CAIB 2 - CHAPTER 2 IBABC Exam Questions and Verified Answers

A proposal for insurance that's presented to the underwriter for consideration. It can include an application, and additional verbal and written information (i.e., previous policy premium, loss details and history, financial statements and photos). - ANSWER-"Submission." 1) Assists to identify loss exposures; 2) Helps eliminate purchase of coverage that isn't needed; 3) Assists in development of underwriting information the insurer needs. - ANSWER-Three purposes of survey forms. 1) Alerts broker to possible loss exposures; 2) Ensures needed coverages are not overlooked; 2) Helps reduce potential for an E&O claim. - ANSWER-Three advantages of using a property checklist with clients. Frame. - ANSWER-The type of commercial building construction that's likely to produce the highest insurance rate. Fire resistive. - ANSWER-The type of commercial building construction that's likely to produce the lowest insurance rate. 25 years or older. - ANSWER-The age a building has to be for an insurer to request information about recent renovations or upgrading. 1) Roof; 2) Wiring; 3) Over-current protection; 4) Plumbing; 5) Heating. - ANSWER-The five kinds of building upgrades to a building that are likely of most interest to insurers. 1) Heating; 2) Electrical services; 3) Detachment; 4) Protection; 5) Occupancy. - ANSWER-Five hazards common to most commercial property risks. Because the proximity to other commercial buildings can increase the risk. - ANSWER-Why the distance or detachment from other commercial risks is an important rating consideration. 1) Private protection - what the insured has done to prevent or reduce loss; 2) Public protection - the external protection provided to the property (e.g., availability of fire fighting services). - ANSWER-The two kinds of protection that insurers consider when they establish a rate or premium. A building that has met minimum standards in terms of hours it will withstand a specific, carefully controlled test fire. - ANSWER-"Fire resistive." All structural members including floors, roofs and their supports are constructed of steel, iron, concrete or other non-combustible materials. Exterior also must be of non-combustible construction. Falls just short of "fire resistive". - ANSWER-"Non-combustive." Conditions common to all buildings that influence their potential for loss. - ANSWER-"Common hazards." The proximity of the building insured or that contains the property insured to other commercial buildings. - ANSWER-"Detachment." Occurs when applicants for insurance are mainly those most likely to suffer a loss. Too many of these insureds will increase the insurer's overall claims. - ANSWER-"Adverse selection", and how it can impact an insurer's loss experience. The grouping or classifying of risks according to established criteria, mainly based on their probability for loss as a class. - ANSWER-"Risk classification." Considers individual submissions on their own merits, regardless of the class they belong to. - ANSWER-"Individual risk underwriting." 1) Rising claims costs due to inflation; 2) Changes in interest rates paid on investments. - ANSWER-Two facts that can cause insurers to change premiums. Characterized by intense competition, rates tend to be low. - ANSWER-The characteristics of a "soft market". Low profit margins force out some of the competition, insurers have a more disciplined underwriting approach, little or no rate discounts. - ANSWER-The characteristics of a "hard market". A condition that may cause a peril to occur. - ANSWER-"Hazard."