PGI Advanced General Insurance Principles 2

Question 1

In commercial property underwriting, what is 'maximum probable loss' (MPL)?

Accepted Answer

The estimated maximum loss likely to occur assuming partial failure of protective systems

Answer

Maximum Probable Loss (MPL) is the estimated largest loss likely to occur from a single event, assuming the worst reasonably probable circumstances (e.g., partial failure of sprinklers), used by underwriters to assess accumulation risk.

Question 2

What is 'estimated maximum loss' (EML) and how does it differ from MPL?

Accepted Answer

EML assumes total failure of all protective systems; MPL assumes partial failure — EML is the more pessimistic estimate

Answer

Estimated Maximum Loss (EML) assumes total failure of all protective measures (e.g., sprinklers fail completely, fire brigade does not arrive), making it more pessimistic than MPL. EML represents the worst credible loss scenario.

Question 3

What is a 'block policy' in commercial insurance?

Accepted Answer

A policy covering multiple items or locations of similar nature under a single policy document

Answer

A block policy covers multiple items of a similar type (e.g., goods held in trust, fine art) or multiple locations under a single policy, simplifying administration and ensuring comprehensive coverage across the portfolio.

Question 4

What is 'named perils' versus 'open perils' coverage in commercial property insurance?

Accepted Answer

Named perils covers only specific listed perils; open perils covers all perils except specifically excluded ones

Answer

Named perils coverage responds only to losses caused by perils specifically listed in the policy. Open perils (all risks) coverage responds to any loss unless the cause is specifically excluded — providing much broader coverage.

Question 5

What is the purpose of 'business continuity planning' in the context of commercial insurance?

Accepted Answer

Identifying and managing risks to ensure critical business functions continue during and after a disruption

Answer

Business continuity planning identifies critical processes, assesses risks to them, and establishes procedures to maintain essential functions during disruptions. Insurers assess the quality of continuity plans when underwriting business interruption risks.

PGI Insurance Practice Test

PGI Insurance Practice Test

PGI Advanced General Insurance Principles 2