Ch 5

Question 0

Construction that has load-bearing exterior walls made of brick, adobe, concrete, gypsum, stone, tile, or similar materials; that has floors and roofs of combustible materials; and that has a fire-resistance rating of at least one hour

Answer 0

Joisted masonry construction

Question 1

Construction that has load-bearing components made of wood or other combustible materials

Answer 1

Frame construction

Question 2

A subclassification of joisted masonry construction that uses heavy timber it columns, beams, supports and ties; has a minimum two hour fire-resistance rating on bearing walls; and had an absence of floor joists.

Answer 2

Mill construction.

Question 3

A class of construction in which the exterior walls, floor and roof of a building are constructed of, and supported by, metal, gypsum, or other non combustible materials. Not fire resistive because steel supports can twist and bend under heat.

Answer 3

Non combustible construction.

Question 4

Masonry construction or construction that includes exterior walls of fire resistive construction with a fire-resistance rating of not less than one hour

Answer 4

Masonry noncombustible construction

Question 5

Construction that has load-bearing walls and columns of masonry or reinforced concrete construction and that has a fire-resistance rating of one to two hours. A step down from plain fire resistive.

Answer 5

Modified fire-resistive construction

Question 6

Construction that incorporates loadbearing members and that has a fire-resistance rating of at least two hours

Answer 6

Fire-resistive construction

Question 7

The expected maximum amount of combustible material in a given area of a building, including both structural elements and contents

Answer 7

Fuel load, aka fire load

Question 8

A section of a structure so well protected that fire cannot spread from that section to another, or vice versa

Answer 8

Fire division

Question 9

A floor-to-roof wall made of non combustible materials an having no open doors, windows, or other spaces through which fire can pass.

Answer 9

Fire walk

Question 10

Parapet

Answer 10

A vertical extension of a fire wall that extends above a roofline

Question 11

Local ordinances or state statutes that regulate the construction of buildings within a municipality, county or state

Answer 11

Building codes

Question 12

An extension of a fire wall through an outer wall

Answer 12

Fender Wall

Question 13

The type or character of use of the property in question

Answer 13

Occupancy

Question 14

Hazards that are typical for the class of loss exposures

Answer 14

Special hazards of the class

Question 15

Hazards that are created by the activities of a particular business and that are not typical of other businesses with which it would be classed

Answer 15

Special hazards of the risk

Question 16

Measures taken to prevent or reduce the damage done by fire.

Answer 16

Protection.

Question 17

Fire protection equipment and services made available through governmental authority to all properties within a defined area

Answer 17

Public fire protection.

Question 18

Local fire alarm system

Answer 18

A detection system, triggered by smoke or heat, that sounds a gong, siren, or another audible alert inside or outside the building

Question 19

A private detection service that monitors the systems of multiple businesses and/or residences and that calls appropriate authorities or dispatches its own personnel when an alarm is activated

Answer 19

Central station system

Question 20

Automatic fire sprinkler systems with pipes that always contain water under pressure, which is released immediately when a sprinkler head opens

Answer 20

Wet pipe sprinkler system

Question 21

Automatic fire sprinkler systems with pipes that contain compressed air or another inert gas that holds a valve in the water line shut until an open sprinkler head releases the gas and allows water to flow through the previously dry pipe to the sprinkler head

Answer 21

Dry pipe sprinkler systems

Question 22

Automatic fire sprinkler systems with automatic and closed-type sprinkler heads connected to a piping system that contains air or nitrogen, with an additional fire detection system that serves the same area as the sprinklers.

Answer 22

Preaction sprinkler system

Question 23

sprinkler systems in which the head remains permanently open; when activate by a detection system, a deluge valve allows water into the system.

Answer 23

Deluge sprinkler system

Question 24

A private or temporary organization if individuals equipped to fight fires; typically used in businesses that are located far from municipal fire services.

Answer 24

Fire brigade

Question 26

A loss exposure located outside the area owned or controlled by the insured.

Answer 26

External exposure.

Question 27

The cost to repair or replace property using new materials of like kind and quality with no deduction for depreciation.

Answer 27

Replacement cost

Question 28

A method in valuing property which is calculated as the cost to replace or repair property minus depreciation, the fair market value, or a valuation determination by the broad evidence rule.

Answer 28

Actual cash value

Question 29

A clause that requires the insured to carry insurance equal to at least a specified percentage of the insured’s property’s value.

Answer 29

Coinsurance clause

Question 30

Four interdependent elements that are analyzed by commercial property underwriters when evaluating submissions for property insurance; construction, occupancy, protection and external exposures.

Answer 30

COPE

Question 31

A legal responsibility that occurs when one party is held liable for the actions of a subordinate or associate because of the relationship between the two parties.

Answer 31

Vicarious liability

Question 32

The failure to meet the terms of a promise or an agreement associated with a product.

Answer 32

Breach of warranty

Question 33

An implied warranty that a product is fit for the ordinary purpose for which it is used.

Answer 33

Implied warranty of merchantability

Question 34

An implied warranty that a product is fit for a particular purpose; applies if the seller knows about the buyer’s purpose for the product.

Answer 34

Implied warranty of fitness for purpose

Question 35

The failure to exercise the degree of care that a reasonable person in a similar situation would exercise to avoid harming others.

Answer 35

Negligence

Question 36

Liability imposed by a court or by a statute in the absence of fault when harm results from activities or conditions that are extremely dangerous, unnatural, ultrahazardous, extraordinary, abnormal, or inappropriate.

Answer 36

Strict liability (absolute liability)

Question 37

A decision-making tool that uses credit report information to develop a predictive score on the creditworthiness of an applicant for additional credit.

Answer 37

Credit scoring

Question 38

A type of insurance rate that applies to all insureds in the same rating category or rating class.

Answer 38

Class rate

Question 39

A factor that tailors manual rates to an insured’s experience based on the insured’s payroll and loss record of certain prior years.

Answer 39

Experience modifications factor

Question 40

Liability insurance that provides excess coverage above underlying policies and may also provide coverage available in the underlying policies, subject to a self-insured retention.

Answer 40

Umbrella liability insurance

Question 41

Insurance coverage for losses that exceed the limits of underlying insurance coverage or a retention amount.

Answer 41

Excess liability insurance

Question 42

Coverage provided by many umbrella liability policies for 1) claims not covered at all by the underlying policies and 2) claims that are not covered by an underlying policy only because the underlying policy’s aggregate limits have been depleted.

Answer 42

Drop-down coverage

Question 43

Compare the principal features of fire-resistive construction with those of noncombustible construction.

Answer 43

Fire-restrictive construction is designed to withstand damage by fire for at least two hours. Noncombustible construction has exterior walls, roof and floor constructed of noncombustible materials. A noncombustible building is not as resistant to fire damage as one with fire-resistive construction because its unprotected steel structural supports bend when subjected to the heat of a typical fire.

Question 44

How does interior finish affect underwriting acceptability for fire insurance?

Answer 44

The interior finish of a building will determine how combustible the structure may be and is an indicator of the fuel load. Buildings with extensive interior features such as draperies, carpeting, and paneling will provide fuel for a fire. Furthermore, certain furnishings may be a source of noxious gases and excessive smoke, which pose a life safety concern

Question 45

Explain why the age of a building affects fire underwriting.

Answer 45

Age is a concern for fire underwriting because it may be an indicator of obsolete heating, cooling, electrical, and fire protection systems. An older building may have been converted to a use other than that for which it was originally built, which increases the fire hazard. Also, the building might not meet the current building code.

Question 46

Why are high-rise buildings a concern to fire underwriters?

Answer 46

Most firefighting services are not capable of fighting a fire from the exterior of high-rises because of ladder capacity. Therefore, firefighters must enter the structure and fight the fire from inside, causing delays in response. High-rise structures also generally have a large number of occupants. Life safety is always the first priority for firefighters, and extinguishing the blaze is second

Question 47

What are the principal ignition sources associated with the occupancy of a building.

Answer 47

1) Friendly fires that escape containment; 2) Friction that generates enough heat to ignite nearby combustible material; 3) Electricity that produces sparks or heat that can ignite combustibles; 4) chemical reactions that produce heat suffiient to cause ignition

Question 48

Give examples of special hazards in mercantile occupancies

Answer 48

Special hazards include a sporting good store that stocks ammunition or a bookstore with an extensive cooking exposure

Question 49

Give examples of special hazards in service occupancies

Answer 49

An auto service station that does extensive body work in addition to standard auto mechanical repairs

Question 50

Describe the factors considered in the determination of a community’s public protection classification

Answer 50

The factors are related to fire protection equipment and services made available through government authority. These include the adequacy of the equipment available, the water supply, and the response time

Question 51

Identify the five major detection systems used in private protection systems

Answer 51

1) guard service with clock system; 2) private patrol service; 3) smoke and heat detectors; 4) Automatic local alarm; 5) central station or remote station alarm system

Question 52

Identify four categories of private fire suppression

Answer 52

1) Portable extinguishers; 2) Standpipes and hose; 3) Automatic sprinkler systems; 4) Private fire brigades

Question 53

Describe the factors that influence the severity of an exposure fire in an adjacent building

Answer 53

In addition to the intensity and duration of the exposure fire, the type of construction of the exposed and the exposing buildings; the height and width of exposure fire; openings and any protection for openings in the exterior walls of both structures; type of combustible contents in exposure fire; interior finish of both buildings; the distance between the buildings; wind velocity and direction at the time of the fire; the public and private protection available; and the shielding effects of noncombustible construction between the buildings

Question 54

Describe four ways a hurricane can cause damage

Answer 54

Wind damage: 1) the effect of high winds on exposed property; 2) wind-driven rain that penetrates structures; Water damage: 3) storm surge; 4) Flooding

Question 55

What are the three major factors underwrtiers should consider when reviewing earthquake exposures

Answer 55

Areas of earthquake activity, soil conditions, and building design and construction

Question 56

What major factors must be considered in underwriting sprinkler leakage?

Answer 56

The focus is on two elements, the damageability of the contents and the physical condition of the covered sprinkler system, including the maintenance and design of the sytem

Question 57

Describe the process of determining the probable maximum loss for business income coverage

Answer 57

First step is projecting the expected earnings for the period of coverage to determine the potential magnitude of a loss; Second step - a coinsurance clause that approximates the expected period of interruption is selected

Question 58

What factors make employee crimes unique compared to other forms of crime

Answer 58

Most crime coverage involves the acts of outside intruders onto the premises. With employee dishonesty, the employees have ready access to valuable property and knowledge of detection or other control devices. Unlike most crimes, employee dishonesty losses can be hidden from detection, which can lead to large loss amounts. The situation is further compounded by the fact that most employers are reluctant to believe that employees would steal from them and prosecute those who do.

Question 59

What factors make one piece of property more susceptible to threat than another piece of property

Answer 59

The characteristics of a piece of property that would make it more susceptible to theft are the ease with which it can be stolen and how great a market exists for the item as stolen property. For example, most items of jewelry are relatively small and an active market usually exists in which thieves may sell such stolen items

Question 60

Explain why the Nationwide Marine Definition is significant

Answer 60

This definition outlines what specific areas of loss exposures should be covered under inland marine forms and which would be the subject of other types of coverage.

Question 61

What does protection and indemnity (P&I) insurance cover?

Answer 61

Covers the vessel owner for bodily injury, illness, death, and damage to property of others arising out of the ownership, use, or operation of the vessel

Question 62

What factors should be considered in underwriting a contractors’ equipment floater

Answer 62

In addition to the use of the equipment and the scope of its operations, the following are also important: the size and value of the individual items; type, age, maintenance, operating characteristics, and protection of the equipment; experience and accident records for operators; the financial status of the policyholder; concentration of equipment at a single site; pass loss history; and the potential for any problems arising from labor relations at a given site

Question 63

Describe how loss control representatitives can assist underwriters in rehabilitating an account?

Answer 63

Loss control can work with underwriters to modify a policyholder’s loss exposures and to help policyholders remain within underwriting guidelines once modifications have been made to the premises

Question 64

Describe how an insurer’s loss control activities can assist in meeting the insurer’s profit objective.

Answer 64

Loss control activities can assit insurers in reaching their profit objectives by improving underwriting decisions; increasing premium volume by making marginal accounts acceptable; encouraging policyholder loss control; reducing the number of losses that occur or the amount that is paid on losses that do happen. Loss control may be an additional revenue source for insurers that sell “unbundled” loss control services and assist in reducing errors and omissions claims against the insurer

Question 65

Identify the three categories of insurer loss control activities

Answer 65

Physical surveys, risk analysis and improvement, safety management programming

Question 66

What factors affect the level of loss control services provided to customers by insurers?

Answer 66

Personal vs commercial, commercial policyholder size, types of exposures involved

Question 67

1-7. Describe the risk control measures that may be used to reduce external exposures.

Answer 67

.External exposures are by definition outside the insured’s control Often, little can be done from a risk control standpoint to reduce external exposures. However, fire walls, fire doors,special barriers, and parapets can reduce the probability that an external fire will spread to the insured property. Clear space between buildings, good water supply, quick response from the fire department, and
internal and external automatic sprinkler systems are additional methods of controlling external loss exposures.

Question 68

1-8. Charles has contracted with Ed to construct a large shopping complex on a
fifty-acre site in a rural community. They ask an insurance producer to set up a
meeting with an insurance company underwriter before the start of construction to seek suggestions for improving the insurability of the complex and for minimizing the cost of property insurance on it. Describe the fire protection factors that the underwriter should consider in making such suggestions

Answer 68

The protection factors include public and private protection considerations. Public protection depends on services provided by local authorities. In rural areas such as this, less public protection may be available, or the proposed shopping center may be located a great distance from the fire department and/or fire hydrants. Such a situation would also result in a higher property rate because
the slower response time may result in a greater degree of damage from fire or other perils. Private protection measures, which include partial sprinkler protection, overnight guard service, and a local fire alarm, generally result in a reduced property premium

Question 69

An application has been received for commercial property with basic form
causes of loss (includes fire, lightning, explosion, vandalism, sprinkler leakage,
windstorm, hail, smoke, aircraft, vehicles, riot or civil commotion, sinkhole
collapse, and volcanic action) from Music, Inc., an electronics company that
produces a well-known line of stereo equipment. All operations are located in
a one-story structure that is 25 percent joisted masonry construction and 75 percent masonry noncombustible construction. The risk has three major fire divisions-the warehouse, the manufacturing area, and the office and laboratory. The sprinkler system was installed last year when the building was constructed and covers 75 percent of the total area. In the warehouse, a dry pipe sprinkler system is used; in all other sprinklered locations, a wet pipe sprinkler system is in operation.

The building is protected by guards on duty between 4:30 PM and 7:30 AM. A local burglar alarm system covers all door openings (exterior and interior) of the warehouse portion of the building. The property is located in an industrial park and is flanked by a four-story, multiple-occupancy manufacturing building and a warehouse. Asphalt parking lots are on the other two sides.

All metal stamping, bending, and forming operations for component casings
are carried out in an area cut off from the rest of the plant. The dip tank for
painting metal parts is located in the sprinklered portion of the building. The
highest concentration of values is in the drying rooms, where dipped items are
stored after passing through drying ovens.
Identify and analyze the major construction, occupancy, protection, and expo-
sure hazards of this risk.

Answer 69

Construction: Construction appears to be acceptable. Masonry noncombustible will sustain less fire damage than the joisted masonry areas. It is important to determine which operations are being conducted in the 25 percent of the building that is joisted masonry construction. Fire divisions will assist in limiting the horizontal spread of fire from one section of the building to other.

Occupancy: The areas of greatest concern are the exposures and hazards related to the manufacturing operations. Potential hazards include heat treatment, electrical and wiring systems, and drying ovens. Improper storage of flammables or other hazardous materials may increase the likelihood of a property loss. Housekeeping and maintenance are also important considerations. The contents of this
occupancy would include finished stereo equipment, unfinished components, and work in progress. These would all be highly damageable from either fire or accidental sprinkler leakage.

Protection: No information is provided regarding public protection. The underwriter would need to determine the public protection class, the availability of fire department service, and proximity to fire hydrants.
Private protection is adequate and includes partial sprinkler protection, overnight guard service, and a local alarm.

Exposure: The property is located in an industrial park with similar-type occupancies as exposing properties. The immediate exposing structure is the adjacent four-story manufacturing and warehouse building. Of concern would be any hazardous manufacturing occupancies in surrounding buildings. The asphalt parking lots are a positive factor and provide clear space, which reduces the possibility of damage to the covered building as the result of a loss at an exposing structure.

Question 70

2-1. What is the source of the most common insurable interest in property?

Answer 70

outright ownership

Question 71

2-2. What are the most common property valuation methods?

Answer 71

replacement cost and actual cash value..

Question 72

2-3. Identify the insurer benefits associated with encouragement of insurance-to value provisions.

Answer 72

Promotes
• Higher limits of property (higher premiums)
• An adequately insured book of business
• Competitive status (keeps rate low and competitive)

Question 73

3-1. Explain why policy amount is the least useful figure for determining potential loss severity.

Answer 73

The amount of insurance purchased could have little bearing on the amount of the loss.

Question 74

3-2. What expression do underwriters often use to explain the concept of amount subject?

Answer 74

.Underwriters often use the expression “within four walls” to explain the concept of amount subject. Requires subjective judgement to measure boundaries of a fire decision. Have to consider openings such as ventilation systems and electrical conduits.

Question 75

3-3. List the elements used to determine the normal loss expectancy (NLE) for a risk.

Answer 75

NLE is the loss expected under normal operating conditions with all fire protection working.
• Construction
• Protection (positive pressure ventilation/sprinklers)
• Business interruption contingency plans
• Fire divisions
• Susceptibility of contents to damage and combustibility
• Operational hazards

Question 76

3-4. Under what assumption do underwriters often operate when calculating probable maximum loss (PML)?

Answer 76

anything that can go wrong will go wrong.

Question 77

3-5. Explain the concept of maximum foreseeable loss (MFL) as it applies to fire losses.

Answer 77

MFL is an estimate of the financial cost of the loss that would occur if all protection measures (automatic and manual) were to fail and no effective fire department response occurred

Question 78

4-1. Describe the three steps underwriters can use to estimate probable maximum loss (PML) for business income coverage.

Answer 78

.• Determine the most serious direct loss that is likely to occur.
• Calculate the longest period of restoration that this loss can reasonably be expected to cause.
• Compute the largest loss of business income that the insured is likely to sustain during a period of this length.

Question 79

4-2. Provide some examples of factors that could affect the duration of a business interruption.

Answer 79

.• Time required to rebuild the insured premises (delays due to permits, climatic, urban congestion)
• Seasonality of the business
• Bottlenecks
• Computer systems
• Long production processes (fermenting beer)
• Availability of substitutes
• Business continuity and disaster recovery planning

Question 80

4-3. What must occur in order for there to be a covered loss of use, loss of business income, or extra expense loss?

Answer 80

direct damage to property at the insured premises.

Question 81

4-4. Describe the key elements of a disaster recovery plan.

Answer 81

Detailed written plans to restore the production process if part or all of the facility and equipment were destroyed.

It should indicate what would be necessary if each part of the process were destroyed.

The plan could also indicate whether continuation of the operation is feasible following certain types of damage

Question 82

5-1. Identify the conditions that underwriters should ensure exist before issuing employee dishonesty insurance.

Answer 82

• There is no evidence of a moral hazard. (If there is, other coverages probably should not be written either.)
• Burglary and robbery risk control systems should be in place and maintained. Defenses against external crime also deter employee crime.
• As with other coverages, amounts of insurance should fall within the limits prescribed by the insurer’s underwriting guidelines.
• The organization should be managed soundly. Management controls provide evidence of management’s care and concern.

Question 83

5-2. List three examples of controls that can minimize employee dishonest losses.

Answer 83

• New hires are screened for prior criminal activity, and their references are checked.
• Seasoned employees are evaluated before they are promoted, especially for moves into sensitive positions.
• A substance-abuse screening program is in place. Underwriters regard this as a positive sign because substance dependency creates potential for employee dishonesty.
• The rate and level of employee turnover is appropriate given the insured’s business (employee turnover can increase the insured’s loss exposure).
• Termination procedures are well defined. The computer passwords of employees who had worked in sensitive areas are revoked, and keys or access cards are returned upon termination.
• Management is sensitive to dramatic changes in employee behavior, such as sudden or drastic lifestyle changes, which might indicate employee dishonesty.
• Periodic audits are conducted to evaluate accounts receivable, cash accounts, inventories, and disbursements.
• Bank reconciliations are done to ensure that company records and bank records agree.
• Employees monitor one another through a division of authority among employees.
• Annual vacations of a minimum length of time are required. This acts as a control because some embezzlement methods require a daily adjustment of records.
• Duties are rotated, a practice that helps to uncover irregularities or embezzlement.
• Two-person or dual control systems are in place on some items, such as the vault, cash, and other items susceptible to theft.

Question 84

5-3. Identify six factors underwriters analyzing crimes committed by others loss exposures must consider.

Answer 84

• Susceptibility and marketability (size, weight visibility, accessibility, difficulty to trace)
• Property location
• Nature of the occupancy
• Moral and morale hazards (dishonest employee can set up a fraudulent claim)
• Public protection
• Coverage and price modifications (protective safeguard endorsement)

Question 85

5-4. Why are moral and morale hazards particularly important with regard to crime?

Answer 85

Moral hazards and morale hazards are particularly important with regard to crime because a dishonest insured can readily dispose of inventory and arrange a fraudulent claim. Likewise, a lax attitude toward loss might mean that precautions and protective measures are not consistently adhered to, thereby creating an environment in which a loss is more likely to occur.

Question 86

5-5. Identify the two important functions private protection systems serve.

Answer 86

to prevent crime losses and to reduce losses that do occur.

.

Question 87

6-1. Why is the legal status of persons likely to be on the premises an important consideration when underwriting commercial general liability loss exposures?

Answer 87

The legal status of persons likely to be on the premises determines the policyholder’s legal duty to these persons and the expected standard of care.

Question 88

6-2. Why do operations-oriented businesses generally have a greater property loss damage exposure than premises-oriented businesses?

Answer 88

Operations exposures involve substantial work on the premises of others. The work of trade contractors and other construction-related work exposes the property of others to damage. The possible use of heavy equipment increases the potential for serious property damage. The major sources of property damage losses are fire, collapse, water damage, and, in some cases, pollution.

Question 89

6-3. What factors can account for the differences in exposure between two premises?

Answer 89

location, type of business, or time in business, or a combination of the three.

Question 90

6-4. What are some of the loss exposures an underwriter would consider for products liability coverage applications?

Answer 90

an underwriter would consider the inherent hazards of the product, the types of representations or promises about the product made to consumers in sales materials and advertising, and whether the product’s technical manuals accurately reflect safety precautions required in its assembly or repair. The underwriter would also consider if the product’s packaging adequately protects the product so that it will operate properly when used and who the ultimate consumer for the product is.

Question 91

7-1. Why is driving experience important when evaluating a personal auto applicant?

Answer 91

driving experience is a likely indicator of a driver’s future actions and the chance of loss. Underwriters evaluate a driver’s prior accidents and prior moving violations. The driver’s prior loss history may indicate poor driving habits, recklessness, or simply a lack of skill.

Question 92

7-2. What information should an underwriter have to analyze a commercial automobile submission?

Answer 92

Factors relating to both the driver and the vehicle are considered. In addition to information about the driver, underwriters consider the weight and type of vehicle, use of vehicle, radius of vehicle operation, and special industry classifications.

Question 93

7-3. What are the characteristics of good fleet safety programs?

Answer 93

Good fleet safety programs are clear, concise, and written at a level appropriate for the program user. They should contain practical procedures that employees can follow and the account’s management can support.

Question 94

7-4. An agent for an insurer sends an application for a personal automobile policy to an underwriter. The application contains only the applicant’s name, birth date, and marital status, and the year, make, and model of her vehicle. a. Identify essential underwriting information that is not given in the application.

Answer 94

• Use of the vehicle
• Driving record
• Territory
• Occupation
• Personal characteristics
• Physical condition of driver
• Safety equipment

Question 95

8-1. Give four examples of specific on-premises hazards that could lead to workers compensation losses.

Answer 95

housekeeping, maintenance, occupational disease, and hazards leading to cumulative trauma injuries.

Question 96

8-2. What three aspects should an underwriter consider when evaluating off-premises hazards?

Answer 96

(1) the duration of travel,
(2) the mode of transportation, and
(3) the hazards at remote job sites.

Question 97

8-3. Why should a workers compensation underwriter investigate an applicant’s use of temporary and seasonal workers?

Answer 97

temporary or seasonal workers may lack sufficient training, which increases
the risk of injury. These workers also present a potential moral hazard because they could fake an injury while on the job and receive workers compensation benefits.

Question 98

8-4. Why should a workers compensation underwriter investigate an applicant’s use of subcontractors?

Answer 98

Most workers compensation laws hold contractors responsible for workers’ compensation benefits to employees of its uninsured subcontractors. The underwriter needs to determine whether adequate insurance is in place and, if not, to charge the appropriate rate.
.

Question 99

8-5. What should underwriters consider when assessing an insured’s management?

Answer 99

In evaluating management of an insured, the underwriter should consider the willingness and ability of management to minimize hazards and reduce losses. When assessing management, underwriters also should perform a wage analysis and consider whether management provides healthcare benefits for its employees.

Question 100

9-1. What three functions are most umbrella policies designed to serve?

Answer 100

• Provide excess liability limits above all specified underlying policies
• Provide coverage when the aggregate limits of the underlying policies have been exhausted
• Provide coverage for gaps in the underlying policies
.

Question 101

9-2. What is the primary underwriting concern associated with umbrella and excess liability policies?

Answer 101

loss severity

Question 102

9-3. What elements of underlying insurance coverage can affect the underwriting of umbrella and excess liability policies?

Answer 102

• Type of insurance
• Name of insurer
• Applicable limits and deductibles
• Premium for bodily injury liability coverages
• Premium for property damage liability coverages
• Details of extensions of coverage beyond standard policy provisions

Question 103

9-4. What is the best method for assessing an insurer’s solvency?

Answer 103

An insurer’s solvency may be assessed based on the rating it receives from a recognized service such as A.M. Best or Standard & Poor’s.

Question 104

A tool underwriters can use to evaluate the effectiveness of building codes in general and in a particular community.

Answer 104

ISO’s Building Code Effectiveness Grading Schedule (BCEGS) 1 is best.

Question 105

What at the six occupancy categories?

Answer 105

1) habitational
2) office
3) institutional
4) mercantile
5) service
6) manufacturers operations.

Question 106

Class of fire protection where the building is located now than 1,000 feet from a hydrant and is within 5 road miles it a fire department.

Answer 106

Partially protected. .

Question 107

A way of evaluating effectiveness of a fire department.

Answer 107

ISO’s Fire Suppression Rating Schedule. Assigned 1-10 rating. 1 is best.

Question 108

Amount subject considers the benefit of fire divisions, but _____ includes the effects of building features that impede the vertical spread of fire from one floor to the next.

Answer 108

PML

Question 109

To many underwriters, _____ is meaningful only for fire resistive buildings and their contents.

Answer 109

PML

Question 110

This method of estimating losses takes vertical spread of fire, damage to other floors that the fire didn’t even reach, smoke and water damage.

Answer 110

PML

Question 111

Why is accurately calculating the amount subject and PML important?

Answer 111

Statutes generally prohibit an insurer from exposing more than 10% of policyholder surplus to a single loss net of authorized reinsurance.

Question 112

____-oriented accounts generally have a greater potential for causing property damage losses than do ____-oriented risks.

Answer 112

Operations, premises

Question 113

Why is underwriting subcontractors nearly impossible?

Answer 113

• Uncertainty as to which subcontractors will be used.
• Not feasible to notify insurer every time a new subcontracter is used.
• Underwriter has to rely on insured’s reputation in hiring competent subcontractors.
• Underwriter should convey requirements for adequate insurance to the insured and insist that certificates of insurance be obtained from each subcontractor.

Question 114

What does personal injury liability ( coverage B on CGL) cover?

Answer 114

Legal liability arising out of libel, slander, wrongful eviction, invasion of the right of private occupancy, and infringement of copyright, trade dress, or slogan.

Question 115

What do underwriters review when screening commercial auto applicants?

Answer 115

• vehicle weight and type (classify)
• radius of operation
• special industry classifications (truckers, food delivery, specialized delivery, waste disposal, farmers, dump and transit mix trucks and trailers, contractors

Question 116

What is the primary underwriting consideration with workers comp?

Answer 116

Existence or nonexistence of on premises and off premises hazards.

Question 117

Once a workers comp risk is classified how are rates further set?

Answer 117

With an experience modification factor. (NCCIs plan is used)

Question 118

How can maritime exposures be assessed?

Answer 118

By reviewing certificate of insurance, the type of equipment owned, a list of jobs in progress, and previous loss experience.

Question 119

What should be reviewed when underwriting an umbrella or excess policy?

Answer 119

Analyzing loss exposures covered by underlying policy. Identify additional exposures covered by the umbrella but not the underlying policies.

Question 120

With commercial crime coverage, why are coverage limits usually lower than the insured value?

Answer 120

To discourage a moral hazard.

Question 121

The federal Commercial Motor Vehicle Safety Act (CMVSA) of 1986 requires that _________.

Answer 121

Drivers of specific large vehicles hold a commercial driver’s license (CDL).

Question 122

Which one of the following is an example of a common hazard relating to premises and operations liability loss exposures?

A. Poorly maintained underground storage tanks
B. Improperly stored explosive
C. Forklift trucks with no warning lights
D. Inadequate housekeeping

Answer 122

Common hazards are physical hazards common to many premises across different types of businesses. Inadequate housekeeping falls into this category.

Question 123

Which one of the following statements is correct with respect to underwriting workers compensation insurance?

Choose one answer.

A. From an underwriting standpoint, housekeeping refers to cleanliness and operating efficiency.

B. An insured’s providing healthcare benefits is not related to its workers compensation exposure.

C. On-premises hazards relating to housekeeping and maintenance are rare.

D. All firms in the same industry generally have the same hazards and level of risk.

Answer 123

From an underwriting standpoint, housekeeping refers to cleanliness and operating efficiency.

Question 124

Which one of the following statements is true regarding measures of potential loss severity for property loss exposures?

Choose one answer.

A. The amount of insurance carried on a property location is the most useful figure for determining potential loss severity.

B. The amount subject to a single loss at a location is consistent for all causes of loss to which the location is exposed.

C. The amount subject should be determined separately for each policy an insurer writes within a single fire division.

D. The amount subject for a location, as estimated by any two underwriters with a common employer, should be consistent.

Answer 124

Estimates of amount subject for an insured location by any two underwriters with a common employer should be consistent.

Question 125

Which one of the following is an essential element of a fleet safety program?

Choose one answer.

A. Proper vehicle classification

B. Driver selection

C. Driver logs

D. Radius of vehicle operation

Answer 125

Driver selection is an essential element of a fleet safety program.