South Carolina Personal Lines Practice Exam

In insurance terms, 'underwriting' refers to what process?

1. Adjusting claims

2. Assessing risk and determining premiums

3. Marketing insurance products

4. Settling disputes

The correct answer is: Assessing risk and determining premiums

Underwriting is a critical process within the insurance industry that involves assessing the risk associated with insuring an individual or entity and determining the appropriate premiums to charge based on that risk assessment. This process requires a deep analysis of various factors, including the applicant's personal history, the characteristics of the property or individual being insured, and relevant market conditions. The underwriter evaluates information provided in the application, such as previous insurance claims, credit ratings, and other indicators of risk, to decide whether to offer coverage and at what cost. This ensures that the insurer can maintain a balanced portfolio of risks and remain financially viable. Ultimately, the underwriting process helps ensure that insurance policies are priced appropriately, reflecting the level of risk involved, enabling both the insurer and the insured to operate effectively within the insurance market.