CIA Risk Assessment & Underwriting 3

Question 1

When underwriting a manufacturing facility, which construction type generally receives the most favorable rating?

Accepted Answer

Fire-resistive construction

Answer

Fire-resistive construction, featuring steel or concrete frames with fire-rated walls and floors, offers the greatest resistance to structural damage and receives the best underwriting treatment.

Question 2

A property underwriter calculates a 'probable maximum loss' (PML). What does this estimate represent?

Accepted Answer

The largest loss likely to occur given functioning fire protection

Answer

PML estimates the maximum loss expected under adverse but realistic conditions, assuming normal protective systems such as sprinklers are functioning.

Question 3

Under the ISO Commercial Lines Manual, which protection class designation indicates the LOWEST level of fire protection?

Accepted Answer

Class 10

Answer

ISO Protection Class 10 designates properties with no recognized fire protection, resulting in the highest fire insurance rates.

Question 4

Which underwriting tool is specifically used to evaluate the acceptability of large individual risks that fall outside standard market guidelines?

Accepted Answer

Excess and surplus (E&S) lines placement

Answer

Excess and surplus lines insurers are authorized to write non-standard risks that admitted carriers decline, providing a market for hard-to-place exposures.

Question 5

An underwriter applies a 'coinsurance clause' to a commercial property policy. What is the primary purpose of this clause?

Accepted Answer

To ensure the insured carries insurance equal to a minimum percentage of property value

Answer

The coinsurance clause requires insureds to maintain coverage at a specified percentage (commonly 80% or 90%) of replacement cost to avoid a penalty at the time of loss.

(CIA) Certified Insurance Appraiser Practice Test

(CIA) Certified Insurance Appraiser Practice Test

CIA Risk Assessment & Underwriting 3