Cpcu 520 - Assignment 4

Front 1

Highlight

Back 1

The main pupose of underwriting is to develop and maintain a profitable book of business, which is all of a company's policies that are in force or a policy group sharing a common characteristic.

Front 2

Highlight

Back 2

To maintain a book of business, underwriters must avoid adverse selection, which is the principle that individuals most likely to purchase insurance are the same individuals who are most likely to experience loss.

Front 3

Name the eight functions of staff underwriters

Back 3

(Memory Aid: FAMED RUG)
1.Formulation of underwriting policy
2.Analysis of loss experience and premium data
3.Market research
4.Education and training
5.Development of coverages and policy forms
6.Rating plans are reviewed and revised
7.Underwriting audit
8.Guides and bulletins are developed

Front 4

List the six steps in the underwriting process

Back 4

1.Gathering information and evaluating hazards
2.Determining alternatives
3.Selecting an alternative
4.Deciding upon an acceptable premium
5.Implementing the decision
6.Monitoring the decision

Front 5

List ten sources of underwriting information

Back 5

(Memory Aid: PILAFF PEGS)
1.Producer
2.Inspection reports by loss control personnel
3.Loss experience of the prospective insured
4.Application
5.Field market personnel reports
6.Financial rating services
7.Premium auditors
8.Examine production records
9.Governmental records
10.Study of claims files

Front 6

Three underwriting options

Back 6

(Memory Aid: ARM)
1.Accept the submission
2.Refuse the submission
3.Modify the submission and make a counteroffer

Front 7

Using financial measures to evaluate results can be difficult due to four factors

Back 7

(Memory Aid: LIMP)
1.Loss development delay
2.Insurance trends vary due to the cyclical nature of the insurance industry; therefore, an accurate evaluation depends on comparing underwriting results to other insurer's results during the same period of time
3.Major losses that are catastrophic affect underwriting results because such events cannot be accurately predicted each year
4.Premium volume considerations: determinimg the degree to which the premium goals of an insurer are met is important in evaluating the insurer's combined loss and expense ratio

Front 8

Performance of an underwriting department can also be evaluated by using seven nonfinancial measures

Back 8

1.Pricing standards
2.Selection standards
3.Product mix standards
4.Accomodated risks standards
5.Success ratio standards
6.Retention ratio standards
7.Service to producers standards

Front 9

Adverse selection

Back 9

The principle that individuals most likely to purchase insurance are the same individuals who are most likely to experience loss

Front 10

Book of business

Back 10

All of a company's policies that are in force or a policy group sharing a common characteristic

Front 11

Claims-made basis

Back 11

Coverage provided only for claims brought against the insurer during the policy period

Front 12

Experience rating

Back 12

The insured's upcoming policy period premium is adjusted according to the insured's loss experience during the current polcy period

Front 13

Legal hazard

Back 13

Conditions existing when a legal environment increases loss severity or frequency

Front 14

Line undewriters

Back 14

Responsible for implementing the underwriting process; usually located in the regional or branch offices of the insurer

Front 15

Loss development delay ("long tail")

Back 15

The time between the occurrence of a loss and the final settlement of a claim results in inaccuracies regarding estimated future loss costs; insurance company must create reserves for both reported losses and incurred-but-not-reports (IBNR) losses

Front 16

Moral hazards

Back 16

Conditions exisitng when a policyholder exaggerates a loss that already occurred or intentionally causes a loss

Front 17

Morale (attitudinal) hazards

Back 17

Conditions existing when indifference or carelessness increases a loss' severity or frequency

Front 18

Occurence basis

Back 18

Coverage provided for injuriries that occur during the policy period, even if claims are not made until after coverage expires

Front 19

Physical hazards

Back 19

Tangible characteristics of the property, individuals, or operations to be insured that will increase a loss' severity or frequency

Front 20

Retention ratio

Back 20

Percentage of renewed polciies

Front 21

Retrospective rating

Back 21

Rating plan that reduces or increases the policy premium for an insured based on the insured's loss experience during the same period; the insured pays an estimated premium at the policy's beginning and that premium is adjusted at the end of the policy period

Front 22

Schedule rating

Back 22

Manual rate is adjusted using credits and debits based on particular categories such as employee training and a premises' care and condition

Front 23

Staff underwriters

Back 23

Assist underwriting management in deciding underwriting policy and implementing those policies and are usually located in the home office of the insurer

Front 24

Success ratio

Back 24

The ratio of business written to bueinss quoted sould indicate successful underwriting

Front 25

Underwriting

Back 25

Process of pricing, evaluating and recognizing hazards, selecting insureds, and determiniming terms and conditions of policies

Front 26

Underwriting audit

Back 26

Home office underwriting department examines the regional or branch offices' files to determine whether or not underwriting guidelines are being followed