Underwriting for commercial risks and moral hazard requires the underwriter to use subjective judgment, often without proof. You need to consider the financial situation, the experience in that business, the record of successes and failures, and prior history of losses due to fire. It is also important to analyze the business history of the location. It is the underwriter’s responsibility to ensure that the underwriting is done so that it is sufficient to say that the business can be profitable.
The circumstances of ownership will vary but will fall under six categories. The first is an existing business under the same continuous ownership or management for a credible period of time at the same location. This type of risks is the easiest way to evaluate the characteristics of ownership.
The next situation involves experienced ownership and management commencing operations at a new location. You need to assess the new location and the reasons for the move. The third situation is an inexperienced ownership and management commences business at a location new to that business. There is little background with the risk so analyzing the risk will be difficult.
The fourth situation is an experienced ownership and management commences operations at an existing business location previously owned and managed by other interests. You need to obtain details on the previous ownership and management. The fifth situation is an inexperienced ownership commences operations at an existing business location previously owned by other interests. You need to look at the financial details of the past ownership.
The last situation involves an owner non-occupant of a building occupied by other interests. You have to evaluate both the owner and the tenant.
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