Study 1 Flashcards
(172 cards)
1
Q
Where did the idea of INSURANCE possibly begin?
A
In ANCIENT BABYLON, around 3000 BCE—because even 5,000 years ago, people were trying not to lose their ships and shirts.
2
Q
What famous legal document from Babylon included early INSURANCE references?
A
The CODE OF HAMMURABI—proof that even ancient kings wanted people to read the fine print.
3
Q
What type of journey was early INSURANCE mainly used for?
A
LAND and SEA journeys.
4
Q
What role did MONEY LENDERS play in early insurance?
A
They gave LOANS that acted like insurance—if your ship made it, you paid back with INTEREST. If it sank, congrats, you were ‘INDEMNIFIED.’
5
Q
What happens in early marine insurance if the SHIP was LOST?
A
The borrower kept the LOAN—no ship, but hey, at least you were ‘financially afloat.’
6
Q
Where did MODERN INSURANCE as we know it begin?
A
LLOYD’S COFFEE HOUSE in London—where sipping tea and underwriting ships went hand in hand.
7
Q
What did LLOYD’S COFFEE HOUSE become known for?
A
Being the birthplace of MODERN UNDERWRITING.
8
Q
How is TODAY’S UNDERWRITER different from one at Lloyd’s?
A
They now sit in OFFICES, use COMPUTERS, and talk to RISK MANAGERS instead of yelling over a coffee counter.
9
Q
TRUE or FALSE: Today’s underwriters rely entirely on gut instinct.
A
FALSE. They use TECH, DATA, and CONSULTATIONS.
10
Q
What tools do MODERN UNDERWRITERS use?
A
TECHNOLOGY, TEAMWORK, and some seriously good internet searching skills.
11
Q
What is UNDERWRITING at its core?
A
The HEART of INSURANCE—it’s where the magic of risk assessment meets reality (and math).
12
Q
What’s the ORIGIN of the term ‘UNDERWRITER’?
A
From people literally WRITING THEIR NAMES UNDER a risk description in 17th-century coffee houses.
13
Q
What kind of people were the FIRST underwriters?
A
WEALTHY MERCHANTS with deep pockets and risk appetites spicier than their coffee.
14
Q
TRUE or FALSE: Lloyd’s Coffee House eventually became Starbucks.
A
FALSE—but it did become LLOYD’S OF LONDON, a cornerstone of modern insurance.
15
Q
What did early underwriters do when they liked a risk?
A
Signed their NAME and AMOUNT of risk underneath the terms.
16
Q
What was the relationship between broker, insurer, and underwriter in early days?
A
They were the SAME PERSON.
17
Q
Why did INSURANCE COMPANIES replace individual risk bearers?
A
To STANDARDIZE contracts and create SPECIALIZED professionals.
18
Q
What’s the UNDERWRITER’S MAIN JOB in a sentence?
A
To ACCEPT or REJECT RISK on behalf of the INSURER.
19
Q
What are some TYPES of insurance MODERN underwriters specialize in?
A
PROPERTY, LIABILITY, CRIME, AUTO, EQUIPMENT, BUSINESS INTERRUPTION, and PROFESSIONAL LIABILITY.
20
Q
TRUE or FALSE: An underwriter should accept all risks to keep the business booming.
A
FALSE. That’s a fast track to BANKRUPTCY.
21
Q
What happens if an insurer accepts TOO MUCH RISK?
A
It can DEPLET its CAPITAL.
22
Q
Why is an UNDERWRITER like a STOCKBROKER?
A
Both INVEST CAPITAL—except underwriters use PROMISES instead of $$$.
23
Q
What is UNDERWRITING CAPACITY?
A
The MAXIMUM LIMIT of LIABILITY the insurer is willing to take on.
24
Q
Why must underwriters be PICKY?
A
Because CAPITAL is SCARCE, and not all risks are worth the dough.
25
What are the THREE MAIN ELEMENTS of underwriting?
1) ACCEPT/REJECT risk, 2) INVEST CAPITAL, and 3) IMPLEMENT the STRATEGIC PLAN.
26
How does an insurer BUILD A PROFITABLE PORTFOLIO?
By choosing insureds who PAY more in PREMIUMS than they COST in CLAIMS.
27
What STRATEGIC QUESTIONS guide an insurer's underwriting?
What TYPES of RISK to cover, which LINES to write, how much to insure, what REINSURANCE to get, and how to PRICE it all.
28
Who actually executes that fancy strategic plan?
The UNDERWRITER.
29
What makes UNDERWRITERS so IMPORTANT to insurers?
They PROTECT CAPITAL, BUILD PORTFOLIOS, and KEEP THE COMPANY PROFITABLE.
30
TRUE or FALSE: MGAs employ underwriters who only work for one insurer.
FALSE. MGAs work with MULTIPLE INSURERS.
31
Who ensures insurers keep their risk promises?
REGULATORS—provincial, territorial, and federal.
32
What is a LINE GUIDE in insurance underwriting?
A LINE GUIDE is a document that lays out RULES an UNDERWRITER must follow when accepting or rejecting risks.
33
What is LICENSING in the underwriting context?
LICENSING refers to the PROVINCES or TERRITORIES where the INSURER is allowed to do business.
34
What is the importance of TYPES OF BUSINESS in underwriting?
It tells underwriters which KINDS OF CUSTOMERS or INDUSTRIES their insurer wants.
35
What are LINES OF INSURANCE?
The TYPES of INSURANCE an insurer sells.
36
What does TERRITORY refer to in underwriting?
TERRITORY is the GEOGRAPHICAL AREA where a risk is located.
37
What is CAPACITY in underwriting?
CAPACITY is the MAXIMUM AMOUNT of insurance an underwriter can approve for a risk.
38
What is a TABLE OF LIMITS?
A TABLE OF LIMITS is a handy chart showing how much coverage is allowed based on OCCUPANCY, FIRE PROTECTION, and CONSTRUCTION.
39
What is the role of OCCUPANCY in setting insurance limits?
OCCUPANCY refers to WHAT the building is USED FOR.
40
What is PUBLIC FIRE PROTECTION and why does it matter?
It’s how WELL a MUNICIPALITY can fight fires—graded 1 (great) to 10 (yikes).
41
Why is CONSTRUCTION TYPE important in underwriting?
It tells how WELL a BUILDING stands up to disasters.
42
What is REINSURANCE?
REINSURANCE is INSURANCE FOR INSURERS.
43
What is FACULTATIVE REINSURANCE?
It’s REINSURANCE negotiated ONE RISK at a time between insurer and reinsurer.
44
What is TREATY REINSURANCE?
TREATY REINSURANCE covers a WHOLE PORTFOLIO of risks.
45
What benefit does REINSURANCE offer insurers?
It INCREASES their CAPACITY.
46
How do REINSURANCE UNDERWRITERS assess risks?
They assess both the RISK and the INSURER’S UNDERWRITER’s JUDGMENT.
47
How can a SPRINKLER SYSTEM affect underwriting?
It can UPGRADE a building’s CONSTRUCTION CLASS in the Table of Limits.
48
What are CATASTROPHE-EXPOSED AREAS in underwriting?
Areas at HIGH RISK for things like floods or earthquakes.
49
What happens to coverage for VACANT BUILDINGS?
Cut the limits in HALF, and cap it at $4M max.
50
How does CLIMATE CHANGE affect underwriting territory?
It can make areas RISKIER due to floods, droughts, wildfires.
51
Can underwriters buy reinsurance themselves?
Depends on the company—some let underwriters buy it directly, others send you to head office.
52
What does it mean when an UNDERWRITER is 'APPLYING THE LINE GUIDE'?
It means the underwriter is using the insurer’s rules to decide if a RISK is acceptable and what TERMS might make it work.
53
What is a FILE UNDERWRITER?
An underwriter who works on INDIVIDUAL risks, one file at a time.
54
What is a PORTFOLIO UNDERWRITER?
Someone who manages a GROUP of risks.
55
What does 'GIVING BROKERS THE PEN' mean?
It means BROKERS are given UNDERWRITING AUTHORITY within set limits.
56
What kind of UNDERWRITING do brokers still have to do, even without the pen?
FIELD (or FRONTLINE) UNDERWRITING—anticipating questions and filtering out bad risks.
57
What’s the main job of the LINE GUIDE for an underwriter?
To help decide if a RISK is ACCEPTABLE or what TERMS can make it acceptable.
58
What is one of the FIRST things an underwriter checks about a business?
LENGTH OF TIME IN BUSINESS and FINANCIAL STABILITY.
59
What does an underwriter consider about the TYPE OF LOSS?
Whether it's FIRST-PARTY or THIRD-PARTY, and the LOSS HISTORY.
60
What is a FIRST-PARTY LOSS?
Damage to the applicant’s OWN property.
61
What is a THIRD-PARTY LOSS?
Harm or damage to SOMEONE ELSE that the applicant may be legally responsible for.
62
Why does LOSS HISTORY matter?
It shows if past losses were reasonable and if anything’s been done to PREVENT repeat disasters.
63
What are PERILS in insurance?
Specific events that could CAUSE a LOSS—like fire, theft, storms, etc.
64
What are PHYSICAL HAZARDS?
Tangible things that make a loss more likely, like bad wiring or poor security.
65
Give an example of REDUCING PHYSICAL HAZARDS.
Installing smoke alarms, sprinkler systems, or better cyber security.
66
What is a MORAL HAZARD?
A risk that someone might ACT DISHONESTLY or CARELESSLY.
67
How are MORAL HAZARDS different from PHYSICAL HAZARDS?
Moral hazards are SUBJECTIVE and depend on human behavior, while physical ones are OBJECTIVE and visible.
68
What kind of info might be REQUIRED to underwrite a risk?
Application form, inspection report, financials, past loss details.
69
Why does the amount of INFO NEEDED matter to underwriters?
Time and money! More info = better decision, but also more cost.
70
What’s the underwriter’s MAIN GOAL in decision-making?
Accept risks that will likely cost LESS in claims than the premium earned.
71
Why are underwriters BIASED TOWARD SAYING YES?
Because insurers NEED PREMIUM INCOME to survive.
72
When is a risk usually REJECTED?
When it breaks the line guide, market forces demand it, or it’s just plain too risky.
73
What is a HARD MARKET?
A market where insurance is harder to get and more expensive due to high losses.
74
Why are underwriters BIASED TOWARD SAYING YES?
Because insurers NEED PREMIUM INCOME to survive.
## Footnote
But not at the cost of accepting every circus fire-eater with a match addiction.
75
When is a risk usually REJECTED?
When it:
- Breaks the line guide,
- Market forces demand it,
- It’s just plain too risky, and can’t be fixed.
## Footnote
Some lemons can’t be turned into lemonade.
76
What is a HARD MARKET?
A market where insurance is harder to get and more expensive due to high losses or low profits.
## Footnote
It’s the opposite of an insurance sale.
77
What’s a SOFT MARKET?
A time when insurance is cheap and plentiful due to high competition and low claims.
## Footnote
Everyone’s giving it away like free samples.
78
Why might an UNDERWRITER REJECT even a good risk in a HARD MARKET?
Because the insurer has to limit TOTAL PREMIUM relative to capital (to stay solvent).
## Footnote
Think of it as “too full to accept more customers.”
79
What’s the preferred approach if a risk is borderline unacceptable?
NEGOTIATE TERMS to make the risk acceptable—like higher deductibles or coverage changes.
## Footnote
It’s the art of saying “yes... but let’s tweak this.”
80
What are DEDUCTIBLES used for in underwriting?
To reduce small claims and make risky business more acceptable.
## Footnote
“You pay the first $1,000—we’ll handle the disaster.”
81
How can PREMIUM RATES be adjusted to manage risk?
Higher risk = higher premium.
## Footnote
More risk, more $$—pretty simple math.
82
What is LOSS CONTROL?
Efforts to REDUCE or PREVENT losses, like safety improvements or inspections.
## Footnote
A little prevention saves a lot of payout.
83
Is underwriting a ONE-TIME thing?
No—it’s an ONGOING process at new business, mid-term changes, claims, and renewal.
## Footnote
Like dating, you reassess at every anniversary—and every fight.
84
What does “ASSESSING THE RISK” mean for an underwriter?
Gathering info, identifying hazards, judging moral risk, and figuring out what terms make the deal work.
## Footnote
Detective work meets deal-making.
85
What is the ESSENCE of an underwriter’s job?
Blending tools and judgment to make risks acceptable and profitable.
## Footnote
Part scientist, part artist, part psychic.
86
What kind of QUESTIONS might an underwriter ask about a business?
How long it’s been operating, financial health, management quality, maintenance standards.
## Footnote
Basically: Is this place run like a boss—or a dumpster fire?
87
What does 'MINIMUM REQUIREMENTS in the LINE GUIDE' refer to?
The basic rules a risk must meet to even be considered.
## Footnote
If the risk can’t pass the checklist, it’s a hard “no.”
88
89
Can COMPETITION affect underwriting decisions?
Yes—market cycles push prices up or down, changing what insurers can accept.
## Footnote
Like a roller coaster, but for spreadsheets.
90
What’s the goal when NEGOTIATING TERMS?
Find a sweet spot that’s FAIR for the insured and PROFITABLE for the insurer.
## Footnote
A win-win beats a “no quote.”
91
What does 'RISK' mean in insurance?
The CHANCE OF LOSS. Not just bad luck—it’s a calculated gamble on stuff going wrong.
92
What is a SPECULATIVE RISK?
A risk with a chance of LOSS or PROFIT. Basically, Vegas.
93
Example of a SPECULATIVE RISK?
Starting a BUSINESS or betting on dice. Win some, lose some.
94
What is a PURE RISK?
A risk with a chance of LOSS only. NO profit ever. Just pain.
95
Example of a PURE RISK?
Getting into a CAR CRASH—costs money, maybe injury, no jackpot.
96
Which type of risk is INSURABLE?
PURE RISK only. Insurers don’t bet on your casino trips.
97
Why isn't SPECULATIVE RISK insurable?
Because there's a chance you might PROFIT, and insurers aren't in the business of funding your wins.
98
What’s the basic test to see if a risk is INSURABLE?
Ask: CHANCE OF LOSS? Yes. CHANCE OF PROFIT? No. Ding ding—INSURABLE.
99
What are the THREE TYPES of INSURABLE RISK?
PERSONAL, PROPERTY, and LIABILITY risks.
100
What is a PERSONAL RISK?
Risk of losing INCOME or LIFE due to sickness, death, old age, or unemployment. Basically, being human.
101
Examples of PERSONAL RISK?
DEATH, DISABILITY, UNEMPLOYMENT, or hitting 65 with no savings.
102
What is a PROPERTY RISK?
Risk of DAMAGE or DESTRUCTION to property.
103
What’s a DIRECT LOSS in property insurance?
Physical damage. Like a car smashed in a crash, or a stolen Xbox. Ouch.
104
What’s an INDIRECT LOSS in property insurance?
Loss that happens because of a direct loss—like lost rental income after a house fire.
105
Example of INDIRECT LOSS?
Enzo's tenant can’t pay rent because his house went up in flames.
106
What is a LIABILITY RISK?
The risk of being LEGALLY LIABLE for injury or damage to others.
107
What causes LIABILITY RISK?
Negligence, dangerous products, car accidents, owning property, or botched professional advice.
108
What is GENERAL INSURANCE?
Insurance for stuff OTHER than life, like PROPERTY and CASUALTY insurance.
109
What is CASUALTY INSURANCE?
A grab-bag term for insurance that’s NOT life, fire, or auto. Think lawsuits, liability, oddballs.
110
What are the THREE CLASSES of GENERAL INSURANCE?
PERSONAL LINES, COMMERCIAL LINES, and SPECIAL RISKS.
111
What are PERSONAL LINES?
Insurance for INDIVIDUALS—homes, cars, jewellery, vacations, the good stuff.
112
What are COMMERCIAL LINES?
Insurance for BUSINESSES—stores, trucks, offices, contractors.
113
What are SPECIAL RISKS?
High-stakes stuff—like MARINE, AVIATION, and INDUSTRIAL hazards. Danger zone.
114
Can an agent sell LIFE INSURANCE with a general insurance licence?
Nope! LIFE needs a SPECIAL LICENCE. No loopholes.
115
What does “risk” sometimes mean in auto insurance slang?
Could mean a CLIENT or a VEHICLE. It’s like calling every sandwich a “sub.”
116
What does the word RISK mean in insurance terms?
The CHANCE OF LOSS. Not doom, but definitely danger!
117
What makes a risk PURE RISK?
It has a CHANCE OF LOSS, but NO CHANCE OF PROFIT. Like crashing your car—not a money-maker.
118
What is SPECULATIVE RISK?
A risk with a CHANCE OF LOSS OR PROFIT—like starting a business or betting on horses. Not insurable!
119
Why is PURE RISK insurable but SPECULATIVE RISK is not?
Because insurance likes things PREDICTABLE. Profit + risk = too wild for coverage.
120
What’s a good example of SPECULATIVE RISK?
Running a business or gambling—you could win or lose.
121
What’s an example of PURE RISK?
A car accident—there's a chance of injury, but no chance of making money.
122
What’s the BASIC UNIT of an underwriter's work?
The INDIVIDUAL RISK—every policy starts with just one.
123
What is an underwriter really doing when they accept a risk?
They are INVESTING SHAREHOLDER CAPITAL—it’s not Monopoly money.
124
What is the goal of underwriting?
To build a PROFITABLE PORTFOLIO and ensure claims can be paid.
125
What document helps guide underwriting decisions?
The LINE GUIDE—like a GPS for insurance risk decisions.
126
What’s in a LINE GUIDE?
Stuff like TERRITORY, PRICING, CAPACITY, REINSURANCE, and TYPE OF BUSINESS.
127
Why is it important to know the insurer’s LICENSING?
So you don't write business where you're NOT ALLOWED—oops.
128
What do underwriters need to know about GEOGRAPHY?
Where the RISK IS LOCATED and whether it’s HAZARDOUS (thanks, climate change).
129
What does CAPACITY mean in underwriting?
How much money the insurer is WILLING TO PUT AT RISK for a policy.
130
What is REINSURANCE?
Insurance FOR INSURANCE COMPANIES—when insurers say, “I got your back.”
131
What are the two types of REINSURANCE?
FACULTATIVE and TREATY—not names of Jedi masters.
132
What is a FACULTATIVE REINSURANCE?
It covers INDIVIDUAL RISKS, decided case-by-case.
133
What is TREATY REINSURANCE?
A BLANKET AGREEMENT for a bunch of risks. No debate, just cover it.
134
What 3 questions help underwriters accept or reject risks?
Who's the applicant? What are the PERILS? Are there HAZARDS?
135
What are PHYSICAL HAZARDS?
Things about a risk that make LOSS MORE LIKELY, like faulty wiring.
136
What’s a MORAL HAZARD?
When the applicant might behave RISKILY because they know they’re insured.
137
When might an underwriter REJECT a risk outright?
If it’s NOT PERMITTED, MARKET CONDITIONS are wrong, or it’s just too FLAWED.
138
What does an underwriter usually try to do before rejecting a risk?
NEGOTIATE TERMS to make the risk ACCEPTABLE.
139
What is a PERSONAL RISK?
A risk to YOU—like death, disability, or job loss.
140
What is a PROPERTY RISK?
A risk of DAMAGE OR LOSS TO THINGS YOU OWN.
141
What is a LIABILITY RISK?
When you might have to PAY FOR DAMAGE OR INJURY to someone else.
142
What is a DIRECT LOSS?
The actual PHYSICAL DAMAGE, like a burnt house or smashed car.
143
What is an INDIRECT LOSS?
The FINANCIAL FALLOUT from a direct loss—like lost rental income.
144
Give an example of DIRECT LOSS.
Replacing a STOLEN CONSOLE or REPAIRING A CRASHED CAR.
145
Give an example of INDIRECT LOSS.
Lost rent when your tenant can’t live in your burned-down basement.
146
What are the 3 CATEGORIES OF INSURABLE RISK?
PERSONAL, PROPERTY, and LIABILITY.
147
What are the 3 CLASSES OF INSURANCE?
PERSONAL LINES, COMMERCIAL LINES, and SPECIAL RISKS.
148
What are PERSONAL LINES?
Insurance for INDIVIDUALS—homes, cars, boats, travel, etc.
149
What are COMMERCIAL LINES?
Insurance for BUSINESSES—like stores, trucks, and offices.
150
What are SPECIAL RISKS?
Insurance for UNIQUE OR HIGH-RISK STUFF—aviation, marine, and big industry.
151
What traits make a GREAT UNDERWRITER?
EXPERIENCE, CURIOSITY, KNOWLEDGE, and FLEXIBILITY—basically a super-sleuth.
152
Does underwriting change as you gain experience?
YES—you might go from reviewing risks to managing whole departments.
153
When does an underwriting decision happen?
At QUOTING, RENEWAL, LOSS TIME, or when CHANGES ARE REQUESTED.
154
What is the big role of underwriting in insurance?
To keep the insurer PROFITABLE AND STABLE by picking the right risks.
155
What is INSURANCE?
INSURANCE is a financial arrangement where a risk is accepted in exchange for a premium, allowing the insurer to survive and make a profit.
## Footnote
Example: You pay for home insurance in case a fire damages your house.
156
What is an UNDERWRITER?
An UNDERWRITER evaluates and decides which risks to accept on behalf of the insurer, using experience, knowledge, curiosity, and flexibility.
## Footnote
Example: An underwriter decides if your business qualifies for property insurance.
157
What is RISK?
RISK is the chance of loss. It can be personal, property, or liability-related.
## Footnote
Example: A car accident is a risk that could result in injury or property damage.
158
What is a DIRECT WRITER?
A DIRECT WRITER is not defined in this passage directly, but typically it’s an insurer that sells directly to customers without brokers.
## Footnote
Example: You buy car insurance from an insurer's website—no broker involved.
159
What is a BROKER?
A BROKER is not defined in the passage, but generally it’s a licensed individual who sells insurance from multiple insurers to clients.
## Footnote
Example: A broker shops around to find you the best deal on business insurance.
160
What is a MANAGING GENERAL AGENT (MGA)?
Not directly defined in the text, but an MGA is usually an intermediary with underwriting authority from an insurer.
## Footnote
Example: An MGA underwrites policies on behalf of a larger insurer.
161
What is a LINE GUIDE?
A LINE GUIDE outlines the insurer’s criteria for accepting or rejecting risks—covering licensing, business type, territory, capacity, pricing, and reinsurance.
## Footnote
Example: The line guide says no insuring cannabis retailers in certain provinces.
162
What is a SCHEDULE OF INSURANCE?
Not defined in this text, but usually it lists the insured items, limits, and premiums on a policy.
## Footnote
Example: Your policy's schedule shows your office contents are insured for $50,000.
163
What is CYBER RISK?
Not defined directly, but generally it’s a risk involving loss or damage from data breaches or cyberattacks.
## Footnote
Example: A hacker steals client data from a company’s servers—cyber risk!
164
What is REINSURANCE?
REINSURANCE is insurance for insurers; it helps them increase capacity and manage large risks.
## Footnote
Example: An insurer covering a $100M factory buys reinsurance in case of a fire.
165
What is FACULTATIVE REINSURANCE?
FACULTATIVE REINSURANCE is a method where a reinsurer considers each individual risk separately.
## Footnote
Example: A reinsurer agrees to cover a one-off ski resort due to high avalanche risk.
166
What is a TREATY (REINSURANCE)?
TREATY reinsurance involves a prearranged agreement to reinsure a portfolio or class of risks.
## Footnote
Example: An insurer has a treaty to automatically reinsure all warehouse policies.
167
What is a BOOK OF BUSINESS?
A BOOK OF BUSINESS is a portfolio of risks or clients that an underwriter manages.
## Footnote
Example: A commercial underwriter has a book of 300 small business policies.
168
What is a PHYSICAL HAZARD?
A PHYSICAL HAZARD is a feature of the risk (like construction or fire protection) that increases the likelihood of loss.
## Footnote
Example: A wooden warehouse with no sprinklers is a physical hazard.
169
What is a MORAL HAZARD?
A MORAL HAZARD is the chance that an insured may act less carefully or dishonestly because they have insurance.
## Footnote
Example: Someone burns their own failing business for the insurance payout.
170
What is SPECULATIVE RISK?
SPECULATIVE RISK involves the chance of either loss or profit. It is uninsurable.
## Footnote
Example: Investing in stocks—could win or lose! Not something insurance covers.
171
What is PURE RISK?
PURE RISK involves only the chance of loss and is insurable.
## Footnote
Example: A flood damaging your home—only loss, no upside.
172
What is an INSURER?
An INSURER is the company that underwrites risks, collects premiums, and pays out claims.
## Footnote
Example: Intact, Aviva, and Northbridge are examples of insurers in Canada.
