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CS Professional · Banking and Insurance - Laws and Practice · Functions in Insurance and Compliance related thereto (Part I)

Meridian General Insurance Ltd. has a proposal for a fire policy on a textile warehouse. The underwriter notes poor housekeeping and no sprinklers, and decides to accept the risk only at a higher premium rate with a condition to install sprinklers within six months. Which underwriting function does this decision best illustrate?

The decision illustrates risk classification and premium loading. An underwriter assesses hazards, prices them, and sets conditions such as installing sprinklers before accepting the risk. Claim settlement and post-loss surveys happen after a loss and are not part of the underwriting decision.

  1. AClassifying the risk and loading the premium for adverse featuresCorrect
  2. BSettling a claim after loss
  3. CAppointing a surveyor after loss
  4. DReinsuring the entire risk automatically without assessment

Explanation

Underwriting involves selecting risks, classifying them and fixing terms and rates. Adding a premium loading and a risk-improvement condition for poor features is classic risk classification and pricing. Claim settlement and surveyor appointment after a loss are post-loss functions, not underwriting decisions.

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