Casualty Actuarial Society (CAS) Practice Exam

Why is occupancy important for underwriters?

1. It determines the market value of the property

2. It indicates the construction quality of the building

3. It helps assess hazards that influence loss frequency and severity

4. It simplifies the underwriting process

The correct answer is: It helps assess hazards that influence loss frequency and severity

Occupancy is crucial for underwriters because it directly relates to the risks associated with a property. Understanding the type of occupancy—whether residential, commercial, industrial, or mixed-use—allows underwriters to assess the potential hazards that can lead to loss. Different types of occupancy expose properties to varying levels of risk; for example, an industrial facility may present higher risks of inventory loss or accidents compared to a single-family home. Additionally, the occupancy type affects the frequency and severity of losses, as certain businesses may be at a greater risk of theft or liability claims. Consequently, having a clear understanding of occupancy helps underwriters in making informed decisions about insurance coverage, setting premiums, and potentially identifying risks that need mitigation.