Claims & Loss Analysis Flashcards
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Read the first 7 Claims & Loss Analysis flashcards as text
A liability insurer pays defense costs that erode the policy limit. This is known as:
Answer: Defense within limits or 'burning limits' coverage
Defense within limits (burning limits) policies reduce the available indemnity limit as defense costs are paid, unlike supplementary payment provisions.
The incurred but not reported (IBNR) reserve represents:
Answer: Losses that have occurred but haven't yet been reported to the insurer
IBNR reserves account for losses that have already occurred in the real world but haven't yet been reported to the insurance company.
Which of the following best describes 'severity' in claims analysis?
Answer: The average cost per claim
Claim severity measures the average dollar amount per claim, while frequency measures the number of claims.
A property claim involves both structural damage and business interruption. Which valuation approach applies to the business interruption portion?
Answer: Net profit plus continuing fixed expenses
Business interruption losses are typically measured as net profit that would have been earned plus continuing fixed expenses during the interruption period.
In claims-made liability policies, the 'retroactive date' serves to:
Answer: Eliminate coverage for losses occurring before that date
The retroactive date bars coverage for claims arising from incidents that occurred before that date, even if reported during the policy period.
When an underwriter reviews a loss run showing a loss ratio of 95%, this primarily indicates:
Answer: Claims costs are consuming nearly all premium collected
A 95% loss ratio means $0.95 of every premium dollar is paid in claims, leaving insufficient margin for expenses and profit.
A general contractor's liability claim involves a subcontractor's negligent work. Under most CGL policies, the contractor's coverage for such claims depends on:
Answer: Whether the 'your work' exclusion applies and if a subcontractor exception exists
CGL policies exclude 'your work' damage, but most include a subcontractor exception restoring coverage for damage caused by subcontractors' completed operations.