Canadian Accredited Insurance Broker (CAIB) Two Practice Exam

Which parameter allows an underwriter to accept risk with an increased rate?

1. Accept the risk

2. Decline the risk

3. Accept but with higher deductible

4. Accept the risk with enhanced coverage

The correct answer is: Accept but with higher deductible

The option that allows an underwriter to accept risk with an increased rate is to accept but with a higher deductible. A higher deductible means that the policyholder agrees to pay more out of pocket before the insurance kicks in for a claim. This adjustment mitigates the insurer’s risk exposure because it shifts more financial responsibility to the insured. By accepting the risk with a higher deductible, the underwriter can effectively provide coverage while strengthening the underwriting stance through risk management. When considering risk acceptance, underwriters weigh the potential for losses against the premiums collected. By increasing deductibles, they can reduce the likelihood of minor claims that could affect profitability. This strategy enables the underwriter to maintain a balance between providing coverage and managing exposure to potential losses. In contrast, simply accepting the risk or declining it does not involve any adjustment to rate or terms that reflect the inherent risk level. Accepting the risk with enhanced coverage would typically entail a higher premium but does not directly address the concept of risk acceptance with an increased rate through deductibles.