Chapter 13 Exercises

Work these the way you would work a real desk: run every risk through the three gates — appetite, price, terms — and ask of every decision could I defend this, and does the file prove it? Items marked with a dagger (†) have worked solutions in Appendix: Answers to Selected Exercises; the rest are for discussion or self-test. Section references like (§13.4) point you back to the relevant part of the chapter.

A. Recall and definitions

1. † Name the three possible outcomes of an underwriting decision, and define each in one sentence. (§13.1)
2. State the three gates of the decision framework in order, and say in a phrase what each one tests. (§13.1)
3. Define a subjectivity, and explain how it differs from a condition of the policy. (§13.2, §13.4)
4. † What is a counter-offer, and why is it, legally, a rejection of the original request rather than a modification of it? (§13.4)
5. Distinguish referral, peer review, and escalation by purpose and direction. (§13.6)
6. What is the reconstruction test, and what is the single most-neglected element of a file that it tests for? (§13.5)
7. Define a declination and name the three directions — business, legal, file — in which it has consequences. (§13.3)

B. The decision framework

8. † A submission is in appetite and the base price is roughly adequate, but a single feature — an aging roof in a wind zone — makes it marginal. Which gate does this hit, and which of the three outcomes does that gate tend to produce? Why? (§13.1)
9. An underwriter says, "I just look at the whole account and get a feel for whether to write it." Explain, using the three gates and the documentation rule, why this is both harder to do well and harder to defend than the sequential approach. (§13.1, §13.5)
10. Give one example each of a risk that fails at gate 1 (appetite), a risk that fails at gate 2 (price), and a risk that passes both but needs gate-3 (terms) work. (§13.1)
11. † "A risk that is in appetite but cannot be priced adequately is a decline disguised as a quote." Explain what this means and why writing such a risk anyway is a decision to take a loss. (§13.1; Ch. 11)

C. Accept and bind

12. Explain why the binder, not the unissued policy, is what actually puts the insurer on risk — and why that makes binding "the most consequential keystroke an underwriter makes." (§13.2)
13. † Your authority caps the property line at \$10M. A broker asks you to bind a \$20M property line "just for today, we'll refer it tomorrow." What do you do, and why is binding-then-referring backwards? (§13.2, §13.6)
14. Distinguish a condition of the policy from a condition precedent to binding (a subjectivity), and explain which one creates an exposure immediately if mishandled, and which surfaces later. (§13.2)
15. † (Find the red flag.) A file shows a clean, unconditional bind on a commercial property account. In the underwriter's notes is the sentence: "Will bind as long as they get the sprinklers certified." The binder and policy contain no such condition. Identify the error, name it, and state what should have been done instead. (§13.2)

D. Decline and keep the relationship

16. † (Write the memo.) Draft a short, professional declination letter for the 30-unit trucking fleet in Figure 13.1 (three at-fault losses in two years, one with serious injury). Give the risk-based reason, keep the broker relationship intact, and — if appropriate — leave a constructive door open. (§13.3)
17. Why is the "silent no" — never responding to the broker at all — the worst way to decline, in both the business and the legal directions? (§13.3)
18. † A new underwriter wants to decline an account because "the neighborhood is bad." Explain why this reason is dangerous, distinguish it from a legitimate risk-based reason, and name the two legal concepts in play. (§13.3; Ch. 4, Ch. 35)
19. (Ethics dilemma.) Your manager privately tells you to decline a particular account but to "write something about the loss history in the file" as the reason — when you both know the real, unstated reason is something else. Explain why a pretextual file note is "worse than no documentation at all," and state what you should do. (§13.3, §13.5)
20. A personal-lines auto application is declined partly because of the applicant's credit-based insurance score. What additional obligation does this trigger, and to whom? (§13.3; Ch. 8)

E. Modify, counter-offer, and subjectivities

21. † Distinguish repricing from restructuring as the two levers of a counter-offer. Give one example of each on a coastal property account, and explain why restructuring can make a risk writable when repricing alone cannot. (§13.4)
22. (Underwrite this submission.) A 40,000 sq ft woodworking shop applies for property and GL. It is in appetite and the price is achievable, but it has an open-flame finishing process, no dust-collection system, and a 25-year-old roof. Decide: accept, decline, or modify — and if you modify, write the counter-offer terms and the specific subjectivities you would attach, each targeting a named hazard. (§13.4)
23. † Explain why "a subjectivity that is attached and then forgotten is worse than none." What three things must every subjectivity have to be managed properly? (§13.4)
24. A broker asks you to waive a subjectivity (the inspection) so they can bind before a closing deadline. Explain why waiving a subjectivity is itself an underwriting decision, what it requires, and when it may need to be referred. (§13.4, §13.6)
25. For each of the Harbor Steel subjectivities — (a) infrared electrical scan, (b) hot-work permit program, (c) roof-replacement contract within 12 months — name the specific element of the loss history or exposure it addresses, and explain how it changes the risk you are actually insuring. (§13.4; The Underwriting File)

F. Documentation and the defensible file

26. † List the elements of a complete decision file from the chapter's checklist, and explain why the rationale (the "why") is the most important and most neglected of them. (§13.5)
27. Explain the difference between documenting a decision contemporaneously and reconstructing it after a loss. Why do auditors and courts treat the two so differently? (§13.5)
28. "You are judged on the quality of the decision, not the luck of the result." Explain what this means for how an underwriting audit evaluates a file, and why a clean-running account can still reflect bad underwriting (and vice versa). (§13.5, §13.7; Ch. 38 preview)

G. Referral, peer review, and defending the decision

29. † Write a one-paragraph referral of an account to a senior underwriter that is a "complete recommendation," not a "what do you think?" Include the analysis done, the decision proposed, the rationale, the specific authority requested, and one open question. (§13.6)
30. Explain why peer review's independence is the source of its value, and why a culture where asking for peer review is normal produces better files. (§13.6)
31. † You write a risk that a predictive model scored as a decline (a 7/10). Draft the override rationale you would put in the file — and explain what makes an override "defensible" versus "I had a good feeling about it." (§13.7; Ch. 32 preview)
32. The same decision must be defended to your manager, to the broker, and (in the case of an override) to yourself. For each audience, state in one sentence what they actually care about and the language you defend in. (§13.7)
33. A broker pushes hard for terms you have decided not to grant, implying they will move the account if you hold. Explain how you defend the decision to the broker without giving away the discipline (the adequate rate and the necessary terms). (§13.7; Ch. 11)

H. The Underwriting File

34. † (Underwriting-File extension.) Run Harbor Steel through the three gates as the chapter does, and state the decision in one sentence with its terms and the authority issue. Then list the five subjectivities and, for each, the open status fields it needs (owner, deadline, status). (The Underwriting File; §13.1, §13.4)
35. The Harbor Steel decision is modify, and refer. Explain precisely why it must be referred — what about the account exceeds a line underwriter's authority — and why referral makes it neither a worse account nor a slower one. (The Underwriting File; §13.6)
36. (Defending the decision.) An auditor reviews your Harbor Steel file two years later, after the account has run a clean first year. Write the two or three sentences of rationale that would let the auditor reconstruct why you decided as you did — appetite, price, terms — without ever having spoken to you. (The Underwriting File; §13.5, §13.7)
37. The chapter is careful not to state Harbor Steel's final bound disposition (that is the Chapter 40 capstone). Explain why a "quote-with-conditions, referred" is a complete and defensible Chapter 13 decision even though coverage is not yet cleanly bound. (The Underwriting File; §13.2, §13.4)
38. (Connect back.) Adverse selection (Chapter 1) is "the enemy." Explain how the three gates, the subjectivities, and the documented decline each function as defenses against adverse selection on the Harbor Steel account. (The Underwriting File; Ch. 1)