Chapter 4: The Underwriting Function

Question 1

Purpose of Underwriting

Answer 1

• Guard against adverse selection
• Ensure adequate policyholders’ surplus
• Enforcing underwriting guidelines

Question 2

Underwriting Activities

Answer 2

• Line Underwriting vs Staff Underwriting

Question 3

Market Types (staff underwriting activities)

Answer 3

• Standard market
• Nonstandard market (high risk)
• Specialty market

Question 4

Constraints in Establishing Underwriting Policy

Answer 4

• Financial capacity
• Regulation
• Reinsurance
• Personnel

Question 5

Underwriting Guidelines

Answer 5

• Provide for structured decision
• Ensure uniformity and consistency
• Synthesize insights and experience
• Distinguish between routine and non routine decisions
• Avoid duplication of effort
• Ensure adherence to reinsurance treaties and planned rate levels
• Support policy preparation and compliance
• Provide a basis for predictive models

Question 6

Steps in the Underwriting Process

Answer 6

• Evaluate the submission
• Develop underwriting alternative
• Select an underwriting alternative
• Determine an appropriate premium
• Implement the underwriting decision
• Monitor underwriting decision

Question 7

Principal Sources of Underwriting Information

Answer 7

• Producers
• Applications
• Inspection reports
• Government records
• Financial rating services
• Loss data
• Premium audit reports
• Claim files

Question 8

Develop Underwriting Alternatives

Reject or counteroffer

Answer 8

• Require risk control measure
• Change insurance rates, rating plans, or policy limits
• Amend policy terms and conditions
• Use facultative reinsurance

Question 9

Select and Underwriting Alternative

Answer 9

• Underwriting authority
• Supporting business
• Mix of business
• Producer relationships
• Regulatory restrictions

Question 10

Implement the Underwriting Decision

Answer 10

1. ) Communicate to the producer
2. ) Issuance of any required document
3. ) Record data about the applicant and the policy for policy issuance, accounting, statistical, and monitoring purposes

Question 11

Monitoring Underwriting Decisions

Answer 11

Triggered by:

• Substantive policy change requests
• Significant and unique loss occurrences
• Risk control and safety inspection reports
• Premium audit results

Question 12

Financial Measures of Underwriting Results

Answer 12

• Distortions created by changes in premium volume
• Distortions created by major catastrophic losses
• Distortions created by delays in loss reporting and loss development
• Distortions created by underwriting cycle

Question 13

Non Financial Measures of Underwriting Results

Answer 13

• Selection
• Product or line business mix
• Pricing
• Accommodated accounts
• Retention ratio
• Hit ratio
• Service to producers
• Premium to underwriters