Los Angeles Claims Adjuster Property and Causality Practice Exam

What basis does the CGL use to compute an earned premium?

1. Fixed rate premiums

2. Exposure base audit

3. Flat rate assessments

4. Monthly usage analysis

The correct answer is: Exposure base audit

The most accurate basis for computing an earned premium in a Commercial General Liability (CGL) policy is through an exposure base audit. This method involves evaluating the insured's actual exposure during the policy period, such as payroll, sales, or square footage, and then using this data to adjust the premium accordingly. As the exposure changes, it reflects the true risk associated with the insured's operations. By auditing the exposure post-coverage period, insurers ensure that the premium charged accurately corresponds to the risk level and actual coverage utilized. This approach helps balance the insurer's need to charge premiums that align with risk while providing coverage that corresponds to the insured’s real operations. Other methods like fixed rate premiums, flat rate assessments, or monthly usage analysis do not provide the same level of accuracy in reflecting the risk associated with the insured's activities, making them less suitable for determining earned premiums in a CGL context.