Chapter 2 - C 120

Terms	Definitions
What are the TWO (2) categories of risk? Give an example of each.	speculative risk and pure risk
What is the subject of insurance? What is the object of insurance?	subject of insurance is the person or business. the object is the thing being insured.
Why is having product knowledge important for an underwriter?	the underwriter identifies and composes the insurance policy appropriate to the need for insurance represented by the risk.
Explain the principle of contra proferentem.	it means "against the offeror", any dispute by ambiguity over the policy's wording will be decided against the insurer.
Why should an underwriter understand general principles and characteristics of insurance policies?	should understand the general way in which policy wordings evolve.
What should an underwriter look for in assessing a manuscript's wording?	assess the coverage it offers to determine if it wants to accept coverage. the underwriter should also look for errors and oversights.
Briefly explain how policy wording changes over time.	policy language constantly evolves. what works today may not work tomorrow, conditions constantly change.
Explain what makes an insurance policy a contract.	a contract is a deliberate engagement between competent parties upon a legal consideration to do or abstain from doing some act.
What are the FIVE (5) elements of a contract?	1. Offer and acceptance 2. Capacity of parties to contract 3. Consideration 4. Genuine Intention 5. Legality of Object
What are the FOUR (4) requisites to a binding contract in Quebec?	1. Consent 2. Capacity to contract 3. Cause of contract 4. Object of contract
What is insurable interest? Why is it required in an insurance agreement?	exists when the insurance buyer stands in such a legal relationship to the object of insurance as to be financially benefited by its continued existence or financially prejudiced by its loss or damage.
Explain the principle of indemnity.	it means to return someone after a loss to the same financial position he or she enjoyed immediately before the loss.
Why is the principle of utmost good faith so important in insurance contracts?	utmost good faith is required to ensure that the insurer can properly assess the risk and negotiate terms that are fair to the insured.
What is the difference between an insurance policy and a contract of insurance?	an insurance policy is a document that provides evidence of a contract of insurance.
What do the declarations of an insurance policy identify?	• the parties to the contract (the insurer and insured); • the effective and expiry dates (usually but not always marking a term of one year, as the parties choose); • the amount of premium; • the amount insured; • other interested parties (such as a mortgagee); • and sometimes a description of the objects of insurance, though that may be found instead in the insuring agreements.
What does a condition clause typically state?	states if the insured does or does not do a certain thing, the insurer will not pay a claim or the policy will be declared void.
Why is having knowledge of regional issues important to an underwriter?	different areas of the country present their own unique underwriting challenges to insurers
What specific aspects of a business should an underwriter be familiar with?	• The products they manufacture • The goods they sell • The services they provide • The legal, regulatory, technological, and economic environments they operate in
Give some examples of internal and external resources that might be useful to an underwriter.	internal - colleagues in other departments, actuaries external - reinsurers, underwriters in other companies
Why is having claims knowledge important to an underwriter?	the record of past losses would describe not only the types of loss but also the amount of loss.
What is an IBNR factor?	"incurred but not reported" - certain types of risk claims may have been incurred during the policy period that had yet to be reported when the insured's loss was summarized.
What TWO (2) basic elements does an underwriter use to analyze loss experience? Briefly explain each one.	frequency of loss - ratio of the number of losses to the number of exposure units severity of loss - the average of losses.
Why might an underwriter have less control over loss severity than over loss frequency?	the underwriter cannot control factors such as inflation, cost of repairs, court awards against legal liability.
What are reinsurance skills? Why are they important to an underwriter?	this entails the ability to determine from the line guide what capacity the insurer will make available to insure a given risk, judge capacity, and structure limit of liability.  It allows the underwriter to become skilled in determining which risk to commit to and what extent.
Why is it important for an underwriter to be comfortable and familiar with words?	must be familiar with words that appear in policy language, many of them reflecting legal or other technical concepts.
Discuss the organizational skills required by an underwriter.	underwriting is demanding and organizational skills are needed to succeed.