CU Personal Lines Risk Evaluation 2 — Questions and Answers
Question 1: An applicant's home is located in a coastal flood zone with a history of storm surge. Which factor most directly increases the underwriting risk for homeowners coverage?
- Proximity to a fire station
- FEMA Special Flood Hazard Area designation (Correct answer)
- Age of the roof
- Credit score of the applicant
Correct answer: FEMA Special Flood Hazard Area designation
A FEMA Special Flood Hazard Area designation signals high probability of flooding, directly elevating the risk of catastrophic property loss.
Question 2: When evaluating a personal auto application, a driver with three at-fault accidents in three years would most likely be classified as:
- Preferred risk
- Standard risk
- Non-standard or high-risk (Correct answer)
- Uninsurable under any program
Correct answer: Non-standard or high-risk
Multiple at-fault accidents indicate a pattern of unsafe driving, placing the applicant in the non-standard or high-risk tier.
Question 3: A homeowner installs a monitored central-station burglar alarm. How does this typically affect the underwriting evaluation?
- It increases the premium due to added liability
- It is irrelevant to property underwriting
- It is treated as a protective device credit reducing risk (Correct answer)
- It requires a separate inland marine policy
Correct answer: It is treated as a protective device credit reducing risk
Monitored central-station alarms reduce theft loss probability and are recognized as protective device credits in personal lines underwriting.
Question 4: Which of the following best describes the concept of 'moral hazard' in personal lines underwriting?
- The physical condition of the insured property
- An insured's dishonest tendency to cause or exaggerate a loss for financial gain (Correct answer)
- The likelihood of a natural disaster in a geographic region
- The applicant's inability to afford the premium
Correct answer: An insured's dishonest tendency to cause or exaggerate a loss for financial gain
Moral hazard refers to the increased risk of intentional or dishonest behavior by the insured to collect insurance proceeds.
Question 5: An underwriter reviewing a personal umbrella application notes the insured owns a swimming pool without a fence. This primarily raises concern about:
- Property replacement cost accuracy
- Liability exposure due to an attractive nuisance (Correct answer)
- Subrogation rights against neighbors
- Workers compensation coverage gaps
Correct answer: Liability exposure due to an attractive nuisance
An unfenced pool is an attractive nuisance that significantly increases the insured's liability exposure, especially to children.
Question 6: In personal lines underwriting, 'morale hazard' differs from moral hazard in that it refers to:
- Intentional fraudulent acts by the insured
- Carelessness or indifference to loss prevention due to having insurance (Correct answer)
- The geographic location of the insured property
- The financial stability of the insurance carrier
Correct answer: Carelessness or indifference to loss prevention due to having insurance
Morale hazard is the increase in risk caused by an insured's careless attitude toward loss prevention because they know losses will be covered.
Question 7: A personal auto applicant has a DUI conviction within the past two years. How does this typically affect insurability?
- It has no effect if the driver completed a safety course
- It may result in declination or placement in a non-standard market (Correct answer)
- It only affects commercial auto policies
- It automatically disqualifies the applicant permanently
Correct answer: It may result in declination or placement in a non-standard market
A recent DUI conviction indicates impaired driving risk, typically resulting in higher premiums or placement in the non-standard or assigned risk market.
CU Personal Lines Risk Evaluation 2
An applicant's home is located in a coastal flood zone with a history of storm surge.
Which factor most directly increases the underwriting risk for homeowners coverage?