AU 60 TEST QS CHPTS. 1
QUESTIONS & ANSWERS (RATED
A+)
In deciding which applicants they are willing to insure, insurance underwriters
need to recognize the effects of adverse selection. Which one of the following is
the best example of adverse selection? - ANSWERAfter learning that a
particularly active hurricane season is expected, several homeowners in a
coastal community increase the limits on their windstorm coverage.
The retention ratio as an underwriting performance measure is the percentage of -
ANSWERInsurance policies renewed.
An insurance company must have adequate policyholders' surplus if it wishes to -
ANSWERIncrease its written premium volume.
Which one of the following represents two nonfinancial measures that are used to
evaluate underwriting performance by focusing on underwriting actions? -
ANSWERRetention ratio and hit ratio
Rating agencies such as Dun & Bradstreet (D&B) provide - ANSWERData on credit
ratings of businesses.
An applicant for commercial property insurance is found unacceptable by an
underwriter due to the nature of its operations and the construction of the building it
occupies. If the applicant installs an automatic fire-extinguishing sprinkler system,
the underwriter will approve the application. This type of underwriting modification is
known as - ANSWERRequiring loss control measures.
Which one of the following is the insurer's quality control check for uniform
application of the underwriting guidelines and for continuous improvement? -
ANSWERUnderwriting audits
An underwriter receives a renewal application for a property quote from his producer.
The applicant has had a series of small losses in the recent past. The underwriter is
debating whether to reject the submission or quote it with a property deductible of
$5,000. During which one of the following steps in the underwriting process is the
underwriter involved? - ANSWERDeveloping underwriting alternatives
It is most important for an underwriter to determine which one of the following about
an organization's risk manager? - ANSWERDoes the risk manager have the
authority to make changes?
, Which one of the following is a benefit to listing both the name of the business and
the name of the owner on the policy when insuring a sole proprietorship? -
ANSWERMakes it clear which business the insurer is providing coverage for, if the
individual owns more than one business
Which one of the following provisions gives the lender separate rights from those of
the insured? - ANSWERLender's loss payable
Which one of the following sources of underwriting information provides a hazard
index by line of insurance for the various classifications? - ANSWERBest's
Underwriting Guide
Which one of the following will draft a manuscript policy or endorsement that is
worded to address the specific needs of the insured? - ANSWERLine underwriter
Depending on the type of insurance, insurers use automated underwriting systems to
- ANSWEREncode underwriting guidelines.
An underwriter is working with a loss control representative on a new opportunity.
Given the complexity of the exposures, a physical survey is conducted by the loss
control representative, and a formal report is prepared. The report reveals that the
insured owns several unattended properties, and that they were unlocked when the
loss control representative conducted the survey. This failure to properly secure an
unattended building would be an indicator to the underwriter of which one of the
following types of hazard? - ANSWERMorale
All of the following statements are true regarding the factors affecting the formation
of an insurer's underwriting policy, EXCEPT: - ANSWERThe higher an insurer's
premium-to-surplus ratio, the greater its ability to expand premium writings.
Aaron, a senior producer for Blithe Insurance Company (Blithe) has over 15 years
experience in the field. He knows Blithe's underwriting guidelines and is familiar with
the type of business Blithe wants. He takes pride in the loss ratio produced by his
office and also produced by Blithe as a company. He often trains new agents in his
office because of his low rejection ratio of applications he writes. He is known as a
front-line underwriter for Blithe. Which one of the following is a benefit of Aaron's field
underwriting? - ANSWERSaves Blithe from having to evaluate accounts that they will
ultimately reject
Which one of the following cases illustrates how underwriting guidelines ensure that
selection decisions provide uniformity and consistency by all the insurer's
underwriters? - ANSWERCromley is training new underwriters and is using a work
sample for a homeowner risk which has a unacceptable roof and an overgrown yard.
New underwriters Erin and Filip check the guidelines and make the same
underwriting decision to decline the risk.
Julio, a producer for Argot's Insurance Company, submits an application for a 50-
year-old residence to Mathilde, the underwriter. Julio wants to know why the
homeowners rate is higher for his 50-year-old residence. Mathilde explains that the
homeowners rate for the 50-year-old residence is not the same for a five-year-old
QUESTIONS & ANSWERS (RATED
A+)
In deciding which applicants they are willing to insure, insurance underwriters
need to recognize the effects of adverse selection. Which one of the following is
the best example of adverse selection? - ANSWERAfter learning that a
particularly active hurricane season is expected, several homeowners in a
coastal community increase the limits on their windstorm coverage.
The retention ratio as an underwriting performance measure is the percentage of -
ANSWERInsurance policies renewed.
An insurance company must have adequate policyholders' surplus if it wishes to -
ANSWERIncrease its written premium volume.
Which one of the following represents two nonfinancial measures that are used to
evaluate underwriting performance by focusing on underwriting actions? -
ANSWERRetention ratio and hit ratio
Rating agencies such as Dun & Bradstreet (D&B) provide - ANSWERData on credit
ratings of businesses.
An applicant for commercial property insurance is found unacceptable by an
underwriter due to the nature of its operations and the construction of the building it
occupies. If the applicant installs an automatic fire-extinguishing sprinkler system,
the underwriter will approve the application. This type of underwriting modification is
known as - ANSWERRequiring loss control measures.
Which one of the following is the insurer's quality control check for uniform
application of the underwriting guidelines and for continuous improvement? -
ANSWERUnderwriting audits
An underwriter receives a renewal application for a property quote from his producer.
The applicant has had a series of small losses in the recent past. The underwriter is
debating whether to reject the submission or quote it with a property deductible of
$5,000. During which one of the following steps in the underwriting process is the
underwriter involved? - ANSWERDeveloping underwriting alternatives
It is most important for an underwriter to determine which one of the following about
an organization's risk manager? - ANSWERDoes the risk manager have the
authority to make changes?
, Which one of the following is a benefit to listing both the name of the business and
the name of the owner on the policy when insuring a sole proprietorship? -
ANSWERMakes it clear which business the insurer is providing coverage for, if the
individual owns more than one business
Which one of the following provisions gives the lender separate rights from those of
the insured? - ANSWERLender's loss payable
Which one of the following sources of underwriting information provides a hazard
index by line of insurance for the various classifications? - ANSWERBest's
Underwriting Guide
Which one of the following will draft a manuscript policy or endorsement that is
worded to address the specific needs of the insured? - ANSWERLine underwriter
Depending on the type of insurance, insurers use automated underwriting systems to
- ANSWEREncode underwriting guidelines.
An underwriter is working with a loss control representative on a new opportunity.
Given the complexity of the exposures, a physical survey is conducted by the loss
control representative, and a formal report is prepared. The report reveals that the
insured owns several unattended properties, and that they were unlocked when the
loss control representative conducted the survey. This failure to properly secure an
unattended building would be an indicator to the underwriter of which one of the
following types of hazard? - ANSWERMorale
All of the following statements are true regarding the factors affecting the formation
of an insurer's underwriting policy, EXCEPT: - ANSWERThe higher an insurer's
premium-to-surplus ratio, the greater its ability to expand premium writings.
Aaron, a senior producer for Blithe Insurance Company (Blithe) has over 15 years
experience in the field. He knows Blithe's underwriting guidelines and is familiar with
the type of business Blithe wants. He takes pride in the loss ratio produced by his
office and also produced by Blithe as a company. He often trains new agents in his
office because of his low rejection ratio of applications he writes. He is known as a
front-line underwriter for Blithe. Which one of the following is a benefit of Aaron's field
underwriting? - ANSWERSaves Blithe from having to evaluate accounts that they will
ultimately reject
Which one of the following cases illustrates how underwriting guidelines ensure that
selection decisions provide uniformity and consistency by all the insurer's
underwriters? - ANSWERCromley is training new underwriters and is using a work
sample for a homeowner risk which has a unacceptable roof and an overgrown yard.
New underwriters Erin and Filip check the guidelines and make the same
underwriting decision to decline the risk.
Julio, a producer for Argot's Insurance Company, submits an application for a 50-
year-old residence to Mathilde, the underwriter. Julio wants to know why the
homeowners rate is higher for his 50-year-old residence. Mathilde explains that the
homeowners rate for the 50-year-old residence is not the same for a five-year-old
