Chapter 23 Exercises

Work these the way you would work a real commercial-auto submission: ask whose trucks, driven by whom, doing what, for how far — and what will the worst day cost? Keep the line's defining fact in front of you — the problem is severity, not frequency — and remember that you are insuring the drivers, not the vehicles. 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 (§23.3) point back to the chapter. All dollar figures are illustrative teaching numbers.

A. Recall and definitions

  1. † Define commercial auto and name the policy form most commonly used to write it. In one sentence, state the single most important way it differs in risk from the personal auto policy of Chapter 14. (§23.1)
  2. Explain what a coverage symbol does on the business auto policy, and why writing liability on "symbol 7 — specifically described autos" can create a coverage gap. (§23.1)
  3. Define radius of operations and name the three common radius classes. In a phrase each, say what rises as the radius grows. (§23.4)
  4. † Define hired & non-owned auto, and distinguish the hired category from the non-owned category with one example of each. (§23.5)
  5. Define a nuclear verdict and explain, in one sentence, why this line is where they cluster. (§23.6)
  6. What is a driver qualification file, and why does the chapter call the insured's process for maintaining it a better predictor than the roster on any given day? (§23.3)
  7. Define fleet rating and explain how it differs from rating each vehicle individually off the manual. At roughly what point does it take over? (§23.2)
  8. Distinguish, in commercial auto, between the frequency problem and the severity problem. Which one has driven the line's poor industry results, and why? (§23.6)

B. Reading the fleet and the exposure

  1. † Two accounts each operate "fifteen units." Account A runs private-passenger sedans for outside sales reps, all local. Account B runs heavy flatbeds hauling structural steel on an intermediate radius. Describe how your underwriting attention and your rate should differ, and name the single fleet characteristic that drives the gap. (§23.2)
  2. A fleet schedule lists twelve vehicles. Explain, in your own words, why "twelve" is not an exposure, and list four fleet characteristics you must read off the schedule before you can price it. (§23.2)
  3. † A fleet of forty units has its own multi-year loss history; a fleet of three does not. Explain how fleet rating treats each differently, and connect it to the credibility idea from Chapter 10 and the law of large numbers from Chapter 1. (§23.2; Ch. 1, Ch. 10)
  4. The cargo on Harbor Steel's flatbeds is structural steel. Explain the two distinct ways cargo matters to the underwriting decision, and say which one belongs to the auto line and which belongs to a different line (and which chapter owns it). (§23.4; Ch. 26)

C. Underwriting the drivers

  1. † You pull MVRs on a ten-driver fleet. One record shows a single speeding violation 31 months ago; another shows two minor violations plus an at-fault accident in the last 18 months; a third shows a DUI eight months ago on a driver assigned to a heavy flatbed. State how you would treat each, and explain why the third is not a "rate-up." (§23.3)
  2. Explain the difference between reading an MVR for count and reading it for pattern. Give an example where the count looks bad but the pattern is benign, and one where the count looks fine but the pattern is alarming. (§23.3)
  3. † The chapter says the MVR is "necessary and not sufficient." Name three things an MVR cannot tell you about a driver, and explain how telematics (§23.7) addresses the gap. (§23.3, §23.7)
  4. An applicant says it has "no real process" for pulling driving records on new hires. Identify what this tells you about the account's loss future, and write the subjectivity you would attach to address it. (§23.3)

D. Radius, cargo, and compliance

  1. † An applicant classifies its flatbed fleet as "local," but the loss run shows two at-fault accidents 250 miles from the home terminal. Give the two different explanations you must consider, what each requires you to do, and which chapter governs the more serious one. (§23.4; Ch. 33)
  2. Explain what the FMCSA's public safety profile (SAFER/SMS data tied to a USDOT number) gives you, and why the chapter compares it to a loss run. Name two of the safety categories it reports. (§23.4)
  3. A carrier's application describes a tightly run, safety-first operation, but its public FMCSA profile shows an elevated out-of-service rate and a high unsafe-driving percentile. How do you reconcile the two, and which witness does the chapter say is usually the more honest? (§23.4)

E. Hired and non-owned auto

  1. † A small distributor has its office staff use their own personal cars to run product to nearby customers several times a day. The owner is surprised you're asking about it — "those aren't our vehicles." Explain the exposure, the legal doctrine that lets a plaintiff reach the employer, and why HNOA written for a nominal premium without questions is still a trap. (§23.5)
  2. Explain how a gap in the primary auto's hired-and-non-owned coverage can become a problem for the \$10M umbrella that sits above it. Why is coverage architecture (Chapter 5) not abstract here? (§23.5; Ch. 5, Ch. 16)

F. The nuclear verdict and rate discipline

  1. † A broker pushes back on your auto rate: "This fleet has fifteen clean years — nothing but fender-benders. Why are you charging like they're dangerous?" Write a two- or three-sentence response that holds the rate, grounded in the difference between observed frequency and the unobserved severity tail. (§23.6)
  2. Explain social inflation (severity inflation) in your own words, and name three factors the chapter attributes it to. Why does it push the line's risk into the tail rather than the middle? (§23.6)
  3. † The chapter says you "cannot price the nuclear verdict away — no rate or control can." If that's true, list four concrete things the disciplined underwriter does do about the severity tail, and explain what each accomplishes. (§23.6, §23.7)

G. Telematics and fleet risk management

  1. † A fleet reports that all twelve units have forward-facing dashcams and telematics. Identify the first question (the trap) and the second question (the one that matters) you should ask before granting a schedule credit, and explain why the second determines whether a credit is warranted. (§23.7)
  2. Describe the two distinct underwriting uses of telematics the chapter identifies — one about behavior, one about evidence — and give a concrete example of how each affects a real claim outcome. (§23.7)
  3. State two genuine limits of telematics as a control. Why does the existence of these limits not change the conclusion that telematics, required and acted on, is the best loss-control lever this line has? (§23.7)

H. Price this risk (illustrative)

  1. † A heavy-flatbed fleet's manual liability premium works out to \$120,000 before modifications. Your schedule-rating analysis (Chapter 11) supports a 20% debit for the aging driver roster and weak process, partially offset by a 10% credit for a required-and-monitored telematics-and-coaching program. Apply the debit and credit (net) to the manual premium and state the indicated liability premium. Then explain in one sentence why you would not simply net these to a small modification and move on. (§23.2, §23.7; Ch. 11)
  2. The same account asks you to remove the telematics requirement to lower the price, keeping the 20% debit but dropping the 10% credit. Compute the new indicated premium, and then explain why the higher number is the better-underwritten outcome, not a worse one. (§23.6, §23.7; Ch. 11)

I. Find the red flag

  1. † A submission for a regional delivery fleet shows: liability written on symbol 7; "local" radius boxed on the application; no hired-auto coverage; one driver with a recent major violation still on the schedule; telematics listed as "installed"; and a loss run with two crashes 200+ miles away. Identify four red flags and state what each one requires you to do before you could quote. (§23.1, §23.3, §23.4, §23.5, §23.7)
  2. An account's loss run shows its auto claims cluster between 4:30 and 6:30 a.m. What hypothesis does this timing suggest, what would you ask the insured, and what control would most directly address it? (§23.2, §23.7)

J. Memo and ethics

  1. † Write a short coverage-recommendation memo (150–250 words) to your manager on the Harbor Steel auto line. State the disposition (written, conditioned), the two conditions you are attaching, the single biggest residual risk you cannot price away, and your one-line defense of the rate. (Use only facts from the chapter and the frozen file.) (The Underwriting File; §23.3, §23.6, §23.7)
  2. Write the two-or-three-sentence message to the broker explaining that one driver must be removed from the Harbor Steel policy as a condition of coverage. Be honest and firm without being adversarial — you want the account and the relationship (a preview of Chapter 39). (§23.3)
  3. Ethics. A long-standing, profitable insured asks you to keep a driver on the policy "just this once" — the driver is the owner's nephew, has a recent serious violation, and "really needs the job." Walk through the competing obligations (to the insured relationship, to the pool, to the public who shares the road, to your own carrier's results), and state what you would do and why. Does the answer change if the driver were assigned only to a light service van instead of a heavy flatbed? (§23.3, §23.6; Ch. 35)
  4. The Underwriting File — extension. Six months into the term, Harbor Steel's telematics dashboard shows that a different driver — clean MVR, but consistently the worst harsh-braking and following-distance scores in the fleet — has not improved despite coaching. The account is otherwise performing. Using only what this chapter and the file have established, write the note for the file: what you recommend, what authority or referral it might require, and how this illustrates the chapter's claim that "you're insuring the process, not the roster." (The Underwriting File; §23.3, §23.7)