Commercial Underwriting Practices Flashcards
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Read the first 7 Commercial Underwriting Practices flashcards as text
Which underwriting term describes the process of spreading risk across multiple insurers on a single commercial account?
Answer: Subscription or layered placement
A subscription or layered placement divides a large commercial risk among multiple carriers, each taking a defined share or layer of exposure.
An underwriter evaluating a contractor's general liability policy focuses heavily on the 'completed operations' exposure because:
Answer: Injuries or damage can occur long after the work is finished and accepted
Completed operations covers bodily injury or property damage arising from finished work, which can manifest months or years after project completion.
In commercial property underwriting, 'actual cash value' (ACV) differs from 'replacement cost value' (RCV) primarily because ACV:
Answer: Deducts depreciation from the replacement cost
ACV equals replacement cost minus depreciation, meaning older or worn property is settled for less than what new replacement would cost.
A manufacturing firm asks its underwriter about 'contingent business interruption' coverage. This coverage responds when:
Answer: A key supplier or customer suffers a loss that disrupts the insured's operations
Contingent BI covers income losses stemming from a covered loss at a dependent location such as a supplier or key customer, not the insured's own premises.
Which provision in a commercial general liability policy limits the insurer's total payment for all claims during the policy period?
Answer: General aggregate limit
The general aggregate is the maximum the insurer will pay for all covered losses combined in a single policy year, excluding products-completed operations.
An underwriter applying 'adverse selection' controls in commercial lines is MOST concerned about:
Answer: Insuring risks that other carriers have rejected or non-renewed for poor performance
Adverse selection occurs when an insurer disproportionately attracts poor risks; underwriters control this by scrutinizing declines and non-renewals from other carriers.
In a retrospective rating plan for a large commercial account, the final premium is determined by:
Answer: Actual losses incurred during the policy period adjusted within minimum and maximum premium boundaries
Retrospective rating adjusts the premium after the policy period based on actual losses, subject to agreed minimum and maximum premium caps.