How can proper underwriting help control reserves?

• A. By minimizing customer inquiries
• B. By ensuring accurate risk assessment
• C. By reducing marketing costs
• D. By expanding service offerings

Answer: (B)

Proper underwriting plays a crucial role in controlling reserves by ensuring accurate risk assessment. When underwriters evaluate potential policyholders, they gather and analyze various pieces of information related to the risks associated with insuring that individual or entity. This thorough assessment allows insurers to determine the likelihood of claims being made and the expected cost of those claims.

By effectively assessing risks, underwriters can set appropriate premiums that reflect the true level of risk. This accuracy helps ensure that the reserves—funds that insurance companies set aside to pay future claims—are adequate to cover potential liabilities without being excessive. Adequate reserves are essential for financial stability, as they ensure that the company can meet its obligations while also maintaining profitability.

In contrast, other options like minimizing customer inquiries, reducing marketing costs, or expanding service offerings do not directly impact the relationship between underwriting processes and reserve control. While these actions may have benefits for operational efficiency or business growth, they don't specifically relate to the accuracy and effectiveness of risk assessment that is foundational in proper underwriting practices.