Texas Adjuster Practice Test

How do companies view "loss history" in terms of underwriting policies?

1. As irrelevant data for assessment

2. As an indication of potential profitability

3. As a critical factor for rating and acceptance

4. As a minor factor to consider within the application

The correct answer is: As a critical factor for rating and acceptance

Companies view "loss history" as a critical factor for rating and acceptance because it provides insight into the past performance of an applicant regarding claims. Underwriters assess loss history to understand the frequency, severity, and nature of previous claims. A strong loss history, which shows minimal claims or less severe losses, typically indicates a lower risk level, making the applicant more favorable for policy acceptance. Conversely, a poor loss history may signal higher risk and potential future claims, which could lead to higher premiums or even denial of coverage. This information is essential for underwriters as it directly relates to the overall risk assessment process and guides their decision-making for underwriting policies.