CU Risk Assessment and Selection 3

Question 1

When evaluating a new workers' compensation account, which industry classification factor MOST directly affects the manual premium?

Accepted Answer

The payroll assigned to each job classification code

Answer

Workers' compensation premiums are calculated by multiplying the payroll per $100 by the applicable class code rate, making payroll allocation to correct classification codes critical.

Question 2

A 'monoline' policy differs from a 'package' policy in that:

Accepted Answer

Monoline covers only a single line of insurance, while a package combines multiple coverages

Answer

A monoline policy covers a single line of insurance (e.g., property only), whereas a package policy combines two or more lines (e.g., property and liability) under one contract.

Question 3

Which of the following BEST describes the purpose of an 'inspection report' in the underwriting process?

Accepted Answer

To verify and supplement information provided on the application

Answer

An inspection report, conducted by the insurer or a third-party vendor, verifies application information and identifies physical hazards not disclosed by the applicant.

Question 4

The 'maximum possible loss' (MPL) differs from the 'probable maximum loss' (PML) in that:

Accepted Answer

MPL assumes total destruction of the insured property, while PML is a realistic worst-case estimate

Answer

MPL represents the worst conceivable loss assuming all safety systems fail, while PML is a more realistic estimate of the largest loss likely to occur given normal functioning of protective features.

Question 5

An underwriter discovers that a new commercial property applicant is also the insured's own landlord and property manager. This situation primarily raises concerns about:

Accepted Answer

Potential moral hazard and conflicts of interest in the relationship

Answer

When the insured controls both sides of the property relationship, it creates a moral hazard concern because they may be motivated to inflate claims or manufacture losses.

(CU) Certified Underwriter Practice Test

(CU) Certified Underwriter Practice Test

CU Risk Assessment and Selection 3