Casualty Actuarial Society (CAS) Practice Exam

Which of the following best describes the purpose of evaluating submissions in underwriting?

1. To streamline all policies into one format

2. To assess risks and determine appropriate coverage

3. To establish standard pricing across the board

4. To expedite claims processing efficiently

The correct answer is: To assess risks and determine appropriate coverage

The evaluation of submissions in underwriting serves the crucial purpose of assessing risks and determining appropriate coverage for potential policyholders. Underwriters analyze various factors present in the submissions, such as the applicant’s profile, the nature of the risk being insured, and the insurance market conditions. This comprehensive assessment allows underwriters to not only identify the level of risk associated with insuring an applicant but also to customize the coverage to fit the specific needs of the policyholder while ensuring that the insurer can adequately manage its risk exposure. Establishing appropriate coverage involves considering different elements, including limits, exclusions, and premiums based on the risk profile derived from the evaluation. This process is essential in maintaining the insurer's profitability and ensuring the financial stability of the coverage provided. The other options do not accurately reflect the primary goal of underwriting evaluation. Streamlining policies into one format is more related to standardization rather than risk assessment. Establishing standard pricing across the board does not take into account the variability and complexity of different risks and might lead to underpricing or overpricing. Lastly, expediting claims processing is more relevant to post-underwriting activities rather than the initial evaluation of submissions for risk assessment and coverage determination.