CU Claims & Loss Analysis 2 — Questions and Answers
Question 1: A commercial property insurer receives a claim for fire damage. The adjuster discovers the insured had recently increased coverage just before the fire. Which concept should the underwriter investigate?
- Moral hazard escalation (Correct answer)
- Adverse selection trigger
- Morale hazard indicator
- Physical hazard change
Correct answer: Moral hazard escalation
A sudden coverage increase shortly before a loss is a classic moral hazard indicator suggesting possible intentional misconduct.
Question 2: In subrogation, after paying a claim, the insurer acquires the right to:
- Void the policy retroactively
- Cancel the insured's future coverage
- Pursue recovery from the responsible third party (Correct answer)
- Increase the insured's deductible
Correct answer: Pursue recovery from the responsible third party
Subrogation allows the insurer to step into the insured's shoes and sue the negligent third party to recover paid losses.
Question 3: An insured suffers a $200,000 loss on a property valued at $500,000, but only carries $300,000 in coverage with an 80% coinsurance clause. What is the insurer's liability?
- $150,000 (Correct answer)
- $200,000
- $120,000
- $160,000
Correct answer: $150,000
The coinsurance formula: ($300,000 / $400,000 required) × $200,000 loss = $150,000 covered.
Question 4: Which loss development factor concept is used in actuarial analysis to project ultimate claim costs from reported losses?
- Burning cost ratio
- Chain-ladder method (Correct answer)
- Loss ratio trending
- Credibility weighting
Correct answer: Chain-ladder method
The chain-ladder method uses historical loss development patterns to project reported losses to their ultimate settled values.
Question 5: A workers' compensation claim involves a permanently injured employee. The insurer must reserve for:
- Only medical expenses to date
- Future medical costs and indemnity payments over the claim's lifetime (Correct answer)
- One year of lost wages only
- Employer's legal defense costs exclusively
Correct answer: Future medical costs and indemnity payments over the claim's lifetime
Permanent injury claims require long-tail reserves covering lifetime medical expenses and ongoing indemnity benefits.
Question 6: When analyzing a loss run, a high frequency of small claims in a commercial auto account most likely indicates:
- A single catastrophic event
- Poor driver training and selection practices (Correct answer)
- Inadequate policy limits
- Intentional fraud by the insured
Correct answer: Poor driver training and selection practices
Frequent small auto claims typically signal systemic problems with driver hiring, training, or supervision practices.
Question 7: An insured reports a claim three years after the policy expired. The underwriter should first review:
- The current replacement policy terms
- The occurrence versus claims-made policy trigger (Correct answer)
- The insured's credit history
- The state licensing requirements
Correct answer: The occurrence versus claims-made policy trigger
Whether the policy uses an occurrence trigger (covers when event happened) or claims-made trigger (requires reporting during policy period) determines coverage applicability.
CU Claims & Loss Analysis 2
A commercial property insurer receives a claim for fire damage.
The adjuster discovers the insured had recently increased coverage just before the fire.
Which concept should the underwriter investigate?