CAIB 2 Practice Exam Questions with Answers
The insurance policy issued to Adanac Shoes LTD. Provides for the settlement of all losses on an
actual cash value basis. Generally, this has come to be understood as the replacement cost or
repair cost of lost or damaged property less any deprivation. However, the Adanac's must be
advised that ACV can be measured in terms of "money value",
Explain:
1. straight line deprecation
2. plateau acceleration depreciation
3. income approach - ✔✔1. Straight Line Depreciation: # of years that building can be functional
2. Plateau Acceleration Depreciation: whatever depreciate the fastest Ex: Restaurant
Equipment
3. Income approach: used for rundown property
Courtney Holdings Owns 36 revenue properties in various cities across Canada. Although the
company normally insured to full values of all such property there is a concern that an increase
in inflation rates could cause the amounts of insurance to fall below the co-insurance
percentage required to be maintained under the policy. To avoid the potential of a penalty
being applied at the time of loss, it is your recommendation that the co-insurance clause be
replaced with the stated amount co-insurance clause. Identify the underwriting conditions that
must be satisfied by the insureds before the insurer will agree to replace the standard co-
insurance clause with the stated amount co-insurance clause - ✔✔a. Declare property value to
insurer, confirmed by appraisal
b. Keep values constant during policy
c. If not fully insured, switch to 100% co-insurance
1. The valuations clause contained in commercial property insurance policies establishes how
certain property is to be valued by the policy after a loss. In the event of a loss to the following
property belonging to Happy Harry's Appliance Store LTD. Indicate how each would be valued
under the policy.
A. Refrigerator which has been sold but not yet delivered B. Unsold stock C. Customers
appliances brought onto the premises for repair and upon which repair has already been
,completed - ✔✔a. settlement based on selling price to purchaser, minus any applicable
discount ex: cash, trade-ins
b. ACV at the time of loss
c. Expenses for materials and labor incurred by the insured at the time of the loss
1. The Adanac's Shoes LTD account is new to your brokerage. In preparing for your insurance
quotation to the Adanac's, your office manager suggested that a fact finding of survey by
conducted.
A. Identify two advantages to be gained from conducting such a fact or survey
B. Insureds who do not have their own inspectors on staff rely on their own organizations to
inspect certain commercial risks and to recommend rates to be charged. Identify the
organization used by most insurers to gather the info needed by them to property underwrite
commercial risks - ✔✔a. Helps in identifying potential loss risks, avoid unnecessary coverage to
purchase, and generates essential underwriting data for insurers.
b. Informco Inc
1. Explain:
A. The primary role of the underwriter in the risk selection process
B. What is meant by the term "risk classification"?
C. What is the chief advantage of risk classification in the underwriting process? - ✔✔a.
Underwriters put a lot of time and effort to figure out if there are any factors about the risk or
the applicant that could lead to loss
b. Risk classification: sorting risks into group based on criteria, mostly focused on how
profitable vs. how risky. Ex: cannabis store vs. Bookstore
c. Help to decide if the premium is too much nor too low
1. During a risk survey of Risk and Hope Furniture Inc. you noticed several conditions which, in
your opinion, constitutes a greater than normal physical hazard. You also have reason to be
concerned about the moral hazard present in this risk.
, A. What is the difference between a physical hazard and a moral hazard?
B. Identify which of 'physical hazard' or 'moral hazard' is indicated by the presence of the
following condition? Owner has no established means of controlling the stores inventory and in
general, appears to have a total lack of regards for the protection of store property - ✔✔a.
Physical hazard: where and how the buildings look alike
Moral hazard: Ethics (Financial, Associates, Moral characteristics)
b. Physical Hazard
A. The insurance acts of the common law provinces require that policies insuring against the
peril of fire also insure direct losses caused by two additional perils. Identify the two additional
perils insured by the fire policy
B. Indicated whether the Fire Policy would respond to pay for the following losses. The building
stock and equipment are owned by the insured and are covered under the policy. State
whether covered or not covered
i. Fire damage to six 15ft canoes being held for sale in the insureds business
ii. Damage due to contamination by radioactive materials which were released by natural gas to
the furnace in research laboratory exploded - ✔✔a. Lightning and Explosion of natural, coal and
manufactured
b. Fire damage to six 15ft canoes being held for sale in the insureds business - Covered
Damage due to contamination by radioactive materials which were released by natural gas to
the furnace in research laboratory exploded - Covered
1. Dirks Dry-cleaning inc. is insured under a fire policy. Indicated whether this policy would
respond to pay the following losses. State weather covered or not covered.
A. Loss of money by fire
B. Fire damage to licensed delivery van while parked on the insureds premises overnight
C. Lightning damage caused to chimney - ✔✔a. Loss of money by fire - covered
The insurance policy issued to Adanac Shoes LTD. Provides for the settlement of all losses on an
actual cash value basis. Generally, this has come to be understood as the replacement cost or
repair cost of lost or damaged property less any deprivation. However, the Adanac's must be
advised that ACV can be measured in terms of "money value",
Explain:
1. straight line deprecation
2. plateau acceleration depreciation
3. income approach - ✔✔1. Straight Line Depreciation: # of years that building can be functional
2. Plateau Acceleration Depreciation: whatever depreciate the fastest Ex: Restaurant
Equipment
3. Income approach: used for rundown property
Courtney Holdings Owns 36 revenue properties in various cities across Canada. Although the
company normally insured to full values of all such property there is a concern that an increase
in inflation rates could cause the amounts of insurance to fall below the co-insurance
percentage required to be maintained under the policy. To avoid the potential of a penalty
being applied at the time of loss, it is your recommendation that the co-insurance clause be
replaced with the stated amount co-insurance clause. Identify the underwriting conditions that
must be satisfied by the insureds before the insurer will agree to replace the standard co-
insurance clause with the stated amount co-insurance clause - ✔✔a. Declare property value to
insurer, confirmed by appraisal
b. Keep values constant during policy
c. If not fully insured, switch to 100% co-insurance
1. The valuations clause contained in commercial property insurance policies establishes how
certain property is to be valued by the policy after a loss. In the event of a loss to the following
property belonging to Happy Harry's Appliance Store LTD. Indicate how each would be valued
under the policy.
A. Refrigerator which has been sold but not yet delivered B. Unsold stock C. Customers
appliances brought onto the premises for repair and upon which repair has already been
,completed - ✔✔a. settlement based on selling price to purchaser, minus any applicable
discount ex: cash, trade-ins
b. ACV at the time of loss
c. Expenses for materials and labor incurred by the insured at the time of the loss
1. The Adanac's Shoes LTD account is new to your brokerage. In preparing for your insurance
quotation to the Adanac's, your office manager suggested that a fact finding of survey by
conducted.
A. Identify two advantages to be gained from conducting such a fact or survey
B. Insureds who do not have their own inspectors on staff rely on their own organizations to
inspect certain commercial risks and to recommend rates to be charged. Identify the
organization used by most insurers to gather the info needed by them to property underwrite
commercial risks - ✔✔a. Helps in identifying potential loss risks, avoid unnecessary coverage to
purchase, and generates essential underwriting data for insurers.
b. Informco Inc
1. Explain:
A. The primary role of the underwriter in the risk selection process
B. What is meant by the term "risk classification"?
C. What is the chief advantage of risk classification in the underwriting process? - ✔✔a.
Underwriters put a lot of time and effort to figure out if there are any factors about the risk or
the applicant that could lead to loss
b. Risk classification: sorting risks into group based on criteria, mostly focused on how
profitable vs. how risky. Ex: cannabis store vs. Bookstore
c. Help to decide if the premium is too much nor too low
1. During a risk survey of Risk and Hope Furniture Inc. you noticed several conditions which, in
your opinion, constitutes a greater than normal physical hazard. You also have reason to be
concerned about the moral hazard present in this risk.
, A. What is the difference between a physical hazard and a moral hazard?
B. Identify which of 'physical hazard' or 'moral hazard' is indicated by the presence of the
following condition? Owner has no established means of controlling the stores inventory and in
general, appears to have a total lack of regards for the protection of store property - ✔✔a.
Physical hazard: where and how the buildings look alike
Moral hazard: Ethics (Financial, Associates, Moral characteristics)
b. Physical Hazard
A. The insurance acts of the common law provinces require that policies insuring against the
peril of fire also insure direct losses caused by two additional perils. Identify the two additional
perils insured by the fire policy
B. Indicated whether the Fire Policy would respond to pay for the following losses. The building
stock and equipment are owned by the insured and are covered under the policy. State
whether covered or not covered
i. Fire damage to six 15ft canoes being held for sale in the insureds business
ii. Damage due to contamination by radioactive materials which were released by natural gas to
the furnace in research laboratory exploded - ✔✔a. Lightning and Explosion of natural, coal and
manufactured
b. Fire damage to six 15ft canoes being held for sale in the insureds business - Covered
Damage due to contamination by radioactive materials which were released by natural gas to
the furnace in research laboratory exploded - Covered
1. Dirks Dry-cleaning inc. is insured under a fire policy. Indicated whether this policy would
respond to pay the following losses. State weather covered or not covered.
A. Loss of money by fire
B. Fire damage to licensed delivery van while parked on the insureds premises overnight
C. Lightning damage caused to chimney - ✔✔a. Loss of money by fire - covered
