Chapter 39 Exercises

Work these with the chapter's habits of mind: ask of every submission what does this tell me about the broker, the account, and my adverse-selection risk, and of every negotiation what is the lever that lets both sides say yes without giving away the protection that makes the risk writable. 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 (§39.3) point you back to the relevant part of the chapter.

A. Recall and definitions

  1. † Define submission quality in one sentence, and explain why it is distinct from the quality of the risk. Give one example where a great risk arrives in a poor submission and one where a bad risk arrives in a beautiful one. (§39.3)
  2. Distinguish a distribution channel's three main forms — direct, captive/exclusive agency, and independent agency/brokerage — and say which dominates commercial lines and why. (§39.1)
  3. In the legal sense from Chapter 3, an agent represents the _ and a broker represents the _. Why does that difference matter when you sit across the negotiating table from a broker? (§39.1)
  4. † Distinguish a retail broker from a wholesale broker, and explain the role of the wholesaler in placing a risk into the excess-and-surplus market. (§39.2)
  5. Name the three pillars of the market relationship and give a one-line, behavioral definition of each — i.e., what you actually do, not what you are. (§39.4)
  6. Define a renewal strategy and state the three reasons the chapter gives that renewals are where a book's profitability is actually made or lost. (§39.7)
  7. List the three axes of competition and state, for each, the chief risk of competing on it. (§39.6)

B. Distribution and the channels

  1. Trace, with a simple diagram, how a hard, catastrophe-exposed risk like Harbor Steel moves from the insured to the underwriter through the retail and wholesale channels. Label where (and why) the second intermediary enters. (§39.1, §39.2)
  2. † A risk is placed in the surplus-lines (non-admitted) market. State three concrete things that change versus an admitted placement — for the insured and for you, the underwriter. (§39.2; recall Chapter 4)
  3. Explain why the interesting risks — the ones where underwriting judgment earns its keep — tend to live in or near the E&S market, and connect that to the claim that technology augments rather than replaces the underwriter (Chapter 36). (§39.2)
  4. An MGA is described as a wholesaler who also holds delegated underwriting authority. When you work at a carrier that delegates to MGAs, how does your job change — what are you now "underwriting"? (§39.2; Chapter 38)

C. Reading submission quality (find the red flag)

  1. † A submission arrives with: one unsigned ACORD; "loss runs to follow"; a single lump building value with no SOV; no supplemental for the account's known welding hazard; and the note "need it bound tomorrow." Identify every warning sign, say what each one signals, and state exactly what you do next. (§39.3)
  2. Two brokers send you the same 60-employee plastics manufacturer (Figure 39.1). Broker A discloses a past dust-collection fire and the housekeeping fix up front; Broker B omits the dust hazard entirely. The risk is identical. Explain why you treat the two submissions differently and what, precisely, submission quality does and does not tell you about the underlying risk. (§39.3)
  3. The chapter says "do not quote what you cannot see." A colleague counters: "In a soft market with a production target, a quick optimistic quote keeps the broker happy and we can always re-rate later." Rebut this, naming the specific harm and the theme it violates. (§39.3, §39.5)
  4. † Explain the claim that "you are always teaching your market what you will accept." How does accepting thin submissions worsen the quality of what a broker sends you next time, and how does requiring quality improve it? (§39.3)

D. Building and protecting the relationship

  1. Describe the virtuous loop the chapter draws between the three relationship behaviors and your loss ratio. Then describe the vicious loop. Why does the chapter say "nobody decides to enter the bad loop"? (§39.4)
  2. † Of trust, responsiveness, and consistency, the chapter calls consistency the most underrated. Explain why — what can a broker do for you if your appetite and pricing are predictable that they cannot do if they swing? (§39.4)
  3. The chapter draws two lines the relationship must not cross. Name both — the regulatory one (around inducements/rebating) and the underwriting one (around writing or pricing a risk) — and explain why a broker worth having does not actually want you to cross the second. (§39.4)
  4. A broker complains that you decline too many of their submissions. On reflection you realize the real issue is that you are slow and silent, not that you are strict. Explain why a fast, specific decline is more valuable to a broker than a slow maybe, and rewrite a one-line "Declined." into a relationship- building decline. (§39.4, §39.5)

E. Negotiation (underwrite this submission / find the terms)

  1. † Work the Harbor Steel negotiation (Figure 39.2). Meridian asks you to (a) lower the named- windstorm deductible, (b) restore replacement cost on the roof now, and (c) loosen the subjectivities. For each ask, state whether you hold or flex, why, and what you give the broker to bring back to the client. Identify which single ask is the firm line and explain what makes it non-negotiable. (§39.5; The Underwriting File)
  2. A broker pushes back hard on your premium for a manufacturing account. List four non-price levers from your coverage-structuring toolkit (Chapter 12) you could use to bridge the gap, and explain how at least one of them improves the risk while it lowers the price. (§39.5)
  3. † (Price this risk — a negotiation calculation.) You have quoted a property account at an indicated premium of \$60,000, built as roughly \$42,000 of expected loss plus a \$15,000 expense load plus a \$3,000 profit/contingency load (all figures illustrative). The broker says the incumbent is at \$54,000 and asks you to match. (a) If you simply cut to \$54,000 with no change to the risk, what is consumed first — and what does that do to the profit/contingency load and to rate adequacy (Chapter 11)? (b) Propose a structural change (e.g., raising the deductible) that could legitimately lower the expected-loss component and let you reach a lower price you can still defend. (c) State the one thing you must not do. (§39.5, §39.6)
  4. A long-standing, friendly broker leans on the relationship to get you to drop an adequate rate 10% on a deadline. Walk through the disciplined response: what you hold, what you offer instead, how you explain it, and what holding the line does to the relationship over a career — versus what folding does. (§39.5)

F. Competing, and the long game

  1. † A competitor quoted \$8,000 under your adequate price on an account where you have no genuine expense or data advantage. Give two ways to try to win it without matching the price, name the move you should not make, and explain why winning purely on price is a quiet form of adverse selection (Chapter 1). (§39.6)
  2. Explain the difference between competing on coverage and competing on price, and why competing on coverage rewards exactly the line knowledge this book exists to build. Give a concrete one-sentence pitch a broker could carry back to a client that wins on coverage at an adequate price. (§39.6)
  3. State the four non-negotiable principles of a renewal strategy from §39.7. For each, name the harm that follows from violating it. (§39.7)
  4. † Your portfolio report shows a broker you genuinely enjoy working with whose book runs at a 75% loss ratio, and another, less pleasant broker whose book runs at 48%. Explain how the analytics and the judgment should combine here — what the data tells you to look at, and what judgment must decide before you act. (§39.7; Chapters 29, 32)

G. A memo, an ethics dilemma, and the Underwriting File

  1. (Memo.) Write a short (200–300 word) email to a broker declining a catastrophe-exposed property account well: state the decision, give the specific, honest reasons, tell the broker exactly what would make you look again, and preserve the relationship. Then write the one-sentence version of the same decline that would destroy the relationship, and explain the difference. (§39.4, §39.5)
  2. (Ethics dilemma.) A top-producing broker takes you to an expensive dinner and, over coffee, mentions that a competing underwriter "always finds a way" to shave a few points for them, and hints that your "flexibility" would be remembered when the broker's biggest account comes up for renewal next quarter. Lay out the issues: the rebating/inducement line (Chapter 4), the pricing-discipline line (Chapter 11), the relationship-vs-capture line (§39.4), and the long-game calculation. State exactly how you respond, and why the response protects both your integrity and, in the long run, your book. (§39.4, §39.5)
  3. † (Underwriting-File extension.) Meridian has delivered the signed roof-replacement contract and the hot-work program for Harbor Steel; the sprinkler certification, IR scan, and telematics installation are in progress. Draft the short status note you would put in the file documenting the negotiation outcome and the subjectivity tracker. Then state, in two sentences, what this chapter has settled about the placement and what it has explicitly left for the capstone (Chapter 40) — being careful not to pre-empt the final binding decision. (The Underwriting File; Chapters 13, 40)
  4. (Underwriting-File extension.) Suppose, instead, that a different broker had brought Harbor Steel as a thin submission — two years of loss runs, no SOV, the 2023 fire's cause omitted, "see what you can do." Explain how that submission quality would have changed your entire handling of the account, and whether you would have reached terms at all. Connect your answer to the fraud/disclosure check the file encounters in Chapter 33. (§39.3; The Underwriting File; Chapter 33)
  5. (Synthesis.) In two or three sentences each, explain how the broker relationship touches three earlier ideas in the book: (a) the insurance value chain and where distribution sits (Chapter 1); (b) the information-gathering discipline and "what the applicant doesn't say" (Chapter 8); and (c) the combined ratio as the number that judges it all (Chapter 3). (§39.1, §39.3; Chapters 1, 3, 8)