When a Fraternal Insurer Began Operations, It Asked Each Member

question 30

Multiple Choice

When a fraternal insurer began operations, it asked each member, regardless of age, to pay $20 per month to the fraternal's group life insurance plan. In exchange, each member received the same amount of life insurance. Soon younger members of the group began to drop out when they realized their premiums were subsidizing a group with a higher chance of loss. Which important underwriting principle was violated in this case?

• A) An underwriting profit should be attained.
• B) Moral hazard should be avoided.
• C) Insureds should be selected according to underwriting standards.
• D) There should be equity among policyholders.

---

Definitions:

Stockholders' Equity

The residual interest in the assets of a corporation after debts have been deducted, representing the ownership interest of the shareholders.

Investment Account

An account that holds financial assets such as stocks, bonds, mutual funds, or other investments on behalf of an investor.

Integrated Disclosures

A comprehensive approach to corporate reporting that combines financial, environmental, and social performance information.