chapter 2

Question 1

“Submission.”

Answer 1

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).

Question 2

Three purposes of survey forms.

Answer 2

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

Question 3

Three advantages of using a property checklist with clients.

Answer 3

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

Question 4

The type of commercial building construction that’s likely to produce the highest insurance rate.

Answer 4

Frame.

Question 5

The type of commercial building construction that’s likely to produce the lowest insurance rate.

Answer 5

Fire resistive

Question 6

The age a building has to be for an insurer to request information about recent renovations or upgrading.

Answer 6

25 years or older

Question 7

The five kinds of building upgrades to a building that are likely of most interest to insurers.- over 25years - WHORP

Answer 7

1) Roof;
2) Wiring;
3) Over-current protection;
4) Plumbing;
5) Heating.

Question 8

Five hazards common to most commercial property risks. -HOPED

Answer 8

1) Heating;
2) Electrical services;
3) Detachment;
4) Protection;
5) Occupancy.

Question 9

What type of wiring provides the best protection

Answer 9

Copper

Question 10

What type of over current protection provides the best protection

Answer 10

Automatic Circuit breaker

Question 11

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

Answer 11

Because the proximity to other commercial buildings can increase the risk

Question 12

The two kinds of protection that insurers consider when they establish a rate or premium

Answer 12

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).

Question 13

When building have no protection from local fire departments, what term is often used to describe these buildings

Answer 13

Unprotected

Question 14

“Fire resistive.”

Answer 14

A building that has met minimum standards in terms of hours it will withstand a specific, carefully controlled test fire.

Question 15

“Non-combustive.”

Answer 15

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”.

Question 16

“Common hazards.”

Answer 16

Conditions common to all buildings that influence their potential for loss.

Question 17

“Detachment.”

Answer 17

The proximity of the building insured or that contains the property insured to other commercial buildings.

Question 18

Identify an internal source underwriters utilize when rate making.

Answer 18

Staff inspectors

Question 19

“Adverse selection”, and how it can impact an insurer’s loss experience.

Answer 19

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.

Question 20

“Risk classification

Answer 20

The grouping or classifying of risks according to established criteria, mainly based on their probability for loss as a class.

Question 21

“Individual risk underwriting.”

Answer 21

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

Question 22

Identify an external source underwriters utilize when rate making.

Answer 22

Insurers Advisory Organization (IAO)

Question 23

Two facts that can cause insurers to change premiums.

Answer 23

1) Rising claims costs due to inflation;

2) Changes in interest rates paid on investments.

Question 24

What are two influences which cause premiums to change from year to year

Answer 24

1) Increasing clams paid due to inflations

2) Rates of return on insurance companys investments

Question 25

List six types of physical hazards COMMOM to all commercial risk and provide an example of each. PET HOG

Answer 25

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

Question 26

The characteristics of a “soft market”.

Answer 26

Characterized by intense competition, rates tend to be low.

Question 27

The characteristics of a “hard market”.

Answer 27

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

Question 28

“Hazard.”

Answer 28

A condition that may cause a peril to occur

Question 29

“Physical hazard.”

Answer 29

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

Question 30

“Moral hazard.”

Answer 30

The characteristics of the applicant that could cause a peril to occur – financial condition, associates, moral character.

Question 31

“Morale hazard.”

Answer 31

The attitude of the applicant that could cause a peril to occur – indifference to loss, poor management.

Question 32

Three external sources of underwriting information

Answer 32

1) Broker;
2) Government records;
3) Financial rating services

Question 33

Three internal sources of underwriting information.

Answer 33

1) Loss experience data;
2) Inspection reports;
3) Field representatives.

Question 34

“Accommodation business.”

Answer 34

Business that’s substandard but the insurer agrees to accept as a favour or accommodation to the broker

Question 35

“Supporting business.”

Answer 35

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

Question 36

What are four factors underwriters will review when considering accommodation business

Answer 36

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