Chartered Life Underwriter Exam 2025 – 400 Free Practice Questions to Pass the Exam

The primary responsibility of an underwriter is to protect the insurer against adverse selection. Adverse selection occurs when there is an imbalance in information between the insurer and the insured. This often happens when individuals with a higher risk of making a claim are more likely to seek insurance coverage, while those at lower risk may opt out.

Underwriters assess the risk associated with applicants by evaluating various factors, including health history, lifestyle choices, and other relevant criteria. This process ensures that the insurer does not take on more high-risk individuals than they can sustainably cover, which could lead to significant losses. By effectively managing risk and determining appropriate premiums for different levels of risk, underwriters play a crucial role in maintaining the financial health of the insurance company.

In terms of the other choices, while policyholder claims, market fluctuations, and regulatory penalties are significant factors in the insurance industry, they do not directly relate to the underwriter's core function of risk assessment and management. Policyholder claims are a consequence of underwriting decisions, market fluctuations impact the insurer's investment portfolio rather than the underwriting process, and regulatory penalties pertain to compliance rather than risk evaluation. Hence, the primary duty of an underwriter is indeed to mitigate the effects of adverse selection.