Assignment 9: Underwriting Property and Liability Insurance Flashcards

Question

Susceptibility

Answer 1

The extent to which fire and its effects, either direct or resultant, will damage personal property -- either merchandise or materials -- typical of the occupancy

Answer 2

The largest loss that an insured is likely to sustain

Answer 3

- Common Hazards - Special Hazards of the Class - Special Hazards of the Risk

Answer 4

Some examples include improper handling of waste and trash, heating equipment, electrical equipment, and smoking

Answer 5

A characteristic typical of all occupancies in a given class that can cause or aggravate a loss. An example is the hazard of cooking, common to the restaurant class

Answer 6

A condition that can cause a loss but that is not typical of an occupancy. An example is the use of a welding torch in an auto repair shop

Answer 7

Measures taken to prevent or reduce the damage done by fire Fire protection is of two types: 1. Public or municipal fire protection provided by towns and cities 2. Private fire protection provided by the property owner or occupant

Answer 8

Fire protection equipment and services made available through governmental authority to all properties within a defined area

Answer 9

- Protected - Partially Protected - Unprotected

Answer 10

A five tiered classification based on how far the building is from a responding fire department; to qualify for this classification, a building must be within 1,000 feet of a fire hydrant and within five road miles of a responding fire department

Answer 11

Building is located more than 1,000 feet from a fire hydrant and is within five road miles of a responding fire department

Answer 12

A numerical grading system determined by ISO's Fire Suppression Rating Schedule (FSRS); graded on a scale of 1 (best protection) to 10 (worst protection)

Answer 13

1. Prevention 2. Detection 3. Suppression

Answer 14

Major detection systems include: - Guard service with a clock system - Private patrol service - Smoke detectors - Heat detectors

Answer 15

A detection system, triggered by smoke or heat, that sounds a bell, siren, or another alert at the premises only

Answer 16

A private detection service that monitors the systems of multiple businesses and/or residences and that calls appropriate authorities or dispatches its own personnel when an alarm is activated A disadvantage of this method is its relative cost

Answer 17

Similar to a central station system, but directly signals the local police and fire stations

Answer 18

Similar to a central station system, but directly signals a receiving station located on the protected premises

Answer 19

Four categories: 1. Portable fire extinguishers 2. Standpipe and hose systems 3. Automatic sprinkler systems 4. Private fire brigades

Answer 20

Automatic fire sprinkler systems with pipes that always contain water under pressure, which is released immediately when a sprinkler head opens

Answer 21

Automatic fire sprinkler systems with pipes that contain compressed air or another inert gas that holds a valve in the water line shut until an open sprinkler head releases the gas and allows water to flow through the previously dry pipe to the sprinkler head

Answer 22

An automatic fire sprinkler system with automatic and closed-type sprinkler heads connected to a piping system that contains air or nitrogen, with an additional fire detection system that serves the same area as the sprinklers

Answer 23

A type of sprinkler system in which all the heads remain permanently open; when activated by a detection system, a deluge valve allows water into the system

Answer 24

A private or temporary organization of individuals equipped to fight fires; typically used in businesses that are located far from municipal fire services

Answer 25

Use gas extinguishing agents when water is inappropriate or ineffective

Answer 26

A loss exposure outside the area owned or controlled by the insured; it is the most difficult to analyze because of its lack of information

Answer 27

This exists when the property being underwritten consists of a single building, fire division, or group of buildings, all owned or controlled by the insured Examples of exposures include close buildings and woodlands

Answer 28

This exists when persons other than the insured own or control portions of the fire division that contains the insured property

Answer 29

- Insurable interest of all persons insured (most commonly outright ownership) - Policy provisions for establishing the value of insured property (replacement cost vs. actual cash value) - Relationship of the amount of insurance to the value of insured property

Answer 30

The cost to repair or replace property using new materials of like kind and quality with no deduction for depreciation

Answer 31

A method in valuing property that is calculated as the cost to replace or repair property minus depreciation, the fair market value, or a valuation determined by the broad evidence rule

Answer 32

A clause that requires the insured to carry insurance equal to at least a specified percentage of the insured property's value

Answer 33

Insurance to value means that the insured has enough coverage to receive an adequate recovery on damages Insurers can benefit from this because they will have: - Higher limits of property insurance (higher premiums) - An adequately insured book of business - Competitive status

Answer 34

- Policy Amount - Amount Subject - Normal Loss Expectancy (NLE) - Probable Maximum Loss (PML) - Maximum Foreseeable Loss (MFL) Each measure is the sum of separate values for each type of coverage the policy provides

Answer 35

The amount of insurance the policy provides (limit of liability); easiest to calculate, only measure on which underwriters tend to agree, and least useful

Answer 36

Measures the exposure to a single loss and varies by cause of loss; often underwriters use the expression "within four walls" to explain this concept

Answer 37

The loss expected under normal operating conditions with all fire protection services working. Elements used for consideration include: - Construction - Protection - Business interruption contingency plans - Fire divisions - Susceptibility of contents to damage and combustibility - Operational hazards

Answer 38

Statutes generally prohibit an insurance company from exposing more than 10% of its policyholders' surplus to a single loss net of authorized reinsurance

Answer 39

An estimate of the financial cost of the loss that would occur if all protection measures (automatic and manual) were to fail and no effective fire department response occurred

Answer 40

Provide compensation for reductions in income or profits resulting from a necessary interruption of the policyholder's business operations arising from direct physical damage to property by a covered cause of loss

Answer 41

Compensates the policyholder for the additional expenses incurred to minimize the interruption of operations

Answer 42

Usually include business income coverage on an actual loss sustained basis, often with fewer conditions or restrictions than separate business income or extra expense policy forms Usually has a time limit (may/may not be sufficient)

Answer 43

1. Determine the most serious direct loss that is likely to occur 2. Calculate the longest period of restoration that this loss can reasonably be expected to cause 3. Compute the largest loss of business income that the insured is likely to sustain during a period of this length

Answer 44

- Rebuilding Time - Seasonality - Bottlenecks - Computer Systems - Long Production Processes - Availability of Substitutes - Business Continuity and Disaster Recovery Planning

Answer 45

1. Employee Dishonesty 2. Crime Committed by Others

Answer 46

Losses are significant and are estimated to cost businesses more than any other form of crime

Answer 47

Six factors are considered by underwriters: - Susceptibility and marketability - Property location - Nature of the occupancy - Moral and morale hazards - Public protection - Coverage and price modifications

Answer 48

Too much insurance can create moral hazard so most underwriters do not want to provide crime insurance to full value even if it is requested; for low policy limits, the probable maximum loss equals the amount subject

Answer 49

Warrants that certain safeguards are in place; if the insured fails to protect the property as promised, the insurer is not contractually obligated to pay any resulting losses Warranty requires the insured to make good faith effort to maintain specified level of protection

Answer 50

These serve two functions: - Protect crime losses - Reduce losses that do occur The two main categories are detection devices and barriers to criminal access

Answer 51

- Premises and Operations Liability - Products and Completed Operations Liability - Personal and Advertising Injury Liability - Premises Medical Payments Liability

Answer 52

These arise from the insured's ownership or possession of real property; often as these increase, operations loss exposures decrease

Answer 53

These arise from an insured's business operations conducted away from its own premises and from uncompleted work (also known as operations in progress)

Answer 54

- Extent of Public Exposure - Physical Hazards (common hazards, special hazards of the class, special hazards of the risk) - Contractors and Subcontractors (needing adequate insurance)

Answer 55

A legal responsibility that occurs when one party is held liable for the actions of a subordinate or an associate because of the relationship between the two parties

Answer 56

- Breach of Warranty - Negligence - Strict Liability in Tort

Answer 57

The failure to meet the terms of a promise or an agreement associated with a product

Answer 58

An obligation that the courts impose on a seller to warrant certain facts about a product

Answer 59

An implied warranty that a product is fit for the ordinary purpose for which it is used

Answer 60

An implied warranty that a product is fit for a particular purpose; applies if the seller knows about the buyer's purpose for the product

Answer 61

The failure to exercise the degree of care that a reasonable person in a similar situation would exercise to avoid harming others Failure to give adequate warning is the most common ground for negligence in products liability suits

Answer 62

Liability imposed by a court or by a statute in the absence of fault when harm results from activities or conditions that are extremely dangerous, unnatural, ultrahazardous, extraordinary, abnormal, or inappropriate

Answer 63

These include construction, service, repair, and maintenance activities

Answer 64

This is automatically included as Coverage B in the ISO CGL coverage form, unless it is specifically excluded by attaching an endorsement to the policy; underwriters do not usually evaluate this loss exposure closely unless there is reason to

Answer 65

This is automatically included as Coverage C in the ISO CGL coverage form Medical payments coverage does not require the insured to be legally liable to pay for them so the limits are much lower than those for bodily injury / property damage (typically $5k-$10k per person)

Answer 66

- Age of operator - Age and type of auto - Auto use - Driving record - Territory - Gender and marital status - Occupation - Personal characteristics - Physical condition of driver - Safety equipment

Answer 67

- Motor vehicle record, especially if it indicates any violations - Accident history - Experience with operating commercial motor vehicles

Answer 68

Four factors considered are: - Vehicle weight and type - Vehicle use - Radius of operation - Special industry classifications

Answer 69

A first-hand evaluation of an account by the insurer's risk control representative; generally used only for accounts that meet a specific premium size or other specific criteria They confirm and supplement information on the application

Answer 70

Consists of the written policy and procedures that an account uses in the management of its drivers and vehicles; it generally indicates that the account management understands the value of risk management and is working to prevent and control losses

Answer 71

It requires that drivers of specific large vehicles hold a commercial driver's license (CDL)

Answer 72

General Liability underwriting concerns itself with injuries to the general public while workers compensation underwriting focuses on injuries to the insured's employees

Answer 73

- Experience Modification Factor - Temporary and Seasonal Employees - Subcontractors - Maritime Occupations - Relative Premium Size - Employee Concentration

Answer 74

A factor that tailors manual rates to an insured's experience based on the insured's payroll and loss record of certain prior years

Answer 75

Loss exposures related to occupations involving work on vessels while at sea or in close proximity to bodies of water, such as on docks, on piers, or in terminals

Answer 76

A federal statute that eliminates the right of most maritime workers (other than crew members of vessels) to sue their employees and, in return, requires such employers to provide injured or ill workers with benefits like those provided by state workers compensation statutes

Answer 77

A federal statute that permits injured members of a vessel's crew (or survivors of a deceased crew member) to sue their employer for damages due to the employer's negligence

Answer 78

A disease resulting from causes the worker faces on the job and to which the general public is not exposed

Answer 79

Sometimes referred to as repetitive strain injuries (RSI), these arise from a series of minor stresses over a period of time; these can be relatively minor and accumulate until they require medical treatment and can result in a disability

Answer 80

Considerations are: 1. Duration of travel 2. Mode of transportation 3. Hazards at remote job sites

Answer 81

Liability insurance that provides excess coverage above underlying policies and may also provide coverage not available in the underlying policies, subject to a self-insured retention Most are designed to: - Provide excess liability limits above all specified underlying policies - Provide coverage when the aggregate limits of the underlying policies have been exhausted - Provide coverage for gaps in the underlying policies

Answer 82

Insurance coverage for losses that exceed the limits of underlying insurance coverage or a retention amount Does not broaden coverage, but umbrella insurance can

Answer 83

Coverage provided by many umbrella liability policies for 1. Claims not covered at all by the underlying policies 2. Claims that are not covered by an underlying policy only because the underlying policy's aggregate limits have been depleted

Answer 84

- Type of insurance - Name of insurer - Applicable limits and deductibles - Premium for bodily injury liability coverages - Premium for property damage liability coverages - Details of extensions of coverage beyond standard policy provisions

Answer 85

This amount is usually $10,000 for a commercial umbrella liability policy

Assignment 9: Underwriting Property and Liability Insurance Flashcards

(111 cards)