Commercial Underwriting Practices Flashcards
7 cards from real CU practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Commercial Underwriting Practices flashcards as text
A commercial underwriter reviewing a hotel submission is MOST concerned about which liability exposure unique to hospitality operations?
Answer: Liquor liability from the hotel bar and special events
Liquor liability is a significant and often excluded exposure for hotels with bars or banquet facilities, requiring a separate dram shop endorsement or policy.
The purpose of an 'expected loss ratio' (ELR) in commercial lines underwriting is to:
Answer: Serve as the credibility-weighted benchmark loss ratio for experience rating calculations
The ELR represents the anticipated loss ratio for a class and serves as the stable benchmark when blending actual experience with expected experience in experience rating formulas.
Which of the following BEST describes the underwriting concept of 'adverse development' in reserving?
Answer: Previously established reserves proving insufficient as a claim matures and costs increase
Adverse development occurs when actual claim costs exceed the reserves initially set, requiring the insurer to strengthen reserves and recognize additional losses.
An underwriter is analyzing a technology company's professional liability (E&O) submission. Which factor is MOST critical in evaluating this risk?
Answer: The nature of services provided and potential downstream financial impact on clients
For tech E&O, the type of service and the financial harm a software failure or error could cause clients determines severity potential more than any physical factor.
Which underwriting action BEST demonstrates the principle of 'risk selection' in commercial lines?
Answer: Declining or modifying risks whose expected losses exceed acceptable profitability thresholds
Risk selection is the core underwriting function of choosing which risks to accept, decline, or modify to maintain a profitable, balanced portfolio.
In commercial property underwriting, 'business income with extra expense' coverage differs from 'business income only' coverage in that extra expense:
Answer: Covers additional costs incurred to continue operations or minimize the business income loss
Extra expense covers costs above and beyond normal operating expenses that the insured incurs to keep the business running or reduce the income loss after a covered property loss.
When a commercial underwriter applies the 'law of large numbers' to portfolio management, the MAIN implication is that:
Answer: A larger book of similar, independent risks produces more stable and predictable aggregate loss results
The law of large numbers states that as the number of similar independent exposures increases, actual results converge toward the expected statistical average.