CAIB 2 ACTUAL EXAM SCRIPT QUESTIONS AND ANSWERS
GUARANTEE A+
✔✔Identify the two types of depreciation used in the Formula/Cost Approach, and give
an example of a type of property that would be appropriate using each: - ✔✔Straight
Line Depreciation (ex. buildings)
&
Plateau Accelerated Depreciation (ex. cars, furniture)
✔✔A licensed real estate appraiser will generally be consulted to provide an expert
opinion when establishing Market Value/Direct Sales Approach. Identify the three items
he or she may consider: - ✔✔Property before the loss
Property after the loss
the land
✔✔When is the Income Approach method most commonly employed? - ✔✔This
method of evaluating a loss is commonly used with income producing properties
✔✔The Broad Evidence ties together the previous four methods when establishing
actual cash value, and the courts will take into account many different factors. Identify
any three such factors: - ✔✔Market Value -assessed valuation
Rental Value -use of building
Location -resale success, replacement value less depreciation {any of these}
✔✔Insurers can reduce their amount of exposure on large risks by the use of
Reinsurance or Subscription polies. Outline three rules, or guidelines that apply when
reinsurance is used to provide insurance coverages: - ✔✔1) all insurers share
premiums collected and losses incurred
2) the policy is controlled by the primary insurer and all claims are paid by it
3) the contract is between the primary insurer and the reinsurer
✔✔Identify four instances when subscription policies may be issued: - ✔✔- the broker
wants to spread a good large line of business among markets
- the line of business is so SPECIALIZED, its not covered by the insurers treaty with its
reinsurers
- the type of risk is one which the insurer does not want to expose to its reinsurance
treaties
- the limits do not exceed insurers net retention limits but are beyond what it is prepared
to pay in a single claim.
,✔✔Identify two characteristics shared by all subscription polices: - ✔✔- both share
premiums and losses
- each agreement is usually required to be negotiated separately
✔✔Briefly describe the role of the LEAD company in a subscription policy: - ✔✔the lead
company normally issues the policy and provides all policyholder services, including the
handling of claims
✔✔Identify from the brokers point of view which method is preferred where the insurers
can reduce their amount of exposures on large risks: - ✔✔Reinsurance
✔✔What is the purpose of a Minimum Retained Premium? - ✔✔to ensure the costs of
underwriting the policy can be recouped, at least in part.
✔✔Identify the three amounts to be considered when calculating the amount of
payment as outlined in the Indemnity Agreement: - ✔✔- the value of the lost or
damaged property (ACV)
- the interest of the insured in the property (ex. financial interest, home, mortgage)
- the amount of insurance specified on the "Declaration's Page" for the lost or damaged
property (least amount)
✔✔What is the purpose of the deductible? - ✔✔to eliminate minor maintenance types of
claims
✔✔Insurers agree to 'waive' any co-insurance requirement when a loss meets either of
the following conditions: - ✔✔2% or
$5,000 (up to)
✔✔In order to replace a Co-Insurance Clause with a Stated Amount Co-Insurance
Clause, the client must comply with the following: - ✔✔- files a Statement of Values with
the insurer representing 100% of the value of all property insured, such as an appraisal
- maintains these values throughout the term
✔✔Identify the two types of exclusions found in property policies - ✔✔properties
excluded
perils exluded
✔✔Identify five reasons why exclusions exist and give an example for each: - ✔✔-some
perils are uninsurable (war, nuclear energy)
,-potential to be catastrophic (earthquake, flood)
-exclude losses for which more specialized policy forms have been developed ( such as
automobiles, aircraft)
-wholly or partially in control of the insured (ex. application of heat, scratching)
-exclude losses which are not common to a large number of insureds, but represent an
increased potential for loss so an additional premium may be charged (building in
course of construction, satellite receivers)
✔✔Identify three 'permissions' allowed in a commercial property policy: - ✔✔- for other
insurance concurrent with this form (2 insurances)
- to make additions, alterations or repairs
- ???to do such work and keep and use such articles, materials and supplies in such
quantities as are usual or necessary to the insureds business???
✔✔What may an Insurer do when there has been a Breach of Conditions in the policy?
- ✔✔the Insurer may have grounds to deny coverage
✔✔Identify two instances when an Insurer may NOT deny coverage when there has
been a breach: - ✔✔- the loss was not caused or contributed by the breach
- the breach condition occurred in a portion of the premises over which the insured has
no control
✔✔Explain the effect of the Reinstatement clause: - ✔✔The Reinstatement clause
provides the insureds shall have as much insurance after a loss as they did before.
✔✔Do all Insurers treat the issue of 'unearned premium' the same in the event of a total
loss? - ✔✔Some insurers are not willing to accept that the insureds should be entitled to
a refund premium when they have collected for a loss under the policy.
✔✔Explain the operation of Subrogation: - ✔✔it is the right of the insurer to sue the
party at fault, after paying the claim to the injured party
✔✔Identify two parties against whom the Insurer will NOT exercise Subrogation: - ✔✔-
individuals
- banks, trust companies
✔✔Identify three types of Property Protection Systems: - ✔✔- sprinkler, or other fire
extinguishing system
- fire detection system
, - intrusion detection system
✔✔Identify three obligations placed upon Insured who have installed any Property
Protection Systems: - ✔✔1) the insured shall notify the insurer "forthwith" of any
INTERRUPTION, FLAW or DEFECT to the knowledge of the insured IN ANY SUCH
SYSTEMS.
2) the insured shall notify the insurer forthwith when any contract providing
MONITORING or MAINTENANCE SERVICES TO SYSTMS HAS BEEN CANCELED
OR NOT RENEWED.
3) the insured shall notify the insurer forthwith when provided with NOTIFICATION OF
THE SUSPENSION OF POLICY SERVICE N RESPONSE TO ANY OF THE ABOVE
SYSTEMS
✔✔Identify the class of property to which the Premium Adjustment clause will apply: -
✔✔Stock
✔✔Identify two guidelines before a premium adjustment will be permitted: - ✔✔- claims
for return of premium must be submitted no later than 6 months after the policy expiry
date
- claims must be presented on a Premium Adjustment Form, showing actual cash value
of stock on the last day of each month.
✔✔Identify three things the Verification of Values clause allows the |Insurer to do: -
✔✔1) allows the insurer THE RIGHT TO CONFIRM THE VALUES INSURED UNDER
THE POLICY ARE REASONAABLE AND ACTUALLY EXIST
2) permits the insurer THE OPPORTUNITY TO DETERMINE VALUES ON HAND AT
THE TIME OF A PREVIOUS LOSS
3) enables the insurer to DETERMINE THE EXISTENCE OF ANY OTHER POLICIES
OF INSURANCE WHICH MIGHT BE CALLED UPON TO SHARE IN THE PAYMENT
OF A LOSS.
✔✔Identify under Basis of Valuations how losses will be paid on items of stock:
UNSOLD & SOLD: - ✔✔UNSOLD: restricted to its "actual cash value at the time of a
loss"
SOLD: the selling price charged to the purchaser, less any discounts allowed.
✔✔Identify three types of discounts that will be considered when adjusting loss on sold
stock: - ✔✔1) picked up by purchaser
2) trade-ins
GUARANTEE A+
✔✔Identify the two types of depreciation used in the Formula/Cost Approach, and give
an example of a type of property that would be appropriate using each: - ✔✔Straight
Line Depreciation (ex. buildings)
&
Plateau Accelerated Depreciation (ex. cars, furniture)
✔✔A licensed real estate appraiser will generally be consulted to provide an expert
opinion when establishing Market Value/Direct Sales Approach. Identify the three items
he or she may consider: - ✔✔Property before the loss
Property after the loss
the land
✔✔When is the Income Approach method most commonly employed? - ✔✔This
method of evaluating a loss is commonly used with income producing properties
✔✔The Broad Evidence ties together the previous four methods when establishing
actual cash value, and the courts will take into account many different factors. Identify
any three such factors: - ✔✔Market Value -assessed valuation
Rental Value -use of building
Location -resale success, replacement value less depreciation {any of these}
✔✔Insurers can reduce their amount of exposure on large risks by the use of
Reinsurance or Subscription polies. Outline three rules, or guidelines that apply when
reinsurance is used to provide insurance coverages: - ✔✔1) all insurers share
premiums collected and losses incurred
2) the policy is controlled by the primary insurer and all claims are paid by it
3) the contract is between the primary insurer and the reinsurer
✔✔Identify four instances when subscription policies may be issued: - ✔✔- the broker
wants to spread a good large line of business among markets
- the line of business is so SPECIALIZED, its not covered by the insurers treaty with its
reinsurers
- the type of risk is one which the insurer does not want to expose to its reinsurance
treaties
- the limits do not exceed insurers net retention limits but are beyond what it is prepared
to pay in a single claim.
,✔✔Identify two characteristics shared by all subscription polices: - ✔✔- both share
premiums and losses
- each agreement is usually required to be negotiated separately
✔✔Briefly describe the role of the LEAD company in a subscription policy: - ✔✔the lead
company normally issues the policy and provides all policyholder services, including the
handling of claims
✔✔Identify from the brokers point of view which method is preferred where the insurers
can reduce their amount of exposures on large risks: - ✔✔Reinsurance
✔✔What is the purpose of a Minimum Retained Premium? - ✔✔to ensure the costs of
underwriting the policy can be recouped, at least in part.
✔✔Identify the three amounts to be considered when calculating the amount of
payment as outlined in the Indemnity Agreement: - ✔✔- the value of the lost or
damaged property (ACV)
- the interest of the insured in the property (ex. financial interest, home, mortgage)
- the amount of insurance specified on the "Declaration's Page" for the lost or damaged
property (least amount)
✔✔What is the purpose of the deductible? - ✔✔to eliminate minor maintenance types of
claims
✔✔Insurers agree to 'waive' any co-insurance requirement when a loss meets either of
the following conditions: - ✔✔2% or
$5,000 (up to)
✔✔In order to replace a Co-Insurance Clause with a Stated Amount Co-Insurance
Clause, the client must comply with the following: - ✔✔- files a Statement of Values with
the insurer representing 100% of the value of all property insured, such as an appraisal
- maintains these values throughout the term
✔✔Identify the two types of exclusions found in property policies - ✔✔properties
excluded
perils exluded
✔✔Identify five reasons why exclusions exist and give an example for each: - ✔✔-some
perils are uninsurable (war, nuclear energy)
,-potential to be catastrophic (earthquake, flood)
-exclude losses for which more specialized policy forms have been developed ( such as
automobiles, aircraft)
-wholly or partially in control of the insured (ex. application of heat, scratching)
-exclude losses which are not common to a large number of insureds, but represent an
increased potential for loss so an additional premium may be charged (building in
course of construction, satellite receivers)
✔✔Identify three 'permissions' allowed in a commercial property policy: - ✔✔- for other
insurance concurrent with this form (2 insurances)
- to make additions, alterations or repairs
- ???to do such work and keep and use such articles, materials and supplies in such
quantities as are usual or necessary to the insureds business???
✔✔What may an Insurer do when there has been a Breach of Conditions in the policy?
- ✔✔the Insurer may have grounds to deny coverage
✔✔Identify two instances when an Insurer may NOT deny coverage when there has
been a breach: - ✔✔- the loss was not caused or contributed by the breach
- the breach condition occurred in a portion of the premises over which the insured has
no control
✔✔Explain the effect of the Reinstatement clause: - ✔✔The Reinstatement clause
provides the insureds shall have as much insurance after a loss as they did before.
✔✔Do all Insurers treat the issue of 'unearned premium' the same in the event of a total
loss? - ✔✔Some insurers are not willing to accept that the insureds should be entitled to
a refund premium when they have collected for a loss under the policy.
✔✔Explain the operation of Subrogation: - ✔✔it is the right of the insurer to sue the
party at fault, after paying the claim to the injured party
✔✔Identify two parties against whom the Insurer will NOT exercise Subrogation: - ✔✔-
individuals
- banks, trust companies
✔✔Identify three types of Property Protection Systems: - ✔✔- sprinkler, or other fire
extinguishing system
- fire detection system
, - intrusion detection system
✔✔Identify three obligations placed upon Insured who have installed any Property
Protection Systems: - ✔✔1) the insured shall notify the insurer "forthwith" of any
INTERRUPTION, FLAW or DEFECT to the knowledge of the insured IN ANY SUCH
SYSTEMS.
2) the insured shall notify the insurer forthwith when any contract providing
MONITORING or MAINTENANCE SERVICES TO SYSTMS HAS BEEN CANCELED
OR NOT RENEWED.
3) the insured shall notify the insurer forthwith when provided with NOTIFICATION OF
THE SUSPENSION OF POLICY SERVICE N RESPONSE TO ANY OF THE ABOVE
SYSTEMS
✔✔Identify the class of property to which the Premium Adjustment clause will apply: -
✔✔Stock
✔✔Identify two guidelines before a premium adjustment will be permitted: - ✔✔- claims
for return of premium must be submitted no later than 6 months after the policy expiry
date
- claims must be presented on a Premium Adjustment Form, showing actual cash value
of stock on the last day of each month.
✔✔Identify three things the Verification of Values clause allows the |Insurer to do: -
✔✔1) allows the insurer THE RIGHT TO CONFIRM THE VALUES INSURED UNDER
THE POLICY ARE REASONAABLE AND ACTUALLY EXIST
2) permits the insurer THE OPPORTUNITY TO DETERMINE VALUES ON HAND AT
THE TIME OF A PREVIOUS LOSS
3) enables the insurer to DETERMINE THE EXISTENCE OF ANY OTHER POLICIES
OF INSURANCE WHICH MIGHT BE CALLED UPON TO SHARE IN THE PAYMENT
OF A LOSS.
✔✔Identify under Basis of Valuations how losses will be paid on items of stock:
UNSOLD & SOLD: - ✔✔UNSOLD: restricted to its "actual cash value at the time of a
loss"
SOLD: the selling price charged to the purchaser, less any discounts allowed.
✔✔Identify three types of discounts that will be considered when adjusting loss on sold
stock: - ✔✔1) picked up by purchaser
2) trade-ins
