CPCU 551- Addressing Commercial Property Risk Exam
Questions & Answers.
4 elements to property loss exposures - ANS -assets exposed to property loss
-the causes of loss
-the potential financial consequences of loss
-the parties that can be affected by loss- (Property Owners, Secured Lenders, and
Property Holders)
Property Loss Exposure - ANS A condition that presents the possibility that a person or
an organization will sustain a loss resulting from damage (including destruction, taking,
or loss of use) to property in which that person or organization has a financial interest.
Real property (realty) - ANS Tangible property consisting of land, all structures
permanently attached to the land, and whatever is growing on the land.
Personal Property - ANS All tangible or intangible property that is not real property.
Fixture - ANS Any personal property affixed to real property in such a way as to become
part of the real property.
Boilers and machinery constitute a special class of property
Money - ANS Currency, coins, bank notes, and sometimes traveler's checks, credit card
slips, and money orders held for sale to the public.
Securities - ANS Written instruments representing either money or other property, such
as stocks and bonds.
auto - ANS a vehicle. Trucks, Trailers, busses, fire engines, ambulances.
Mobile Equipment - ANS Various types of vehicles designed for use principally off public
roads, such as bulldozers and cranes.
recreational vehicle - ANS A vehicle used for sports and recreational activities, such as
a dune buggy, all-terrain vehicle, or dirt bike.
peril - ANS cause of loss
replacment cost - ANS Replace with new or like kind materials
ACV (Actual Cash Value) - ANS replacement cost - depreciation
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,Agreed value method - ANS 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.
Business Income Agreed Value coverage option Suspends the coinsurance clause as
long as the insured carries an amount of business income insurance that is equal to the
value agreed on by the policyholder and the insurer
Most risk management professionals regard the combination of the Agreed Value option
with blanket insurance as the preferred method to provide property insurance. The
Agreed Value option avoids any coinsurance penalty, and if separate locations are
involved that are not subject to the same loss, the danger of underinsurance is greatly
reduced.
Bailee - ANS The party temporarily possessing the personal property in a bailment.
4 dimensions of loss exposure - ANS -Loss frequency- Loss frequency is the number of
losses that occur during a specific period. Relative loss frequency is the number of
losses that occur within a given period relative to the number of exposure units (such as
the number of buildings or cars exposed to loss).
-loss severity- The purpose of analyzing loss severity is to determine how serious a
loss might be
-total dollar losses- The third dimension to consider in analyzing loss exposures is total
dollar losses for all occurrences during a specific period, calculated by multiplying loss
frequency by loss severity
-timing of losses (FSDT)- Money held in reserve to pay for a loss can earn interest until
the actual payment is made. This analysis requires considering when losses are likely to
occur and when payment for those losses will likely be made
Internet of Things - ANS the network of physical objects embedded with software or
sensors that allow them to gather and distribute data
Causes of property loss - ANS -Fire- Heat sources may be electrical, chemical,
mechanical, or nuclear. The source of oxygen for most fires is air. As more oxygen is
supplied, the fire burns more rapidly. Fuel includes both contents and construction
materials used for the building. As more fuel burns, the amount of heat present usually
increases. Strong fires create their own air drafts, bringing more oxygen and allowing
the fire to spread. As a result, different types of construction affect the way fire spreads.
-Explosion- Many explosions are the result of extremely rapid combustion. Examples
include explosions of flammable liquids, vapors, or gases; explosions caused by
excessive dust (such as that in grain elevators); and the detonation of commercial
explosives. Explosion suppressors can activate the instant an explosion begins. They
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,detect a sudden abnormal increase in pressure and automatically flood the incipient
(initial) explosion with a suppressing agent.
-Windstorm- The energy source in windstorms, such as hurricanes and tornados,
cannot be controlled. Although an organization can build facilities away from areas that
are prone to severe storms, doing so may be impractical, and no location above ground
avoids windstorms entirely. Generally, most well-engineered and properly maintained
structures won't incur damage from winds below 50 miles per hour
-Water- Water losses are most commonly associated with flooding. But there are
numerous other types of water losses that can result in significant damage, and the risk
control techniques used for them are often vastly different from those used for flooding.
-Earthquake- When an organization is located in a geographic area with a history of
earthquakes, most risk control attention is diverted to minimizing damage caused by
earthquakes. The effects of an earthquake can be reduced by designing
liquid assets - ANS Property that can be quickly and easily converted into cash.
Discounting - ANS Calculating the present value of a future amount
The process of finding the present value of a cash flow or a series of cash flows;
discounting is the reverse of compounding.
time value of money - ANS Money's potential to grow in value over time. The
relationship between time, money, a rate of return, and earnings growth.
The cost of risks includes: - ANS Administrative Expenses, Loss Control Expenses,
Retained Losses, and Transfer Costs.
Layers of Insurance - ANS Primary Layer, Umbrella Policy, Excess Layer 1, Excess
Layer 2, Excess Layer 3.
Alternative Risk Transfer (ART) - ANS Those risk financing measures that do not fall
into the category of guaranteed cost insurance.
Guaranteed cost insurance transfers the financial consequences of loss exposures from
the insured to an insurer. Guaranteed cost insurance policies are those in which the
premium, deductible, and limits are specified (that is, guaranteed) in advance. In
exchange for the premium, the insurer agrees to pay for all of the insured's losses that
are covered by the insurance policy, up to the policy's limits. The insurer also agrees to
provide necessary services, such as claims handling and legal defense against liability
claims.
Buffer Layer - ANS A level of excess insurance coverage between a primary layer and
an umbrella policy.
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, pool - ANS A group of organizations that band together to insure each other's loss
exposures.
Indemnitor - ANS Party in a hold-harmless agreement who assumes the other party's
liability
Indemnitee - ANS Party in a hold-harmless agreement whose legal liability is assumed
by the indemnitor
agent - ANS In the agency relationship, the party that is authorized by the principal to
act on the principal's behalf.
Trustee - ANS Someone who has the legal title to a property but is responsible that it be
used, handled, and transferred solely for the benefit of the beneficiary.
Bailor - ANS a person who delivers personal property to another as a bailment
Business Personal Property form covers 3 types of property/ Territory - ANS Under the
BPP, the insured property is covered only while it is located within the United States
(including its territories and possessions) or Canada.
Loss Payment condition of the Building and Personal Property- The condition states that
regardless of the value of the loss, the insurer will pay no more than the insured's
financial interest in the covered property
Replacement cost- must the insurer be notified within 180 days after the occurrence of
loss that a claim will be made under the terms of the optional coverage
Almost all property items excluded in the BPP can be insured.
Subject to certain exceptions, insured property is valued at its actual cash value (ACV)
Insureds who have selected the replacement cost option may also elect to have the
personal property of others valued at replacement cost
Building
Your business personal property
Personal property of Others
Building - ANS -Completed Additions to covered buildings
-Fixtures (including outdoor fixtures)
-Permanently installed machinery and equipment
-personal property owned by the insured and used to maintain or serve the building or
its building or premises (example- fire extinguisher)
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