RIBO Insurance Exam
What makes pure risk insurable while speculative not? - ANS-Pure risk insurance is a
situation involving a chance of a loss without a chance of gain. Insurance will accept
situations where there is no potential for gain.
Pure Risk - ANS-A situation involving a chance of loss without a chance of gain.
Example: property damage
Speculative Risk - ANS-A situation where the possibility of either financial loss or gain
exists. This is not accepted by insurances. Example: gambling
Insurance - ANS-A contract in which one party, the insurer, for monetary consideration
agrees to reimburse another, the insured, for loss or liability for a loss by specified
hazards or perils
Risk - ANS-the chance of loss (the possible loss or destruction of property or incurring
of a liability).
Direct Loss - ANS-losses that are involving damage to or destruction of the property
insured. Example: replacing a stolen stereo
Indirect Loss - ANS-losses that occur because of direct losses. Example: loss of income
from a tenant due to a building burning down.
Peril - ANS-the event that caused a loss covered by the policy. Example: fire.
(WHISLER acronym)
What is WHISLER stand for? - ANS-Wind, Hail, Impact, Smoke, Lightning, Explosion
and Riot
Hazard - ANS-condition that may cause a peril to occur or make the loss more severe -
divided into physical and moral hazards. Physical hazards' example is slippery floors.
Moral hazard example would be mental attitudes about risk.
What are the three classes of insurance? - ANS-The classes of insurance include
personal and commercial lines as well as specialty risks. Example: personal (jewelry),
commercial (owned businesses) and specialty (airports or high risk industry)
,What is a liability insurance peril? - ANS-It includes negligence - when you are doing or
not doing something that is expected by a reasonable person.
Proximate Cause - ANS-is the immediate and effective cause of the loss in a chain of
events leading to the loss, but is not necessarily the last event before the occurrence
Immediate Cause - ANS-last link in the chain of events
Remote Cause - ANS-is separate from the proximate cause in the chain of events
leading to a loss (what could've been)
Indemnify - ANS-compensate for loss, damage, or injury; reimburse; repay. It is to bring
the insured person back to the point they previously were (no gain, no loss).
Pooling Funds for Loss - ANS-A group of people will pay out for insurance to insure the
few that are injured. Losses of a few are shared by the many.
What is the role of an insurance broker? - ANS-Bring in two parties together in a
contractual relationship
What is spread of risk and how can it be done? - ANS-Spreading of risk is a way to
achieve balance between premiums collected versus losses paid. It is done through
volume (large number of risks), diversity of risk (different risk classifications) and
diversity of location (not all risks in one location).
What does the insurance money get used for? - ANS-Insurance money is a source of
capital. it is invested in large amounts of capital to low risk investments.
What is insurable interest? - ANS-You must own the item that you are insuring. You
must benefit from its existence and suffer from its loss. You cannot insure your
neighbour's house.
What is actual cost value (ACV)? - ANS-determined in one of three ways: cost to repair,
fair market value or consideration of evidence of value
What are the two most popular forms of valuation in indemnification? - ANS-Actual cash
value (ACV) and replacement value (cost)
, What is replacement value? What is guaranteed replacement cost? - ANS-Replacement
value is the current market value to replace. Guaranteed replacement pays for
replacement cost without depreciation and can exceed the amount of insurance on the
dwelling.
What is value contracts? - ANS-It is an alternative calculation method where a
predetermined amount is agreed upon by the insure and insured at the time the contract
is made. It is usually done on items where it is difficult to determine a true value after
loss.
What is General Insurance? - ANS-General insurance includes property and casualty
insurance. It is also referred to as P&C insurance. Property is the loss or loss of income
caused by a covered peril. Causality refers to areas not covered by fire, life or auto
which would be burglary or liability.
What are the four groups of insurers? - ANS-1) For profit - stock companies
2) Co-operative - mutuals & reciprocals
3) Government - worker's compensation
4) Captive - policy holders limited to parent company and subsidiaries
Stock Companies (For Profit) - ANS-a group of shareholders put interest in the asset
and expect a profit on the investment (Lloyds is an example).
Outstanding Loss Reservers - ANS-funds set aside to pay for losses that have been
incurred but not yet paid for
Factory Mutuals - ANS-Insurance companies of the mutual type that specialize in
industrial risks and in loss prevention
How do insurers distribute their insurance? - ANS-Use of brokers, agents, direct writers
and Insuretech (similar to Kanetix)
Independent Brokerage System - ANS-system in which independent insurance
professionals, licensed as brokers, sell insurance on behalf of an insurer or multiple
insurers they have contracts with
Insurer - ANS-insurance company (this is different than an insurance broker)
What makes pure risk insurable while speculative not? - ANS-Pure risk insurance is a
situation involving a chance of a loss without a chance of gain. Insurance will accept
situations where there is no potential for gain.
Pure Risk - ANS-A situation involving a chance of loss without a chance of gain.
Example: property damage
Speculative Risk - ANS-A situation where the possibility of either financial loss or gain
exists. This is not accepted by insurances. Example: gambling
Insurance - ANS-A contract in which one party, the insurer, for monetary consideration
agrees to reimburse another, the insured, for loss or liability for a loss by specified
hazards or perils
Risk - ANS-the chance of loss (the possible loss or destruction of property or incurring
of a liability).
Direct Loss - ANS-losses that are involving damage to or destruction of the property
insured. Example: replacing a stolen stereo
Indirect Loss - ANS-losses that occur because of direct losses. Example: loss of income
from a tenant due to a building burning down.
Peril - ANS-the event that caused a loss covered by the policy. Example: fire.
(WHISLER acronym)
What is WHISLER stand for? - ANS-Wind, Hail, Impact, Smoke, Lightning, Explosion
and Riot
Hazard - ANS-condition that may cause a peril to occur or make the loss more severe -
divided into physical and moral hazards. Physical hazards' example is slippery floors.
Moral hazard example would be mental attitudes about risk.
What are the three classes of insurance? - ANS-The classes of insurance include
personal and commercial lines as well as specialty risks. Example: personal (jewelry),
commercial (owned businesses) and specialty (airports or high risk industry)
,What is a liability insurance peril? - ANS-It includes negligence - when you are doing or
not doing something that is expected by a reasonable person.
Proximate Cause - ANS-is the immediate and effective cause of the loss in a chain of
events leading to the loss, but is not necessarily the last event before the occurrence
Immediate Cause - ANS-last link in the chain of events
Remote Cause - ANS-is separate from the proximate cause in the chain of events
leading to a loss (what could've been)
Indemnify - ANS-compensate for loss, damage, or injury; reimburse; repay. It is to bring
the insured person back to the point they previously were (no gain, no loss).
Pooling Funds for Loss - ANS-A group of people will pay out for insurance to insure the
few that are injured. Losses of a few are shared by the many.
What is the role of an insurance broker? - ANS-Bring in two parties together in a
contractual relationship
What is spread of risk and how can it be done? - ANS-Spreading of risk is a way to
achieve balance between premiums collected versus losses paid. It is done through
volume (large number of risks), diversity of risk (different risk classifications) and
diversity of location (not all risks in one location).
What does the insurance money get used for? - ANS-Insurance money is a source of
capital. it is invested in large amounts of capital to low risk investments.
What is insurable interest? - ANS-You must own the item that you are insuring. You
must benefit from its existence and suffer from its loss. You cannot insure your
neighbour's house.
What is actual cost value (ACV)? - ANS-determined in one of three ways: cost to repair,
fair market value or consideration of evidence of value
What are the two most popular forms of valuation in indemnification? - ANS-Actual cash
value (ACV) and replacement value (cost)
, What is replacement value? What is guaranteed replacement cost? - ANS-Replacement
value is the current market value to replace. Guaranteed replacement pays for
replacement cost without depreciation and can exceed the amount of insurance on the
dwelling.
What is value contracts? - ANS-It is an alternative calculation method where a
predetermined amount is agreed upon by the insure and insured at the time the contract
is made. It is usually done on items where it is difficult to determine a true value after
loss.
What is General Insurance? - ANS-General insurance includes property and casualty
insurance. It is also referred to as P&C insurance. Property is the loss or loss of income
caused by a covered peril. Causality refers to areas not covered by fire, life or auto
which would be burglary or liability.
What are the four groups of insurers? - ANS-1) For profit - stock companies
2) Co-operative - mutuals & reciprocals
3) Government - worker's compensation
4) Captive - policy holders limited to parent company and subsidiaries
Stock Companies (For Profit) - ANS-a group of shareholders put interest in the asset
and expect a profit on the investment (Lloyds is an example).
Outstanding Loss Reservers - ANS-funds set aside to pay for losses that have been
incurred but not yet paid for
Factory Mutuals - ANS-Insurance companies of the mutual type that specialize in
industrial risks and in loss prevention
How do insurers distribute their insurance? - ANS-Use of brokers, agents, direct writers
and Insuretech (similar to Kanetix)
Independent Brokerage System - ANS-system in which independent insurance
professionals, licensed as brokers, sell insurance on behalf of an insurer or multiple
insurers they have contracts with
Insurer - ANS-insurance company (this is different than an insurance broker)
