Personal Lines Risk Evaluation Flashcards
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Read the first 6 Personal Lines Risk Evaluation flashcards as text
An underwriter reviewing a homeowners application for a 15-year-old home notes the following: the roof is original, there is an unfenced swimming pool with a diving board, and the CLUE report shows two water damage claims in the last three years. Which of the following represents the most significant combination of hazards the underwriter must evaluate?
Answer: Property hazard from the roof's age and liability hazard from the unfenced pool.
The aged roof is a significant physical hazard that increases the likelihood of a property claim (e.g., from leaks or wind damage). The unfenced pool with a diving board is a major liability hazard, often classified as an attractive nuisance, which increases the risk of injury claims. This combination addresses the two primary coverage areas of a homeowners policy, and the prior claims exacerbate the property risk.
When evaluating a personal auto application, what is the primary purpose for an underwriter to review a Motor Vehicle Report (MVR)?
Answer: To assess the driving history, including violations and accidents, of all listed operators.
A Motor Vehicle Report (MVR) is a record from a state's department of motor vehicles that details an individual's driving history. For underwriters, its primary purpose is to verify the applicant's representations and assess the risk of listed drivers by reviewing past traffic violations, at-fault accidents, license suspensions, and other infractions.
An underwriter is assessing the liability exposure for a homeowners policy. Which of the following property features would be classified as an "attractive nuisance," requiring specific underwriting actions such as requiring a fence or excluding coverage?
Answer: An unfenced trampoline in the backyard.
An attractive nuisance is a hazardous object or condition on a property that is likely to attract children who are unable to appreciate the associated risk. An unfenced trampoline is a classic example that significantly increases liability exposure, prompting underwriters to require safety measures like a fence or safety net, or to apply a liability exclusion.
An applicant with significant assets, including a high-performance boat and two rental properties, applies for a $2 million personal umbrella policy. The underwriter notes the applicant's underlying auto policy has liability limits of 100/300/50. What is the most immediate underwriting concern that must be resolved before the policy can be issued?
Answer: The applicant's underlying auto liability limits are insufficient.
Personal umbrella policies require the insured to maintain specific minimum limits on their underlying homeowners and auto policies. Common minimums for auto insurance are $250,000/$500,000. The applicant's limits of 100/300/50 are below this typical requirement, creating a potential gap in coverage. The underwriter must require the applicant to increase their underlying limits before the umbrella policy can be issued.
The primary reason a personal lines underwriter requires a home to be insured for at least 80% of its replacement cost (Insurance-to-Value) is to:
Answer: Avoid the application of a coinsurance penalty on partial losses.
Most homeowners policies contain a provision that works like a coinsurance clause. It requires the insured to carry a limit of at least 80% of the home's replacement cost. If this requirement is met, partial losses are paid in full (minus the deductible). If the coverage is below 80%, a penalty is applied, and the insurer will only pay a portion of a partial loss.
Which of the following information sources is an underwriter most likely to use to specifically investigate an applicant's prior property loss history for a new homeowners insurance application?
Answer: Comprehensive Loss Underwriting Exchange (CLUE) report
The CLUE report is a claims-history database generated by LexisNexis that allows insurers to access information on an applicant's prior personal property and auto claims. It provides details on the date of loss, type of loss, and amount paid, which is critical for evaluating the risk of future property claims.