Principles and practice of insurance ( CIP ) mid-term
Questions With Complete Solutions
how can the spread of risk be achieved by insurers?
Volume - insuring large number of risks allow the premium of
man to pay the losses suffered by a few.
Diversity of type of risk - writing insurance on as many
different kinds of risk as possible if several types of risk are
insured or several classes of business are transacted, the chance
for an underwriting profit is increased because a loss in one
class of business may be offset by a better-than-average profit in
the other class.
Diversity of location - Writing insurance in as many different
locations as practicable the opportunity for profit increases with
a greater number of locations insured; in some types of
insurance, particular care must be exercised that too many risks
in one location are not insured.
Identify the five secondary functions of insurance.
Security - giving peace of mind with premium payment in place
of an uncertain loss payment.
Credit - Protecting property/investment for creditors.
Loss prevention - Reduces the costs of insurance to the
consumer and reduces suffering/impact from losses.
Capital - Insurers invest in Canada's economy, in
bonds/stocks/securities, and in buildings/land.
,Employment - Including trade and professional jobs.
Explain how federal and provincial and territorial government
exercises control to safeguard insurer solvency and protect
consumers.
Focus of federal and provincial/territorial regulation:
solvency (can't go bankrupt)
market conduct
Insurance affordability/availability
the Insurance Companies Act covers three main areas:
1. Establishment of an insurance company
2. Prerequisites to operation
3. Supervision during operation
Page 3-3 to 3-4
Identify the five requisites to form a contract in Alberta.
Hint: A cool cat gets lucky
- Agreement (offer and acceptance)
- Consideration
- Genuine intentions
,- Capacity to contract
- Legality of purpose
State the function of the following insurance documents:
insurance policies, certificates of insurance, cover notes,
binders, and endorsements.
Insurance Policies - Evidence of the insurance contract that
states the terms and provision of the agreement made between
insurer and insured.
Certificates of insurance - modified form of a policy that
certifies its existence, issued as a convenience to a party with an
interest in the insurance.
Cover notes - a form of temporary insurance issued by agents
and brokers to confirm to the insured that the described
insurance has been set up.
Binders - a form of temporary insurance issued to record the
agreement to insure a risk pending the writing of the policy.
Endorsements - any writing on the back of a policy that varies
the term of the contract (in practice it is usually an attachment to
the policy)
Identify the five main sections commonly found in insurance
policies.
Coverage summary
- States parties to the contract
- Start date, term, and end date
, - Premium and rate
- Amount insured
Insuring Agreements
- State subject of insurance
- Perils covered - Exclusions
- How proceeds of insurance are to be paid
Statutory conditions/Quebec general conditions
Apply to auto, accident and sickness, and fire policies.
Policy conditions
State the rights/duties of insured/insurer.
Signature clause
Signed by insurer only.
Mutual insurance companies
owned by policyholders who become members. (no
shareholders)
Policy premiums set at the outset but can be increased based on
the insurer's overall results.
Includes assessment of premium note mutuals, factory mutuals,
stock mutuals, and co-operative stock mutual/
stock insurers
stock insurers seek profit 2 main sources (operate for profit)
Why do insurers reinsure
Questions With Complete Solutions
how can the spread of risk be achieved by insurers?
Volume - insuring large number of risks allow the premium of
man to pay the losses suffered by a few.
Diversity of type of risk - writing insurance on as many
different kinds of risk as possible if several types of risk are
insured or several classes of business are transacted, the chance
for an underwriting profit is increased because a loss in one
class of business may be offset by a better-than-average profit in
the other class.
Diversity of location - Writing insurance in as many different
locations as practicable the opportunity for profit increases with
a greater number of locations insured; in some types of
insurance, particular care must be exercised that too many risks
in one location are not insured.
Identify the five secondary functions of insurance.
Security - giving peace of mind with premium payment in place
of an uncertain loss payment.
Credit - Protecting property/investment for creditors.
Loss prevention - Reduces the costs of insurance to the
consumer and reduces suffering/impact from losses.
Capital - Insurers invest in Canada's economy, in
bonds/stocks/securities, and in buildings/land.
,Employment - Including trade and professional jobs.
Explain how federal and provincial and territorial government
exercises control to safeguard insurer solvency and protect
consumers.
Focus of federal and provincial/territorial regulation:
solvency (can't go bankrupt)
market conduct
Insurance affordability/availability
the Insurance Companies Act covers three main areas:
1. Establishment of an insurance company
2. Prerequisites to operation
3. Supervision during operation
Page 3-3 to 3-4
Identify the five requisites to form a contract in Alberta.
Hint: A cool cat gets lucky
- Agreement (offer and acceptance)
- Consideration
- Genuine intentions
,- Capacity to contract
- Legality of purpose
State the function of the following insurance documents:
insurance policies, certificates of insurance, cover notes,
binders, and endorsements.
Insurance Policies - Evidence of the insurance contract that
states the terms and provision of the agreement made between
insurer and insured.
Certificates of insurance - modified form of a policy that
certifies its existence, issued as a convenience to a party with an
interest in the insurance.
Cover notes - a form of temporary insurance issued by agents
and brokers to confirm to the insured that the described
insurance has been set up.
Binders - a form of temporary insurance issued to record the
agreement to insure a risk pending the writing of the policy.
Endorsements - any writing on the back of a policy that varies
the term of the contract (in practice it is usually an attachment to
the policy)
Identify the five main sections commonly found in insurance
policies.
Coverage summary
- States parties to the contract
- Start date, term, and end date
, - Premium and rate
- Amount insured
Insuring Agreements
- State subject of insurance
- Perils covered - Exclusions
- How proceeds of insurance are to be paid
Statutory conditions/Quebec general conditions
Apply to auto, accident and sickness, and fire policies.
Policy conditions
State the rights/duties of insured/insurer.
Signature clause
Signed by insurer only.
Mutual insurance companies
owned by policyholders who become members. (no
shareholders)
Policy premiums set at the outset but can be increased based on
the insurer's overall results.
Includes assessment of premium note mutuals, factory mutuals,
stock mutuals, and co-operative stock mutual/
stock insurers
stock insurers seek profit 2 main sources (operate for profit)
Why do insurers reinsure
