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 (B)

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 (A)</p> Signup and view all the answers

Evaluating risk conditions is essential for avoiding adverse selection.

<p>True (A)</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 (A)</p> Signup and view all the answers

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

<p>True (A)</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. (A)</p> Signup and view all the answers

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

<p>False (B)</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 (B)</p> Signup and view all the answers

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

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

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

<p>True (A)</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 (B)</p> Signup and view all the answers

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

<p>False (B)</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

Flashcards

Broker's Role

Brokers act as intermediaries between clients and insurers, handling communication, risk assessment, and submissions.

Underwriting Process

The process of evaluating and selecting risks for insurance.

Insurance Submission

The application and supporting documents outlining the risk characteristics to be insured.

Risk Classification

Categorizing risks into groups based on shared characteristics, influencing premium pricing and coverage.

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Adverse Selection

The tendency of higher-risk individuals to seek insurance more than lower-risk ones.

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Physical Hazards

Building construction, occupancy, and external exposures influencing risk.

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Moral Hazard

Ethical behavior issues concerning the risk of insurance claim misuse.

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Morale Hazard

Carelessness or lack of concern concerning the risk of insurance claim misuse.

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Building Construction Classes

Categories for building types (Fire Resistive, Non-combustible, etc.) affecting risk.

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Loss Experience Data

Historical claims data used to assess risks and set premiums.

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Inspection Reports

Verification of physical characteristics, requiring applicant cooperation for proper risk assessment.

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Survey Completion

Identifying potential loss exposures, coverages, and underwriting information.

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Binding Coverage

Process including inspections and submission of basic risk information to secure temporary coverage.

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Hard Market

Insurance market characterized by high premiums and limited availability.

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Soft Market

Insurance market with lower premiums and wider availability.

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Underwriter's Decision

Options for submissions (accept, modify, reject, defer).

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Premium Pricing

Determining rates based on market conditions and risk assessment.

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Underwriting Guides

Resources ensuring consistent risk selection and underwriting procedures.

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Claims Information

Access to or use of historical claims data impacting underwriting.

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Supplementary Information

Supporting data enhancing risk assessment.

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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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