Casualty Actuarial Society (CAS) Practice Exam

Evaluating an applicant's use of subcontractors involves several considerations, and ensuring that subcontractors have adequate insurance coverage is a crucial aspect of underwriting. When underwriters assess subcontractors, they are concerned about the financial exposure that may arise from potential liabilities incurred by those subcontractors.

If a subcontractor operates without adequate insurance, it can lead to significant financial risks for the primary contractor and, subsequently, the insurance company. In the event of an accident or liability claim, if the subcontractor does not have sufficient coverage, the primary contractor may face increased liability exposure that falls back on their own resources or insurance policy. This can ultimately result in higher claims costs for the insurer, making it essential for underwriters to verify that subcontractors maintain appropriate insurance limits and coverage types.

By focusing on the insurance aspect, underwriters can better manage risk associated with subcontractors and ensure that there are measures in place to protect against potential losses stemming from their work.