CRU Risk Assessment & Mitigation 2 — Questions and Answers
Question 1: A residential property is located in a Flood Zone AE on a FIRM map. What does this designation indicate?
- Minimal flood risk with no base flood elevation determined
- High-risk area with a base flood elevation established by FEMA (Correct answer)
- Moderate-risk area requiring optional flood insurance
- Coastal high-hazard area subject to wave action
Correct answer: High-risk area with a base flood elevation established by FEMA
Flood Zone AE is a Special Flood Hazard Area where FEMA has established a specific base flood elevation (BFE), indicating a 1% annual chance of flooding.
Question 2: When evaluating a property with an in-ground swimming pool, which risk factor is MOST relevant to the underwriter?
- The pool's impact on property value
- Attractive nuisance liability exposure (Correct answer)
- Increased water usage costs
- The pool's effect on neighborhood aesthetics
Correct answer: Attractive nuisance liability exposure
An in-ground pool creates an attractive nuisance liability exposure, meaning the homeowner may be liable if uninvited children are injured while trespassing.
Question 3: Which of the following best describes a 'moral hazard' in residential underwriting?
- Physical conditions of a property that increase loss likelihood
- The insured's tendency to behave recklessly because insurance exists (Correct answer)
- Fraudulent misrepresentation on an insurance application
- A community's exposure to natural catastrophe events
Correct answer: The insured's tendency to behave recklessly because insurance exists
Moral hazard refers to the increased risk of loss that arises from an insured's change in behavior due to the presence of insurance coverage.
Question 4: A home built in 1965 has original knob-and-tube wiring still in use. How should an underwriter treat this condition?
- Accept with no conditions since the home predates modern codes
- Require replacement or impose an exclusion for fire losses (Correct answer)
- Automatically decline the risk without exception
- Rate it as equivalent to modern wiring systems
Correct answer: Require replacement or impose an exclusion for fire losses
Knob-and-tube wiring presents a significant fire hazard and underwriters typically require replacement or apply a specific exclusion to manage this elevated risk.
Question 5: What is the primary purpose of requiring a four-point inspection for older residential properties?
- To determine the property's current market value
- To assess the condition of roof, HVAC, plumbing, and electrical systems (Correct answer)
- To verify the accuracy of the property's square footage
- To confirm compliance with current local building codes
Correct answer: To assess the condition of roof, HVAC, plumbing, and electrical systems
A four-point inspection evaluates the four major systems—roof, HVAC, plumbing, and electrical—that are most likely to cause significant losses in older homes.
Question 6: A residential underwriter notices a property has been vacant for eight months. Which concern is MOST significant?
- Higher property tax assessments during vacancy
- Increased exposure to vandalism, theft, and undetected damage (Correct answer)
- Reduced coverage needs due to lower occupancy risk
- Automatic eligibility for a vacancy discount
Correct answer: Increased exposure to vandalism, theft, and undetected damage
Vacant properties face significantly elevated risks including vandalism, theft, water damage from undetected leaks, and squatters, all of which increase insurer exposure.
Question 7: Which risk mitigation measure would MOST directly reduce a homeowner's wind loss exposure?
- Installing a monitored burglar alarm system
- Applying hurricane straps to roof-to-wall connections (Correct answer)
- Adding a whole-house generator
- Upgrading the home's plumbing to PVC pipe
Correct answer: Applying hurricane straps to roof-to-wall connections
Hurricane straps (also called roof-to-wall connectors) directly reinforce the weakest point in wind resistance, reducing the risk of roof detachment during high winds.
CRU Risk Assessment & Mitigation 2
A residential property is located in a Flood Zone AE on a FIRM map.
What does this designation indicate?