Casualty Actuarial Society (CAS) Practice Exam

Why is a vehicle maintenance program important from an underwriting perspective?

1. It demonstrates the insured’s commitment to safety

2. It provides cost savings on repair services

3. It indicates a higher risk for mechanical failure

4. It ensures vehicles are always upgraded

The correct answer is: It demonstrates the insured’s commitment to safety

A vehicle maintenance program is crucial from an underwriting perspective because it showcases the insured’s commitment to safety. Underwriters assess the likelihood of claims and the overall risk associated with an insured entity. When a vehicle maintenance program is in place, it signals that the insured takes proactive steps to ensure that their vehicles are maintained in good working condition, which can reduce the probability of accidents caused by mechanical failures or unsafe conditions. This perceived commitment to safety can lead to more favorable underwriting terms, as it suggests a lower risk profile. The other options touch upon relevant aspects of vehicle maintenance but do not directly address the core underwriting focus on risk assessment. Cost savings on repair services, while beneficial, do not inherently impact the safety and risk aspect as viewed by underwriters. The indication of higher risk for mechanical failure runs counter to the primary aim of underwriting, which is to minimize exposure to risk, and ensuring vehicles are always upgraded is more related to vehicle value than to underwriting risk assessment.