CAIB 1 - CHAPTER 1-4
Provide 1 reason why persons should not rely on control of risk as a total solution in eliminating financial
loss - Answer--Equipment will not work 100% of the time
-certain types of losses such as wind, hail and lightning cannot be effectively controlled
People can choose to deal with risk in a variety of ways identify four possible options and provide a brief
explanation of each - Answer-Avoid the risk - rent rather than buy
Control the risk - loss control measures
Retain the risk - self insurance
Transfer the risk - purchase insurance
Which of the four RISKS is the most practical for most people? - Answer-Transfer of Risk
What are the five elements required to be present in all types of contracts? - Answer-Agreement,
consideration, legality of object, legal capacity of parties to contract, and genuine intention
Are individuals permitted to enter into a contract? - Answer-Individuals can contract if they are
competent to do so
,Are trade names permitted to enter into a contract? - Answer-Trade names have no legal status and are
not entitled to contract
Are corporations permitted to enter into a contract? - Answer-Corporations have the same right
contract as individuals
Identify the three additional elements which are required in an insurance contract - Answer-Insurable
interest, utmost good faith, and indemnity
Broker owes the insured the following duties - Answer-Careful and prompt attention to instructions,
expert advice, and competitive pricing of products
Broker owes the insurer the following duties - Answer-Collection of premiums and passing on a relevant
information obtained from the client
What point in time is used by Insurers to measure the amount of the indemnity to be paid by the policy?
- Answer-Indemnity is measured by the value of the insured property as it existed immediately prior to
the loss
Where does the broker obtain the authority to bind and insurer on a risk? - Answer-Agency agreement
What advice would you give to a broker who has provided an oral binder on a risk? - Answer-Oral
binders should be confirmed immediately in writing
What might happen when brokers exceed their binding authority and the loss occurs? - Answer-The
broker/brokerage may face and errors and omissions claim
Identify at least three ways in which brokers might exceed the binding authority given to them by and
insurer - Answer-Maybe bind a property risk for higher amounts than set out in the agency contract /
, May bind a risk which is on the decline list in the agency contract/ may bind a liability risk for higher
limits then set out in the agency contract
Identify the three criteria used to determine the amount of "indemnity" to be paid under most property
insurance policies - Answer-Actual cash value of the item at the time of the loss/ interest of the insured
in the property/ limit of insurance provided by the policy
Using the criteria to determine indemnity which amount is deemed to represent the actual amount of
the insurance loss - Answer-The least of ACV, insurable interest, or the limit of insurance
State the formula used to arrive at the actual cash value of a loss - Answer-ACV = RC - depreciation
Identify three factors considered by the insurance adjuster when determining the amount of
depreciation to be charged - Answer-Condition of object/ normal life expectancy/ resale value
Provide three reasons why governments are involved in the regulation of the insurance industry -
Answer-To ensure insurance companies will be financially competent to discharge their obligations/to
ensure forms of contracts are drafted fairly/to ensure business is being conducted to the general benefit
of the public
What is the role of the property and casualty insurance compensation corporation (PACICC) - Answer-
The role of PACICC is to protect the consumer against insurer insolvency. Each insurance company is
assessed an amount based upon the total of the direct written premium.
What is the maximum amount available to pay a claim under PACICC - Answer-The maximum amount
available for anyone claim is $250, 000
What is the maximum amount available towards returning of unearned premiums under PACICC -
Answer-The provision is made for the return of unearned premiums, subject to a maximum of $700 per
policy
Provide 1 reason why persons should not rely on control of risk as a total solution in eliminating financial
loss - Answer--Equipment will not work 100% of the time
-certain types of losses such as wind, hail and lightning cannot be effectively controlled
People can choose to deal with risk in a variety of ways identify four possible options and provide a brief
explanation of each - Answer-Avoid the risk - rent rather than buy
Control the risk - loss control measures
Retain the risk - self insurance
Transfer the risk - purchase insurance
Which of the four RISKS is the most practical for most people? - Answer-Transfer of Risk
What are the five elements required to be present in all types of contracts? - Answer-Agreement,
consideration, legality of object, legal capacity of parties to contract, and genuine intention
Are individuals permitted to enter into a contract? - Answer-Individuals can contract if they are
competent to do so
,Are trade names permitted to enter into a contract? - Answer-Trade names have no legal status and are
not entitled to contract
Are corporations permitted to enter into a contract? - Answer-Corporations have the same right
contract as individuals
Identify the three additional elements which are required in an insurance contract - Answer-Insurable
interest, utmost good faith, and indemnity
Broker owes the insured the following duties - Answer-Careful and prompt attention to instructions,
expert advice, and competitive pricing of products
Broker owes the insurer the following duties - Answer-Collection of premiums and passing on a relevant
information obtained from the client
What point in time is used by Insurers to measure the amount of the indemnity to be paid by the policy?
- Answer-Indemnity is measured by the value of the insured property as it existed immediately prior to
the loss
Where does the broker obtain the authority to bind and insurer on a risk? - Answer-Agency agreement
What advice would you give to a broker who has provided an oral binder on a risk? - Answer-Oral
binders should be confirmed immediately in writing
What might happen when brokers exceed their binding authority and the loss occurs? - Answer-The
broker/brokerage may face and errors and omissions claim
Identify at least three ways in which brokers might exceed the binding authority given to them by and
insurer - Answer-Maybe bind a property risk for higher amounts than set out in the agency contract /
, May bind a risk which is on the decline list in the agency contract/ may bind a liability risk for higher
limits then set out in the agency contract
Identify the three criteria used to determine the amount of "indemnity" to be paid under most property
insurance policies - Answer-Actual cash value of the item at the time of the loss/ interest of the insured
in the property/ limit of insurance provided by the policy
Using the criteria to determine indemnity which amount is deemed to represent the actual amount of
the insurance loss - Answer-The least of ACV, insurable interest, or the limit of insurance
State the formula used to arrive at the actual cash value of a loss - Answer-ACV = RC - depreciation
Identify three factors considered by the insurance adjuster when determining the amount of
depreciation to be charged - Answer-Condition of object/ normal life expectancy/ resale value
Provide three reasons why governments are involved in the regulation of the insurance industry -
Answer-To ensure insurance companies will be financially competent to discharge their obligations/to
ensure forms of contracts are drafted fairly/to ensure business is being conducted to the general benefit
of the public
What is the role of the property and casualty insurance compensation corporation (PACICC) - Answer-
The role of PACICC is to protect the consumer against insurer insolvency. Each insurance company is
assessed an amount based upon the total of the direct written premium.
What is the maximum amount available to pay a claim under PACICC - Answer-The maximum amount
available for anyone claim is $250, 000
What is the maximum amount available towards returning of unearned premiums under PACICC -
Answer-The provision is made for the return of unearned premiums, subject to a maximum of $700 per
policy
