Chapter 2 Flashcards
(25 cards)
What are three advantages of using a fact-finding survey?
- Assists brokers when identifying potential losses
- Assists brokers not to sell coverages client does not need
- Assists brokers in collecting information needed by insurance companies
What are three benefits of commercial property checklists and which is most important to brokers?
- Assists brokers when identifying potential losses
- Assists brokers to make sure coverages are not overlooked
- Assists brokers in reducing errors and omission losses
Explain characteristics of the following construction classes: Fire Resistive / Non-Combustible
Fire Restrictive - the building has achieved standard set in hours to remain structurally sound when attacked by fires
Non-Combustible - these buildings are slightly below standard of fire resistive structures
What are five areas insurers request additional information when buildings are over 25 years old?
- Wiring
- Heating
- Over-current protection
- Roof
- Plumbing
What are five hazards common to commercial buildings? (HOPED)
- Heating
- Occupancy
- Protection
- Electrical services
- Detachment
What type of wiring provides the best protection?
Copper wiring
What type of over current protection provides the best protection?
Automatic circuit breakers
What is detachment?
Detachment = the distance of insured building (or property) to commercially rated buildings
Describe the two types of protection?
Private Protection - steps insured has taken within buildings to reduce frequency and severity of losses (i.e., sprinklers, fire extinguishers)
Public Protection - refers to protection methods used by municipalities, or outside steps (i.e., fire departments)
When buildings have no protection from local fire departments what term is often used to describe these buildings?
Unprotected
Define “adverse selection”.
Adverse Selection = Happens when only those accounts exposed to certain perils are the accounts applying for coverage, such as those near rivers, are the only accounts applying for flood coverage
What are four functions performed by underwriters?
- Risk Selection
- Risk Classification
- Rating and Ratemaking
- Policyholder’s services
Define “risk classification”.
Risk Classification = Taking all accounts similar to each other and placing them in categories based on their likelihood for loss
What is the main advantage of risk classification?
Allows insurers to calculate proper premiums to charge
Identify an internal source underwriters utilize when rate making.
Staff Inspectors
Identify an external source underwriters utilize when rate making.
Insurance Advisory Organization (IAO)
What are two influences which cause premiums to change from year to year?
- Increasing claims paid due to inflation
- Rates of return on insurance company’s investments
What are characteristics of soft markets?
- Heavy competition among insurers
- Lower premiums
What are characteristics of hard markets?
- Underwriting standards becomes more strict
- Premiums rise
What is a physical hazard?
Physical Hazard = hazards which arise from the use of insured property which cause perils to occur
List six types of physical hazards common to all commercial risks and provide an example of each. (PET HOG)
- Protection - i.e., fire extinguishers
- External Exposures - i.e., being next to restaurants
- Typer of Building Construction - i.e., fire resistive vs. frame construction
- Housekeeping - i.e., presence of waste materials or general cleanliness
- Occupancy - i.e., library vs. welding shop
- Geography - access to old urban buildings may be restricted
What is a moral hazard?
Moral Hazard = subjective characteristics of clients which may cause losses to occur
List three moral hazards and provide an example of each. (FAM)
- Financial Condition - i.e., clients experiencing difficulty may be tempted to cause losses
- Associates - i.e., clients having relationships with known criminals
- Moral Character - i.e., often having authorities questioning action of clients
What is accommodation business?
Poor accounts underwriters agree to insure as a favor to brokers
