Chartered Insurance Institute (CII) Qualifications Underwriting and Risk Management Syllabus

Underwriting and Risk Management syllabus — full chapter and topic list

Expand any chapter to see its topics and sub-topics. This is the whole examinable outline for Underwriting and Risk Management in Chartered Insurance Institute (CII) Qualifications, not a summary of it.

1. 1

   Principles of Underwriting

   4 topics

   • The underwriting process
     • Risk acceptance, modification and decline
     • Proposal forms and material information
     • Underwriting authority and referral limits
   • Rating and pricing
     • Burning cost and exposure-based rating
     • Loadings, discounts and excesses
     • Statistics and the law of large numbers
   • Hazard and risk factors
     • Physical and moral hazard
     • Aggravating and mitigating features
   • Terms, conditions and warranties
     • Conditions precedent and subsequent
     • Warranties under the Insurance Act 2015
     • Endorsements and exclusions
2. 2

   Risk Identification and Assessment

   4 topics

   • Categories of risk
     • Pure vs speculative risk
     • Particular vs fundamental risk
   • Risk management techniques
     • Risk avoidance, retention and reduction
     • Loss prevention and loss minimisation
     • Business continuity planning
   • Surveys and risk control
     • Pre-risk and periodic surveys
     • Risk improvement requirements
   • Emerging and systemic risks
     • Cyber and technology risk
     • Climate and natural catastrophe exposure
3. 3

   Reinsurance

   3 topics

   • Purpose and benefits of reinsurance
     • Capacity, stability and catastrophe protection
   • Methods of reinsurance
     • Facultative vs treaty
     • Proportional: quota share and surplus
     • Non-proportional: excess of loss and stop loss
   • Alternative risk transfer
     • Insurance-linked securities and cat bonds
4. 4

   Capital, Solvency and Insurer Finances

   3 topics

   • Insurer accounting and reserves
     • Technical reserves and IBNR
     • Underwriting result and combined ratio
   • Solvency and capital regulation
     • Solvency II / UK Solvency framework
     • Capital adequacy and the SCR
   • Investment of insurer funds
     • Matching assets and liabilities
     • Liquidity and diversification

Underwriting and Risk Management flashcards for Chartered Insurance Institute (CII) Qualifications

23 of 51 cards from the Underwriting and Risk Management deck — real questions with worked answers.

1. What are the five core stages of the underwriting process in general insurance?

   1) Receiving the proposal/risk information; 2) Assessing/classifying the risk (selection); 3) Deciding whether to accept, decline or apply special terms; 4) Determining the premium (rating/pricing); 5) Issuing the policy and ongoing monitoring/renewal.

2. Define 'underwriting' in insurance.

   The process of assessing, selecting, classifying and pricing risks that an insurer is asked to accept, so as to ensure that the premium charged is adequate, fair and competitive for the level of risk assumed.

3. What is meant by 'adverse selection' (anti-selection) and why must underwriters guard against it?

   The tendency for those with a higher-than-average likelihood of loss to be more inclined to seek insurance. If unmanaged, it skews the risk pool toward bad risks, making premiums inadequate; underwriters counter it through selection, rating and policy terms.

4. Distinguish between 'physical hazard' and 'moral hazard'.

   Physical hazard is a tangible feature of the risk that increases the chance or severity of loss (e.g. flammable materials, poor wiring). Moral hazard arises from the attitude, conduct or character of the insured (e.g. carelessness, dishonesty) that increases the likelihood of loss.

5. What is the difference between a 'peril' and a 'hazard'?

   A peril is the actual cause of a loss (e.g. fire, flood, theft). A hazard is a condition or factor that increases the likelihood or severity of a peril occurring.

6. State the basic relationship between premium, risk premium, and loadings in pricing.

   $$\text{Office (gross) premium} = \text{Risk premium} + \text{Expenses} + \text{Commission} + \text{Profit/contingency margin}$$ where the risk premium is the expected claims cost.

7. How is the pure (risk) premium calculated from frequency and severity?

   $$\text{Risk premium} = \text{Claim frequency} \times \text{Average claim severity}$$ i.e. expected cost of claims per policy.

8. Define the 'loss ratio' and give its formula.

   The proportion of premium consumed by claims: $$\text{Loss ratio} = \frac{\text{Incurred claims}}{\text{Earned premium}} \times 100\%$$

9. Define the 'combined operating ratio' (COR) and state what value indicates an underwriting profit.

   $$\text{COR} = \frac{\text{Incurred claims} + \text{Expenses}}{\text{Earned premium}} \times 100\%$$ A COR below 100% indicates an underwriting profit; above 100% indicates an underwriting loss.

10. What is the 'expense ratio' in insurer accounting?

    $$\text{Expense ratio} = \frac{\text{Operating/underwriting expenses}}{\text{Earned (or written) premium}} \times 100\%$$ measuring the proportion of premium absorbed by costs of acquiring and administering business.

11. What are the main rating factors an underwriter uses to price a motor risk?

    Driver age/experience, claims and conviction history, vehicle make/model/value/group, use of vehicle, annual mileage, garaging/postcode location, no-claims discount, and policy excess.

12. Distinguish between 'rating factors' and 'risk factors'.

    Risk factors are the true underlying drivers of loss likelihood/severity; rating factors are the measurable proxies an insurer actually uses to set premiums (chosen because they correlate with risk factors and are practical to collect).

13. What is 'experience rating'?

    A method of pricing where an individual policyholder's (or group's) own past claims experience is used to adjust the premium, rewarding good experience and penalising poor experience (e.g. no-claims discounts, motor fleet rating).

14. Distinguish 'burning cost' rating from 'exposure' rating.

    Burning cost rating bases the premium on the actual past claims experience of the specific risk (typically used in excess-of-loss reinsurance). Exposure rating bases it on the underlying exposure and a standard rating scale, used where past data is scarce or unrepresentative.

15. Define a 'warranty' in an insurance contract and state its effect under the Insurance Act 2015.

    A warranty is a promise by the insured that something will or will not be done, or that a state of affairs exists. Under the Insurance Act 2015 a breach suspends (rather than terminates) cover; liability is restored if the breach is remedied before any loss, and it must be relevant to the actual loss.

16. What is the difference between a 'condition precedent' and a 'condition' in a policy?

    A condition precedent must be satisfied before the insurer is liable (breach can defeat the claim/cover entirely). An ordinary condition's breach gives rise to a claim for damages but does not automatically void cover.

17. Distinguish an 'excess' from a 'deductible' (and from a 'franchise').

    An excess/deductible is the first amount of each loss the insured bears (deductible often used for larger commercial amounts). A franchise means the insurer pays nothing until the loss exceeds the franchise level, then pays the loss in full.

18. Name the four main categories of risk distinguished by their effect.

    Financial vs non-financial risk; pure vs speculative risk; particular vs fundamental risk; and (in modern frameworks) static vs dynamic risk.

19. Distinguish 'pure risk' from 'speculative risk' and state which is generally insurable.

    Pure risk involves only the possibility of loss or no loss (e.g. fire, theft) and is generally insurable. Speculative risk involves the possibility of loss, no change, or gain (e.g. investment, gambling) and is generally not insurable.

20. Distinguish 'particular risk' from 'fundamental risk'.

    Particular risks are personal in origin and effect, affecting individuals (e.g. a house fire). Fundamental risks are widespread in cause and effect, affecting society or large groups (e.g. earthquakes, pandemics, war), and are often uninsurable or require state involvement.

21. List the steps of the formal risk management process.

    1) Risk identification; 2) Risk analysis/measurement (frequency and severity); 3) Risk evaluation/prioritisation; 4) Risk control/treatment; 5) Risk financing; 6) Monitoring and review.

22. Name the main risk control (treatment) techniques, often summarised as the '4 Ts'.

    Tolerate (retain/accept), Treat (reduce/control), Transfer (e.g. insurance, contract), and Terminate (avoid the activity).

23. Distinguish 'loss prevention' from 'loss reduction' as risk control measures.

    Loss prevention aims to reduce the frequency/likelihood of a loss occurring (e.g. staff training, security). Loss reduction aims to minimise the severity/impact once a loss has occurred (e.g. sprinklers, fire doors, business continuity plans).

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