How Does Underwriting Work?

What is the primary purpose of underwriting?

• To issue policies

• To develop and maintain a growing, profitable book of business

• To handle claims

• To audit accounts

Underwriting is the process of evaluating risks, selecting who can be insured, pricing that insurance coverage, determining policy terms and conditions, and ______ those decisions. Fill in the blank.

• monitoring

• ignoring

• delaying

• reversing

Which of the following is NOT a primary underwriting activity?

• Minimize adverse selection

• Ensure adequate policyholders' surplus

• Enforce underwriting guidelines

• Marketing insurance policies

Adverse selection generates unprofitable business by allowing an individual or a business with a high probability of loss to obtain insurance at a lower cost than the insurer would normally charge for that risk.

• True

• False

Underwriting guidelines specify the attributes of an account that underwriters should look for before offering coverage.

• True

• False

Underwriting is essential because it helps insurers assess risk and set appropriate premiums. How does collaboration with other departments benefit both insurers and insureds?

• It streamlines processes and improves risk assessment.

• It increases costs for insureds.

• It limits communication between teams.

• It reduces the accuracy of underwriting.

What is one way cooperation between underwriters and representatives of other insurer functions improves the quality of information available to underwriters?

• It improves the services they provide to insurers and insureds.

• It reduces the need for risk assessment.

• It eliminates the need for policy documentation.

• It increases the frequency of claims.

Risk control professionals and premium auditors provide underwriters with valuable information that enables them to make better underwriting decisions.

• True

• False

Which of the following is a type of valuable information that risk control professionals and auditors provide to underwriters?

• Field inspection reports on the premises and operations of new insurance applicants and existing insureds renewing their policies

• Marketing strategies

• Customer satisfaction surveys

• Sales forecasts

Descriptions of operations that can help classify ________ exposures are a type of valuable information provided to underwriters.

• loss

• profit

• market

• asset