Study 10 - Applications of Property Insurance: Underwriting and Claims

Question 1

What are examples of disciplines that are common to all commercial enterprises?

Answer 1

Accounting and finance.

Question 2

What are the two defining insurance disciplines?

Answer 2

Underwriting and claims adjusting.

Question 3

What three classes of insurance professional practise the defining disciplines?

Answer 3

Brokers and Agents - the first point of contact in the insurance transaction, the insurance professionals who first participate in the underwriting and claims process.

Underwriters - the second point of contact in the transaction, they receive the risks that have been first underwritten by the brokers and agents, and determine whether the risk is acceptable to the insurer, and may become involved in the claims process.

Question 4

What are the three parts of the underwriting process in general?

Answer 4

1. Evaluating the risk
2. Making the underwriting decision
3. Pricing the risk

Question 5

What are the COPE factors?

Answer 5

C - Construction
O - Occupancy
P - Protection
E - Exposure

Question 6

What is the relationship between ratemaking and rating?

Answer 6

Ratemaking is the process of compiling and analyzing the data to establish rates for different classes of risk. Usually performed by actuaries. The rate then produced is subjected to another process called rating, in which underwriters apply the rates to the information for each risk to determine the premium.

Question 7

What affect do fraudulent claims have on the industry?

Answer 7

• increase insurance premiums
• cause direct economic loss to a community when the fire department, police and doctors are called on
• cause economic loss to individuals and families through direct physical damage
• result in unnecessary death or bodily injury to the general public and to emergency responders

Question 8

What affect do fraudulent claims have on the industry?

Answer 8

• increase insurance premiums
• cause direct economic loss to a community when the fire department, police and doctors are called on
• cause economic loss to individuals and families through direct physical damage
• result in unnecessary death or bodily injury to the general public and to emergency responders

Question 9

What is the first COPE factor?

Answer 9

Construction - includes a description of the type of material used in the walls and roof of the building, size of the building, age, number of storeys, and heating system/fuel used.

Question 10

What is the second COPE factor?

Answer 10

Occupancy - refers to the use of the property by it’s occupants. Includes number of occupants, the hazards associated with each occupancy and any measures taken to reduce those hazards.

Question 11

What is the third COPE factor?

Answer 11

Protection - includes both public and private protection. Public fire protection is based on town grades assigned to each municipality, which is based on the availability of fire hydrants, water supply/pressure, expertise and response time of the fire department. Private protection includes sprinklers or other extinguishing system and fire-alarm systems.

Question 12

What is the fourth COPE factor?

Answer 12

Exposure - the chance the applicant or insured will suffer a loss as a result of proximity to one or more other risks or potential causes of loss to the applicant.

Question 13

What is the fourth COPE factor?

Answer 13

Exposure - the chance the applicant or insured will suffer a loss as a result of proximity to one or more other risks or potential causes of loss to the applicant.

Question 14

Underwriters will generally reject a risk only if forced to by one or more of which three considerations?

Answer 14

1. The risk is a class not permitted by the line guide or in some other way falls short of minimum requirements specified in the line guide.
2. Market conditions or competitive considerations.
3. The risk is, on its own merits, too flawed to be acceptable and it is not possible to negotiate the terms on which is could be made acceptable.

Question 15

What is the role of an actuary in insurance?

Answer 15

They analyze the frequency and severity of past claims, estimate the ultimate cost of settling outstanding claims, and estimate the cost of future claims.

Question 16

What role do brokers and agents play in the claims process?

Answer 16

• help report a loss to the insurer by taking the first notice of loss from the insured and transmitting it to the insurer
• explain the claims process to the insured, thereby reducing anxiety and setting realistic expectations
• monitor the progress of the claim
• advocate on the insured behalf when the insured has concerns

Question 17

What qualities and skills are required of a claims adjuster?

Answer 17

• often the most expert in the interpretation of policy language
• knowledgeable about repair techniques
• strong relationships with respected contractors
• communication skills
• clear thinking and the ability to solve problems
• knowledge of civil law

Question 18

What are the six steps of the claims process as a whole?

Answer 18

Step 1 - The insured reports a loss to the broker, agent or insured.
Step 2 - A claims handler for the broker, agent, or insurer records preliminary information and asks for details.
Step 3 - The claims handler does an initial check of the policy coverage.
Step 4 - If the insured reported the loss to the broker or agent, the broker or agent would then report the claim to the insurer.
Step 5 - The insurer may need to promptly advise the insured that the loss is not covered by the policy.
Step 6 - Alternatively, if the loss falls within the policy period and appears to fall within the insuring agreement, the insurer will assign an adjuster to the claim. The adjuster will proceed with the next steps:
i. Provide and ask that the insured complete and submit a proof of loss.
ii. Confirm the policy coverage
iii. Investigate the loss.
iv. Evaluate the damage.
v. Negotiate as necessary or deny the claim.
vi. Arrive at a settlement.
vii. Recommend payment.