CAIB 4 Midterm Exam – Canadian Accredited
Insurance Broker Level 4, Insurance Institute
of Canada (IIC).
WEIGHTED CONTENT AREAS
Table
Module Topic Questions
I Principles of Risk Management 8
II Commercial Property Insurance (IBC 4080 forms) 12
III Commercial Liability Insurance (CGL, Umbrella) 10
IV Business Interruption / Time Element 8
V Fleet and Garage Policies 8
VI Risk Assessment & Analysis 6
VII Broker Professional Responsibilities 8
Total 60
DOMAIN I: PRINCIPLES OF RISK MANAGEMENT (Questions 1–8)
Question 1 (Multiple Choice)
A manufacturer installs fire suppression sprinklers in its warehouse. This is an example of:
,A. Risk avoidance
B. Risk reduction (loss severity)
C. Risk transfer
D. Risk retention
Correct Answer: B
Rationale: Sprinklers reduce the severity (loss mitigation) of damage if a fire occurs. Risk
avoidance (A) would mean eliminating the warehouse entirely. Risk transfer (C) involves
insurance or contractual arrangements. Risk retention (D) means accepting the loss oneself.
Question 2 (Multiple Choice)
A company decides to discontinue manufacturing a hazardous chemical product due to
excessive liability exposure. This is an example of:
A. Risk reduction
B. Risk transfer
C. Risk avoidance
D. Risk retention
Correct Answer: C
Rationale: Risk avoidance eliminates the activity that creates the risk entirely. By discontinuing
the product, the company removes the exposure completely. Reduction (A) would involve safety
measures while continuing production.
Question 3 (Multiple Choice)
A retail chain stores backup inventory in three separate warehouses rather than one central
location. This is an example of:
A. Duplication
B. Separation
C. Risk reduction
D. Risk transfer
Correct Answer: B
,Rationale: Separation disperses assets to avoid a single catastrophic loss. Duplication (A) would
involve having identical backup copies at the same location. Separation spreads risk across
multiple locations.
Question 4 (Multiple Choice)
A company maintains an offsite data backup system and keeps spare critical equipment on
hand. This is an example of:
A. Separation
B. Duplication
C. Risk avoidance
D. Risk retention
Correct Answer: B
Rationale: Duplication involves having backups of critical assets. Offsite data backup and spare
equipment ensure continuity if primary assets are damaged. This is distinct from separation,
which involves dispersing the same type of asset.
Question 5 (Multiple Choice)
A construction company requires all subcontractors to sign hold-harmless agreements and
waivers of subrogation. This is an example of:
A. Risk avoidance
B. Risk reduction
C. Risk transfer (non-insurance)
D. Risk retention
Correct Answer: C
Rationale: Transferring risk via contract (hold-harmless clause, indemnity agreement, waiver of
subrogation) is a non-insurance risk transfer technique. The company is contractually shifting
liability to subcontractors.
Question 6 (Multiple Choice)
A large corporation establishes its own insurance company to insure its own risks. This is called:
, A. Self-insurance
B. A captive insurer
C. Risk pooling
D. Coinsurance
Correct Answer: B
Rationale: A captive insurance company is owned by its policyholders (the parent company or
group of companies) to self-insure their risks. While related to self-insurance (A), a captive is a
formal insurance entity. Risk pooling (C) involves multiple entities sharing risk.
Question 7 (Scenario-Based)
ABC Manufacturing operates a woodworking plant with high fire risk. The plant has experienced
three small fires in the past two years (total losses: $15,000) but is located in an area with no
municipal fire department within 15 km. Based on the risk map (frequency vs. severity), how
should ABC best manage this risk?
A. Retain the risk (planned) – the losses are small
B. Transfer the risk via insurance – high severity potential despite low historical losses
C. Avoid the risk – close the plant
D. Ignore the risk – losses have been minimal
Correct Answer: B
Rationale: While historical frequency is moderate and severity has been low, the absence of
nearby fire protection creates a high severity potential (catastrophic total loss). On the risk map,
low frequency but high severity risks should be transferred via insurance. The remote location
dramatically increases severity potential.
Question 8 (Calculation)
A company budgets $50,000 annually for expected minor losses (small equipment damage,
minor theft) and carries a $5,000 deductible on its property insurance. The company
experiences $35,000 in minor losses and a $200,000 major fire loss. The property policy has a
$500,000 limit. How much does the company pay out-of-pocket in total?
A. $35,000
B. $40,000
Insurance Broker Level 4, Insurance Institute
of Canada (IIC).
WEIGHTED CONTENT AREAS
Table
Module Topic Questions
I Principles of Risk Management 8
II Commercial Property Insurance (IBC 4080 forms) 12
III Commercial Liability Insurance (CGL, Umbrella) 10
IV Business Interruption / Time Element 8
V Fleet and Garage Policies 8
VI Risk Assessment & Analysis 6
VII Broker Professional Responsibilities 8
Total 60
DOMAIN I: PRINCIPLES OF RISK MANAGEMENT (Questions 1–8)
Question 1 (Multiple Choice)
A manufacturer installs fire suppression sprinklers in its warehouse. This is an example of:
,A. Risk avoidance
B. Risk reduction (loss severity)
C. Risk transfer
D. Risk retention
Correct Answer: B
Rationale: Sprinklers reduce the severity (loss mitigation) of damage if a fire occurs. Risk
avoidance (A) would mean eliminating the warehouse entirely. Risk transfer (C) involves
insurance or contractual arrangements. Risk retention (D) means accepting the loss oneself.
Question 2 (Multiple Choice)
A company decides to discontinue manufacturing a hazardous chemical product due to
excessive liability exposure. This is an example of:
A. Risk reduction
B. Risk transfer
C. Risk avoidance
D. Risk retention
Correct Answer: C
Rationale: Risk avoidance eliminates the activity that creates the risk entirely. By discontinuing
the product, the company removes the exposure completely. Reduction (A) would involve safety
measures while continuing production.
Question 3 (Multiple Choice)
A retail chain stores backup inventory in three separate warehouses rather than one central
location. This is an example of:
A. Duplication
B. Separation
C. Risk reduction
D. Risk transfer
Correct Answer: B
,Rationale: Separation disperses assets to avoid a single catastrophic loss. Duplication (A) would
involve having identical backup copies at the same location. Separation spreads risk across
multiple locations.
Question 4 (Multiple Choice)
A company maintains an offsite data backup system and keeps spare critical equipment on
hand. This is an example of:
A. Separation
B. Duplication
C. Risk avoidance
D. Risk retention
Correct Answer: B
Rationale: Duplication involves having backups of critical assets. Offsite data backup and spare
equipment ensure continuity if primary assets are damaged. This is distinct from separation,
which involves dispersing the same type of asset.
Question 5 (Multiple Choice)
A construction company requires all subcontractors to sign hold-harmless agreements and
waivers of subrogation. This is an example of:
A. Risk avoidance
B. Risk reduction
C. Risk transfer (non-insurance)
D. Risk retention
Correct Answer: C
Rationale: Transferring risk via contract (hold-harmless clause, indemnity agreement, waiver of
subrogation) is a non-insurance risk transfer technique. The company is contractually shifting
liability to subcontractors.
Question 6 (Multiple Choice)
A large corporation establishes its own insurance company to insure its own risks. This is called:
, A. Self-insurance
B. A captive insurer
C. Risk pooling
D. Coinsurance
Correct Answer: B
Rationale: A captive insurance company is owned by its policyholders (the parent company or
group of companies) to self-insure their risks. While related to self-insurance (A), a captive is a
formal insurance entity. Risk pooling (C) involves multiple entities sharing risk.
Question 7 (Scenario-Based)
ABC Manufacturing operates a woodworking plant with high fire risk. The plant has experienced
three small fires in the past two years (total losses: $15,000) but is located in an area with no
municipal fire department within 15 km. Based on the risk map (frequency vs. severity), how
should ABC best manage this risk?
A. Retain the risk (planned) – the losses are small
B. Transfer the risk via insurance – high severity potential despite low historical losses
C. Avoid the risk – close the plant
D. Ignore the risk – losses have been minimal
Correct Answer: B
Rationale: While historical frequency is moderate and severity has been low, the absence of
nearby fire protection creates a high severity potential (catastrophic total loss). On the risk map,
low frequency but high severity risks should be transferred via insurance. The remote location
dramatically increases severity potential.
Question 8 (Calculation)
A company budgets $50,000 annually for expected minor losses (small equipment damage,
minor theft) and carries a $5,000 deductible on its property insurance. The company
experiences $35,000 in minor losses and a $200,000 major fire loss. The property policy has a
$500,000 limit. How much does the company pay out-of-pocket in total?
A. $35,000
B. $40,000
