Study 1 - Introduction to Underwriting Flashcards Preview

C120 Underwriting Essentials (2018) > Study 1 - Introduction to Underwriting > Flashcards

Flashcards in Study 1 - Introduction to Underwriting Deck (36)
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Define insurance

A contract in which one party, the insurer, for monetary consideration agrees to reimburse another, the insured, for loss or liability for a loss on a defined subject caused by specified hazards or perils


Define underwriter

The insurance company or group that underwrites or insures a particular risk

The individual within an insurance company whose responsibility is to accept or reject business in the particular line in which she specializes and, in this way, choose the risks her principals are prepared to underwrite


Define risk

The chance of loss. Specifically, the possible loss or destruction of property is the possible incurring of a liability. Sometimes referred to as the subject of an insurance contract


What are some lines of insurance underwrites may specialize in?

Property, liability, crime, boiler/machinery, professional liability, automobile and business interruption


Briefly describe the role of an underwriter

To assess and modify or reject a risk on behalf of an insurer


How is an underwriter an investor of capital?

The risk of loss would deplete capital and underwriters attempt to mitigate that risk


What five items are typically in the strategic plan?

- The types of risk the insurer wants to pursue
- The lines of insurance it wants to underwrite
- The reinsurance it can arrange
- The amounts of insurance it will offer for risks of different types/sizes
- The approach it will take to pricing


Define line guide

A listing of the maximum amounts of exposure an insurance company is prepared to accept on various classes of risk


What are the three main elements of underwriting?

- Accepting or rejecting risk
- Investing capital
- Implementing the strategic plan


What are the common considerations in a line guide?

- Licensing
- Types of business
- Lines of insurance
- Territory
- Capacity
- Reinsurance
- Pricing


What three main items determine the amounts in the table of limits under Capacity?

- Occupancy of the risk
- Level of public fire protection
- Type of construction


Define reinsurance

Insurance purchased by an insurance company from another insurance company to provide it protection against large losses it has already insured


What other names might the reinsured go by?

"Original" or "primary" insurer
"Ceding company"


Define facultative reinsurance

Reinsurance of risks on a case-by-case basis


Define treaty reinsurance

Agreement between insurance company and reinsurer, automatically accepting a portion of the insurance company's business within the terms of the contract


How do underwriters treat facultative and treaty reinsurance?

Facultative; underwrites the risk, however does not have as much info as the insurer's underwriter

Treaty; underwrites the entire portfolio of an insurance company, discussion & audits


Define book of business

Generally related to joint ventures, the book of business refers to when a smaller brokerage owns its own book of business and enters into a partnership with a larger organization

Larger group will have access to it, small group retains right to repurchase full ownership


Who is responsible for underwriting individual risks?

File underwriter


Who is responsible for underwriting groups of risks?

Portfolio underwriter


What change has effectively turned many underwriters into portfolio managers?

Allowing brokers to write business within certain criteria and within their authority


What are the six main risks that an underwriter may review to assess the risk?

- Length of time in business
- Type of loss
- Perils
- Physical hazards
- Moral hazard
- Required info


What are the three criteria in which an underwriter is generally required to refuse a risk?

- Risk is not a class permitted by line guide or falls short of minimum requirements
- Market conditions or competitive considerations require it (hard market vs soft market)
- The risk is too flawed to be accepted, not possible to negotiate on terms


What are some tools an underwriter can utilize to increase the desirability of a risk?

Deductibles, premium rates, modifications of coverage and implementation of recommendations by the loss control department


Define speculative risk

An insurance term for a situation where the possibility of either a financial loss or gain


Define pure risk

A situation involving a chance of a loss or no loss, but no chance of gain


What two questions are the basic foundation to determine if an item is insurable?

- Is there a chance of loss?
- Is there a chance of profit?


What type of risk is insurable and which is uninsurable?

Pure risk is insurable
Speculative risk is uninsurable


What are the three broad categories of insurable risks?

- Personal risks
- Property risks
- Liability risks


What qualifies as a personal risk?

- Bodily injury
- Loss of life
- Loss of income

Due to:

- Death
- Physical disability (resulting from accident/sickness)
- Old age
- Unemployment


What are the two types of losses for property risks?

- Direct loss
- Indirect loss