CAIB 2 - Chapter  2
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Questions and Answers

Which of the following is NOT a key factor in building hazards?

  • Insurance Premiums (correct)
  • Occupancy
  • Heating
  • Electrical Services
  • Welding is considered a low-risk activity in insurance underwriting.

    False

    What is the broker's role in insurance applications?

    Intermediary between the insurer and the insured.

    The obligations under the agency agreement ensure __________ with the insurer.

    <p>transparency</p> Signup and view all the answers

    Which of the following types of supplementary information is NOT mentioned?

    <p>Client Interviews</p> Signup and view all the answers

    Evaluating risk conditions is essential for avoiding adverse selection.

    <p>True</p> Signup and view all the answers

    What is the impact of risk classification on insurance?

    <p>It affects premium pricing.</p> Signup and view all the answers

    What is one of the key duties of brokers in the underwriting process?

    <p>Searching for interested insurers</p> Signup and view all the answers

    Brokers are responsible for binding coverage on behalf of the client.

    <p>True</p> Signup and view all the answers

    Name one advantage of conducting a survey in the underwriting process.

    <p>Identifying loss exposures</p> Signup and view all the answers

    The five classes of building construction are Fire Resistive, Non-combustible, Heavy Timber, Ordinary, and __________.

    <p>Frame</p> Signup and view all the answers

    What is expected from brokers regarding changes in risk during the underwriting process?

    <p>They are required to monitor and report changes.</p> Signup and view all the answers

    The age of a building is an irrelevant factor in the underwriting process.

    <p>False</p> Signup and view all the answers

    What does the term 'shopping the risk' mean?

    <p>Marketing the risk to multiple insurers</p> Signup and view all the answers

    Reviewing the policy includes discussing coverage, limitations, and __________.

    <p>exclusions</p> Signup and view all the answers

    Which class of building construction is known for using materials that can withstand fire well?

    <p>Fire Resistive</p> Signup and view all the answers

    Which type of hazard refers to a person's attitude towards loss?

    <p>Morale Hazard</p> Signup and view all the answers

    Moral hazards are defined as the financial condition and moral character of an individual.

    <p>True</p> Signup and view all the answers

    What are the main components considered in evaluating physical hazards?

    <p>Building construction, occupancy, housekeeping, external exposures, geography, protection.</p> Signup and view all the answers

    Underwriting guides are important for ensuring consistency in _____ selection.

    <p>risk</p> Signup and view all the answers

    What type of information is crucial for making an underwriting decision?

    <p>Past Claims History</p> Signup and view all the answers

    Inspection reports primarily focus on the applicant's financial stability.

    <p>False</p> Signup and view all the answers

    List two internal sources of information important in underwriting.

    <p>Production records, claims information.</p> Signup and view all the answers

    Study Notes

    The Role of the Broker in the Underwriting Process

    • Brokers serve as the first line of underwriters, facilitating communication between clients and insurers.
    • Key responsibilities include monitoring risk changes, providing suggestions for product modifications, and ensuring comprehensive submissions.

    Understanding Submissions

    • A submission consists of an application and supporting verbal/written information, including loss history and financial statements.
    • Thorough completions enhance the quality of underwriting by providing essential insights into the client's risk profile.

    Completion of Survey

    • Conducting surveys is critical for identifying potential loss exposures, required coverages, and underwriting information.

    Searching for Interested Insurer(s)

    • Brokers actively market the risk to multiple insurers to find the best coverage options for clients.

    Requesting Binding Coverage

    • The binding coverage process includes inspections by insurers and submission of basic risk information.

    Reviewing the Policy and Delivering to Client

    • Policies must undergo thorough reviews to discuss coverage, limitations, and exclusions with clients.

    Building Construction Considerations

    • Building construction significantly impacts underwriting: five classes include Fire Resistive, Non-combustible, Heavy Timber, Ordinary, and Frame.

    Miscellaneous Building Information

    • Important factors encompass the age of a building and upgrades to systems like wiring and plumbing (W-H-O-R-P).

    Common Hazards in Buildings

    • Key hazards related to underwriting include Heating, Occupancy, Protection, Electrical Services, and Detachment, abbreviated as H-O-P-E-D.

    Special Hazards

    • Activities such as welding and deep frying represent high-risk scenarios that can lead to additional questionnaires and potential rate increases.

    Broker's Statement and Supplementary Information

    • Supplementary information aids in risk assessment and includes details on physical condition, business history, and loss history.

    Understanding the Broker's Role

    • Brokers act as intermediaries while maintaining a good faith requirement in insurance applications.

    The Role of the Underwriter in the Underwriting Process

    • Underwriters assess risks and ensure insurance is offered fairly and sustainably by avoiding adverse selection and evaluating risk conditions.

    Risk Selection

    • Effective risk selection helps avoid adverse selection and ensures proper risk evaluation.

    Risk Classification

    • Classifying risks impacts premium pricing and involves categorizing risks into classes that predict insurance outcomes.

    Factors Affecting Rates

    • Insurance rates fluctuate based on market conditions, with considerations for soft and hard market dynamics.

    Evaluation of Hazards

    • Hazards are classified into physical, moral, and morale categories to ascertain risk factors.

    Physical Hazards

    • These include aspects like building construction, occupancy, and external exposures which influence overall risk assessments.

    Moral and Morale Hazards

    • Moral hazards relate to risk associated with ethical behavior, while morale hazards arise from carelessness or indifference to loss.

    Developing Additional Underwriting Information

    • Additional data can be sourced externally, including broker insights, government records, and financial rating services, to enhance underwriting accuracy.

    Loss Experience Data

    • Historical claims data help assess risks, emphasizing the importance of understanding regional and national trends.

    Inspection Reports

    • Inspections focus on verifying physical characteristics and require applicant cooperation to ensure comprehensive risk evaluation.

    Claims Information

    • Accessing historical claims informs underwriting decisions, impacting how risks are approached.

    Underwriting Guides and Manuals

    • These resources ensure consistency in risk selection and clarifies underwriting processes across various scenarios.

    Making an Underwriting Decision

    • Underwriters typically have several choices regarding submissions: accepting, modifying, rejecting, or deferring the submission.

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    Related Documents

    CAIB 2 Ch 2 - Sept 2024.pptx

    Description

    Explore the nuances of underwriting in commercial property insurance in this CAIB 2 chapter. Understand the critical role of brokers in the underwriting process, including their expectations and importance in the industry. This quiz will test your knowledge on the core concepts presented in the chapter.

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