Chapter 3

Question 1

Define application

Answer 1

I request by an insured for insurance. Applications may be done verbally, in writing, or online. The insured provides information relating to the subject for insurance. The insurance is this information and decides whether to accept the risk for insurance and on the terms of such acceptance

Question 2

Underwriters analysis of risks can be generally considered in two parts list both of them

Answer 2

1. An analysis of the subject: the person, people, or organization applying for insurance
2. An analysis of the object: the property, liability, crime, boiler and machinery, automobile, or other exposure to loss for which the applicant seeks insurance

Question 3

List nine aspects of interest to an underwriter in a typical application

Answer 3

1. The applicant’s name
2. The broker or agent
3. The applicants telephone contact numbers
4. The desired effective of an expiry date
5. Applicants occupation
6. The applicant’s loss experience
7. Whether the applicant has been canceled by any previous insurers
8. Whether the applicant qualifies for any premium discounts
9. Who signed the application and how it was signed

Question 4

Named insured definition

Answer 4

The person or party designated in the policy as the insured, as opposed to someone who may be covered by the policy but is not specifically named

Question 5

Homeowners policy definition

Answer 5

A multiparal insurance policy for dwelling risks, combining coverages for fire and extended coverages, including theft and liability

Question 6

Personal lines Insurance definition

Answer 6

Insurance for individuals and families such as private passenger auto insurance and homeowners policies

Question 7

Business insurance definition

Answer 7

A broad name for different coverage available to a business owner to protect against losses and to ensure the continuing operation of the business. Business insurance includes business property, life, accident, and sickness including that for key employees, liability, and fleet of automobile

Question 8

Additional insured definition

Answer 8

A person other than the named insured who is protected by the terms of the policy. Most automobile policies for example, insurance specific individual as an insured but also insure anyone driving with that insureds consent. The additional insured may be named or unnamed

Question 9

Additional named insured definition

Answer 9

Any party, other than the original named injured, identified as an insured in the policy declarations. And additional named insured has more rights under the policy than does an additional insured but also more responsibilities

Question 10

List an example of an additional named insured

Answer 10

A contractor who wins a contract to work for a municipality may be required by the terms of the contract to add the municipality as an additional named insured on its liability policy. A municipality will often include that requirement to ensure its protection by the contractors insurance if the contractors activities on its behalf cuz loss or damage to a third party who might then sue both the contractor and the municipality

Question 11

What’s the difference between a mortgage and a chattle mortgage?

Answer 11

Where the security is real property that is land, or buildings, the loan arrangement is called a mortgage

Where the security is personal property that is property other than land or buildings, the loan arrangement may be a chattel mortgage

Question 12

What’s the main benefit of a mortgage clause for the mortgagee?

Answer 12

The policy covers the mortgagee even if the named intrude is unable to recover because a condition of the policy has been breached

Question 13

Credit checks for commercial lines

Answer 13

Credit checks are commonly done for commercial risk. Several of well-known companies used for such checks are DNB or equifax. For some commercial risks, and underwriter might instead ask for an applicant’s financial statements as either an alternative way to check credit history or a way to assess the applicants over well financial strength and stability

Question 14

Credit checks for personal lines

Answer 14

Credit checks are becoming increasingly common for personal risks a correlation has been established between an applicant score in applying for a bank loan and the applicants propensity for insurance claims. Credit checks on personal line accounts are done by companies such as Equifax a reporter of consumer credit

Question 15

List 7 points in underwriter can discover when consulting with a broker or agent

Answer 15

1. The source of the business and the proximity of the broker, for example, to the risk in question
2. How the broker made contact with the risk
3. What the broker’s relationship is to the risk bash to its principles or executives
4. Whether the brokers relationship to the risk creates any conflict of interest
5. The number of brokers who have handled the risk before the current broker submitted the application to the insurer for the applicant
6. The extent of the application
7. Whether the broker is submitting the entire risk for the underwriters consideration or just the less attractive, more difficult to insure aspects of the risk

Question 16

Define backdated policy

Answer 16

A policy that will become effective retroactively after the applicant applies for it

Question 17

Define the brokers or agent report and what line of insurance is it most commonly used?

Answer 17

The brokers or agents report is most frequently done for personal lines risks or smaller commercial risks for which the premium would not justify the cost of a formal inspection. Whether the intermediary is an independent broker or an agent of the insurer, the answer by the underwriter are the same. The fact that a risk might be new to the broker should not portray the risk as a poor one in the underwriter’s view - in fact, the underwriter my underwrite the broker as surely as the risk itself.

Often, a broker or an agent will personally inspect a risk and include a report with the submission to the underwriter

Question 18

What does an underwriter ask for when they allow backdated coverage?

Answer 18

When an underwriter does allow backdated coverage, he or she will ask for a signed declaration from the applicant that, to the applicant’s knowledge, there have been no losses between the requested effective date of coverage and the time of the application.

Question 19

Signatures- what line of insurance are they most commonly used and what line are they really used?

Answer 19

In personal lines insurance, applications are sometimes signed, in commercial or business insurance, they are signed only rarely, though the insurer may ask for a signature on the statement of value submitted with the application.

Question 20

Privacy legislation requires signed applications for insurance if the underwriter wants to obtain information from 3 institutions list them

Answer 20

1. ISD (Insurance services Division) and ICPB (Insurance crime prevention bureau), both divisions of the IBC
2. Government motor vehicle records (MVRs) for automobile insurance applicants
3. A credit reporter, such as Equifax or D&B

Question 21

True or false privacy legislation requires that an insurer approved insurance for an applicant only if they have received a signed application.

Answer 21

True

Question 22

List three potential moral hazards of the applicant’s occupation

Answer 22

1. If the applicant is unemployed, the moral hazard is clear; at best, he or she may be unable to pay the premium. At worse, the unemployed applicant might deliberately cause a loss for the cash he or she might receive to settle the claim
2. If the applicant is self-employed, it becomes somewhat more difficult to assess whether he or she represents a moral hazard. The term self-employed might be used to disguise a struggling or non-existent business and attentious financial condition on the part of the applicant. On the other hand, many people are quite successfully self-employed.
3. If the applicants stated occupation is big, the underwriter must find out more. For example, the terms business person or manager, without any accompanying details, should lead the underwriter to ask more questions; a business person doing what? In what line of business? A manager of what or whom?

Question 23

Why is it important for an underwriter to know about an applicant’s loss experience?

Answer 23

The record of losses that are risk has incurred in the past is a critical tool for assessing the exposure to future loss that the risk represents.

The Underwriters decision is essentially an assessment of the likelihood that an insurer or will suffer loss if the underwriter accepts the risk. Among all the other information that an underwriter uses to assess risk, the losses and applicant has suffered in the past are still important indicators of losses the applicant might incur in the future.

The loss may also reveal information about the applicant perhaps it was the applicant’s attitude about safety that allowed the loss to occur

Question 24

Describe “confirming “no losses”

Answer 24

If an applicant indicates none in the space for loss experience, the insurer procedures or the underwriters own judgment may still lead to checking industry databases or a simple Google search of the applicants name. Such databases include auto plus, available through CGI Canada and h i t s. If a hit is found, the underwriter must ensure that it is the same person even if the loss occurred at another location. If the hit is determined to be the same person, the underwriter must seek an explanation from the broker or agent. It may have been a minor claim that the insured simply forgot. For automobile applications, the underwriter can often assess databases from police departments for things like impaired driving charges. At this point, the underwriter must decide how to proceed

Question 25

Define”denied claims”

Answer 25

The applicant may use the space on the application list a loss for which the claim was denied by a previous insurer. Or the underwriters may discover a denied claim in the course of his or her inquiries. A denied claim should be investigated by the insurer. I denied claim cost the insurer more than a claim never made, since the insurer still incurs expenses in establishing a file and adjusting the claim. More important, a denied claim might identify a moral hazard in the applicants habit of seeking cash from an insurance company for illegitimate claims. I did not claim could also identify a physical hazard that could cause a legitimate claim if the underwriter accepts the risk. This could also lead to an underwriter requesting proof that the physical damage that was denied was repaired or remediated such as denied claims for mold could cause seepage. The underwriter May request the applicant to provide receipts to show that it was taken care of.

Question 26

List two critical points about lost experience

Answer 26

1. Wasses are not the same as claims. A loss is significant information for an underwriter whether the applicant or the loss or the insurer paid for it as a claim
2. The amount of a loss is less important than the circumstances of a loss. Those circumstances May reveal that mere good luck prevented a smaller loss from being a much larger one.

Question 27

Prior cancellations

Answer 27

The real issue about prior cancellations is continuity of insurance. The applicants record with previous insurers is useful information in much the same way as is a job applicants record of employment. Just as with the employment record, an insurance record allows inferences to be made about the applicant stability, credit worthiness, and general character, in short, the moral hazard he or she may present