CPCU 551 1-5ish

Name a predominant risk financing technique

Insurance

Organizations must manage four categories of loss exposure

Property, Liability, Personnel and Net Income

6 Risk Management Process Steps

Identify, Analyze, Examine feasibility of risk mgmt techniques, Select the appropriate technique, Implement the technique, Monitor and revise as needed

All risk mgmt techniques are classified as _____________ or ____________

risk control or risk financing

Risk Control techniques

Avoidance, prevention, reduction, separation, duplication or diversification

Risk Financing techniques

Retention or transfer

Peril

Cause of loss

Hazard

a condition that increases the frequency and/or severity of a loss

Risk control measures are designed to _______________

deal with the links in the chain of events leading to loss

Fire stop

solid pieces of material that are inserted between wall studs or other supporting member to delay the flow of heat

Fire wall

a self supporting sold wall that prevents a firs from passing through or around it

Fire division

a space in a building that is separated from other spaces in the building by a fire wall

a fire requires three elements

an initial source of heat, oxygen and fuel

Three types of theft

Burglary, robbery and employee theft

Burglary

theft by someone who forcibly enters the place where the property is kept

Robbery

involves the use or threat of force against the person from whom the property is taken

venting

using solid barriers, such as an earthen bank, to direct the force towards open air

Three common formats for Commercial Insurance

The Commercial package policy, the business owners policy, and the output policy

Commercial Package policy (CPP)

Policy that covers two or more lines of business by combining ISO's commercial lines coverages parts

Business Owners Policy (BOP)

A package policy that combines most of the property and liability coverages needed by small and medium sized business

Output policy

A policy that combines in one form and associated endorsements, all or most of the commercial property coverages that the insured organization needs, and uses a flexible rating plan

Non standard forms

forms independently developed by insurers' or brokers'

A CPP policy must cover

Buildings and/or business personal property and general liability. Other coverages may be added

A CPP policy has the following parts to the policy

One of more declarations forms, one or more coverage forms, for some lines a general condition form and endorsements as well as a common dec form and a common policy condition form

A BOP policy typically covers

building and business income and extra expense coverage, and the equivalent of general liability coverage.

A BOP form have the following parts to the policy

resembles a homeowners policy in the way standard coverages are packaged and in the simplified rating

Output policy typically covers

covers that CPP would cover plus crime, inland marine, and equipment breakdown

Output policies have the following parts to the policy

Declarations, definitions, insuring agreements, exclusions, misc provisions and conditions

Policy condition

an insurance policy provision that qualifies an otherwise enforceable promise of the insurer

6 Common Policy Conditions in the CPP form

Cancellation, Changes, Examinations of books and records, Inspections and Surveys, Premiums, Transfer of rights and duties under this policy

Commercial Property Conditions

A required component of the CPP coverage part that contains conditions applicable to all commercial property coverage forms

Actual Cash Value

Cost to replace property with new property of like kind and quality less depreciation

Replacement Cost

The cost to repair or replace property using new materials of like kind and quality with no deduction for depreciation

Selling price is a valuation method used when?

in commercial property coverage forms to value stock that has been sold but not delivered.

9 Commercial Property Conditions in the CPP form

Concealment Misrepresentation or Fraud
Control of Property
Insurance under two or more coverages
Liberalization
No benefit to bailee
Other insurance
Policy period and coverage territory
Transfer for rights of recovery against others to us

coinsurance formula

Limit of insurance divided by the product of value of covered property times the coinsurance percentage multiplied by the amount of the covered loss less the deductible...did over should times loss

Varancy Permit Endorsement

brings back full coverage for vacant buildings for additional premium

Duties in the event of a loss

Promptly give notice
file a policy report if a law has been broken
protect the covered property from further loss
provide complete inventory of damaged property
allow inspection of property and records
allow for questioning under oath or sworn statement

Vacancy

If vacant for 60 days or more prior to the loss the policy will not cover loss caused by vandalism, sprinker leakage (unless you took steps to avoid freezing) building glass breakage, water damage, theft or attempted theft otherwise the payment is 85% of

Recovered property

If recoverered after loss settlement insured can keep it if they return the insurance payment

mortgage holder condition

losses are paid to each mortgagee in the order in which they appear. If the insured is denied covergude to to acts or omissions, the mortgage can still collect if the premium has been paid, they sign a sworn statement of loss within 60 days of request, ha

4 options for Loss payable Provisions Endorsement

Loss payable
Lender's loss payable
Contract of Sale (abbreviated ATIMA)
Building Owner Loss Payable

Loss payable

Entitled only to joint loss payment with the insured

Lender's loss payable

Entitled to joint loss payment whose interest is established through written agreements

Contract of Sale (ATIMA)

The buyer or seller in a contract of sale entitled to joint payment as their interests may appear

Building Owner loss payable

The owner of a building in which the tenant is an insured is entitled to payment for losses to the building

Appraisal

Artifact used to settle dispute on value of property

Valuation approach in the BPP form

Actual Cash Value
Replacement Cost
Selling price - pertaining to stock

The insured owns a building that was previously rented to a retail store. The retail store went out of business four months ago, and the building has been vacant since then. The current building value is $1,800,000. The building is insured on a Commercial

The result of the fire is that the insured will receive only a portion of the loss payment because the insured did not meet the coinsurance condition.

An insured owns a mortgaged building that is damaged by accidental fire and insured under a commercial property policy. According to the Insured's Duties in the Event of Loss, the insured must

Sign a sworn proof of loss if requested by the insurer

The objective of taking the human behavior approach to risk control measures is to reduce

The frequency of unsafe acts

Various building design features can help prevent the spread of a hostile fire. For example, a solid piece of material that is inserted between wall studs to delay the flow of heat or fire through this open space is a

Fire stop

The risk manager of a midsize manufacturing company would like several coverage enhancements and a seamless approach to insurance for their Building and Business Personal Property, Inland Marine and Crime insurance. What type of policy format would best s

Output policy

The inspections and surveys condition clarifies that the insurer does not make

Safety inspections.

The inspections and surveys condition, a common policy condition attached to the ISO Commercial Package Policy, makes it clear that the insurer has the right to inspect the insured premises and

May recommend changes

The affect of the control of property condition in a commercial property policy is best summarized as

If the insured does not have control of the property, any act of neglect by others will not affect coverage.

An insured who owns a large business is comparing the different types of commercial insurance policies. The insured would likely choose a Commercial Package Policy because it will provide

The option to add lines of insurance for all coverages that are needed.

The risk manager for a group of convenience stores has begun the six step risk management process. He has analyzed various risk control techniques as well as their feasibility for use in the stores. He has identified that a key loss exposure is the risk o

Select the appropriate risk management technique

A policy that covers two or more lines of business by combining ISO's Commercial Lines coverage parts is

A commercial package policy.

Risk control measures may take both a human behavior approach and

An engineering approach

An insured is reviewing the Commercial Package Policy (CPP) to determine which conditions apply to all coverage parts in the policy. One of those conditions states that

The insurer has the right to do an on-site inspection of the insured's books and records.

Which one of the following statements is true regarding the other insurance condition of the Commercial Property Policy (CPP) conditions?

If all the terms, provisions, and conditions are the same on both policies, each insurer pays its share on a pro rata basis

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Write your own (WYO)

A program allowing private insurers to write flood insurance under the National Flood Insurance Program

Emergency Program

Initial phase of a community's participation in the National Flood Insurance Program in which property owners in flood areas can purchase limited amounts of insurance at a subsidized rate

Regular Program

Second phase of the National Flood Insurance Program in which the community agrees to adopt flood control and land-use restrictions and in which property owners purchase higher amounts of flood insurance that under the emergency program

General Property Form

The version of the National Flood Insurance Program Standard Flood Insurance policy that is used for insuring commercial building and contents

Residential Condominium Business Association Policy (RCBAP)

A version of the National Insurance Flood Insurance Program Standard Insurance policy that is used for insuring residential condominium buildings as well as contents that are owned either by the unit owners in common or by the condominium association sole

Coinsurance

An insurance to value provision in many property insurance policies providing that if the property is under-insured, the amount that an insurer will pay for a covered loss is reduced

Increased Cost of Compliance (ICC)

National Flood Insurance coverage that pays for compliance costs related to floodplain management for qualifying structures

Difference in Conditions (DIC) policy or DIC Insurance

Policy that covers on an all-risk basis to fill gaps in the insured's commercial property coverage, especially gaps in flood and earthquake coverage

Highly protected risk (HPR)

A large property whose construction meets high standards of risk, mitigation and control characteristics and whose management maintains best practices loss control and risk mitigation techniques for the specific occupancy

Layered property coverage

Two or more property policies arranged in levels of coverage, the policies in the second or higher levels provide coverage only when the loss exceeds the coverage afforded by the lower level policies

Attachment point

The dollar amount above which the reinsurer responds to losses

The National Flood Insurance Policy (NFIP) comes in two distinct forms. One of the forms is the

General Property Coverage Form.

Coverage under the National Flood Insurance Program's (NFIP) Residential Condominium Building Association Policy (RCBAP) is similar to that found in the General Property Form. However, one distinct difference is

The NFIP offers replacement cost coverage on building property insured under a RCBAP.

Warehouse, Inc. covers its building and personal property for a $2,000,000 blanket limit with a Building and Personal Property (BPP) Causes of Loss�Special Form. The National Flood Insurance Program (NFIP) will act as the primary carrier for flood, even t

$2,000,000, the blanket limit for building and personal property due to the ensuing loss clause

A national manufacturer garages its vehicles at ten central locations. It self insures routine automobile physical damage for fender benders and many of the total losses on moderately priced vehicles. It wishes to cover this exposure under a policy other

An output policy can cover automobile physical damage.

ABC Company has a constant need to move its inventory among its locations throughout the United States. It also temporarily keeps inventory at trade shows and at many different locations, including customers' facilities and public warehouses. Ignoring lia

An output policy would best suit ABC Company's needs.

Nationwide Marine definition

Statement of the types of property that may be insured on inland marine and ocean marine insurance forms

Nonfiled classes (uncontrolled classes)

The classes of inland marine business for which neither policy forms not rates must be filed with the state insurance department

Filed classes (controlled classes)

The classes of inland marine business for which policy forms and/or rates must be filed with the state insurance department

Floater

A policy designed to cover property that floats or moves from location to location

Invoice value

A valuation basis that values covered property at its invoice value including freight

Agreed value method

A method of valuing property in which the insurer and the insured agree at the time the policy is written on the maximum amount that will be paid in the event of a total loss

Shipper

The person or organization shipping goods, often the seller of the goods

Consignee

The person or organization that receives property being transported by a carrier

Common carriers

Airlines railroads or trucking companies that furnish transportation to any member of the public seeking their offered services

Contract carriers

Carriers that furnish transportation services to shippers with whom they have contracts

Act of God

A natural and unavoiable catastrophe that interrupts the expected course of events

Inherent vice

A quality of or condition within a particular type of property that tends to make the property destroy itself...example eggs going bad if shipped without refrigeration

Bill of lading

A document acknowledging receipt of goods from the shipper, given by the carrier, which includes the terms of the contract of carriage for the goods.

Charter

A travel contract in which transportation is temporarily hired for a specific trip

Annual transit policy

Policy that covers all shipments made or received by the insured throughout a one year policy period

Open cargo policy

The ocean marine counterpart of annual transit insurance that covers all waterborne shipments and often international air shipments in which the insured has an insurable interest

Assured

In ocean marine policies, the party named as the insured

General average

Partial loss that must, according to maritime law, be shared by all parties to a voyage (cargo owners and vessel owner)

Sue and labor clause

Clause that covers the cost of reasonable measures that the insured is required to take to protect property from damage at the time of loss

Warehouse to warehouse coverage

Clauses in open cargo policies that covers the insured cargo during the ordinary course of transit (including land transit) from the time the cargo leaves the point of shipment until it is delivered to its final destination

Free of capture and seizure (FC&S) warranty

A warranty that excludes loss caused by war, piracy, virtually any lawful or unlawful taking of a vessel, a nuclear weapon, a mine or a torpedo

Strikes, riots and civil commotion (SR&CC) warranty

A warranty that excludes loss caused by strikes, labor disturbances, riots, vandalism, sabotage or malicious acts

Delay clause

A clause that excludes coverage for loss caused by delay, such as loss of market spoilage and business interruption

Inchmaree clause

A clause that adds coverage to an ocean marine cargo policy for loss resulting from bursting of boilers, breakage of shafts, latent defects in the vessel, or faults or errors in the navigation or management of the vessel

FPA/AC (free of particular average/American conditions) warranty

An exceptive warranty that excludes particular average unless the loss is actually caused by the stranding, sinking, or burning of the vessel, or its collision with another vessel

Particular average

Partial loss that is borne by only one party to a voyage (such as a cargo owner)

Accumulation clause

A clause in open cargo policies that double the policy limit when, for reasons beyond the control of the assured, shipments accumulate at some point in transit

Trip transit policy

Policy that covers a particular shipment of goods specified in the policy

Mail coverage policy

Form that covers a financial institution against loss of securities and other negotiable instruments while in transit through specified types of mail

Parcel post policy

Inland Marine policy that provides broad coverage on parcel post shipments

Motor truck cargo liability policy

Policy that covers a trucker's liability form damage to cargo of others being transported by the trucker

Owner's goods on owner's truck policy

A type of motor truck cargo policy that covers any type of organization (not just a trucking company) for damage to its own cargo while being transported on its own trucks

BMC 32 - Endorsement for Motor Common Carrier Policies of Insurance for Cargo Liability

An endorsement that insurers must attach to motor truck cargo liability policies of interstate carriers stating that the insurer will pay cargo claims for which the insured is liable, up to the limits required by the US Dept of Transportation, even if suc

Equipment floaters

A category of inland marine policies covering various types of equipment, wherever it may be located for the policy period

Contractors equipment floater

A policy that covers mobile equipment or tools while located anywhere in the coverage territory

Upgraded value

The cost to replace covered equipment with the latest comparable state-of-the-art equipment available; can be used as a valuation basis in an EDP floater

Breakdown coverage

Coverage in an EDP equipment floater for perils such as mechanical failure, electrical disturbance and damage to electronic data when covered equipment breaks down

Installation floater

Policy that covers a contractors interest in building supplies or fixtures that the contractor has been hired to install

Bailee

The party temporarily possessing the personal property in a bailment.

Bailor

The owner of the personal property in a bailment

Warehouse operators legal liability policy

Policy that covers warhouse operators against liability for damage to the property of others beings stored in operators warehouses

Bailee's customers policy

A policy that covers damage to customers goods while in the possession of the insured, regardless of whether the insured is legally liabile for the damage

Pattern and die floater

A policy that covers the insured's patterns and dies while located at the premise of others and also while in transit to and from those premises

Processing floater

A policy that covers the insureds goods while being worked on a subcontractor's or processors premises and while in transit to and from those premises

Dealers policy

A policy that covers the inventory and other property or any of the types of dealers that qualify for inland marine coverage such as jewelers equipment dealers, fine arts dealers and furriers.

Block policy

A dealers policy particularly one written for a jeweler or a furrier

Signs coverage form

Form that covers neon, fluorescent, automatic or mechanical signs

Accounts receivable insurance

Insurance that covers the sums the insured is unable to collect when records of accounts receivable are destroyed by a covered cause of loss

Valuable papers and records insurance

Insurance that covers direct physical loss to valuable papers and records, such as architects blueprints and plans

A buyer has newly purchased goods shipped on an ocean freighter bound for the United States from Europe. To assure there is no liability for the goods until they are delivered to a warehouse in the United States, which one of the terms of sale should this

Ex Point of Origin

A dispute between a buyer and seller over the ownership of goods in transit can be resolved by the

by the terms of sale.

A common carrier delivery service delivered a shipment of furniture to a retailer who sells household furnishings. The furniture was sold to the retailer by a furniture manufacturer on terms of Free On Board (FOB) Destination. When the retailer's receivin

Owned by the furniture manufacturer who can hold the delivery service liable for the cost to repair or replace them.

An ocean freighter with cargo on board has a fire while out at sea. The cargo was partially damaged by the smoke damage and it needs to be repacked. The ship has some superficial damage from the fire. Which one of the following describes this loss to the

Particular average is used to describe a partial loss other than a general average loss.

Which one of the following is an advantage of valuation at invoice versus valuation at actual cash value for property in transit between buyers and sellers?

It includes the profit the seller has included on the invoice.

While traveling the Pacific Ocean, an ocean freighter was taken possession of by a gang of pirates. During this take over, cargo and containers were ruined due to the acts of the pirates. Which one of the following principal warranties under an open cargo

The free of capture and seizure warranty eliminates coverage for such losses caused by war, piracy, atomic weapons and various types of governmental taking.

During an insurance renewal meeting, the insurance agent mentioned to the insured that they have a nonfiled electronic data processing policy form. Which one of the following describes the difference between a filed and a nonfiled policy form?

Nonfiled policies do not file forms or rates with state insurance departments but for filed polices both are filed.

A retail store, owner of various commercial trucks, wants to send a small shipment of goods to their warehouse 40 miles away. They want to keep this process as uncomplicated as possible. Which one of the following methods of shipping would you suggest for

Ship the goods on their own truck to the warehouse.

Contractor's equipment floaters are the largest class of inland marine insurance. Contractor's equipment

Can include rental reimbursement coverage.

An architectural firm has requested coverage for its vast library of valuable records of blue prints, drawings, and other documents. Their insurance agent has told them that they can provide coverage for the documents with a

They can provide coverage for the documents with a filed inland marine policy that includes some coverage restrictions.

Business Income Insurance

Insurance that covers the reduction in an organization's income when operations are interrupted by a damage to property caused by a covered peril

Net income

The different between revenues an expenses

Profit

Net income that results when revenue exceeds expenses

Net Loss

Net income that results when expenses exceed revenue

Continuing expenses

Expenses that continue to be incurred during business interruption

Non-continuing expenses

Expenses that will not continue to be incurred during business interruption

Extra expenses

Expenses, in addition to ordinary expenses, that an organization incurs to mitigate the effects of a business interruption

Dependent property exposure

The possibility of incurring business income loss because of physical loss occurring on the premise or an organization that the insured depends on for materials, products or sales

Coinsurance basis

The sum of the insured's estimated net income and operating expenses for the twelve months following policy inception, minus only those expenses listed in the business income worksheet

Business Income Worksheet

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 of for providing underwriters with information they need to eval

Period of restoration

The period during which business income loss is covered under the BIC forms; it begins seventy two hours after the physical loss occurs and ends when the property is (or should have been) restored to sue with reasonable speed. With regards to extra expens

Civil Authority additional coverage

An additional coverage in a business income form covering loss of business income and/or extra expenses that result when access to the insured's premises is prohibited by a civil authority because of damage by a covered cause of loss to property other tha

Extended Business Income (EBI) additional coverage

Coverage for business income losses that continue after the period of restoration ends; the coverage begins when the damaged property has been restored and ends when the insured's business returns to normal, subject o a maximum of 60 days

Extended Period of Indemnity

An optional coverage that lengthens the duration of the extended business income (ebi) additional coverage for up to two years

Interruption of computer operations additional coverage

Coverage for loss of business income or extra expense due to a suspension of operations resulting form an interruption of computer operations caused by destruction or corruption of electronic data as a result of a covered cause of loss

Maximum Period of Indemnity

Option that deletes the coinsurance clause while limiting loss payment to the lessor of (1) the amount of loss sustained during the 120 days following the beginning of the period of restoration or (2) the policy limit

Monthly limit of Indemnity

Option that deletes the coinsurance clause while limiting the amount recoverable during any month of business interruption to a stipulated fraction (1/6, 1/4 or 1/3) or the insurance amount

Payroll limitation or exclusion endorsement

Endorsement that limits coverage for payroll expenses to a specified number of days or excludes such expenses all-together, allowing the insured to satisfy the coinsurance requirement with a lower amount of insurance

Discretionary payroll expense endorsement

An endorsemesnt that extends business income forms to cover payroll expenses for specificied job classifications or employees regardless of whether such expenses are necessary to resume operations

Power, heat and refrigeration deduction endorsement

An endorsement that eliminates power, heat, and refrigeration expenses from coverage and from the coinsurance calculation allowing the insured to satisfy the coinsurance requirement with a lower limit of insurance

Business Income changes - Educational institute endorsement

An endorsement that modifies business income coverage forms to make them more appropriate for covering the business income loss exposures of schools

Utility Services - Time Element endorsement

An endorsement that covers loss of business income or extra expense at the insured premises casued by the interruption of utility services to and from the insured premises

Ordinance or Law - Increased period of restoration endorsment

Endorsement that covers business income loss during the additional time required to comply with building ordinances or laws

Which one of the following statements about the Duties in the Event of Loss condition found in the Business Income (and Extra Expense) Coverage Form is true?

It requires the insured to resume all or part of its operations "as quickly as possible.

One advantage that a Business Income (and Extra Expense) Coverage form has over the separate Extra Expense Coverage Form is that

Loss payments are not limited to a certain percentage per month of the amount of insurance.

Which one of the following statements is true with regards to the Extra Expense Coverage Form?

The Extra Expense Coverage Form is intended to meet the goals of organizations who, when suffering a loss, must continue their operations at any cost.

The only material difference between the extra expense coverage provided by the Business Income (and Extra Expense) Coverage Form and the extra expense coverage provided by the Extra Expense Coverage Form is which one of the following?

The major difference is the Limits on Loss Payment condition found only in the Extra Expense Coverage Form.

A company has coverage under the Business Income (and Extra Expense) Coverage Form with the optional Monthly Limit of Indemnity coverage. Their amount of insurance is $500,000 with the fraction indicated on their Declarations page of 1/4. They suffered a

They will be paid $90,000 because their monthly limit of coverage is 1/4 of $500,000 or $125,000.

A business has determined its estimated maximum loss (EML) to be $2,700,000 and its coinsurance basis to be $4,000,000. The limit of insurance that should be purchased by the business is

The limit of insurance that should be purchased by the business is $2,800,000. $2.7M � 4M = .675 rounded up to 70%. .70 � $4M = $2.8M.

Which one of the following statements correctly describes the purpose and effect of the Extended Period of Indemnity optional coverage?

It provides additional extended business income coverage. It does not reduce or eliminate the 72 hour waiting period, although this can be done by agreement for an additional premium. The Agreed Value optional coverage suspends the Coinsurance condition i

One option available under the Business Income (And Extra Expense) Coverage Form is the No Coinsurance option. Which one of the following insureds would be best suited to utilize the No Coinsurance option?

An insured with an estimated maximum loss (EML) that is a small percent of the amount needed to satisfy the coinsurance requirement would be best suited to utilize the No Coinsurance option.

The Power, Heat, and Refrigeration Deduction endorsement is available only for firms in which industries

Manufacturing and mining

Rachel's salon is insured under a commercial package policy that includes the Business Income (and Extra Expense) Coverage Form. Rachel's salon sustained an actual loss of business income at the described premises as a result of a fire damage and access t

Business Income and Extra Expense insuring agreements

During a long period of business interruption, payroll expenses

payroll expenses do not normally continue.

In determining an organization's estimated maximum loss (EML) of business income, what is the most likely starting point?

The coinsurance basis

In terms of business income insurance, which one of the following is a common element of the Maximum Period of Indemnity, Monthly Limit of Indemnity, and Agreed Value options?

The coinsurance percentage is eliminated or suspended.

Which one of the following types of business income losses sustained by an insured is excluded from the unendorsed Business Income Coverage Form?

Loss arising from damage to or destruction of finished stock

A disaster recovery plan is important for analyzing business income loss exposures for which one of the following reasons?

Disaster recovery plan is important for analyzing business income loss exposures because advanced planning facilitates recovery.

Even if there is no damage to an insured's buildings or property, a business income loss can still occur from which one of the following?

Interruption of a magnet property's operations