PGI Commercial Lines Underwriting 2 — Questions and Answers
Question 1: What is 'construction all risks' (CAR) insurance and who typically purchases it?
- Only building owners purchase CAR policies
- CAR covers accidental physical damage to construction works; typically purchased by contractors or project owners for building projects (Correct answer)
- CAR is only for road construction projects
- CAR is purchased by building material suppliers only
Correct answer: CAR covers accidental physical damage to construction works; typically purchased by contractors or project owners for building projects
Construction All Risks (CAR) insurance covers accidental physical damage to the contract works, temporary works, and third-party liability during construction. It is typically arranged by the main contractor, project owner, or both under a joint names policy.
Question 2: What underwriting information is most critical for a commercial general liability (CGL) risk?
- The insured's marketing budget
- Nature and scale of operations, annual turnover, number of employees, claims history, and contractual liabilities assumed (Correct answer)
- The insured's banking relationships
- The insured's business plan only
Correct answer: Nature and scale of operations, annual turnover, number of employees, claims history, and contractual liabilities assumed
For CGL underwriting, critical information includes the nature of operations (what activities create liability exposure), scale (turnover, employee count), contractual liabilities assumed, and claims history — all determining the likelihood and severity of liability claims.
Question 3: What is 'umbrella liability' insurance and how does it work with underlying policies?
- A single policy replacing all other liability policies
- A policy providing additional limits above the underlying liability policy limits, dropping down to cover gaps in underlying coverage (Correct answer)
- An umbrella policy covering only weather-related liability
- A policy covering only the director of a company
Correct answer: A policy providing additional limits above the underlying liability policy limits, dropping down to cover gaps in underlying coverage
Umbrella liability provides additional limits above those of underlying policies (CGL, auto, employers' liability). It also 'drops down' to cover certain gaps where underlying policies have exhausted or do not respond, providing broader and deeper coverage.
Question 4: What is 'trade credit insurance' and what risk does it address for Singapore businesses?
- Insurance for credit cards used for business expenses
- Insurance protecting businesses against the risk of non-payment by their customers due to insolvency or protracted default (Correct answer)
- Insurance for bank credit facilities
- Coverage for currency exchange losses on trade transactions
Correct answer: Insurance protecting businesses against the risk of non-payment by their customers due to insolvency or protracted default
Trade credit insurance protects sellers against the risk that buyers fail to pay for goods or services delivered, typically due to insolvency or protracted default. It is particularly relevant for Singapore exporters selling on credit terms.
Question 5: What is 'political risk insurance' for companies operating in Singapore and regionally?
- Insurance against changes in Singapore domestic politics
- Coverage for financial losses arising from political events such as expropriation, political violence, or currency inconvertibility in foreign markets (Correct answer)
- Coverage for losses from political lobbying activities
- Insurance for politicians against liability claims
Correct answer: Coverage for financial losses arising from political events such as expropriation, political violence, or currency inconvertibility in foreign markets
Political risk insurance covers financial losses arising from political events in foreign markets — including government expropriation of assets, political violence, contract frustration by foreign governments, or currency inconvertibility — relevant for Singapore companies investing regionally.
Question 6: What is 'delay in start-up' (DSU) insurance in the context of major projects?
- Coverage for delays caused by worker strikes only
- Coverage for financial losses (typically lost revenue) arising from delay in starting commercial operations due to an insured physical damage event during construction (Correct answer)
- Coverage for pre-construction delays
- Coverage for administrative delays in obtaining permits
Correct answer: Coverage for financial losses (typically lost revenue) arising from delay in starting commercial operations due to an insured physical damage event during construction
DSU insurance covers the financial consequences — typically lost revenue and ongoing debt servicing — arising when a major project cannot commence operations on schedule due to an insured physical damage event during the construction phase.
PGI Commercial Lines Underwriting 2
What is 'construction all risks' (CAR) insurance and who typically purchases it?