Study 4 – Underwriting the Risk: Property
1. What information about the physical risk might an underwriter look for regarding Homeowners insurance? (p. 3)
In reviewing an application for Homeowners insurance, the underwriter will be looking at:
· Whether the size of the dwelling is inappropriate or perhaps disproportionate to the neighbourhood;
· Whether the construction is in any way odd or unusual;
· Whether the dwelling is served by a high-hazard form of heating or is heated by an emerging technology for which the loss experience has yet to be developed;
· The age of the dwelling;
· Whether the dwelling is under construction or undergoing renovations; and
· Whether the dwelling has concealed spaces that might give rise to or help spread a fire.
2. Why are inspections rarely ordered for personal risks? (p. 4)
Inspections are rarely ordered as they tend to be more uniform and predictable than commercial risks. Inspections are more often ordered for commercial risks which tend to present greater variations in exposure than do personal risks.
3. Why must values be assessed within their contexts? (p. 5)
Values by themselves are less useful than values in context, that is, values compared with such aspects of the risk as its physical characteristics, the applicant’s loss history, and the applicant’s record of employment.
4. How are values in personal lines often determined? (p. 6)
Values in personal lines are often determined by valuation guides produced by such companies as Marshall & Swift/Boeckh (MS/B). The amounts of insurance for other coverage’s such as personal property and additional living expense are often specified percentages of the amount of insurance on the dwelling.
5. What are expert systems? When are they useful to an underwriter? When are they not? (p. 7)
Expert systems are computer software programs that guide underwriters through a risk analysis, prompting them with questions and directing them according to the answers generated by the facts of the risk. These systems generate a kind of “score card” on the risk and are used most extensively for personal lines risks such as homeowners and also for many small and even mid-sized commercial risks.
6. What does the acronym COPE stand for? What would an underwriter use it for? (p. 8)
C – Construction
O – Occupancy
P – Protection
E – Exposure
7. Briefly explain what each of the elements in COPE includes? (p. 8-9)
Construction: includes a description of the types of material used in the walls and roof of the applicant’s building. It may include the size of the build, age, number of storey and type of heating system and fuel.
Occupancy: refers to the use of the property by its occupants. It includes the number of occupants, if there is more than one, along with a description of the operations of each, the space each occupies the hazards associated with each occupancy, and any measures taken to reduce those hazards.
Protection: includes both public and private protection. Public fire protection as discussed in terms of the town grade assigned by each municipality by CGI Insurance Business Services. Private protection includes sprinklers, or other extinguishing systems, fire brigades and fire alarm systems.
Exposure: refers to the chances that the applicant will suffer a loss as a result of proximity to one or more other risks or potential causes of loss to the applicant. Risks may consist of separate buildings near the one the applicant occupies or natural hazards.
8. Why should an underwriter look at the age of a dwelling when assessing risk? (p. 10)
The older the dwelling is, the drier and more flammable any wood used in its construction is likely to be. And the older a dwelling is, the greater the possibility of faulty or older, high-risk wiring or other construction flaws that are corrected in newer homes or less prevalent in them.
9. Why should an underwriter look at how many families or tenants occupy a dwelling when assessing a risk? (p. 11)
The greater the number of people, the greater the amount of activity that could lead to a fire or other insured loss.
10. What is Tenant’s Legal Liability Insurance? (p. 12)
Tenant’s Legal Liability insurance protects a tenant against his/her liability for damages caused by an insured peril to the premises he/she occupies. Although it protects the tenant, Tenants Legal Liability insurance can also be important to the underwriter for the insurer of the dwelling owner.
11. What are “grow ops” and what hazards to they present?
Grow Ops are establishments rented solely for marijuana growing operations. Operators cultivate marijuana plants by turning the rented dwellings into greenhouses.
The increased electricity consumption and often dangerous rewiring create a serious fire hazard. Over time, the high humidity required for the plants causes rotting and mould throughout the house.
12. What are common hazards? What are special hazards? Given an example of each.
A hazard is a condition that may cause a peril to occur.
Common hazards: hazards that are generally found in most occupancies. Heating, lighting, and housekeeping are examples of hazards common to most occupancies.
Special hazards: hazards that uniquely characterize certain occupancies. For example, the deep-fat fryers in restaurants or other occupancies that prepared fried foods.
13. What types of fire protection might an underwriter look for in a dwelling when assessing risk?
· Is the dwelling in an unprotected, semi-protected, or fully protected area?
· Does the dwelling have sprinklers?
· Does the dwelling have fire alarms?
14. Why is it important for an underwriter to have knowledge of the typical natural hazards of a regional or province?
There can be natural hazard that each region or province faces – some unexpected or uncharacteristic for the area, but by knowing the typical natural hazards of a region or province, the underwriter is better equipped to make his/her decision whether to accept or reject the risk.
15. Why are the COPE hazards often heightened for commercial businesses?
The problems facing the commercial business are often heightened because:
· Commercial businesses are often larger than dwellings;
· They often have more than one occupant;
· The occupants’ activities are usually varied and more dangerous than those of a dwelling’s occupants; and
· The exposure of commercial businesses face from surrounding buildings tends to be less predictable and more severe than is true for dwellings.
16. What does it mean if a building has been “grandfathered”? (p. 18)
Being grandfathered is being granted an exemption as an already existing structure from the more stringent requirements that would apply to new structures as they are built. The underwriter might well ask what it was about the area that led to the change in zoning requirements, and how this would affect the risk.
17. What is a true retailer? Why might this be an important characteristic for a business for an underwriter to consider when assessing risk?
A true retailer sells things to consumers, but does not manufacture them on the premises where they are sold. If both aspects are done in the retail store, the risk will be higher since there may be ovens, thus causing heat and therefore a greater risk of fire.
18. Why should an underwriter consider the hours of operation of a business when assessing risk? (p. 20)
The more extended the hours during which a business is open to the public or otherwise in operation, the greater the risk that something may happen to cause a loss.
19. How does vacancy or unoccupancy affect the character of a risk?
Prolonged vacancy, unoccupancy, or nonoperations affect the character of the risk. The property may be unsupervised. It may be vandalized or used by trespassers who may accidentally or deliberately start a fire. If this were to occur, notification of the fire department would be delayed.
20. What is the flash point of a liquid? Why should an underwriter know the flash points of liquids used by the business when assessing risk? (p. 23)
The flash point (the open-cup flash point) of a liquid is the minimum temperature at which the liquid gives off sufficient vapours to form an ignitable mixture with the air near the surface of the liquid or within the test vessel used.
The flash point of a liquid is one of the most important properties of flammable and combustible liquids. The lower the flash point the easier the ignition and the greater the fire hazard.
21. What is an automatic sprinkler system? What should an underwriter look for regarding an automatic sprinkler system when assessing risk? (p. 24)
An automatic sprinkler system for fire protection is a network of specially designed piping on which automatic valves (sprinklers) are located, together with a suitable water supply and alarm devices so designated and assembled that, in the case of a fire in the area covered by the system, the fire is automatically detected and controlled while at the same time an alarm is sounded.
Commercial risks are more likely than personal risks to have sprinkler protection and the underwriter will want to be assured that the system is appropriate for the operations of the business.
The underwriter will try to determine that by assessing the adequacy of the water supply for the system; typically, the system draws on the municipal water supply. The system should also have approved shut off valves, alarm devise, and a proper pumper connection for the fire department to pump additional water into the system in the event of a fire. And the sprinkler heads, which detect fire and distribute water evenly to the areas they protect, should be appropriate to the occupancy. The underwriter should also determine whether all areas have sprinklers that should have sprinklers in a given occupancy. The sprinkler system should also be designed to provide the appropriate amount of protection area per sprinkler head. The maximum allowable protection area per sprinkler head is determined by the occupancy and construction of the building and the method of system design.
22. What are the four stages of fire?
i. At the incipient stage, invisible products of combustion are produced. There is no visible smoke or flame or any significant heat present.
ii. At the smouldering stage, the quantity of combustion particles has increased to the point where they are visible as smoke.
iii. At the flame stage, actual fire now exists. Significant heat is still not present but follows almost instantaneously.
iv. At the heat stage, large amounts of heat, flame, smoke, and toxic gases are produced. This stage develops very quickly.
23. What characteristics of fire extinguishers should an underwriter look for when assessing risk?
The underwriter should determine what kind and how many fire extinguishers are available and whether they are sufficient for the size to the possible fire. Finally, extinguishers must be also regularly serviced to remain functional.
24. What should an underwriter look for when assessing whether or not the employees of a business are prepared for a fire or emergency situation?
The underwriter should be concerned to know how prepared the employees are for a fire or other emergency situation.
The extent and sophistication of such preparation will vary between risks. Large operations might have formal plant brigades or fire emergency teams while offices might have assigned groups of employees as safety marshals who ensure that they leave the build and go to a designated area where they can be accounted for. In smaller risks, the preparation might consist of merely designated someone to call the fire department in the event of a fire or other emergency.
Whether the risk is large or small, the critical concern for any commercial underwriter is a demonstrated consciousness about and concern for safety on the part of the operation’s management.
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