General Insurance✓ Verified · outline & fact-checked · Sep 2026Difficulty 1/5
The primary purpose of underwriting in health insurance is to:
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Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
Underwriting is the process of selecting and classifying risks: the insurer evaluates the applicant's health, habits, and history, then assigns the risk to a class whose premium reflects its expected loss. This protects the pool from adverse selection and keeps rates fair and adequate. Underwriting does not eliminate claims; it ensures the claims that occur were properly priced.
Why the other options are wrong
- B) Underwriting never guarantees claim-free experience; it prices the risk of claims that will occur.
- C) Commissions are a compensation matter; underwriting exists to protect the financial soundness of the pool, not producer income.
- D) Underwriting actually supports the law of large numbers by keeping pools homogeneous; it does not replace it.
Memory hook
Underwriting = sorting risks into buckets and pricing each bucket. Selection is the price of a healthy pool.