CAIB 2 STUDY NOTES; CHAPTER 7 With Correct
Complete Solution
1. Is perceived as being too technical
2. Reluctance of insured to reveal earnings
3. Lack of consumer knowledge -ANSWER- Identify three reasons or obstacles to
selling business interruption instance
1. Physical damage to property
2. Failure or breakdown of public utilities
3. Transportation related accidents
4. Physical damage to neighbouring premises
5. Loss caused to property of major supplier or costumer
6. Actions of regulatory authorities
7. Ancillary cause (strikes, lock-outs) -ANSWER- Identify seven sources of business
interruption losses
1. Reduction of capital reserves
2. Bank loan
3. Increasing product prices
4. Purchase of adequate limits of business interruption insurance -ANSWER- Identify
four options for funding to pay continuing expenses during a business interruption
1. The operating expenses which necessarily must continue during the period the
interruption
2. The net profit that is lost because of a partial or total interruption to the business -
ANSWER- Identify the two things that all business interruption insure
1. Gross earnings form (American); Commences at the time of loss and ceases
immediately upon reinstatement of lost or damaged property
2. Profits form (British); Commencing at the time of loss and continues until income is
restored to the level that would have resulted had the loss not occurred -ANSWER-
Identify the period of indemnity for the following forms; Gross earnings form and profits
form
1. Insure against same perils as are insured by the property policy
2. Are contracts of indemnity
3. Period of indemnity will continue beyond expiry of the policy
4. Indemnity provided while access prohibited by order of civil authority
5. Provide for payment of those expenses necessarily incurred for the purpose of
reducing the amount of loss -ANSWER- Identify five characteristics common to all
business interruption forms
, 1. Over time salaries to building contractors
2. Advertising costs to advise new location/service arrangements
3. Rental or alteration premises -ANSWER- Identify any types of expense that may be
necessarily incurred for the purpose of reducing the amount of loss
Only if insured can show such payment will result in an overall claim savings to the
insurer -ANSWER- Identify the conditions when the costs noted in the expenses
necessarily incurred form will be paid
1. Broker must be an accountant to understand
2. Should be sold only to those businesses operations at a profit
3. If any loss caused by someone not insured by policy, no need to purchase business
interruption -ANSWER- Identify three myths with business interruption insurance
1. Income; all monies from sales/service
2. Fixed expenses; mortgage interest
3. Semi-variable expenses; advertising
4. Variable expenses; do not continue after a loss (electricity)
5. Gross profit; total net sales less cost of goods sold
6. Net profit; reducing gross profit by all other expenses earned by the business -
ANSWER- Identify the example for each of the following terms regarding business
interruption insurance
1. Gross profit; in accounting allows for more deductions, than insurance does - insured
could be under insured
2. Gross earnings; unique to business interruption -ANSWER- Briefly explain the
following eras as they apply to business interruption insurance and accounting
False -ANSWER- Brokers should know as much about accounting and accountants
Businesses in a net loss will also incur continuing expenses which have to be paid -
ANSWER- Briefly explain why business interruption insurance should not only be
carried by profitable business
1. Cost - can be high
2. Delay - can take months
3. Risk - amounts may not be sufficient -ANSWER- Identify three problem end that
could be created by waiting to collect from responsible third parties - in regards to
business interruption insurance
1. Nature of the business
2. Types of perils most likely to cause an interruption -ANSWER- Identify two key
factors to be considered when selecting the proper coverage form
1. Completion of the appropriate worksheet
Complete Solution
1. Is perceived as being too technical
2. Reluctance of insured to reveal earnings
3. Lack of consumer knowledge -ANSWER- Identify three reasons or obstacles to
selling business interruption instance
1. Physical damage to property
2. Failure or breakdown of public utilities
3. Transportation related accidents
4. Physical damage to neighbouring premises
5. Loss caused to property of major supplier or costumer
6. Actions of regulatory authorities
7. Ancillary cause (strikes, lock-outs) -ANSWER- Identify seven sources of business
interruption losses
1. Reduction of capital reserves
2. Bank loan
3. Increasing product prices
4. Purchase of adequate limits of business interruption insurance -ANSWER- Identify
four options for funding to pay continuing expenses during a business interruption
1. The operating expenses which necessarily must continue during the period the
interruption
2. The net profit that is lost because of a partial or total interruption to the business -
ANSWER- Identify the two things that all business interruption insure
1. Gross earnings form (American); Commences at the time of loss and ceases
immediately upon reinstatement of lost or damaged property
2. Profits form (British); Commencing at the time of loss and continues until income is
restored to the level that would have resulted had the loss not occurred -ANSWER-
Identify the period of indemnity for the following forms; Gross earnings form and profits
form
1. Insure against same perils as are insured by the property policy
2. Are contracts of indemnity
3. Period of indemnity will continue beyond expiry of the policy
4. Indemnity provided while access prohibited by order of civil authority
5. Provide for payment of those expenses necessarily incurred for the purpose of
reducing the amount of loss -ANSWER- Identify five characteristics common to all
business interruption forms
, 1. Over time salaries to building contractors
2. Advertising costs to advise new location/service arrangements
3. Rental or alteration premises -ANSWER- Identify any types of expense that may be
necessarily incurred for the purpose of reducing the amount of loss
Only if insured can show such payment will result in an overall claim savings to the
insurer -ANSWER- Identify the conditions when the costs noted in the expenses
necessarily incurred form will be paid
1. Broker must be an accountant to understand
2. Should be sold only to those businesses operations at a profit
3. If any loss caused by someone not insured by policy, no need to purchase business
interruption -ANSWER- Identify three myths with business interruption insurance
1. Income; all monies from sales/service
2. Fixed expenses; mortgage interest
3. Semi-variable expenses; advertising
4. Variable expenses; do not continue after a loss (electricity)
5. Gross profit; total net sales less cost of goods sold
6. Net profit; reducing gross profit by all other expenses earned by the business -
ANSWER- Identify the example for each of the following terms regarding business
interruption insurance
1. Gross profit; in accounting allows for more deductions, than insurance does - insured
could be under insured
2. Gross earnings; unique to business interruption -ANSWER- Briefly explain the
following eras as they apply to business interruption insurance and accounting
False -ANSWER- Brokers should know as much about accounting and accountants
Businesses in a net loss will also incur continuing expenses which have to be paid -
ANSWER- Briefly explain why business interruption insurance should not only be
carried by profitable business
1. Cost - can be high
2. Delay - can take months
3. Risk - amounts may not be sufficient -ANSWER- Identify three problem end that
could be created by waiting to collect from responsible third parties - in regards to
business interruption insurance
1. Nature of the business
2. Types of perils most likely to cause an interruption -ANSWER- Identify two key
factors to be considered when selecting the proper coverage form
1. Completion of the appropriate worksheet
