AU 61 - EXAM REVIEW
Direct property losses are limited to ________ the policy places on the insured property.
100 percent of the value
The Maximum Period of Indemnity coverage option for business income insurance is most appropriate for businesses that need coverage for which one of the following time frames?
120 days or less
The Murphy Corporation earns most of its income during a peak season of three months. In fact, during the remaining months, it actually operates at a loss. An underwriter has determines that the probable maximum loss (PML) for the corporation is $600,000 and its coinsurance basis is $550,000. Based on ISO underwriting rules, what is the appropriate coinsurance percentage for Murphy?
125
Which one of the following is the most common cause of sprinkler system leakage?
Freezing
Which one of the following is considered to be personal property as opposed to real property?
Furniture
The use of oxygen and gases, as in a hospital, is a serious hazard. All of the following statements regarding this hazard are true, EXCEPT:
Gases, anesthetics, oxygen, and acetylene must be properly stored in approved non-metal cylinders.
A preaction sprinkler system
combines elements of wet and dry sprinkler systems
Martin is underwriting a commercial restaurant building that is located a block from the beach in New Jersey, in an area known for high wind gusts. There are other buildings immediately adjacent on either side of the restaurant. Martin is evaluating the roof's construction materials with respect to their effectiveness both as a weather seal for the building, and as a fire protective barrier. Which one of the following roofing materials is he likely to find most desirable?
concrete
The keynote speaker at a public safety seminar, Aaron Sanders explains that heat spread is often mysteriously misunderstood and is based on a variety of factors. As an example, Aaron lights a candle and notes that it burns from the top down. Which one of the following terms best describes this transfer of heat?
conduction
____________- Is a significant source of ignition for fires.
lightning
Which one of the following types of automatic fire detection systems is only effective during working hours when the building is occupied?
local fire alarm system
Often, the damage in fires arises not from the fire itself, but through secondary damage from the suppression efforts. Which one of the following is a common secondary damage resulting from fire suppression efforts?
mold
Atmospheric scientists have identified which one of the following places as the populated area of the planet subject to the most severe weather?
north america
Which one of the following major objectives of effective housekeeping is more important for fire suppression than fire prevention?
removing obstructions
When analyzing occupancy hazards, underwriters should consider the factor of efficiency of management which includes which one of the following?
risk control programs
Wildfire studies have demonstrated the importance of three factors as the primary means of predicting catastrophic wildfire losses. The three factors are fuel sources, slope of the land, and
road access
Which one of the following types of property ownership is available only to a husband and wife?
tenancy by the entirety
The proper way to determine how much business income coverage an insured needs is to start with a probable maximum loss expressed as
A dollar amount.
Often times a risk's causes of loss can be evaluated by the characteristics that can be examined via the data collected. This automated underwriting decision is referred to as which one of the following?
Straight through processing
Special hazards of the class
Are characteristics typical of all occupancies in a given class that can cause or aggravate loss.
Business income insurance covers which one of the following types of losses that could result from a fire?
The extra expenses for renting a temporary office
The National Flood Insurance Program (NFIP) provides up to what maximum amount of insurance to property owners in special flood hazard areas?
$1,000,000
The Hinchman Corporation has its primary location in an older building. The municipality where the building is located recently revised its building codes to require that any building suffering more than minor damage will need to be brought up to current building code standards when it is rebuilt. The corporation's management is concerned that this will prolong the time it will take them to return to normal operations and increase any business income loss and extra expenses. What, if anything, should the management do to address this concern?
Add the Ordinance or Law—Increased Period of Restoration endorsement to their business income policy.
In the context of property loss exposures, flood is considered to be all of the following, EXCEPT:
An adverse financial consequence
Which one of the following has proven its ability to outperform all other forms of public and private fire protection combined?
Automatic sprinkler system
Alicante Steel owns both contributing and recipient locations. It produces parts of its products at four separate plants and assembles them at a fifth. A large loss at any one plant might shut down all sites. Which one of the following will ensure coverage for loss of income from direct damage at any one of the locations?
Blanket business income and extra expense coverage
An applicant wants to make sure that it has enough business income insurance to satisfy its policy's coinsurance requirement. However, it does not want to pay an excessive premium by having too high a coverage limit. Which one of the following endorsements or coverage forms would its underwriter most likely suggest as a way of addressing this concern of the applicant?
Business Income Premium Adjustment
The combustibility of contents usually found in a particular occupancy can contribute significantly to the occupancy's overall fire hazard. A card and gift store is most likely to fall into which one of the following classifications according to ISO's Specific Commercial Property Evaluation Schedule?
C-3, combustible
Which one of the following hazards is perhaps the greatest single hazard in a metal-working occupancy?
Careless handling of flammable liquids
Antonio Rodriguez is a guard who makes regular rounds and patrols an assigned premise when a business is closed. At various stops, Antonio inserts a magnetic key card into an electronic station to record the time of his visit to each station. The record can be checked later to determine whether Antonio followed the proper route. In what type of private fire detection system is Antonio participating?
Clock and tape system
When working with a valuation guidebook or computer software, underwriters use several factors to determine a property's value. Which one of the following is a factor evaluated by underwriters to determine property value?
Construction materials used
Which one of the following statements regarding office occupancies is true?
Employee cafeterias often have the characteristics of a full-scale restaurant.
The most recent scoring system used to evaluate public fire protection is called the
Fire Suppression Rating Schedule (FSRS).
Insurance Services Office (ISO) uses which one of the following items to evaluate the fire protection services of communities?
Fire suppression system quality
Underestimating a business income loss exposure can have serious consequences for an insured. Which one of the following methods is often used by underwriters to safeguard against underestimates?
Increase the business income probable maximum loss by a selected percentage
Flame spread classifications provide references that building planners can use for different
Interior finishes.
Both hurricanes and tornadoes can be classified based on wind speed and the destruction they cause. Which one of the following correctly describes the Enhanced Fujita Tornado Damage Scale as one of these classification methods?
It classifies tornadoes on a scale of 0 through 5 based on twenty-eight damage indicators.
Lincoln Apartments is considered a habitational commercial occupancy with respect to underwriting of its property insurance. Anna, an underwriter, has requested additional information regarding the account. She is particularly interested to know who is responsible for maintaining the apartment units themselves. The building owner is responsible to maintain the common areas, but the application was unclear about responsibility for the units. Anna would likely find which one of the following most desirable for her underwriting purposes?
Maintenance of the units by the building owner, because this shows an underwriter that the building owner cares about the building's condition
The extent to which an organization's risk control program achieves its objectives is determined by the level of support it receives from the organization's
Management team.
Which one of the following generates heat and ignites fire through friction, sparks, and pressure in an enclosed space?
Mechanical energy
Pointe Woods is a two-year-old eight-story apartment building in Vermont. It is a fully sprinklered, modified fire-resistive building with electric forced-air heat. Which one of the following plumbing risks is most likely to be a concern to Pointe Woods' property insurance underwriter?
Overflow of water from sinks, toilets, and bathtubs
Most of the fuel load in a noncombustible structure consists of which one of the following?
Personal property within the building
Which one of the following housekeeping efforts would help reduce the fuel loading?
Removal of overgrown weeds and brush outdoors
Robert, an underwriter, is reviewing a commercial property submission for a large real estate holding company. The company has a large portfolio of properties in areas prone to wind and flood damage, and Robert is concerned about the account's loss experience. Which one of the following sources will Robert most likely look to for this information?
Risk control survey and report
Underwriters should look for techniques an account may have in place to minimize damage from explosions that may occur. Which one of the following is an example of one of these techniques?
Separating operations
While not all heat sources are ignition sources, many of the heat sources present in manufacturing occupancies, such as electric motors, steam pressure vessels and turbines, pose significant potential ignition sources. The potential for fire due to the use of heat sources and the presence of flammables requires
Strict adherence to fire safety codes
Which one of the following is a way for an underwriter to identify bottlenecks when evaluating an applicant's business income loss exposure?
Study a production or process flowchart of the applicant's operations.
Automatic sprinklers provide the most effective protection against loss by fire, however underwriters should not overlook the sprinkler leakage loss exposure. Underwriting considerations for evaluating an account for sprinkler leakage exposures include which one of the following?
Susceptibility of contents to water damage
Underwriters should read reports of a storm's destructive power carefully. Information on past storm research regarding the severity of storms uses which one of the following wind measurement scales?
The Saffir-Simpson Hurricane Wind Scale
Which one of the following statements is true regarding measures of potential loss severity for property loss exposures?
The amount subject for a location, as estimated by any two underwriters with a common employer, should be consistent.
Which one of the following statements about determining the value at risk for business income loss exposures is true?
The current values in the business income worksheet may be estimates depending on the timing of the insured's financial statements.
Which one of the following is measured by the Modified Mercalli scale?
The damage that an earthquake causes to people, property, and the surface of the earth
Which one of the following statements regarding package policy underwriting is true?
The disadvantage of package underwriting is that underwriters cannot be selective in the coverage offered to the applicant.
For an underwriter considering the role of oxygen in the combustion process, which one of the following is the greatest concern with a six-story office building?
The draft areas
The fire service component of the ISO Fire Suppression Rating Schedule considers
The equipment of the engine companies.
Which one of the following is the underwriter's prime concern with the Utility Services—Time Element endorsement?
The expected frequency and severity of service outages
Verifying the values of property exposed to a loss is an essential part of commercial property underwriting. For example, if the property values shown on a commercial property submission are higher than the property's actual value, then
The insured will pay for unnecessary coverage.
Which one of the following would be considered by an underwriter to increase the likelihood of fire?
The insured's inexperienced maintenance staff performs the annual maintenance work on the heating equipment.
Which one of the following statements regarding sprinklers is true?
The movement of ladders and materials for repairs, like lumber and piping, can damage sprinkler heads in passing.
Large horizontal structures present a different type of problem than that present in a high-rise building. The solution to large horizontal area fire problems is
The use of fire divisions
Which one of the following is true regarding underwriting indivisible combination policies?
Underwriters have little flexibility regarding pricing and coverage.
Which one of the following statements is true regarding amount subject and probable maximum loss (PML) in evaluating property loss exposures?
Underwriters often use the expression "within four walls" to explain the concept of amount subject.
Most vandalism losses are low-severity claims. For those accounts with a high frequency of vandalism but with relatively predictable low levels of loss severity, underwriters often
Use deductibles to manage the loss exposure.
A wedding photographer uses his camera equipment at several dozen different locations each year. In insurance terminology, the camera equipment is considered to be
contents
The temperature required for combustion ________ as atmospheric pressure ________.
decreases , increases
Which one of the following is a principal way a hurricane will cause damage?
flooding
The point on the fault line at which movement of the earthen plates begins is an earthquake's
focus
Fuel load is usually expressed as weight of combustible material per
square foot
Jenna, an underwriter, has a number of submissions on her desk for review, all of which are for buildings that are more than 20 years old. Which one of the following accounts is Jenna most likely to find desirable with respect to its building age?
A 20-story suburban residential condominium building in a cold climate that was properly constructed of joisted masonry materials. The building has been properly maintained and meets local building codes. The building has a sloped shingled roof.
Applicants for business income coverage complete which one of the following forms that becomes the basis for determining estimates of the insured's future financial performance?
A business income worksheet
A request for a higher amount of direct loss coverage than needed should cause an underwriter to seek more information because too much insurance might indicate
A moral hazard.
Municipalities often update building codes but usually exempt current buildings from having to comply with these changes because of a grandfather clause. However, if such a building is damaged beyond a certain percentage, the building must be brought up to current code standards when it is repaired. Underwriters refer to this type of building as which one of the following?
A nonconforming occupancy
Which one of the following statements is true regarding the cost-benefit analysis of a risk control program?
A project can be economically feasible only if the benefits exceed the costs.
An insurance policy's valuation method will determine the value of the insured's property in the event of a covered loss. Which one of the following valuation methods factors in depreciation when determining the value of insured property?
Actual cash value (ACV)
Heating systems should be properly installed and maintained, as they represent a common ignition source for habitational occupancies. Also, air conditioning ducts that run throughout a building can quickly spread smoke and fire. Automatic dampers installed in a habitational occupancy can help provide fire protection with respect to
Air conditioning systems.
Fuel loads vary considerably among office occupancies. Which one of the following office occupancies will be the most desirable to a property underwriter with respect to its fuel load?
An accounting firm with a reception area and separate offices for its staff that contain steel desks and state-of-the-art technology to support its paperless initiative
Underwriters should consider the construction materials used in roofing. Roof coverings vary in the fire resistance they provide. Which one of the following roof coverings is an underwriter most likely to find on a residential building, and accept as adequate for the purpose of fire protection?
Asphalt shingles
Even though it is impossible to tell when a business income loss might occur, which one of the following would be the best assumption for a business to use if its earnings fluctuate substantially from month to month?
Assume the loss will happen at the worst possible time.
The use of a Business Income (and Extra Expense) Coverage Form recognizes which one of the following factors?
Business income coverage and extra expense coverage overlap to a certain extent.
Which one of the following statements is true regarding the flammable range of a mixture?
Combustion occurs most efficiently at or near the middle of the flammable range.
A Commercial Package Policy, whether monoline or multiline, includes which one of the following forms?
Common Policy Conditions form
For commercial property insurance, the fire loss exposure for habitational occupancies can be significant. Therefore, a property underwriter should be aware of the leading cause of habitational occupancy fires, which is
Cooking equipment
Which one of the following statements is true regarding the monthly limit of indemnity option?
D. Under this option, the only way to cover the month with the highest income is to purchase a total limit of 3, 4, or 6 times the highest monthly income.
Penn Woods Plaza, a strip shopping center in Pennsylvania, is classified as mill construction. Its tenants include an accounting office, a Chinese restaurant, a pizza parlor, a nail salon, and a dry cleaner. From a fire underwriting perspective, a property underwriter is most likely to find this risk
Desirable, because the structure would probably survive a severe fire.
A business uses hazardous materials, but uses no design factors to contain their spread. The local fire service should be involved in pre-fire planning for this business because when a fire occurs at one of these sites, it is more likely the fire service personnel will do all of the following, EXCEPT:
Direct its hose streams onto the property involved in the fire
Underwriters should be concerned that the potential for a combustion explosion be controlled, and the damage it can cause be mitigated. Maintaining a lean air-fuel mixture for potentially explosive equipment is one effective protection in this area. Maintaining this lean air-fuel mixture is which one of the following strategies for controlling combustion explosions?
Energy released.
Underwriting Laboratories, Inc. (UL) conducts tests to classify structural materials according to their fire-resistance capabilities. The materials are assigned a rating expressed in terms of hours. These ratings are used to evaluate the
Expected degree of damage to the materials.
A florist in a strip shopping center sustained significant damage from a fire caused by a neighboring pizza shop's deep fryer. The fire spread to the florist before the fire department could arrive. During the underwriting process for the florist's property insurance, this risk would most likely have been considered by the underwriter under which one of the following COPE elements?
External exposure
While traveling on an interstate highway, Julia Carson noticed a large plume of smoke in what appeared to be an isolated area. Julia pulled off at the next exit and called 911 to reach a single emergency response center that dispatched local fire services to the area. Which one of the following elements did Julia use?
Fire detection
Underwriters need to recognize when covered property is in a location susceptible to flooding. The most widely distributed flood product produced by the U.S. Corps of Engineers is the
Flood Insurance Rate Map (FIRM).
Which one of the following statements regarding heat damage is true?
Heat expands all matter at different rates and softens metals.
Certain institutional occupancies present unique property risks due to the nature of their operations. Which one of the following is most likely to be a unique property loss exposure with respect to a church?
Heating system
Of the following types of property, which one would be of the most concern to an underwriter as it relates to potential hail damage?
Historic buildings with copper or tin roofing
The regular cleaning of special hazards such as spray booths and exhaust ducts is critical to private fire prevention because they are
Ignition sources.
Restaurants are a frequently encountered class of business, either as an insured occupancy, or as a tenant in buildings that an underwriter is asked to insure. Restaurants may be housed in a variety of structures that can present unique underwriting problems. Which one of the following statements is true regarding the underwriting considerations for restaurants?
It is difficult to standardize property underwriting of restaurants, because each particular type of cuisine in which a restaurant specializes presents different hazards.
Masonry noncombustible construction is extremely popular because of its low initial cost, low maintenance, and ability to withstand not only the peril of fire, but also other causes of loss such as windstorm. A property underwriter's concerns about a masonry noncombustible building will most likely be related to
Its potential for collapse from the heat a fire generates.
At his hobby shop, Jim Petry uses electrical sanders and planers while woodworking and much dust is created. At the recommendation of his insurance producer, Jim is trying to reduce the likelihood of a dust explosion. Which one of the following would be the most effective method of attaining this result?
Jim should use a high efficiency particulate air (HEPA) vacuum cleaner.
For commercial property operations, which one of the following is the best loss control technique for welding and cutting operations found in service stations and auto repair shops?
Limit welding and cutting to an area isolated from gasoline and vapors.
Physical hazards increase the probable frequency or severity of a loss. Which one of the following descriptions demonstrates special hazards of the class?
Maintenance garage at a school bus depot
Which one of the following has the greatest effect on how different types of construction are classified?
Materials used for load-bearing components
Underwriters must sometimes underwrite package policies for applicants that have differing loss exposure levels by line of business. Which one of the following can be used to ensure that enough premiums are paid to cover the higher hazard risks?
Minimum premium levels for low hazard risks
Which one of the following types of watch service detection systems is most effective?
Monitoring service system
Which one of the following poses a severe danger of fire from spontaneous ignition?
Oily rags
Ice dams form
On the edge of roofs and can cause water to penetrate roofs.
Building codes can provide an underwriter with information regarding the construction of buildings erected under the provisions of those codes. Well-designed and properly enforced building codes can reduce insured losses. A local ordinance that establishes criteria that a building's structural components must meet is a
Performance code.
Many causes of loss arise from the nature of the operations that the insured business conducts. For an underwriter to have an easier time establishing equitable rates,
Risk control measures must be applied to loss exposures.
The inspections and surveys condition clarifies that the insurer does not make
Safety inspections.
The fire department connection that allows the fire department access to dry standpipes that supply water to hose stations and sprinkler systems is known as the
Siamese connection.
The maximum period of indemnity option and the monthly limit of indemnity option work well only when the longest period of restoration that the insured will face is
Six months or less.
Radcliffe Real Estate Group has purchased an old warehouse building and is converting it to office space for medical and dental tenants. The building was correctly built 40 years ago according to building code requirements at that time, and has been properly maintained and periodically upgraded since it was built. The electrical system was built for purposes of providing lighting to the building. Which one of the following concerns is an underwriter most likely to have about this building?
The wiring may not be adequate to power the new tenants' equipment without causing a fire from excess heat.
Which one of the following statements about the business income coverage of Businessowners Policies with an actual loss sustained coverage feature is true?
They usually contain a time limit, but no coverage dollar limit.
Aside from determining the value of a building, there are other underwriting considerations related to verifying commercial property values. Which one of the following statements regarding verifying property values is true?
Underground foundations and plumbing must be given special consideration when determining property values.
Which one of the following statements about important considerations to underwriters of business income insurance is true?
What constitutes continuing expenses varies by account.
Which one of the following statements is true regarding the construction of an insured building and any exposing buildings?
When the exposing building is taller that the insured building, the chances of an exposure fire increase
Wildfires differ from fires in heavily populated areas in which one of the following ways?
Wildfires can ignite and develop into significant fires long before they are detected.
Materials that burn at typical fire-condition temperatures, but do not ignite readily are known as which one of the following?
combustible materials
In inspecting a restaurant, field underwriter Susan Warren noted that the storage area was packed with paper products and cleaning supplies. The entire area was extremely dirty and there was apparent grease accumulation on the cooking surfaces and on the hoods above the grills and the deep fryers. Soiled laundry had been thrown into a cardboard box near a large oven.Of the following items noticed by Susan, which one presents the most serious exposure?
deep fryer
A small fire occurred in a local neighborhood damaging half of Gretta's Grocery Store. Smoke damage occurred throughout the store. Health authorities are likely to do which one of the following with the food items in the store?
destroy the food items
The fire tetrahedron model illustrates that if any of the four components of fire were removed, the fire would do which one of the following?
extinguish
In business income insurance, the expenses that an organization would not have incurred if the business interruption had not occurred are called
extra expenses
Underwriters usually consider which one of the following perils to be the most significant cause of a property loss?
fire
The risk control program for a large commercial organization is typically coordinated by
full time risk manager
Floors, beams, and joists spread interior load _____to ________load-bearing components.
horizonally, vertical
Normally, the damage done in each act of vandalism or malicious mischief is
incidental
Commercial property underwriters should be aware that self-service laundries, which could operate on a 24-hour basis, are especially susceptible to which one of the following perils?
vandalism
Underwriters can use the Beaufort Wind Scale for reference purposes and to assess strong windstorms. Which one of the following is the most widely used basis for the Beaufort Wind Scale?
As a basis for maritime wind advisories
Jade, an underwriter, is reviewing a property insurance submission for Miller's Furniture, a 70,000 square-foot area, privately-owned retail furniture store. Miller's offers a large selection of area rugs; metal, wood, and upholstered furniture; and decorative items for the home such as artwork, lamps, small sculptures, artificial flower arrangements, and tapestry wall hangings. Much of the upholstered furniture is made with flame-retardant fabric. Some of the wood items are solid oak, cherry, or mahogany, while other, more modern pieces, are of painted and varnished wood. Of the four ISO occupancy rating system factors, Jade's greatest concern with regard to underwriting Miller's account is likely to be the
C. Susceptibility of contents.
The most important consideration in estimating how much damage a fire will cause is the
Length of time it burns.
Which one of the following statements about the rate at which business income losses tend to occur is true?
Standard business income forms express this as actual loss sustained, and it includes lost income as well as continuing operating expenses when a business is closed.
Underwriters should examine the financial condition of potential insureds because
The financial state of a company is also a tangible measure of management competence and resources available for effective risk control.
