CAIB 2 Full Study Guide With Complete Solution

CAIB 2 Full Study Guide With Complete Solution


The three amounts to be considered when calculating the amount of payment as
outlined in the Indemnity Agreement are: - ANSWER-1) the value of the lost or
damaged property (ACV)

2) the interest of the insured in the property (ex. financial interest, home, mortgage)

3) the amount of insurance specified on the "Declarations Page" for the loss or
damaged property (least amount|)

Identify the four categories that buildings may fall into: - ANSWER-Residential (ex.
home)
Non-mercantile (ex. hospitals, nursing homes)
Mercantile (ex. drycleaners, bakeries)
Manufacturing/Industrial (ex. autobody shops)

Three classes of property commercially insured are: - ANSWER-building, stock,
equipment

Identify the two bases that coverage can be provided on: - ANSWER-Scheduled
All property
Property of every description

Identify and give an example of each of the five types of property contained in the
definition of Building found in the IBC Commercial Property Broad Form - ANSWER-1)
Growing plants, trees, shrubs INSIDE the building used for decorative purposes only
when insured is the owner of the building (ex. cactus)

2) Materials and equipment supplies ON the premises for maintenance (ex. lumbar,
glass)

3) Additions and extensions IN CONTACT with the building (enclosed walk-way
between buildings)

4) Permanent fittings and fixtures ATTACHED and FORMING part of the building. (ex.
light fixtures, carpeting)

5) Fixed structures PERTAINING to building and located on the premises (ex. fence)

[GMAPF]

Identify the three conditions pertaining to the coverage for growing plants, trees, etc. -
ANSWER-- such property was INSIDE the building

,- was being used for decorative purposes
- insured was the owner of the building

Identify and give an example of the three types of property contained in the definition of
Stock found in the IBC Commercial Property Broad Form: - ANSWER-1) packing,
wrapping and advertising materials (ex. bubble plastic, Styrofoam)

2) merchandise of every description USUAL to insureds business (ex. goods for sale for
business)

3) similar property belonging to others which the insured is under obligation to keep
insured or for which he is legally liable for (appliance if appliance store.

[PMS]

Identify the three conditions that need to be present before 'similar property belonging to
others' will be insured under the definition of Stock: - ANSWER-1) must be similar to
that insured by the policy
2) the insured must have had an obligation to keep the property insured
3) the insured must be legally liable for it.

Identify and give an example of each of the three types of property contained in the
definition of Equipment found in the IBC Commercial Property Broad Form: - ANSWER-
1) generally all contents USUAL to insureds business, other than building or stock (ex.
furniture)
2) similar property belonging to others which the insured is under obligation to keep
insured or for which he is legally liable for (ex. shaw cable box)
3) tenants improvements (ex. space rented out or leased, malls)

[GST]

Identify the three ways in which property may be valued: - ANSWER-Actual Cash Value
(ACV)
Replacement Value
Book Value

Which way is NOT an appropriate means of valuing property for insurance purposes? -
ANSWER-Book Value

Identify the one word that can summarize the difference between Actual Cash Value
and Replacement Cost: - ANSWER-depreciation

Who does the onus rest upon to establish the amount of insurance required? -
ANSWER-the Insured

Identify the five methods that may be used to determine Actual Cash Value: -
ANSWER-1) Actual Cash Value

,2) True Value to customer
3) Market Value/Direct Sales Approach
4) Income Approach
5) Formula/Cost Approach Method

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: - ANSWER-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: - ANSWER-Property before the loss
Property after the loss
the land

When is the Income Approach method most commonly employed? - ANSWER-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: - ANSWER-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: - ANSWER-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: - ANSWER-- 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: - ANSWER-- 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: - ANSWER-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: - ANSWER-Reinsurance

What is the purpose of a Minimum Retained Premium? - ANSWER-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: - ANSWER-- 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? - ANSWER-to eliminate minor maintenance
types of claims

Insurers agree to 'waive' any co-insurance requirement when a loss meets either of the
following conditions: - ANSWER-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: - ANSWER-- 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 - ANSWER-properties
excluded
perils exluded

Identify five reasons why exclusions exist and give an example for each: - ANSWER--
some perils are uninsurable (war, nuclear energy)

-potential to be catastrophic (earthquake, flood)