Chapter 2

Question 1

Fire Resistive

Answer 1

Building which has met minimum standards in terms of hours it will withstand a specific, carefully controlled test fire

Question 2

Non-combustible

Answer 2

All structural members including floors, roofs and their supports are constructed of steel, iron, concrete or other non-combustible materials. Exterior also requested to be of non-combustible construction. Falls just short of classifying as fire resistive.

Question 3

Common Hazards

Answer 3

Conditions common to all buildings which influence their potential for a loss

Question 4

Detachment

Answer 4

Refers to the proximity of the building insured or containing the property insured to other commercially rated buildings

Question 5

Adverse Selection

Answer 5

Occurs when the applicant for insurance are largely those most likely to suffer a loss

Question 6

Risk Classification

Answer 6

Refers to the grouping or classifying of risks according to established criterial which, in large part, is based on their probability for loss as a class.

Question 7

Soft Market

Answer 7

Characterized by intense competition between insurers. As a result, rates tend to be low.

Question 8

Hard Market

Answer 8

Low profit margins force out some of the competition, insurers have a more disciplined underwriting approach, little or no rate discounts

Question 9

Hazard

Answer 9

A condition that may cause a peril to occur

Question 10

Physical Hazard

Answer 10

A condition relating to the use of tangible property which could cause a peril to occur.

Question 11

Moral Hazard

Answer 11

Subjective characteristics of the applicant that could cause a peril to occur.

Question 12

Morale Hazard

Answer 12

Deals with the attitude of the client

Question 13

Accommodation business

Answer 13

Business which is marginal or substandard but which the insurer agrees to accept as a favour or accommodation to the broker.

Question 14

Supporting business

Answer 14

The existence of other insurance policies the applicant has with the same insurer.

Question 15

What is included in a submission

Answer 15

Application
Additional verbal information
Additional written information, including: previous policy premium, loss history and details of losses, financial statements, photographs

Question 16

Purpose of survey

Answer 16

Assists in identification of loss exposures
Helps to determine the coverages needed
Develops other underwriting information needed by the Insurer

Question 17

3 advantages to using a property checklist with clients

Answer 17

Alerts broker to possible loss exposures
Ensures that needed coverages are not forgotten or ignored
Helps to reduce the potential for an e&o claim

Question 18

What are the 5 classes of building construction

Answer 18

Fire Resistive
Non-combustive
Heavy Timber
Ordinary
Frame

Question 19

Which type of building construction is likely to produce the highest insurance rate

Answer 19

Frame

Question 20

Which type of building construction is likely to produce the lowest insurance rate

Answer 20

Fire resistive

Question 21

Approximately how old does a building have to be for the insurer to request additional information about recent renovations or upgrades

Answer 21

25 years or older

Question 22

Identify five kinds of upgrades to the building likely to be of most interest to insurers

Answer 22

Roof
Wiring
Over-current protection (circuit breakers/fuses)
Plumbing
Heating

Question 23

Identify five hazards common to the majority of commercial risks

Answer 23

Heating
Electrical Services
Detachment
Protection
Occupancy

Question 24

Why is the distance or detachment from other commercial risks an important rating consideration for insurers?

Answer 24

The distance to neighboring buildings, their height, construction, and occupancy is info which is routinely requested by Insurers. When a neighboring business represents a potential for loss which could spread to the Insured’s property, the Insurer will usually increase the rate or premium charged.

Question 25

Identify two kinds of protection which insurers consider when establishing the rate or premium charged

Answer 25

Private protection (ex. fire extinguishers, intrusion detection equipment)

Public Protection (Availability of fire fighting services)

Question 26

Occupancies that fall into the category of special hazards

Answer 26

Churches
Garage
Bakeries/Hotel Restaurants
Butcher Shops/Locker Plants

Question 27

Risk classification

Answer 27

Grouping or classifying of risks according to established criteria which, in large part, is based on their probability for loss as a class

Question 28

Identify two factors which can cause premiums charged by Insurers to change

Answer 28

Rising claims cost due to inflation
Changes in interest rates paid on investments
Social inflation where society did not consider certain losses in the past important but are now treated as significant

(Why do premiums change)

Question 29

Three external sources of UW info

Answer 29

The Broker
Government Records
Financial Rating Services
Consumer Investigation Reports

Question 30

Three internal sources of UW info

Answer 30

Loss Experience Data
Inspection Reports
Field Representatives
Claims Information
Production Records
Underwriting Guides and Manuals
Other Underwriters

Question 31

Four activities common to all underwriters

Answer 31

Risk Selection
Risk Classification
Rating and Rate-Making
Policyholders’ Service

Question 32

Individual risk underwriting

Answer 32

Considers individual submissions on their own mertis, regardless of the class they belong to.

Question 33

3 conditions indicating presence of moral hazard

Answer 33

Financial Condition
Associates
Moral Character

Question 34

Six considerations of physical hazards

Answer 34

Type of Building Construction
Occupancy
Housekeeping
External Exposures
Geography
Protection

Question 35

Parameters that UW use to make a decision on a risk

Answer 35

To accept the submission on the basis presented
To reject the risk
To accept the risk with an increase in the rate
To accept the risk, maintain the rate, and increase the deductible