III IC-45 flashcards

32 cards. Read the term and the definition here. The deck at the top of this page is optional.

Underwriting

The process of selecting, classifying, and pricing risks so that premiums reflect each insured's expected loss cost plus expenses, profit, and contingency margin.

Field underwriting

Underwriting activity performed at the point of sale by the producer, who gathers accurate application information and forwards material facts to the home office underwriter.

Material fact

A fact that would influence an insurer's decision to accept a risk or set its terms; concealment or misrepresentation of it can void coverage.

Utmost good faith

The duty requiring the applicant to disclose material facts voluntarily, even if not asked, because the insurer cannot inspect the risk as the applicant can.

Insurable interest

A financial or legal relationship to the subject matter such that the insured benefits from its preservation; required at inception, and for life insurance at loss.

Adverse selection

The tendency of higher-than-average risks to seek insurance more actively than average risks, which underwriting controls such as exams and exclusions are designed to counter.

Law of large numbers

The statistical principle that as the number of similar exposure units grows, actual loss experience converges toward expected loss experience, improving rate credibility.

Principle of indemnity

The rule limiting recovery to the actual amount of loss so the insured cannot profit from insurance; valued policies and replacement cost are exceptions.

Subrogation

The transfer to the insurer of the insured's right to recover from a negligent third party after the insurer pays a loss, supporting indemnity and loss prevention.

Proximate cause

The dominant, effective cause of a loss; the underwriter must confirm it is an insured peril and that no excluded peril is the proximate cause.

Moral hazard

A condition of dishonest intent that increases the likelihood of a loss, indicated by suspicious claim timing, financial distress, or coverage increases just before a loss.

Morale hazard

Carelessness or indifference toward loss because insurance exists, which increases expected loss frequency and may justify higher deductibles.

Physical hazard

A tangible condition of the risk, such as poor wiring, combustible storage, or absent sprinklers, that increases the chance or severity of loss.

Deductible

The amount of each loss the insured bears; larger deductibles lower premium because the insurer retains less expected loss cost and small claims are reduced.

Policy limit

The maximum amount the insurer will pay under a policy or coverage part; the underwriter must confirm it is within capacity and consistent with the value at risk.

Exclusion

A policy provision that removes coverage for specified perils, property, or persons, such as war, nuclear, or intentional acts, and must be clear and conspicuous.

Warranty

A policy condition the insured promises to satisfy, such as maintaining protective safeguards; breach can suspend or void coverage for a related loss.

Binder

Temporary evidence of coverage issued before the policy is delivered; the underwriter must confirm the risk falls within binding authority and conditions are met.

Risk classification

Grouping insureds with similar expected loss characteristics so each class pays a rate reflecting its own expected losses, avoiding cross-subsidy between classes.

Experience rating

A rating method that modifies manual premium by the insured's own past loss experience, rewarding loss control and credible only for sufficiently large exposures.

Schedule rating

Discretionary debits and credits applied for individual risk characteristics such as housekeeping, protection, and management quality, within filed maximum ranges.

Retrospective rating

A plan that sets final premium after the policy period based on actual losses, subject to maximum and minimum premiums, transferring some loss cost risk to the insured.

Loss ratio

Incurred losses divided by earned premium; it measures the portion of premium consumed by losses and is a key indicator of underwriting profitability.

Combined ratio

The loss ratio plus the expense ratio; a value below 100 percent indicates an underwriting profit, and above 100 percent indicates an underwriting loss.

Coinsurance clause

A property clause requiring the insured to carry a limit of at least a stated percentage of value, or recovery is reduced by the ratio of carried to required limit.

Quota share reinsurance

A treaty under which the insurer cedes a fixed percentage of every risk within its terms to the reinsurer, sharing premiums and losses proportionally.

Surplus share reinsurance

A treaty that cedes the portion of each risk exceeding the insurer's retained line, up to a stated number of lines, supporting capacity for larger risks.

Facultative reinsurance

Reinsurance arranged risk by risk, with the reinsurer free to accept or decline each submission, used for unusual or large exposures outside treaty terms.

Underwriting authority limit

The maximum premium, limit, or risk type an individual underwriter may bind; risks exceeding it must be referred to a senior underwriter or committee.

Catastrophe accumulation

The total insured exposure concentrated in a single event area; managed through modeling and geographic spread so one event cannot exhaust capacity.

Rate adequacy

The condition in which a rate covers expected loss cost plus expenses, profit, and contingency margin over the long run, sustaining insurer solvency.

Renewal underwriting

Review of updated loss runs, exposure changes, and claims trends at renewal, which can trigger repricing, deductible changes, or non-renewal when experience deteriorates.