CU Commercial Underwriting Practices 2 — Questions and Answers
Question 1: When underwriting a commercial property risk, which factor is MOST significant in determining the maximum probable loss (MPL)?
- Geographic location of the property
- Construction type and fire suppression systems (Correct answer)
- Age of the business entity
- Number of employees on-site
Correct answer: Construction type and fire suppression systems
Construction type and fire suppression systems directly determine how far a fire or disaster can spread, which drives the MPL estimate.
Question 2: A commercial underwriter reviewing a manufacturer's submission notes the facility stores flammable raw materials in a wood-frame warehouse. Which underwriting action is MOST appropriate?
- Decline the risk outright
- Accept with standard rates
- Require sprinkler installation or apply a significant surcharge (Correct answer)
- Refer the risk to the marketing department
Correct answer: Require sprinkler installation or apply a significant surcharge
Flammable materials in wood-frame structures represent elevated fire hazard, warranting loss-control requirements or rate adjustments before binding.
Question 3: Which document in a commercial submission provides the underwriter with a five-year history of losses including reserve amounts?
- ACORD 125 Commercial Insurance Application
- Loss runs (Correct answer)
- Schedule rating worksheet
- Inspection report
Correct answer: Loss runs
Loss runs are carrier-supplied documents showing historical claims, paid amounts, and outstanding reserves by policy year.
Question 4: An underwriter applies an experience modification factor of 1.15 to a commercial account. What does this indicate?
- The account's losses are 15% below the expected average
- The account's losses are 15% above the expected average (Correct answer)
- The premium is discounted by 15%
- The policy limit is increased by 15%
Correct answer: The account's losses are 15% above the expected average
An experience mod above 1.0 indicates adverse loss history relative to the expected losses for that class, resulting in a surcharge.
Question 5: In commercial liability underwriting, the term 'occurrence basis' means the policy covers:
- Claims filed during the policy period regardless of when the injury occurred
- Losses arising from incidents that occur during the policy period (Correct answer)
- Only losses reported within 30 days of the policy expiration
- Aggregate claims capped at the per-occurrence limit
Correct answer: Losses arising from incidents that occur during the policy period
An occurrence policy triggers on the date the bodily injury or property damage actually takes place, not when the claim is filed.
Question 6: Which rating element is unique to commercial auto underwriting compared to personal auto underwriting?
- Driver age and gender
- Vehicle use classification (radius of operations and business use) (Correct answer)
- Prior insurance carrier
- Annual mileage estimates
Correct answer: Vehicle use classification (radius of operations and business use)
Commercial auto rates heavily on business use class, radius of operations, and vehicle weight, factors absent in personal auto rating.
Question 7: A commercial underwriter discovers a prior carrier non-renewed an account due to repeated slip-and-fall claims. This information MOST likely affects the underwriter's decision regarding:
- Property valuation
- General liability acceptability and pricing (Correct answer)
- Workers compensation experience mod
- Commercial auto fleet rating
Correct answer: General liability acceptability and pricing
Repeated premises liability claims signal a persistent hazard that directly affects general liability risk appetite and premium adequacy.
CU Commercial Underwriting Practices 2
When underwriting a commercial property risk, which factor is MOST significant in determining the maximum probable loss (MPL)?