CAIB 1 - Chapter 1 General Questions with 100% Correct Answers 2023-2024, Exams of Advanced Education

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CAIB 1 - Chapter 1 General Questions

with 100% Correct Answers 2023-

List the 3 categories of risk generally faced by people. - Correct Answer-1) Personal Risk

2. Property Risk
3. Liability Risk State 4 possible options people can choose to deal with risk. (explain each and example) - Correct Answer-1) Risk Avoidance - "not doing something" in such cause there is kot chance of loss. ex: Renting vs. owning property 2)Risk Control - taking measures to reduce the frequency and severity of losses. ex: fire detection alarms
4. Risk Retention - bigger companies can often assume financial responsibility for their own losses. Not many people can afford to do this and may opt to only self insure a portion of their policy. ex: insuring for all property losses, excluding glass breakage
5. Risk Transfer - people unable to withstand a financial loss look to transfer all or a portion of this risk. ex: Insurance (most practical means of dealing with risk) Give 2 examples of loss control measures that can be taken to reduce the frequency and severity of losses. - Correct Answer-1) Installing intrusion detection equipment
6. Fire detection alarms State 2 reasons why loss control measures are not a total solution in eliminating financial loss. - Correct Answer-1) Equipment will not work 100% of the time
7. Certain types of losses such as wind, hail and lightning cannot be effectively controlled Which of the four possible options is generally not an effective means of dealing with risk? - Correct Answer-Risk Avoidance Which of the four possible options is the most popular and practical means of dealing with risk? - Correct Answer-Transfer of Risk Explain using an example, "speculative risk" - Correct Answer-Placing a bet at a blackjack table in Las Vegas, there is a chance of financial loss but also a chance of financial gain.

Explain using an example, "pure risk" - Correct Answer-Owning and operating an automobile, there is no chance in financial gain only financial loss if there were to be a loss or damage. Which types of these risks will insurers not provide an insurance policy for? - Correct Answer-Speculative Risks All contracts contain 5 elements. Identify and explain these elements - Correct Answer-

1. Agreement - a meeting of the minds. An offer was made and an unequivocal and unconditional acceptance of the terms of that offer (not necessary to be in writing)
2. Consideration - is an exchange of something of value between the parties
3. Legality of object - a contract intended for a purpose which is contrary to public policy is not enforceable by law.
4. Legal Capacity of the Parties to Contract - the law will enforce only those contracts of persons it recognizes as competent or having the legal capacity to contract
5. Genuine Intention - that the parties actually intended to enter into a contract List the 2 items that are required for a proper agreement, or meeting of the minds, to be valid - Correct Answer-1) An offer was made
6. An unconditional acceptance of that offer was made Identify four persons who might have an insurable interest in a contract of insurance - Correct Answer-1) Owners of property, including their business partners
7. Mortgagee
8. Bailees to whom property is entrusted for repair, service or safekeeping
9. Any person who may be held legally responsible to a third party for bodily injury or property damage At what point in time is the true measure of indemnity determined? - Correct Answer- Immediately prior to the loss In an insurance contract, from your clients perspective, explain what they must do, or be present, to meet the following elements. i) Consideration ii) Legal Capacity iii) Insurable Interest iv) Utmost Good Faith - Correct Answer-i) Considerstion - is payment of the premium or the promise to pay the premium at a later date. ii) Legal Capacity - mentally competent, not under the influence and over the age of 21

iii) Insurable Interest - able to show that they would suffer financially by a loss iv) Utmost Good Faith - must be truthful regarding information about the risk and details of previous claims, csncellations, and refusals of insurance Explain the difference between a void contract and a voidable contract - Correct Answer-A void contract is one which is unable in law to support the purpose for which it was intended and a voidable contract is one which is voided if the wronged party elects it to be treated as so What does it mean when a broker issues a binder? - Correct Answer-binder may be oral or written an insurance binder forms the basis of the contract until the insurer prepares and distributed formal policy documents Binders may be oral or written, as a general rule what should brokers do when they give an oral binder and why? - Correct Answer-Binders should be confirmed immediately in writting. This practice avoids the potential for disagreement as to coverages and amounts List two places where a broker might find the limits of their binding authority - Correct Answer-i) Agency Agreement ii) Insuer's Rate Manual The purpose of insurance is to respond to losses which are both accudental and future. Explain what is meant by this statement. - Correct Answer-Insurance is not meant to respond to losses which are deliberate or which have already occurred List three examples of direct loss - Correct Answer-1) Fire destroying a building

2. Windstorm levels a building
3. Electrical motor malfunctions List 3 examples of indirect loss - Correct Answer-1) Loss of food in a freezer when electrical motor malfunctions
4. Loss of rental income from an apartment building after fire totally destroys the building
5. Loss of profits to the business after a windstorm levels the building Identify the 3 factors to be considered when determining the amount to be paid to the insured in the event of a loss. - Correct Answer-1) The actual cash value of the property at the time of the loss

2. The interest of the insured in the property
3. The limit of insurance provided by the policy Which one of these 3 will be paid to the insured? - Correct Answer-Whichever is the least Identify three factors to be considered when calculating depreciation - Correct Answer-
4. Condition of the object
5. Resale value
6. Normal life expectancy The conduct of the general insurance industry in Canada is closely supervised and regulated by federal and provincial statutes. State what these laws try to ensure - Correct Answer-1) Insurance companies will be financially competent to discharge their obligations
7. Forms of contracts are drafted fairly
8. Business is being conducted to the general benefit of the public List the 3 main areas of responsibility of the provincial superintendent of insurance - Correct Answer-1) Supervising the terms and conditions of insurance contracts
9. Licensing insurers, agents, brokers, and adjustors
10. Monitoring solvency of provincislly licensed insurers State the purpose of the Property and Casualty Insurance Compensation Corporation (PACICC) - Correct Answer-When a bankruptcy occurs and claims cannot be paid, the corporation pays all valid claims What are the amounts that can be claims under PACICC? - Correct Answer-i) A maximum of $250,000 for all claims arising from a single occurrence ii) A refund of up to 70% of unearned premiums, subject to a maximum of $700 per policy Identify the 3 basic coverages that Insurance Acts state must be in every policy of fire insurance - Correct Answer-1) Fire
11. Lightning

3. Explosion of natural, coal or manufactured gas List 3 other types of losses that are regarded as fire losses - Correct Answer-1) Damage caused by water and other extinguishing agents
4. Physical damage to buildings cause by firefighters
5. Damage resulting from other actions to prevent the spread of fire Would lightning damage caused to a building be covered? - Correct Answer-Yes, losses covered can include damage to chimneys, building roofing and siding, fences, TV antennae and communication towers Would concussion type losses be considered an explosion? - Correct Answer-No, explosions insured are cause by the actual ignition of natural coal or manufacture gas. Concussion types of explosions are the result of build-up of internal pressure for example hot water heaters Exclusions are common to all insurance policies and are generally of two types. Identify them. - Correct Answer-1) Property excluded
6. Losses excluded Identify 2 reasons why exclusions are inserted to remove coverage for property or losses - Correct Answer-1) For which other more specialized coverage forms are available
7. Which are uninsurable The 14 standard exclusions that are legislated to be in fire insurance policies are best remembered by the abbreviation ALEC RIC RIC WHAM. See if you can match the exclusions to the abbreviation - Correct Answer-A pplication of heat L ightning damage to electrical devices E lectrical currents C ontamination by radioactive material R iot I nsurrection C ivil commotion R ebellion, revolution I nvasion C ivil war W ar H ostilities

A ct of foreign enemy M ilitary power List 3 coverages that insurers do provide even though they are not required to do so by the Insurance Acts - Correct Answer-1) Lightning damage to electrical devices

2. Riot
3. Civil commotion In addition to contracts of fire insurance policies, state 2 other types of policies that are subject to statutory conditions - Correct Answer-1) Accident and Sickness policies
4. Automobile policies There are 15 statutory conditions applicable to contacts of insurance. List them. - Correct Answer-1) Misrepresentation: Can arise out of misstatement and/or fraudulent omission of a material fact
5. Property of others: Not insured unless interest of insured is stated in the contract
6. Change of Interest: Policy continues to protect new insured when change of title due to succession, operation of law or by death
7. Marerial Change: Any change which serves to increase the chance of loss, arising after the policy is issued
8. Termination: Insurer must provide 15 days notice by registered mail or 5 days notice hand delivered
9. Requirements after loss: Notice required to be provided forthwith and in writting to insurer
10. Fraud: Deliberate attempt to deceive with a view of securing some profit
11. Who may give notice and proof: Any party of interest or agent of insured
12. Salvage: Insured is required to take all reasonable steps to protect insured property from further damage
13. Entry, control, abandonment: Insurer not entitled to rights of ownership or control nor can insured abandon insured property to it
14. Appraisal: Option available to either insurer or insured when disagreement as to value of property insured, saved, or amount of loss

12. When loss is payable: Within 60 days after completion of proof of loss unless the contract provides for a shorter period
13. Replacement: Notice of intention to rebuild, repair or replace required to be given by insurer within 30 days after receipt of proof of loss
14. Action: Must be commenced within 1 year after the loss occurs
15. Notice: Insurer may contact insureds by letter personally delivered to them or by registered mail addressed to them at their latest post office address Identify the 3 forms of misrepresentation - Correct Answer-1) A false description of the property to the prejudice of the insurer
16. Misrepresentation of a material fact
17. Fraudulent omission of a material fact Explain, by use of an example, the effect of misrepresentation on a contract of insurance - Correct Answer-If the insureds state that their premises are heated by electric heat when they are in fact heated by a wood furnace he insurer will have solid grounds to void the policy in the event of a fire which is traced back to the defective operation of the heating unit List 2 examples of what might be considered material facts - Correct Answer-1) Details concerning previous claims
18. Details regarding previous cancellations or refusals of insurance A change of interest is generally not allowed in fire insurance contracts. State 4 situations where a change of interest would be allowed - Correct Answer-1) An authorized assignment under the Bankruptcy Act
19. A change of title by succession
20. A change of title by operation of law
21. A change of title by death A material change is any change with the control and knowledge of the insured which: - Correct Answer-i) arises after the policy has been issued ii) serves to increase the chance of loss When a material change is reported to the insurer, it may: - Correct Answer-i) return the unearned premium and cancel the policy or;

ii) retain the risk and advise the insureds in writting of the additional premium required If an insuer wishes to cancel the policy, they may do so at any time giving the insured written notice giving: - Correct Answer-1) 15 days notice by registered mail or,

2. 5 days written notice of termination personally delivered Any excess of premium, or unearned premium, must accompany the insurers cancelation notice and will be calculated on what basis? - Correct Answer-Pro rata basis If the insured requests cancellation, any refund of premium will be calculated on what basis - Correct Answer-Short rate basis If an insured loss should occur, the insured is required to give notice to the insurer: - Correct Answer-1) forthwith; and
3. in writting Fraud occurs at the time of a loss. What portion of a claim would an insurer be allowed to deny if they were able to prove that the insured committed fraud? - Correct Answer- When the insurer is able to prove fraud, it is entitled to deny the entire claim, and not just that part which was fraudulent State 2 parties who may give notice and proof of loss if the insured is unable or refuses to give notice and proof of loss - Correct Answer-1) by the agent of the insured
4. by a person to whom any part of the insurance money is payable The Insurance Act provides for an appraisal in 3 instances when there is a dispute as to the value of: - Correct Answer-1) A party fails to appoint an appraiser within 7 clear days after being served with written notice to do so
5. The appraisers fail to agree upon an umpire with 15 days after their appointment
6. An appraiser or umpire refuses to act or is incapable of acting or dies After completion of the loss, unless the contract provides for a shorter period, how long does the insurer have to pay the loss? - Correct Answer-Within 60 days after completion of the proof of loss The insurer, instead of making payment may repair, rebuild or replace the property giving the insured written notice. If the insurer elects to repair, how many day written notice must be given to the insured? - Correct Answer-Within 30 days after receipt of the proofs of loss

If the insurer does decide to repair, rebuild or replace, this must commence within what time period following receipt of the proofs of loss? - Correct Answer-With 45 days after receipt of the proofs of loss When policies insure against a wide range of perils, insurers generally incorporate "Additional Conditions". List 5 additional conditions. - Correct Answer-1) Notice to Authorities

2. Sue and Labour
3. No Benefit to Bailee
4. Pair and Set
5. Parts Explain the requirement placed upon the insured when there has been loss due to certain criminal acts - Correct Answer-The insured shall give immediate notice to the police or other authorities having jurisdiction When there is a loss or damage to only one item of a pair or set, the loss is not a total loss. Give an example of a loss to demonstrate your understanding of this condition - Correct Answer-Examples of property adjusted on the basis include jewelry such as earrings and rings, matching lamps, and household furnishings List 6 other legislated requirements contained in all contracts of fire insurance - Correct Answer-1) Contents of Insurance Policies Legislated
6. Removal Coverage Legislated
7. Limitation of Liability Clauses - Usage Legislated
8. Right of Subrogation Legislated
9. Waiver or Term or Condition
10. Effect of Delivery of Policy List the 6 details that are to appear on every policy of insurance - Correct Answer-1) Parties to the Contract
11. Policy Period
12. Loss Payable or Payee, if any

4. Types of Insurance Coverage and Amounts for Which Insurer May be Liable
5. Rate and Premium Charged
6. Subject Matter of Insurance Identify 3 conditions applicable to the Removal Clause - Correct Answer-1) This law required insurers to respond only when insured property is necessarily removed from the location specified to prevent loss, destruction or damage or further loss, damage or destruction
7. The amount of insurance available for any loss tot he property while at the unnamed location will be reduced by the amount paid for the loss at the named location
8. The insurer is obligated to provide coverage at the unnamed location for the least of 7 days or the unexpired term of the policy What is the requirement when a contract of insurance contains any clause which allows the insurer to pay an amount which is less that that purchased by the insured? - Correct Answer-It is required to have printed or stamped upon itd face sheet in red ink the words " THIS POLICY CONTAINS A CLAUSE THAT MAY LINIT THE AMOUNT PAYABLE" identify 2 types of Limitation Clauses - Correct Answer-1) Deductible Clause
9. Co-insurance Clause Your client has a building valued at $300,000 and insured for $120,000. Assuming a loss of $60,000 and an 80% Co-insurance Clause, calculate the loss payment - Correct Answer-(Did/Should x Loss = Settlement) (Should = Co-insurance x value of prop.) $120,000/$240,000 × $60,000 = $30,000 Settlement By use of example, explain the concept of subrogation - Correct Answer-Subrogation means to put into another shoes. The Insurance Acts allow the insurer to place itself in the insured shoes in respect of their right to recover the amount of their loss from the responsible party Who can make changes to an insurance policy? - Correct Answer-A person authorized for that purpose by the insurer. It is usually insurance company underwriters who have the authority to make changes.

Name the 2 major types of insurance operating in Canada - Correct Answer-1) Proprietary Insurers

2. Non-proprietary Insurers Explain the differences between proprietary and non-proprietary insurers - Correct Answer-Proprietary exists to make a profit and may either be incorporated or unincorporated while non-proprietary insurers are organized for reasons other than profit and are owned and controlled by their policyholders no stock or share capital involved List the 2 most common distribution systems used by insurers to sell their products - Correct Answer-1) Independent Agency/Brokerage System
3. Direct writting System List 3 features of each of these systems - Correct Answer-1) Independent Agency/ Brokerage System: a) Owners are not employees of insurers b) Owners responsible for payment of all expenses associated with the business c) Own the business they produce
4. Direct Writing System: a) Producers are employees of the insurer b) Insurer owns all business written c) Admin function assumed by insurer Briefly explain the purpose of the following 3 organizations: Insurance Bureau of Canada (IBC), Insurer's Advisory Organization (IAO), Insurance Crime Prevention Bureau (ICPB) - Correct Answer-Insurance Bureau of Canada (IBC): Collects insurance statistics, provides actuarial analysis to members inter-compnay agreements on claims settlements, monitors legislation and works with governments in development of insurance legislation Insurer's Advisory Organization (IAO): Provides insurers with risk inspection and advisory rating services. It is also one of Canada's leading loss control firms. Insurance Crime Prevention Bureau (ICPB): Is a not-for-profit organization which provides assistance to police authorities in detection, investigation and prosecution of insurance crimes Indicate whether the following are permitted to enter into a contract: a) Individuals b) Trade names c) Corporations - Correct Answer-a) Yes b) No c) Yes

State 2 duties owed by brokers to Insureds and Insurers - Correct Answer-Duties owed to Insureds: Expert advise and competitive pricing of products Duties owed to Insurers: Collection of premium and passing on relevant information Identify at least 3 ways in which brokers might exceed the binding authority given to them by an insurer - Correct Answer-1) Binding a property risk for higher amounts then in agreement

2. Binding a risk that is on the decline list
3. Binding a liability risk for higher limits then set in agreement Losses which arise proximately from an insured peril are also covered by all property policies. Provide 2 examples of proximate damage insured under the peril of fire - Correct Answer-1) Damage caused by water and other extinguishing agents
4. Physical damage to buildings caude by fire fighters