CU Personal Lines Risk Evaluation 3 — Questions and Answers
Question 1: When underwriting a dwelling policy for an older home, which condition would most concern an underwriter evaluating physical hazards?
- The home has updated copper plumbing
- The home has knob-and-tube wiring that has not been updated (Correct answer)
- The home has a newer asphalt shingle roof
- The home is owner-occupied
Correct answer: The home has knob-and-tube wiring that has not been updated
Knob-and-tube wiring is a serious fire hazard and a major physical hazard that underwriters weigh heavily when evaluating older homes.
Question 2: An applicant for homeowners insurance reports owning an aggressive breed dog previously involved in a bite incident. The underwriter's primary concern is:
- Increased fire risk from pet bedding
- Elevated liability exposure from potential future bites (Correct answer)
- Higher medical payments for the insured's family
- Reduced replacement cost value of the dwelling
Correct answer: Elevated liability exposure from potential future bites
A dog with a prior bite history significantly increases the insured's liability exposure for future incidents, a key concern in personal lines risk evaluation.
Question 3: The Insurance Services Office (ISO) territory rating factor in personal auto insurance is primarily based on:
- The applicant's credit history
- Geographic location where the vehicle is principally garaged (Correct answer)
- The vehicle's horsepower rating
- The number of drivers in the household
Correct answer: Geographic location where the vehicle is principally garaged
ISO territory factors reflect loss experience for a geographic area where the vehicle is garaged, accounting for local accident and theft rates.
Question 4: Which underwriting tool helps personal lines underwriters verify reported property characteristics and identify undisclosed risks?
- Actuarial tables only
- Inspection reports and aerial imagery (Correct answer)
- Applicant credit score alone
- Motor vehicle reports
Correct answer: Inspection reports and aerial imagery
Inspection reports and aerial imagery allow underwriters to verify property conditions, construction type, and identify unreported hazards like trampolines or pool additions.
Question 5: A homeowner's property is insured for $150,000 but has a replacement cost of $250,000. This situation is known as:
- Adverse selection
- Coinsurance penalty exposure
- Underinsurance or inadequate-to-value (Correct answer)
- Over-insurance
Correct answer: Underinsurance or inadequate-to-value
When a property is insured for less than its replacement cost, it is underinsured, which can result in a coinsurance penalty in the event of a partial loss.
Question 6: In personal auto underwriting, a vehicle with a high 'symbol' rating typically indicates:
- Lower collision and comprehensive loss costs
- Higher collision and comprehensive loss costs relative to similar vehicles (Correct answer)
- The vehicle qualifies for a preferred rate
- The vehicle is exempt from surcharges
Correct answer: Higher collision and comprehensive loss costs relative to similar vehicles
ISO vehicle symbols reflect expected physical damage loss costs, with higher symbols indicating more expensive or theft-prone vehicles.
Question 7: When an underwriter discovers that an applicant failed to disclose a previous homeowners claim on the application, the underwriter should primarily be concerned about:
- Actuarial credibility of the rate
- Material misrepresentation and its effect on policy validity (Correct answer)
- The need to file a new rating plan
- Reinsurance treaty triggers
Correct answer: Material misrepresentation and its effect on policy validity
Concealing a prior claim constitutes material misrepresentation, which can void the policy or affect claim payments under most state insurance laws.
CU Personal Lines Risk Evaluation 3
When underwriting a dwelling policy for an older home, which condition would most concern an underwriter evaluating physical hazards?