested coverage for the applicant's loss
exposures that is broader than the insurer is willing to provide. Rather than denying
the application, what course of action could Korey t - ANSWERKorey may elect to
offer a more limited form of coverage that involves covering fewer causes of loss
and/or charging a higher deductible
Elena is a corporate underwriter. How can she best work with management to
ensure profitable risk selection for the insurer? - ANSWER• Research the market. •
Formulate underwriting policy. • Revise underwriting guidelines. • Research and
develop coverage forms. • Review rates. • Educate and train. • Arrange reinsurance.
• Assist others with complex accounts. • Conduct underwriting audits
ABC Insurance has become one of the market leaders for property insurance on the
East Coast. However, in recent years, wind and hailstorms have increased in
frequency and intensity in the region. What should ABC do to help maintain the
profitability of its East Coast portfolio? - ANSWERABC should develop catastrophe
models to assess the effect that catastrophic events (such as storms) can have on
,its in-force policies. Companies widely use these models to manage their exposure
to catastrophe risk.
Lane is a new underwriter. Which negotiation style should she use at the start of the
renewal process? - ANSWERLane should use a collaborating negotiation style to
obtain a win-win solution for the insurer and producer. One way that Lane can show
her willingness to collaborate with the insured is by offering to discuss the renewal
through a meeting or video call rather than by sending a renewal proposal.
What is the last stage of the renewal process? - ANSWERThe last stage of the
renewal process is the closing stage
Bella is an underwriter. On what should she base the acceptance or rejection of an
applicant? - ANSWERBella's decision to reject or accept an applicant should be
based on research and risk analysis.
Underwriting
1.3 - ANSWERThe 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 - ANSWERIn general, the tendency for people with the greatest probability of
loss to be the ones most likely to purchase insurance.
Policyholders' Surplus
1.3 - ANSWERUnder statutory accounting principles (SAP), an insurer's total
admitted assets minus its total liabilities.
Catastrophe Model
1.4 and 1.14 - ANSWERA 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 - ANSWERThe 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 - ANSWERUnderwriters 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 - ANSWER1. 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 - ANSWER1. 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 - ANSWERAn 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 - ANSWERSets of data that are too large to be gathered and analyzed by
traditional methods.
Smart Product
1.9 - ANSWERAn 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 - ANSWERA 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 - ANSWER1. 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 - ANSWERComputer 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 - ANSWERArtificial 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 - ANSWERInsights 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 - ANSWERThe 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 - ANSWERprevent insurer insolvency
Are insurers allowed to discriminate against different groups of customers?
1.15 - ANSWERIt 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
& ANSWERS 100% CORRECT
What are some examples of adverse selection and how can commercial
underwriters minimize the effects of it?
1.3 - ANSWER1. 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 - ANSWERA group of policies with a common characteristic, such as territory or
type of coverage, or all policies written by a particular insurer or agency.
Amad, a new underwriter, knows that determining which risks are best suited for
coverage requires collaboration with multiple departments. How should he begin to
foster collaboration? - ANSWERAmad should begin by developing an understanding
of each unit and its work environment. By learning how cross-company work
processes interact, Amad will better be able to create a plan for collaborating
effectively.
Korey is an underwriter in the field. He just evaluated an application for insurance
and determined that the producer requested coverage for the applicant's loss
exposures that is broader than the insurer is willing to provide. Rather than denying
the application, what course of action could Korey t - ANSWERKorey may elect to
offer a more limited form of coverage that involves covering fewer causes of loss
and/or charging a higher deductible
Elena is a corporate underwriter. How can she best work with management to
ensure profitable risk selection for the insurer? - ANSWER• Research the market. •
Formulate underwriting policy. • Revise underwriting guidelines. • Research and
develop coverage forms. • Review rates. • Educate and train. • Arrange reinsurance.
• Assist others with complex accounts. • Conduct underwriting audits
ABC Insurance has become one of the market leaders for property insurance on the
East Coast. However, in recent years, wind and hailstorms have increased in
frequency and intensity in the region. What should ABC do to help maintain the
profitability of its East Coast portfolio? - ANSWERABC should develop catastrophe
models to assess the effect that catastrophic events (such as storms) can have on
,its in-force policies. Companies widely use these models to manage their exposure
to catastrophe risk.
Lane is a new underwriter. Which negotiation style should she use at the start of the
renewal process? - ANSWERLane should use a collaborating negotiation style to
obtain a win-win solution for the insurer and producer. One way that Lane can show
her willingness to collaborate with the insured is by offering to discuss the renewal
through a meeting or video call rather than by sending a renewal proposal.
What is the last stage of the renewal process? - ANSWERThe last stage of the
renewal process is the closing stage
Bella is an underwriter. On what should she base the acceptance or rejection of an
applicant? - ANSWERBella's decision to reject or accept an applicant should be
based on research and risk analysis.
Underwriting
1.3 - ANSWERThe 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 - ANSWERIn general, the tendency for people with the greatest probability of
loss to be the ones most likely to purchase insurance.
Policyholders' Surplus
1.3 - ANSWERUnder statutory accounting principles (SAP), an insurer's total
admitted assets minus its total liabilities.
Catastrophe Model
1.4 and 1.14 - ANSWERA 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 - ANSWERThe 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 - ANSWERUnderwriters 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 - ANSWER1. 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 - ANSWER1. 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 - ANSWERAn 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 - ANSWERSets of data that are too large to be gathered and analyzed by
traditional methods.
Smart Product
1.9 - ANSWERAn 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 - ANSWERA 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 - ANSWER1. 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 - ANSWERComputer 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 - ANSWERArtificial 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 - ANSWERInsights 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 - ANSWERThe 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 - ANSWERprevent insurer insolvency
Are insurers allowed to discriminate against different groups of customers?
1.15 - ANSWERIt 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
