chapter 2 Flashcards
“Submission.”
A proposal for insurance that’s presented to the underwriter for consideration. It can include an application, and additional verbal and written information (i.e., previous policy premium, loss details and history, financial statements and photos).
Three purposes of survey forms.
1) Assists to identify loss exposures;
2) Helps eliminate purchase of coverage that isn’t needed;
3) Assists in development of underwriting information the insurer needs
Three advantages of using a property checklist with clients.
1) Alerts broker to possible loss exposures;
2) Ensures needed coverages are not overlooked;
2) Helps reduce potential for an E&O claim. -For many Brokers this is the chief advantage
The type of commercial building construction that’s likely to produce the highest insurance rate.
Frame.
The type of commercial building construction that’s likely to produce the lowest insurance rate.
Fire resistive
The age a building has to be for an insurer to request information about recent renovations or upgrading.
25 years or older
The five kinds of building upgrades to a building that are likely of most interest to insurers.- over 25years - WHORP
1) Roof;
2) Wiring;
3) Over-current protection;
4) Plumbing;
5) Heating.
Five hazards common to most commercial property risks. -HOPED
1) Heating;
2) Electrical services;
3) Detachment;
4) Protection;
5) Occupancy.
What type of wiring provides the best protection
Copper
What type of over current protection provides the best protection
Automatic Circuit breaker
Why the distance or detachment from other commercial risks is an important rating consideration
Because the proximity to other commercial buildings can increase the risk
The two kinds of protection that insurers consider when they establish a rate or premium
1) Private protection - Steps insured has taken within building to reduce frequency and severity of losses ie: sprinkler systems or fire extinguishers
2) Public protection - the external protection provided to the property (e.g., availability of fire fighting services).
When building have no protection from local fire departments, what term is often used to describe these buildings
Unprotected
“Fire resistive.”
A building that has met minimum standards in terms of hours it will withstand a specific, carefully controlled test fire.
“Non-combustive.”
All structural members including floors, roofs and their supports are constructed of steel, iron, concrete or other non-combustible materials. Exterior also must be of non-combustible construction. Falls just short of “fire resistive”.
“Common hazards.”
Conditions common to all buildings that influence their potential for loss.
“Detachment.”
The proximity of the building insured or that contains the property insured to other commercial buildings.
Identify an internal source underwriters utilize when rate making.
Staff inspectors
“Adverse selection”, and how it can impact an insurer’s loss experience.
Occurs when applicants for insurance are mainly those most likely to suffer a loss. Too many of these insureds will increase the insurer’s overall claims.
“Risk classification
The grouping or classifying of risks according to established criteria, mainly based on their probability for loss as a class.
“Individual risk underwriting.”
Considers individual submissions on their own merits, regardless of the class they belong to.
Identify an external source underwriters utilize when rate making.
Insurers Advisory Organization (IAO)
Two facts that can cause insurers to change premiums.
1) Rising claims costs due to inflation;
2) Changes in interest rates paid on investments.
What are two influences which cause premiums to change from year to year
1) Increasing clams paid due to inflations
2) Rates of return on insurance companys investments
List six types of physical hazards COMMOM to all commercial risk and provide an example of each. PET HOG
1) Protection
ie. Fire extinguishers
2) External Exposure
ie. Being next to restaurant
3) Type of building construction
ie. Fire resistive vs. Frire construction
4) Housekeeping
ie. Presence of waiste materials or general cleanliness
5) Occupancy
ei. Library vs. Welding shop
6) Georgraphy
ei. Access to old urban buildings may be restricted
The characteristics of a “soft market”.
Characterized by intense competition, rates tend to be low.
The characteristics of a “hard market”.
Low profit margins force out some of the competition, insurers have a more disciplined underwriting approach, little or no rate discounts.
“Hazard.”
A condition that may cause a peril to occur
“Physical hazard.”
A condition relating to the use of tangible property that could cause a peril to occur. Can be characteristics of the risk itself or the environment it’s in. (e.g., type of construction, occupancy, housekeeping, external exposures, geography and protection
“Moral hazard.”
The characteristics of the applicant that could cause a peril to occur – financial condition, associates, moral character.
“Morale hazard.”
The attitude of the applicant that could cause a peril to occur – indifference to loss, poor management.
Three external sources of underwriting information
1) Broker;
2) Government records;
3) Financial rating services
Three internal sources of underwriting information.
1) Loss experience data;
2) Inspection reports;
3) Field representatives.
“Accommodation business.”
Business that’s substandard but the insurer agrees to accept as a favour or accommodation to the broker
“Supporting business.”
The existence of other insurance policies the applicant has with the same insurer.
What are four factors underwriters will review when considering accommodation business
1) Loss ratio of brokerage
2) Amount of business brokerage has with insurer
3) Class of business mix brokerage has with insurer
4) Length of time brokerage an insurer have done busness
