Casualty Actuarial Society (CAS) Practice Exam

What is a significant benefit of using predictive modeling in underwriting?

1. It eliminates the need for individual application reviews

2. It guarantees profitability across all accounts

3. It provides a consistent review method for applications

4. It allows underwriters to focus solely on high-risk applications

The correct answer is: It provides a consistent review method for applications

Using predictive modeling in underwriting offers a significant benefit in that it provides a consistent review method for applications. Predictive modeling leverages statistical techniques and historical data to identify patterns and predict future outcomes. This allows underwriters to apply a uniform approach to evaluate risk across a wide array of applications. By utilizing predictive modeling, underwriters can incorporate a variety of risk factors and data points in a standardized way, ensuring that all applications are assessed against the same criteria. This consistency helps reduce the subjectivity involved in underwriting decisions and enhances the overall efficiency of the process. Furthermore, this consistent method can improve decision-making, allowing underwriters to identify risk more effectively and make more informed choices. It does not eliminate the need for individual application reviews, as each case may still require some level of personal assessment, nor does it guarantee profitability across all accounts. Additionally, while it aids in identifying high-risk applications, it does not limit focus solely to them; rather, it helps in balancing the review of all applications based on their individual risk scores.