Casualty Actuarial Society (CAS) Practice Exam

Which of the following is a component of the operational hazards that underwriters assess?

1. Accessibility of the property

2. Temperature of the site

3. Availability of insurance

4. Maintenance procedures in place

The correct answer is: Maintenance procedures in place

Operational hazards refer to the risks and conditions associated with the operations of a business that can affect its ability to manage risks effectively. When underwriters assess operational hazards, they look at various factors that could impact the property and the likelihood of claims. Maintenance procedures in place play a vital role in mitigating risks associated with operational hazards. Good maintenance practices ensure that the property is kept in safe and functional condition, reducing the likelihood of accidents and associated claims. For example, regular inspections, timely repairs, and adherence to safety protocols can prevent equipment failures or accidents that may lead to losses. Consequently, underwriters place significant emphasis on understanding a business's maintenance procedures when evaluating operational risk. While accessibility of the property, temperature of the site, and availability of insurance are relevant factors in the overall assessment of risk, they do not directly reflect the operational practices that can influence the likelihood of an incident occurring on the property. In contrast, effective maintenance procedures are a proactive approach to managing operational hazards and can have a substantial impact on both risk exposure and the underwriting decision.