6 Factors Affecting Commercial Property Premiums

The commercial property policy rates are affected by all of the following, EXCEPT: -The limit of insurance -The causes of loss covered -The color of the building -The building's construction, occupancy, protection, exposure, and location

-The color of the building

The rates ordinarily used for insuring buildings and personal property are calculated with the assumption that they will be used with an __ percent coinsurance clause in the policy.

80% coinsurance clause

Although buildings can be classified in many ways, the system used to classify buildings for purposes of rating commercial property insurance is based on their Select one: A. Square footage. B. Ability to resist fire. C. Market value. D. Cost of construction.

B. Ability to resist fire.

Which one of the following is correct with respect to how the covered causes of loss affect commercial property insurance premiums? Select one: A. The rate for the Causes Of Loss—Basic Form consists of a Group II rate for fire, lightning, explosion, vandalism, and sprinkler leakage. B. If the policy provides Broad Form coverage, an additional rate is added to the Basic Form rates for the cost of covering the additional perils of the Broad Form. C. If the policy provides Special Form coverage, no additional rate is added to the Broad Form rates; instead a surcharge is added to the premium. D. If the policy provides Broad Form coverage, a Group II rate is added for vandalism and sprinkler leakage.

B. If the policy provides Broad Form coverage, an additional rate is added to the Basic Form rates for the cost of covering the additional perils of the Broad Form.

The limit of insurance applicable to commercial property coverage is an important component of the final premium because Select one: A. As the limit increases the risk of a total loss decreases, which results in some discounting of the final premium. B. It represents the exposure against which the applicable rate is multiplied to calculate the premium. C. The rate changes when the amount of insurance is increased. D. Loss costs vary inversely with the limit of insurance.

B. It represents the exposure against which the applicable rate is multiplied to calculate the premium. CorrectCorrect. It represents the exposure against which the applicable rate is multiplied to calculate the premium.

Which one of the following statements is correct with respect to deductibles used in commercial property policies? Select one: A. Commercial property rates are developed with the assumption that the policy will be subject to a $5,000 deductible. B. Rates are reduced in return for the insured's acceptance of a higher deductible. C. Because deductible amounts are generally small, they have no significant impact on loss costs and, therefore, do not affect property rates. D. Reducing a deductible from $500 to $250 represents too small a reduction in loss payments to generate any reduction in premiums.

B. Rates are reduced in return for the insured's acceptance of a higher deductible. CorrectCorrect. Rates are reduced in return for the insured's acceptance of a higher deductible.

Which one of the following statements is correct with respect to deductibles used in commercial property policies? Select one: A. Reducing a deductible from $500 to $250 represents too small a reduction in loss payments to generate any reduction in premiums. B. Rates are reduced in return for the insured's acceptance of a higher deductible. C. Because deductible amounts are generally small, they have no significant impact on loss costs and, therefore, do not affect property rates. D. Commercial property rates are developed with the assumption that the policy will be subject to a $5,000 deductible.

B. Rates are reduced in return for the insured's acceptance of a higher deductible. CorrectCorrect. Rates are reduced in return for the insured's acceptance of a higher deductible.

Adjacent properties can increase the probability of loss to the insured's building and contents. When rating commercial property exposures, the term used to refer to the hazard posed by adjacent or surrounding properties is Select one: A. Contiguous hazard. B. External rating factor. C. External exposure. D. Adjacent risk.

C. External exposure.

Which one of the following statements is correct? Select one: A. Buildings that have certain fire hazards (such as unsafe heating or cooking devices or inadequate electrical wiring) are considered uninsurable. B. The presence or absence of internal fire protection systems has no effect on property insurance premiums. C. For rating purposes, external fire protection is graded on a scale of one to ten, indicating the availability of fire-fighting personnel and equipment. D. Sprinklered buildings are charged higher premiums than non-sprinklered buildings because of the risk of sprinkler leakage.

C. For rating purposes, external fire protection is graded on a scale of one to ten, indicating the availability of fire-fighting personnel and equipment. CorrectCorrect. For rating purposes, external protection is graded on a scale of one to ten, indicating the availability of fire-fighting personnel and equipment.

Which one of the following statements is correct with respect to the effect optional coverages of the Building and Personal Property Coverage Form (BPP) have on premiums? Select one: A. Adding optional coverages increases an insurer's policy processing costs and so an administration fee is charged. B. The charge for a coverage option always involves a separate additional rate applied to the amount of insurance. C. In some cases, the limit of insurance must be increased to cover the additional property values being insured. D. Replacement cost insurance requires a higher rate than ACV coverage.

C. In some cases, the limit of insurance must be increased to cover the additional property values being insured.

Which one of the following statements is correct with respect to the effect optional coverages of the Building and Personal Property Coverage Form (BPP) have on premiums? Select one: A. The charge for a coverage option always involves a separate additional rate applied to the amount of insurance. B. Adding optional coverages increases an insurer's policy processing costs and so an administration fee is charged. C. In some cases, the limit of insurance must be increased to cover the additional property values being insured. D. Replacement cost insurance requires a higher rate than ACV coverage.

C. In some cases, the limit of insurance must be increased to cover the additional property values being insured.

Which one of the following statements is correct with respect to coinsurance used with commercial property policies? Select one: A. When a policy requires a coinsurance percentage higher than 80 percent, the 80 percent coinsurance rate remains the same. B. When the coinsurance requirement is less than 80 percent, the rate is decreased. C. The 80 percent coinsurance rate is reduced when a policy requires a higher coinsurance percentage. D. The rates ordinarily used for insuring buildings and personal property are calculated with the assumption that they will be used with a 100 percent coinsurance clause.

C. The 80 percent coinsurance rate is reduced when a policy requires a higher coinsurance percentage.

What is class rating?

Class rating is a rating approach that uses rates reflecting the average probability of loss for businesses within large groups of similar risks. Class rating allows a building and its contents to be rated without inspecting the building and developing a specific rate.

The type of activities conducted inside a building, some of which are riskier than others, is referred to as the Select one: A. Enterprise. B. Tenancy. C. Utilization. D. Occupancy.

D. Occupancy. CorrectCorrect. Occupancy refers to the type of activity conducted inside the building. Some occupancies are riskier than others.

limit of insurance is:

Limit of insurance (LOI) rating, is based on the observation that most commercial property losses are partial, as opposed to total, and that property losses do not increase proportionately with the value of the insured property. LOI rating recognizes this observation by using rates that decrease as the insured value increases

What kind of rating requires inspection?

specific rating