Risk Assessment & Underwriting Flashcards
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Read the first 7 Risk Assessment & Underwriting flashcards as text
Which of the following best describes 'coinsurance' as used in commercial property underwriting?
Answer: A requirement that the insured carry coverage equal to a specified percentage of value
Coinsurance clauses require the insured to maintain coverage at a minimum percentage (e.g., 80% or 90%) of the property's insurable value or face a penalty at loss.
An underwriter notes a commercial applicant has had three fire losses in five years. This information is most relevant to assessing which element of underwriting?
Answer: Loss history and frequency
Recurring losses signal elevated risk frequency and are a primary underwriting red flag warranting further investigation or declination.
Which ACORD standard supports electronic data interchange (EDI) between agents and carriers for policy transactions?
Answer: ACORD XML
ACORD XML provides structured, machine-readable data schemas that enable automated policy transaction exchanges between systems.
In risk assessment, 'maximum probable loss' (MPL) represents what concept?
Answer: The largest loss reasonably expected under unfavorable but plausible conditions
MPL estimates the largest loss likely to occur under adverse but not catastrophic conditions, helping underwriters set appropriate limits and retentions.
A business owner's ISO construction class of 'frame' versus 'masonry noncombustible' will primarily affect which underwriting factor?
Answer: Fire susceptibility and property premium
ISO construction classifications directly influence property insurance rates because building materials determine how quickly and severely a structure burns.
Which underwriting action is most appropriate when a risk's occupancy is acceptable but its physical condition is substandard?
Answer: Acceptance with an endorsement requiring corrective action or a higher deductible
Conditional acceptance with required improvements or modified terms allows the underwriter to manage the substandard condition while retaining the account.
What does 'rate adequacy' mean in the context of commercial underwriting?
Answer: The premium charged is sufficient to cover expected losses, expenses, and profit
Rate adequacy means the charged premium is high enough to pay projected losses, operating expenses, and yield a reasonable underwriting profit.