AD Banker Comprehensive Practice Exam

When an insurer underwrites a policy, what are they assessing?

1. The risk associated with the applicant

2. The claims history of the insured

3. The legal eligibility of the policyholder

4. The investment portfolio of the insurer

The correct answer is: The risk associated with the applicant

When an insurer underwrites a policy, they are primarily assessing the risk associated with the applicant. Underwriting involves evaluating various factors that contribute to the likelihood of a loss occurring. This typically includes reviewing the applicant's health, lifestyle, occupation, and past insurance history. The goal is to determine how likely it is that the insured will file a claim, which informs the insurer’s decision on whether to provide coverage and at what premium rate. While the other options include relevant considerations, they are not the core focus of the underwriting process. For instance, the claims history of the insured can be a factor, but it is more of an effect of their risk rather than a direct involvement in risk assessment. Legal eligibility is important as well, but it is generally a preliminary check rather than the primary concern of underwriting. The investment portfolio of the insurer is unrelated to the underwriting process itself; this focuses more on financial management rather than the evaluation of specific policy risks. In summary, underwriting is fundamentally about assessing the applicant's risk to ensure that the insurer can make informed decisions regarding policy issuance and pricing.