Georgia Property & Casualty Practice Exam

What process does Bonnie use to assess insurance policy applications for acceptance or rejection?

1. Adverse selection

2. Risk transfer

3. Risk management

4. Underwriting

The correct answer is: Underwriting

The process that Bonnie uses to assess insurance policy applications for acceptance or rejection is underwriting. Underwriting is a critical function in the insurance industry that involves evaluating the risk of insuring a particular individual or entity. Underwriters analyze various factors, including the applicant's history, the type of coverage requested, and any risk characteristics associated with the individual or property. This process helps insurance companies determine whether to issue a policy and if so, under what terms and conditions. By assessing the likelihood of a claim being made and the potential financial implications, underwriters help ensure that the insurer remains financially stable and can fulfill its obligations to policyholders. Other concepts, such as adverse selection, risk transfer, and risk management, relate to the broader context of insurance but are not specifically the process used to evaluate individual applications. Adverse selection refers to the tendency for those at higher risk to seek insurance more often than those at lower risk, which underwriters seek to manage. Risk transfer is the method of shifting risk from one party to another, such as purchasing insurance itself. Risk management involves identifying and mitigating risks within various contexts and cannot be confined to the individual application assessment process like underwriting does.