AU 61 Exam Questions and Answers 100% Pass
Which aspect of a property policy is least likely to vary among different carriers? - Answers
Policy conditions
Output Policy - Answers A streamlined policy combining separate types of coverage (ie building,
BPP, BI/EE) all on the same declarations page and same insuring agreement
4 Categories of Package Policies - Answers Single combination policies
Minimum requirement combination policies
Indivisible combination policies
Nonstandard combination policies
Simple Combination Policy - Answers Each line is quoted monoline and combined for ease. No
discount applies, and UW may use a more restricrive form
Minimum Requirement Combination Policy - Answers Package policy with a slight discount
applied if the insured meets certain minimums in coverage to reduce chances of adverse
selection
Indivisible Combination Policy - Answers Package policy offering coverage as an all or nothing
approach. Little room for customization, and also helps reduce adverse selection. Common
example is a BOP
Nonstandard Combination Policy - Answers Package policy that is usually manuscript, written to
the insured's requirements. Allows maximum flexibility but is usually limited to large accounts
Predictive Modeling - Answers A process in which historical data based on behaviors and
events are blended with multiple variables and used to construct models of anticipated future
outcomes. In short, it kinda forecasts results given a set of data
Insurable Interest - Answers An interest in the subject of insurance policy that is not unduly
remote, and would cause the interested party to suffer financial loss if an insured event
occurred
Factual Expectancy - Answers A situation in which a party experiences an economic advantage
if an insured event does not occur, or, conversely, economic harm of the event does occur
Fee Simple Estate - Answers A full ownership interest in property with the unconditional right to
dispose of it. Passes to the estate when the owner dies
Joint Tenancy - Answers A concurrently owned and undivided interest in an estate that transfers
to a surviving joint tenant upon the death of the other. Presents no special problems to the
underwriter
,Tenancy by the Entirety - Answers A special type of joint tenancy applicable only to married
couples in specific states. When one passes, it transfers entirely to the other through the rights
of survivorship. Underwritten much like a fee simple estate
Life Tenant (Life Estate) - Answers A person entitled to exclusive possession of real property
and to all income the land produces for the duration of that person's life, or the life of someone
else. Terminates on death and does not pass to the estate. It can be sold, however ownership
passes to the remainderman on the death of the original life tenant
Remainder Estate - Answers The right granted an individual (a remainderman) to hold an estate
following the death of a life tenant
Remainderman - Answers The individual who acquires an estate following the death of a life
tenant and who acquires a fee simple property estate in the property
Replacement Cost - Answers The cost to repair or replace property using new materials of like
kind and quality, with no deduction for depreciation
Actual Cash Value (ACV) - Answers Cost to replace property with new property of like kind and
quality less depreciation.
Functional Valuation Method - Answers A valuation method in which the insurer is required to
pay no more than the cost to repair or replace the damaged or destroyed property that is its
functional equivalent
Insurance to Value - Answers Insurance written for an amount approximating the full value of
the asset(s) insured
Coinsurance Condition - Answers A condition that requires the insured to carry insurance equal
to at least a specified percentage of the Actual Cash Value (ACV) of the property insured
Insurance-to-Value Provision - Answers A privision in property insurance policies thay
encourages insureds to purchase an amount of insurance that is equal to, or close to, the value
of the covered property
Agreed Value Optional Coverage - Answers Optional coverage that suspends the Coinsurance
condition if the insured carries the amount of insurance agreed to by the insurer and insured
Blanket Insurance - Answers Insurance that covers either of the following with one limit of
insurance: (1) one type of property in one or more separately rated buildings or (2) two or more
types of property in one or more separately rated buildings
Blanket Limit - Answers The maximum dollar amount the insurer will pay for two or more items
or classes of property at one or more locations
Inflation Guard Optional Coverage - Answers Coverage for the effects of inflation that
,automatically increases the limit of insuranve by the percentage of annual increase shown in
the declarations. Protects against a policy paying too little because of coinsurance clause, if
insured value of property is insufficient due to inflation
Agreed Value Method - Answers 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
Market Value - Answers The price at which a particular piece of property could be sold on the
open market by an unrelated buyer and seller
Measurements of Potential Loss Severity - Answers (1) Policy amount
(2) Amount subject
(3) Normal Loss Expectancy (NLE)
(4) Probable Maximum Loss (PML)
(5) Maximum Foreseeable Loss (MFL)
Policy Amount - Answers The limit of liabilty or property coverage provided on a policy
Amount Subject - Answers Total amount exposed within a fire division. The definition of a fire
division is broadly disputed as this may be between firewalls, separations of construction or
distance betweens 2 buildings
Parapet - Answers A vertical extension of a fire wall that extends above a roofline at least 4 feet
Fire-Restrictive Construction - Answers A class of construction that has exterior walls, floors,
and roofs of masonry or other fire-resistive material with a fire-resistance rating of at least 2
hours. This construction is a total firestop and firewalls need not extend above the roof
Noncombustible construction - Answers A class of construction in which the exterior walls,
floor, and roof of a building are constructed of. and supported by, metal, gypsum, or other
noncombustible materials
Masonry Noncombustible Construction - Answers Masonry construction or construction that
includes exterior walls of fire-resistive construction with a fire-resistance rating of not less than
one hour
Frame Construction - Answers A class of construction that has load-bearing components made
of wood or other combustible materials such as brick or stone veneer
Normal Loss Expectancy (NLE) - Answers The loss expected under normal conditions with all
fire protection services working. Considerations include (1) Construction (2) Protection (ie.
positive pressure ventilation/sprinklers) (3) Business Interruption contingency plans (4) Fire
, divisions (5) Susceptibility of contents to damage and/or combustibility (6) Operational hazards
Probable Maximum Loss (PML) - Answers An estimation of the largest loss that an insured is
likely to sustain. This is not a fit hits the shan loss, only largest loss likely to occur. Calculations
are subjective, and in some construction types, PML may be the same as Amount Subject.
Calculation includes accounting for building features that stop vertical spread of fire, and will
also have to account for smoke and water damage
Impact of PML on Reinsurance - Answers Many reinsurers have designed many property
treaties while limiting their exposure within the PML
Maximum Foreseeable Loss (MFL) - Answers An estimate of the financial cost of the loss if all
protection measures, automatic and manual, were to fail, and no effeftive fire department
response occurred.
Aspects of an effective risk management program - Answers (1) Daily monitoring of
housekeeping
(2) Consistent adherence to relevant codes
(3) Effeftive pre-fire planning and training
(4) Support of top management and cooperation of all management
Aspects of COPE - Answers C- Construction
O- Occupancy
P- Protection
E- External exposure
Construction - Answers The type of materials used to fabricate a building, which underwroters
analyze when evaluating submissions for property insurance. The most important aspect to
consider
Occupancy - Answers The type or character of use of the property in question. What aspects of
the occupancy may present a greater rate of loss
Protection - Answers Measures taken to prevent or reduce the damage done by fire. This
includes internal aspects like fire extinguishers, sprinklers and also external such as the fire
district
External Exposure - Answers A loss exposure outside the area owned or controlled by the
insured. This is a considerarion for things like a known firework factory next door
Public Fire Protection - Answers Fire protection equipment and services made available through
Which aspect of a property policy is least likely to vary among different carriers? - Answers
Policy conditions
Output Policy - Answers A streamlined policy combining separate types of coverage (ie building,
BPP, BI/EE) all on the same declarations page and same insuring agreement
4 Categories of Package Policies - Answers Single combination policies
Minimum requirement combination policies
Indivisible combination policies
Nonstandard combination policies
Simple Combination Policy - Answers Each line is quoted monoline and combined for ease. No
discount applies, and UW may use a more restricrive form
Minimum Requirement Combination Policy - Answers Package policy with a slight discount
applied if the insured meets certain minimums in coverage to reduce chances of adverse
selection
Indivisible Combination Policy - Answers Package policy offering coverage as an all or nothing
approach. Little room for customization, and also helps reduce adverse selection. Common
example is a BOP
Nonstandard Combination Policy - Answers Package policy that is usually manuscript, written to
the insured's requirements. Allows maximum flexibility but is usually limited to large accounts
Predictive Modeling - Answers A process in which historical data based on behaviors and
events are blended with multiple variables and used to construct models of anticipated future
outcomes. In short, it kinda forecasts results given a set of data
Insurable Interest - Answers An interest in the subject of insurance policy that is not unduly
remote, and would cause the interested party to suffer financial loss if an insured event
occurred
Factual Expectancy - Answers A situation in which a party experiences an economic advantage
if an insured event does not occur, or, conversely, economic harm of the event does occur
Fee Simple Estate - Answers A full ownership interest in property with the unconditional right to
dispose of it. Passes to the estate when the owner dies
Joint Tenancy - Answers A concurrently owned and undivided interest in an estate that transfers
to a surviving joint tenant upon the death of the other. Presents no special problems to the
underwriter
,Tenancy by the Entirety - Answers A special type of joint tenancy applicable only to married
couples in specific states. When one passes, it transfers entirely to the other through the rights
of survivorship. Underwritten much like a fee simple estate
Life Tenant (Life Estate) - Answers A person entitled to exclusive possession of real property
and to all income the land produces for the duration of that person's life, or the life of someone
else. Terminates on death and does not pass to the estate. It can be sold, however ownership
passes to the remainderman on the death of the original life tenant
Remainder Estate - Answers The right granted an individual (a remainderman) to hold an estate
following the death of a life tenant
Remainderman - Answers The individual who acquires an estate following the death of a life
tenant and who acquires a fee simple property estate in the property
Replacement Cost - Answers The cost to repair or replace property using new materials of like
kind and quality, with no deduction for depreciation
Actual Cash Value (ACV) - Answers Cost to replace property with new property of like kind and
quality less depreciation.
Functional Valuation Method - Answers A valuation method in which the insurer is required to
pay no more than the cost to repair or replace the damaged or destroyed property that is its
functional equivalent
Insurance to Value - Answers Insurance written for an amount approximating the full value of
the asset(s) insured
Coinsurance Condition - Answers A condition that requires the insured to carry insurance equal
to at least a specified percentage of the Actual Cash Value (ACV) of the property insured
Insurance-to-Value Provision - Answers A privision in property insurance policies thay
encourages insureds to purchase an amount of insurance that is equal to, or close to, the value
of the covered property
Agreed Value Optional Coverage - Answers Optional coverage that suspends the Coinsurance
condition if the insured carries the amount of insurance agreed to by the insurer and insured
Blanket Insurance - Answers Insurance that covers either of the following with one limit of
insurance: (1) one type of property in one or more separately rated buildings or (2) two or more
types of property in one or more separately rated buildings
Blanket Limit - Answers The maximum dollar amount the insurer will pay for two or more items
or classes of property at one or more locations
Inflation Guard Optional Coverage - Answers Coverage for the effects of inflation that
,automatically increases the limit of insuranve by the percentage of annual increase shown in
the declarations. Protects against a policy paying too little because of coinsurance clause, if
insured value of property is insufficient due to inflation
Agreed Value Method - Answers 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
Market Value - Answers The price at which a particular piece of property could be sold on the
open market by an unrelated buyer and seller
Measurements of Potential Loss Severity - Answers (1) Policy amount
(2) Amount subject
(3) Normal Loss Expectancy (NLE)
(4) Probable Maximum Loss (PML)
(5) Maximum Foreseeable Loss (MFL)
Policy Amount - Answers The limit of liabilty or property coverage provided on a policy
Amount Subject - Answers Total amount exposed within a fire division. The definition of a fire
division is broadly disputed as this may be between firewalls, separations of construction or
distance betweens 2 buildings
Parapet - Answers A vertical extension of a fire wall that extends above a roofline at least 4 feet
Fire-Restrictive Construction - Answers A class of construction that has exterior walls, floors,
and roofs of masonry or other fire-resistive material with a fire-resistance rating of at least 2
hours. This construction is a total firestop and firewalls need not extend above the roof
Noncombustible construction - Answers A class of construction in which the exterior walls,
floor, and roof of a building are constructed of. and supported by, metal, gypsum, or other
noncombustible materials
Masonry Noncombustible Construction - Answers Masonry construction or construction that
includes exterior walls of fire-resistive construction with a fire-resistance rating of not less than
one hour
Frame Construction - Answers A class of construction that has load-bearing components made
of wood or other combustible materials such as brick or stone veneer
Normal Loss Expectancy (NLE) - Answers The loss expected under normal conditions with all
fire protection services working. Considerations include (1) Construction (2) Protection (ie.
positive pressure ventilation/sprinklers) (3) Business Interruption contingency plans (4) Fire
, divisions (5) Susceptibility of contents to damage and/or combustibility (6) Operational hazards
Probable Maximum Loss (PML) - Answers An estimation of the largest loss that an insured is
likely to sustain. This is not a fit hits the shan loss, only largest loss likely to occur. Calculations
are subjective, and in some construction types, PML may be the same as Amount Subject.
Calculation includes accounting for building features that stop vertical spread of fire, and will
also have to account for smoke and water damage
Impact of PML on Reinsurance - Answers Many reinsurers have designed many property
treaties while limiting their exposure within the PML
Maximum Foreseeable Loss (MFL) - Answers An estimate of the financial cost of the loss if all
protection measures, automatic and manual, were to fail, and no effeftive fire department
response occurred.
Aspects of an effective risk management program - Answers (1) Daily monitoring of
housekeeping
(2) Consistent adherence to relevant codes
(3) Effeftive pre-fire planning and training
(4) Support of top management and cooperation of all management
Aspects of COPE - Answers C- Construction
O- Occupancy
P- Protection
E- External exposure
Construction - Answers The type of materials used to fabricate a building, which underwroters
analyze when evaluating submissions for property insurance. The most important aspect to
consider
Occupancy - Answers The type or character of use of the property in question. What aspects of
the occupancy may present a greater rate of loss
Protection - Answers Measures taken to prevent or reduce the damage done by fire. This
includes internal aspects like fire extinguishers, sprinklers and also external such as the fire
district
External Exposure - Answers A loss exposure outside the area owned or controlled by the
insured. This is a considerarion for things like a known firework factory next door
Public Fire Protection - Answers Fire protection equipment and services made available through
