Final answer:
The biggest source of information used in underwriting is the Applicant's self-disclosure and application. This is because it provides unique insights that are not easily measurable or obtainable through other means, like medical records or financial history. The reliability of this information is often verified with external checks and background reviews. The correct option is c.
Step-by-step explanation:
The biggest source of information used in underwriting is C) Applicant's self-disclosure and application. During the underwriting process, insurers rely heavily on the information provided by the applicants themselves, as it can offer insights into aspects that are difficult to measure otherwise. In the case of health insurance, the applicant is more likely to know their family's health history, which might not be easily obtainable or evident through medical records or exams. Similarly, when considering car insurance, although previous insurance claims history may contribute valuable information, the applicant's driving habits, which are self-disclosed, can be indicative of future risk.
Underwriting practices also often involve verifying the provided information with external sources. This could include conducting a credit check, evaluating financial history, and reviewing an applicant's credit reports. In more complex cases, further investigation, such as medical exams for life insurance or a review of driving records for car insurance, may be utilized to supplement the application data.
Each approach in gathering information, such as requiring a cosigner or collateral in lending, is a method to manage the imperfect information problem. However, it is the self-disclosure of the applicant that often forms the bedrock of underwriting decisions.