Property and Casualty Insurance Basics
ACTUAL QUESTIONS AND CORRECT
ANSWERS
INSURABLE INTEREST - Correct answers✔✔an economic interest in a property that must
exist at the time of loss (you can insure the equity interest in your own home)
UNDERWRITING - Correct answers✔✔classifies the applicant based upon the underwriting
requirements of the insurer; matches the risk presented with the premium charged by the insurer
LOSS RATIO - Correct answers✔✔percentage of claims paid in comparison to total premiums
collected during a particular period of time
RATES - Correct answers✔✔set by the insurer at a level sufficient to pay claims and company
expenses; in most states must be filed with Dept of Insurance
JUDGMENT RATING - Correct answers✔✔underwriter uses intuition and experience instead of
a manual to determine rates
MANUAL RATING - Correct answers✔✔underwriter refers to rates determined by the insurer's
actuaries based on the "law of large numbers"
MERIT RATING - Correct answers✔✔"manual" rates are modified by underwriter based on past
loss experience or other factors unique to the risk involved (lower premiums are given to those
clients who have few prior losses)
RETROSPECTIVE RATING - Correct answers✔✔the final premium is not determined until the
end of the policy period and is based on the insured's own prior loss experience (subject to
, minimum and maximun premiums); often these are used with Workers comp and Commercial
General Liability plans written for large clients, where the final premium is determined by an
audit of the insured's books at expiration of policy; initial premiums are considered to be deposits
only
EXPERIENCE RATING - Correct answers✔✔often used to calculate premiums on large group
life or health insurance plans; a form of merit rating that modifies the manual premium based on
the insured's own loss experience
LOSS COST RATING - Correct answers✔✔used by insurers who utilize rating plans developed
by the Insurance Services Office (ISO), leaving insurers free to add in their own factors relating
to expense and profit
INSURANCE SERVICES OFFICE (ISO) - Correct answers✔✔a "rating bureau"; develops and
files rates and policy forms with the various states on behalf of their insurance co. membersd;
members may choose to adopt ISO filings or not
ISO HOMEOWNERS POLICY 2000 EDITION - Correct answers✔✔current industry standard
RATE - Correct answers✔✔cost per unit;
PREMIUM - Correct answers✔✔number of units multiplied by the rate; e.g. if rate is .25 per
unit, and one unit of fire insurance is $100 of coverage, then the premium for $100,000 coverage
is $250 per year
COMPONENTS OF RATE FILING - Correct answers✔✔cost of claims + cost of admin.
expenses - interest the insurer makes by investing pre-paid premiums
RISK - Correct answers✔✔chance of loss
ACTUAL QUESTIONS AND CORRECT
ANSWERS
INSURABLE INTEREST - Correct answers✔✔an economic interest in a property that must
exist at the time of loss (you can insure the equity interest in your own home)
UNDERWRITING - Correct answers✔✔classifies the applicant based upon the underwriting
requirements of the insurer; matches the risk presented with the premium charged by the insurer
LOSS RATIO - Correct answers✔✔percentage of claims paid in comparison to total premiums
collected during a particular period of time
RATES - Correct answers✔✔set by the insurer at a level sufficient to pay claims and company
expenses; in most states must be filed with Dept of Insurance
JUDGMENT RATING - Correct answers✔✔underwriter uses intuition and experience instead of
a manual to determine rates
MANUAL RATING - Correct answers✔✔underwriter refers to rates determined by the insurer's
actuaries based on the "law of large numbers"
MERIT RATING - Correct answers✔✔"manual" rates are modified by underwriter based on past
loss experience or other factors unique to the risk involved (lower premiums are given to those
clients who have few prior losses)
RETROSPECTIVE RATING - Correct answers✔✔the final premium is not determined until the
end of the policy period and is based on the insured's own prior loss experience (subject to
, minimum and maximun premiums); often these are used with Workers comp and Commercial
General Liability plans written for large clients, where the final premium is determined by an
audit of the insured's books at expiration of policy; initial premiums are considered to be deposits
only
EXPERIENCE RATING - Correct answers✔✔often used to calculate premiums on large group
life or health insurance plans; a form of merit rating that modifies the manual premium based on
the insured's own loss experience
LOSS COST RATING - Correct answers✔✔used by insurers who utilize rating plans developed
by the Insurance Services Office (ISO), leaving insurers free to add in their own factors relating
to expense and profit
INSURANCE SERVICES OFFICE (ISO) - Correct answers✔✔a "rating bureau"; develops and
files rates and policy forms with the various states on behalf of their insurance co. membersd;
members may choose to adopt ISO filings or not
ISO HOMEOWNERS POLICY 2000 EDITION - Correct answers✔✔current industry standard
RATE - Correct answers✔✔cost per unit;
PREMIUM - Correct answers✔✔number of units multiplied by the rate; e.g. if rate is .25 per
unit, and one unit of fire insurance is $100 of coverage, then the premium for $100,000 coverage
is $250 per year
COMPONENTS OF RATE FILING - Correct answers✔✔cost of claims + cost of admin.
expenses - interest the insurer makes by investing pre-paid premiums
RISK - Correct answers✔✔chance of loss
