Which practice is used to determine risk and set policy terms?

• A. Underwriting
• B. Rating
• C. Claims Adjustment
• D. Policy Issuance

Answer: (A)

Underwriting is the process of evaluating the risk the insurer would take on and deciding whether to insure the applicant and, if so, on what terms. It involves reviewing information about the applicant and the exposure, applying guidelines, and determining acceptance, as well as the policy details like coverage limits, deductibles, endorsements, and exclusions. This is why it sets the policy terms—the level of risk the insurer is willing to accept directly shapes what coverages are offered, how much coverage costs, and what conditions apply. Rating, by contrast, is about pricing the policy after underwriting by applying rates to the risk to determine the premium. Claims adjustment deals with handling losses after they occur, and policy issuance is simply the creation and delivery of the contract once terms are agreed.