Study 4: Underwriting the Risk: Property

Question 1

How does an underwriter assess a property risk? (4)

Answer 1

They must assess 4 factors of any physical risk. These include:

• Construction
• Occupancy
• Protection
• Exposure

COPE

Question 2

What are the 6 types of building construction? (6)

Answer 2

• Frame
• Joisted masonry
• Non-combustible
• Non-combustible Masonry
• Modified Fire resistive
• Fire resistive

Fire resistive is most protective, where as frame is least protected from fire losses

Question 3

Describe the 4 elements of COPE. (4)

Answer 3

Construction - Usually includes a description of the types of materials used in the walls and roof of building. May include the size, age and number of stories in building, as well as type of heating and fuel used.

Occupancy - Refers to use of building by its occupants. Important for commercial businesses, as you want to know what type of business they run in building to properly address their hazards and risk.

Protection - Refers to both public and private protection. Discussed in more detail on next card.

Exposure - Refers to chance that the applicant suffer a loss as result of proximity to one or more other risks. (Ex: Close to neighbouring buildings that present hazards or natural hazards such as floods that may cause loss)

Question 4

Distinguish between public protection (4) and private protection.

Answer 4

Public Protection:

• refers to fire departments and fire hydrants
• distance to closest responding fire departments and fire hydrants is of utmost importance
• municipalities are graded on their public fire protection by the Fire Underwriters Survey (FUS)
• 1 to 4 is protected, 5 to 8 is semi protected, 9 to 10 is unprotected

Private protection:
-Refers to sprinklers, fire alarm systems, other extinguishing systems, and fire brigades

Question 5

What items would an underwriter want to review regarding the CONSTRUCTION of the house? (6) (Applying COPE in assessing property risk for single family dwelling)

Answer 5

• Size of dwelling
• Type of construction.
• Types of heating
• Age of dwelling
• Under construction or renovation
• Concealed Spaces

*Each section explained in more detail on next cue cards

Question 6

Size of dwelling (2)

Answer 6

• A larger house than others on the street could mean the exposure to that house is greater than other houses, since the walls of larger house are closer to smaller houses
• An unusually large house may encourage a closer look at applicants finances

Question 7

Types of construction (2)

Answer 7

• Standard construction is familiar, such as wood frame walls.
• Underwriters should investigate further into homes built with odd and new emerging types of construction such as straw bale homes. These straw bale homes may look like any other frame, but the way in which damage is repaired and the costs of repairs could vary greatly.

Question 8

Types of heating (4)

Answer 8

• Underwriter will want to know about what type of fuel is used in heating the home
• Would want to know about any non standard fuels that heat the home, like wood or corn pellets, which might increase fire hazard
• Even for standard forms of heating, they should ask questions such as: is the house heated by oil? is the oil tanks above or below ground?
• Geo-thermal heating is becoming more common, its more expensive but increases value of dwelling was its included in construction costs.

Question 9

Age of dwelling (3)

Answer 9

• The older the dwelling, the drier and more flammable any wood used in its construction is likely to be, as well as the greater the possibility of faulty, high risk wiring.
• In old dwellings, underwriters need to watch out for knob and tube wiring(used in 1940’s) or aluminium wiring (used in 1970’s) as they present possible fire hazards
• Plumbing system also a concern in older homes, as lead pipes may corrode and cause water damage

Question 10

Under construction or renovation (3)

Answer 10

• Risk of fire or other insured loss is greater for dwelling under construction or undergoing renovations.
• Workers carry out hazardous processes such as welding, or cutting with torches, and combustible materials may be used which makes chance of loss greater.
• The work may also increase value of property, so underwriter should ensure any increase in value is reflected in increased amount of insurance

Question 11

Concealed Spaces (1)

Answer 11

-In older homes, changes in room layout may result in concealed spaces. If fire starts in these spaces, it could cause considerable damage and can go unnoticed.

Question 12

What items will an underwriter want to review regarding the OCCUPANCY of a single family dwelling? (9)

Answer 12

• Number of people in the dwelling
• Number of kitchens
• Long or short term lease
• Tenant Insurance
• Owner visits
• Home business
• Condition of the dwelling
• Vacant or unoccupied
• Common or special hazards

*All discussed in more details on cards below

Question 13

Describe the following occupancy aspects that an underwriter will review:

• Number of people in dwelling (2)
• Number of kitchens (1)
• Long or short term lease (2)

Answer 13

Number of people in dwelling:

• The more people, the greater the amount of activity that could lead to a fire or other insured loss.
• Owner occupied dwelling is lower risk than tenant occupied dwelling. (owner has more interest in property than tenant)

Number of kitchens:
-Many fires originate in a kitchen, and a building that houses more than one dwelling unit (apartment) would have additional kitchens and thereby increase exposure to loss)

Long or short term lease:

• This question allows underwriter to asses stability of tenant. The longer the lease, the more stable the tenant that is likely to occupy the dwelling and is more likely to display some care for that dwelling
• Longer leases make loss less likely

Question 14

Describe the following occupancy aspects that an underwriter will review:

• Tenant Insurance (3)
• Owner visits (2)

Answer 14

Tenant Insurance:

• Protects tenant against liability for damages caused by an insured peril on premises they occupy
• Fact that tenant purchases tenant insurance might be evidence to the underwriter that they take greater care and responsibility of premises they occupy
• If tenant has tenants legal liability insurance, then the insurers right of subrogation becomes more meaningful if the tenant was negligent. It gives insurer some hope of recovering an amount for which the tenant is found legally liable for.

Owner visits:

• The more often an owner visits, the more likely the owner is to notice any behaviour of the tenants or problems with the building itself that could give rise to a loss (Ex: Grow ops)
• In some jurisdictions, may be laws preventing landlord from entering premises (Except for emergency) without notice to tenant (generally 24 hours)

Question 15

Describe the following occupancy aspects that an underwriter will review:

• Home business (3)
• Condition of the dwelling (2)

Answer 15

Home business:

• Generally not covered under homeowners policy, but even when there is coverage, such operations might increase hazard at the dwelling.
• Presence of business on premises may also bring more people to premises which increases liability exposure.
• Growth of home business creates additional exposures.

Condition of the dwelling:

• Fire more likely if dwelling not well kelp or maintained because there will more sources of ignition and more fuel for fire.
• When home is filled with papers, animals, junk, and is messy, or there is hoarding, the risk of damage because of fire or personal injury can arise.

Question 16

Describe the following occupancy aspects that an underwriter will review:

• Vacant or unoccupied (1)
• Common or special hazards

Answer 16

Vacant or unoccupied:
-A loss is more likely in a dwelling that is vacant or unoccupied

Common or special hazards:

• A common hazard is generally found in most occupancies (heating, housekeeping, lighting)
• A special hazard is a risk common to certain types of businesses that is not covered by an ordinary policy (woodworking plants, paint shops, flammable liquids in ceramics studio)

Question 17

Are personal risks more equipped with private protection than commercial risks? (1)

Answer 17

No, with narrower ranges of occupancy, and smaller budgets, personal risks tend to be less often or less extensively equipped with private fire protection

Question 18

What items will an underwriter want to review regarding the PROTECTION of single family dwelling? (3)

Answer 18

The underwriter will find answers to questions in the following areas useful:
-Protected location - the better the municipal protection, the less likely a given loss is to be severe

• Sprinklers - are less common in detached houses but becoming more common in high value homes. They are common in apartments and condos.
• Fire alarms - underwriters will want to know whether fire alarms in dwelling are locally or centrally monitored. If centrally monitored, underwriter will want to know which monitoring service applicant has contracted with and how capable and reputable a service it is

Question 19

What factors should an underwriter review related to the EXPOSURE of a single family dwelling? (4)

Answer 19

• Detached or not - risk of loss greater to your premises or neighbour premises is greater when dwellings are attached compared to when not attached.
• Location - Different parts of Canada are characteristically prone to various natural hazards (BC is prone to earthquakes, Alberta prone to hail, Ontario prone to tornadoes, Atlantic provinces prone to severe blizzards)
• Flood plain- Most jurisdictions now have laws preventing dwellings from being built on flood plains but it was not always so. Underwriters should investigate if dwelling is built on flood plain as it poses greater chance of water damage loss.
• Sewer back up - Bigger chance of loss when storm sewers and sanitary sewers are combined as they often are in older houses. A sewer back up loss can be devastating because many homes now have basements developed to very high standard.

Question 20

Sewer back up - What are some things that new systems can do to help prevent sewer back up losses? (3)

Answer 20

• New smart home technology includes water leak systems that text homeowners about any water leaks.
• Newer systems detect leaks and burst pipes, and immediately shut off water.
• Insurance companies closely review these new systems to determine if additional discounts should be developed and applied

Question 21

Why may the property risk exposure be greater for commercial businesses compared to personal single family dwellings? (4)

Answer 21

• Commercial business are often larger than dwellings
• Often have more than one occupant
• Occupants activities are usually varied and more dangerous than those of a dwelling’s occupants
• Exposure commercial businesses face from surrounding buildings tends to be less predictable and more severe

Question 22

What are the items an underwriter will review related to the CONSTRUCTION of a commercial business? (6) ( Applying COPE to assess property risk for a business)

Answer 22

• Building age or location
• Municipal bylaws
• Construction
• Construction materials
• Heat source
• Power loss contingency

*explained in more detail below

Question 23

Describe the following construction aspects that an underwriter will review:

• Building age or location (3)
• Municipal bylaws (1)

Answer 23

Building age or location:

• Underwriters should be concerned about matters such as age of building, condition of wiring, the structural members, and the roof. The older the building, the more prone it is to potential hazards.
• Commercial buildings may not be located in retail areas, but in less frequented areas with only commercial buildings nearby and less traffic. These areas may be more prone to theft or vandalism
• Buildings in industrial areas may have concerns with maintenance and electrical components

Municipal bylaws:
-Building may not meet current zoning requirements but instead have been grandfathered. Underwriter will want to know how this will affect the risk

Question 24

What does the term grandfathered mean? (1)

Answer 24

Granted an exemption as an already existing structure from the more stringent requirements that would apply to new structures as they are built.

Question 25

Describe the following construction aspects that an underwriter will review:

• Construction (2)
• Construction materials (1)

Answer 25

Construction:

• Open spaces are common in commercial buildings and may heighten the potential for a fire to spread.
• A much safer building design divides the structure into more than one fire division using doors or building parapets.

Construction materials:
- Commercial buildings are often unique in that they are designed for a specific use, the materials they use are specific to their occupancy and how the run their business.

Question 26

Describe the following construction aspects that an underwriter will review:

• Heat source (2)
• Power loss contingency (2)

Answer 26

Heat source:

• In commercial risks, heating and electricity are often generated by boilers and related machinery.
• Underwriter will want to ask questions such as: What fuel is used? What is manufacturing process? How much power is needed? Is power supplied by gas, oil, or electric?

Power loss contingency:

• A commercial manufacturer needs constant power to run business.
• Losing power and not having back up will result in loss of revenues

Question 27

What areas should an underwriter look into related to the OCCUPANCY of a commercial business? (8)

Answer 27

• Real business - A true retailer sells things to consumers but does not manufacture the on on the premises where they are sold. If it is strictly a retail storefront operation, it is a much lower risk.
• Hours of operation - The more hours a business is open to the public or otherwise in operation, the greater the risk that something may happen to cause a loss. Even when not open, if employees in the store earlier to set up, creates greater chance of loss.
• Storage arrangements - If storage space inadequate and boxes are piled to high, creates fire hazard, doorways and aisles might be blocked, impairing efforts of firefighters and effectiveness of sprinkler systems is reduced.
• Housekeeping and maintenance - Chance of loss increases if building not kept clean (Ex: cooking operations)

Question 28

What areas should an underwriter look into related to the OCCUPANCY of a commercial business? (8) continued….

Answer 28

• Customers - Underwriter needs to determine how much customer traffic there is in and out of the business. The more members of the public the business serves, the greater hazards of theft, vandalism, and related perils.
• Seasonal operating times - Some businesses are seasonal by nature, some are seasonal depending on their location. (If located in cottage country, business may only be open in summer)
• Special hazards - Most businesses have special hazards which all underwriters need to be aware of, especially ones that require some kind of handling or moving. (Ex: Moving pallets)
• Flammable liquids - are an exposure that an underwriter should look for in any commercial occupancy.

Question 29

What is a flash point? (2)

Answer 29

• Minimum temperature at which liquid gives off sufficient vapours to form an ignitable mixture with the air near the surface of the liquid.
• The lower the flash point, the easier the ignition and the greater the fire hazard.

Question 30

What areas will an underwriter look into regarding the PROTECTION of a commercial business? (4)

Answer 30

• Fire protection
• Fire alarms
• Fire extinguishers
• Human Element

*Explained in more detail on cue cards below

Question 31

Fire protection (5)

Answer 31

• Underwriters first priority is to establish whether the risk has sprinkler protection.
• Underwriters will want assurance that the protection provided by the sprinkler system is appropriate to whatever process or operation the business is engaged in.
• They want to make sure sprinklers are well maintained, and have adequate water supply.
• Should determine whether all areas that should have sprinklers do have them and that no area is missed.
• A sprinkler system itself can represent a hazard if its design is inappropriate to the exposure. (Using wet pipe system in computer room which can damage computers, should use non flammable gases instead)

Question 32

Fire alarms - what are the two types of fire alarms an underwriter should be concerned with? (2)

Answer 32

• The first comprises the alarm built into the sprinkler system - these sound when the heat from a fire causes one of the sprinkler heads to discharge water in the area it is protecting.
• Second type of alarm is tied to the automatic smoke and heat detection system - when activated, they may shut down fans in air conditioning systems, close smoke barrier doors, or activate extinguishing systems such as sprinklers

Question 33

What are the 4 stages of fire? (4)

Answer 33

• Incipient - No visible smoke or flame, and no significant heat.
• Smouldering - Quantity of combustible particles increase, smoke is visible
• Flame - Actual fire now exists, significant heat
• Heat - Large amounts of heat, flames, smoke, and toxic gases are produced

Question 34

Fire extinguishers - what type of fire extinguishers should commercial business have? (4)

Answer 34

• Should have portable fire extinguishers, underwriters should determine what kind and how many the business has.
• if too few portable extinguishers, they will be of limited use. There must be enough on hand in case a fire hazard is presented.
• The extinguisher must be appropriate for the kind of fire it may have to fight. The wrong type of extinguishing agent can cause more damage and increase the fire hazard.
• All extinguishers need to be strategically placed throughout building

Question 35

Human element - Why is the human element aspect related to protection a main concern for underwriters? (4)

Answer 35

• The best fire protection equipment may not prevent a loss if the people involved in the business are poorly trained, unskilled, careless, or indifferent.
• Underwriter will determine how prepared employees are for a fire or other emergency situations.
• The extent and sophistication of such preparation may vary between risks. Large manufactures may have fire emergency teams, offices might have assigned employees as safety marshals, and small businesses might just have someone appointed as the person who calls the fire department during an emergency
• Main concern for underwriter is whether the business has people who have demonstrated care, and responsibility when dealing with emergencies.

Question 36

What factors should an underwriter look closely into related to the EXPOSURE of a commercial business? (2)

Answer 36

• Proximity to other risks - the closer the business is to other occupants, or the closer it is to neighbouring buildings, the more likely it is to suffer a loss through exposure.
• Natural hazards - if located near area prone to natural hazards such as earthquake, flood, etc., the bigger the chance of loss.