Chapter 10

Question 1

Hazard

Answer 1

A condition that makes the occurrence of an accident more likely.

Question 2

Moral Hazard

Answer 2

The likelihood of loss caused by some deficiency in the character of the insured.

Question 3

Physical Hazard

Answer 3

A physical condition associated with property, material, or equipment that increases the chance of loss.

Question 4

What areas can an insurer focus on to gather information about possible physical hazards?

Answer 4

1- Construction of the property
2- Maintenance
3- Downspouts
4- Exit doors
5- Frontage
6- Railway sidetrack
7- Floors
8- Stairs
9- Lighting
10- Heating
11- Elevators
12- Escalators
13- Security measures
14- Food
15- Liquor
16- Hazardous items
17- Employees

Question 5

Loss Exposure

Answer 5

A hazardous situation or physical circumstance that makes an individual or an organization vulnerable to loss, damage, or injury, and will lead to financial loss.

Question 6

Liability Loss Exposure

Answer 6

The possibility of a claim being brought against insured entities alleging their legal responsibility and requiring a defence.

A liability loss under an insurance policy is a claim for monetary damages because of some type of injury to another party.

Question 7

List some areas in which legal liabilities arise through liability loss exposures.

Answer 7

1- Premises owned or rented
2- Tenant’s legal liability
3- Employer’s liability (from having employees)
4- Contractual liability (leases)
5- Products liability (manufacturing operations)
6- Bailee’s liability (dry-cleaning operation)
7- Environmental exposure

Question 8

List ten sources of information an underwriter can use to identify liability risk.

Answer 8

1- Application for insurance
2- Checklists
3- Inspections
4- Surveys
5- Insurance policy reviews
6- Procedure and policy reviews
7- Compliance reviews
8- Contract reviews
9- Financial statement analysis
10- Claims information

Question 9

What information is requested on an application?

Answer 9

1- Identity of the applicant to be insured
2- Loss and policy history
3- Limits and coverage
4- Location details
5- Gross receipts
6- General application information
7- Products or completed operations

Question 10

ULC

Answer 10

Underwriters Laboratories Canada

1- Its appearance on a product demonstrates a stamp of approval

2- An independent standards development organization, testing lab, and certification body for products.

Question 11

CSA

Answer 11

Canadian Standards Association

1- A not-for-profit association serving business, industry, government and consumers in Canada, and the global marketplace.

2- It helps to develop standards to enhance public safety and health and to promote safety generally.

Question 12

How do ULC and CSA assist underwriters?

Answer 12

Underwriters would be reassured by products that qualified for certification by independent bodies.

Question 13

What types of loss exposures are associated with contractors?

Answer 13

a- Asbestos
b- Caisson
c- Dredging
d- Excavating
e- Hot tar roofing

Question 14

Caisson

Answer 14

A watertight structure used to work on the foundations of a bridge pier, a concrete dam, or to repair a ship. They allow workers to carry out construction work under water.

Question 15

What additional information would an underwriter require when considering a construction project?

Answer 15

1- Permits obtained
2- Who controls and supervises the project
3- Review plans, specifications, and permits
4- Height and depth of work
5- Materials and machinery to be used
6- Nature of tools or equipment
-- Ownership of equipment
-- Appropriateness for work
-- Condition of equipment
-- Hazards associated with the equipment
7- Repairs to structurally defective buildings
8- Safety and security measures
-- Barricades
-- Warning signs
-- Lighting
9- Safety regulations

Question 16

What types of liability loss exposures may occur at a car wash?

Answer 16

a- Wet, soapy, and slick floors
b- Dangerous or hazardous areas
c- Employees or customers engaging in horseplay
d- High staff turnover; inadequate training
e- Use and storage of chemicals
f- Noisy systems
g- Hazardous machinery
h- Receiving and delivering goods (chemicals)
i- Water pressure in hoses
j- Possible convenience store or coffee shop

Question 17

List the liability loss exposures one may find at a day spa.

Answer 17

1- Hazardous equipment, including massage tables, beds, adjustable chairs, and manicure tables.
2- Slip-and-fall (from tubs or whirlpools)
3- Saunas and steam baths, tanning beds, heat lamps, and showers.
4- Beautician and cosmetology equipment must be sterile and in good order
5- Allergic reactions from hair and skin care products.
6- Products applied after they have been heated may burn patrons.
7- Chemicals and cleaning agents used to disinfect equipment must be kept safely and used effectively.

Question 18

What specific information about manufacturing risks is needed?

Answer 18

a- Class and type of goods manufactured

b- Characteristics of raw materials used

c- Machinery used in production

d- Loading and unloading arrangements

Question 19

How is a municipality exposed to liability losses?

Answer 19

1- Sewer backups
2- Road maintenance, repair, and construction
3- Winter maintenance
4- Management of playgrounds, parks, and arenas
5- Police and fire department operations
6- Land use and development
7- Defamation
8- Employment
9- Utility management

Question 20

How does the activities of a private investigator result in liability exposure?

Answer 20

Duties may include:
a- Surveillance
b- Locating assets and persons
c- Interviewing witnesses and suspects
d- Reviewing databases and hard drives
e- E-mail mirroring

Claims could include:
i- Malicious prosecution
ii- False arrest
iiiiv- False imprisonment
v- Excessive use of force
vi- Negligent investigation
vii- Invasion of privacy

Question 21

What types of information would an underwriter want to know about a theatre risk?

Answer 21

1- Policies and procedures for crowd control
2- Adequate exits to handle emergency situations
3- Local safety by-laws are obeyed

Construction and safety factors:
4- Number of seats for patrons
5- Details of passageways
6- Washrooms

Question 22

What information would an underwriter need for a weed spraying operation?

Answer 22

1- Identity of persons doing the dangerous work
2- Assessment of competence
3- Who controls the spraying process
4- Type of equipment used
5- Chemicals used
6- Purpose of the spraying
7- Location to be sprayed
8- Precautions taken to avoid damage
9- Verification of prevailing wind directions
10- Consideration of farming methods used in the area
11- Condition of trees and plants

Question 23

How can an underwriter use a checklist to write a risk?

Answer 23

1- It alerts the underwriter to a potential issue that must be looked at further (it does not actually do any assessment).

2- Are more effective when used with other tools to gather information.

3- Provide some basic information that should be used to create a plan for the underwriter’s review of the applicant.

Question 24

What are the benefits of an inspection to an underwriter?

Answer 24

a- A better understanding of the risk

b- Provides a fresh look at exposures that might otherwise go undetected

c- Reveals hazards connected with the insured’s operations, and recommendations on how to eliminate them

Question 25

Why would an insurer review an existing insurance policy when writing a risk?

Answer 25

A. They offer a method to confirm risks that have already been identified.

B. A review of endorsements and exclusions provides the insurance professional with significant information to work with to identify any hazards that may have been overlooked.

Question 26

What kind of information is found in a survey?

Answer 26

A. An opinion of the risk with recommendations for improvements.

B. Generally more formal and more comprehensive than an inspection.

Question 27

In what three ways is information provided about hazardous materials as per WHMIS?

Answer 27

1- Labels on the containers of hazardous materials

2- Material safety data sheets to supplement the label with detailed hazard and precautionary information

3- Worker education programs

Question 28

Provide an example of how an underwriter might identify a loss exposure by analyzing financial statements.

Answer 28

1. A balance sheet will show major categories of assets such as buildings and equipment owned that generate exposures to loss.
2. The income statement also provides clues about other activities that generate income.

Question 29

Of what interest are claims reports to underwriters?

Answer 29

A. Comments on the desirability of a risk, that is, the moral or physical hazards of a risk, may have an important bearing on an insured’s future insurability.

B. New information thus obtained may help and often influences an underwriter’s decision to insure an applicant.