Los Angeles Claims Adjuster Property and Causality Practice Exam

What happens to premiums if the actual business exposure differs from estimates?

1. They are fixed by law

2. They will be adjusted accordingly

3. They remain unchanged

4. They are automatically refunded

The correct answer is: They will be adjusted accordingly

When actual business exposure deviates from initial estimates, premiums will be adjusted accordingly to align with the reality of the risk covered by the insurance policy. Insurance premiums are typically calculated based on several factors, including the estimated exposure to risk, such as property values, revenue, or the number of employees. If the true exposure is higher or lower than what was estimated, the insurance company will reassess the risk, which can lead to either an increase or decrease in premiums. For example, if a business experiences significant growth that increases its risk—like adding more vehicles or expanding operations—the insurer will adjust the premiums upwards to reflect this new level of risk exposure. Conversely, if a business significantly reduces its operations, leading to lower exposure, the premiums may be adjusted downward. This dynamic nature of premiums ensures that the coverage remains appropriate and fair based on the current risk profile. This principle helps in maintaining the sustainability of the insurance system, ensuring that premiums correlate accurately with the level of risk being insured.