Michigan Property & Casualty Practice Exam 2025 – 400 Free Practice Questions to Pass the Exam

The process of selecting, classifying, and rating a risk for insurance coverage is known as underwriting. Underwriting is crucial in the insurance industry as it involves assessing the risk associated with an individual or entity to determine the appropriate premium to charge for coverage. This process ensures that the insurer can adequately price the policy while also considering the likelihood of loss.

During underwriting, an underwriter evaluates various factors related to the risk, such as the applicant's health in health insurance or driving records in auto insurance. This evaluation helps the insurer decide whether to accept or decline the application and informs the terms of the coverage. By effectively classifying and rating risks, insurers aim to balance their portfolios and maintain profitability while providing coverage.

The other terms listed have distinct meanings in the context of insurance. Retaining refers to keeping some level of risk instead of transferring it through insurance. Indemnifying involves compensating for a loss or damage under an insurance policy rather than assessing a risk for coverage. Managing risk involves strategies to minimize potential losses but does not specifically relate to the classification and rating process in underwriting.