AU 61 Questions with CORRECT Answers
Question:
What factors do you think determine the severity of a time element loss?
Answer:
The severity of a time element loss depends not only on anticipated revenue and
expense figures, but also on the length of time over which the loss occurs, the rate at
which the loss occurs during that period, and the specific period of time in which the
loss occurs.
Question:
Probable maximum loss (PML):
Answer:
The largest loss that an insured is likely to sustain.
Question:
Period of Restoration:
Answer:
The period during which business income loss is covered under the BIC forms; it begins
72 hours after the physical loss occurs and ends when the property is (or should have
been) restored to use with reasonable speed. (With regard to extra expense coverage, it
begins immediately after the physical loss occurs.)
Question:
Actual loss sustained:
Answer:
A valuation method in business income policies designed to make the insured whole by
demonstrating the actual amount of loss that occurs during the period of restoration.
Question:
Business income worksheet:
Answer:
A worksheet for calculating the amount of insurance necessary to comply with the
Coinsurance condition of business income insurance forms, for reporting business
income values to the insurer, or for providing underwriters with information they need to
evaluate an organization's business income loss exposure.
, Question:
Why do you think direct PML is the logical starting point for estimating business income
PML?
Answer:
An important factor in determining the length of time the insured needs to recover from
a direct loss is severity of the loss. Business income losses follow direct losses, so no
indirect loss can occur without a direct loss. Therefore, the direct PML is the logical
starting point for estimating the business income PML.
Question:
Why do you think the inability to accurately project business income introduces
uncertainty into the PML calculation?
Answer:
The inability to accurately project business income introduces uncertainty into the PML
calculation because, for example, if sales are better or costs are lower than anticipated,
the insured's estimate of business income values and the PML established based on
these values will be understated.
Question:
What do you think are some of the most important factors about damaged property that
affect the period of restoration?
Answer:
Importance of the property to the insured's operations.
Question:
-Time required to rebuild or replace the property. -Existence of business continuity and
disaster recovery plans. These are four alternatives to waiting a long time for
replacement equipment:
Answer:
Substitute equipment that is available in a shorter time.
Question:
-Maintain spares. -Convert to a different process. -Use rented equipment. A business
continuity plan (BCP):
Answer:
Allows an organization to anticipate its response to potential disruption and determine
the crucial functions that must continue so that it survives, recovers, and resumes
growth.
Question:
What factors do you think determine the severity of a time element loss?
Answer:
The severity of a time element loss depends not only on anticipated revenue and
expense figures, but also on the length of time over which the loss occurs, the rate at
which the loss occurs during that period, and the specific period of time in which the
loss occurs.
Question:
Probable maximum loss (PML):
Answer:
The largest loss that an insured is likely to sustain.
Question:
Period of Restoration:
Answer:
The period during which business income loss is covered under the BIC forms; it begins
72 hours after the physical loss occurs and ends when the property is (or should have
been) restored to use with reasonable speed. (With regard to extra expense coverage, it
begins immediately after the physical loss occurs.)
Question:
Actual loss sustained:
Answer:
A valuation method in business income policies designed to make the insured whole by
demonstrating the actual amount of loss that occurs during the period of restoration.
Question:
Business income worksheet:
Answer:
A worksheet for calculating the amount of insurance necessary to comply with the
Coinsurance condition of business income insurance forms, for reporting business
income values to the insurer, or for providing underwriters with information they need to
evaluate an organization's business income loss exposure.
, Question:
Why do you think direct PML is the logical starting point for estimating business income
PML?
Answer:
An important factor in determining the length of time the insured needs to recover from
a direct loss is severity of the loss. Business income losses follow direct losses, so no
indirect loss can occur without a direct loss. Therefore, the direct PML is the logical
starting point for estimating the business income PML.
Question:
Why do you think the inability to accurately project business income introduces
uncertainty into the PML calculation?
Answer:
The inability to accurately project business income introduces uncertainty into the PML
calculation because, for example, if sales are better or costs are lower than anticipated,
the insured's estimate of business income values and the PML established based on
these values will be understated.
Question:
What do you think are some of the most important factors about damaged property that
affect the period of restoration?
Answer:
Importance of the property to the insured's operations.
Question:
-Time required to rebuild or replace the property. -Existence of business continuity and
disaster recovery plans. These are four alternatives to waiting a long time for
replacement equipment:
Answer:
Substitute equipment that is available in a shorter time.
Question:
-Maintain spares. -Convert to a different process. -Use rented equipment. A business
continuity plan (BCP):
Answer:
Allows an organization to anticipate its response to potential disruption and determine
the crucial functions that must continue so that it survives, recovers, and resumes
growth.
