An underwriter's primary responsibility to the insurer is to protect against what?

• A. Premium leakage
• B. Premium misstatement
• C. Adverse selection
• D. Moral hazard

Answer: (C)

Underwriting aims to keep the insurer’s risk pool balanced by preventing adverse selection. Adverse selection occurs when higher-risk individuals are more likely to purchase insurance, which can push the overall risk and potential losses higher than anticipated. The underwriter analyzes factors like health, age, occupation, and habits, and then issues coverage or sets premiums accordingly to maintain an acceptable level of risk for the company.

Premium leakage and premium misstatement relate to revenue collection and misrepresentation issues, not the primary purpose of underwriting. Moral hazard—where a covered person might take more risks after obtaining insurance—is a concern that underwriting may mitigate through policy terms and exclusions, but the central duty is to guard against adverse selection.