AIC All Chapters Practice Questions and
Verified Answers
1) The philosophy behind insurance is to
a) provide a vehicle through which wealthy individuals and corporations may protect their
property against catastrophic loss
b)allow insurers to grow larger and more stable, thus creating jobs and supporting the economy
c) spread the losses of the few amongst the premiums of the many
d) spread the losses of the many amongst the premiums of the few answer - c
2) Identify and briefly describe four benefits of insurance to society answer - 2) 1.Spread the
losses of the few among the premiums of the many. This benefits society in that it allows an
insured to have "peace of mind."
Money needed for premiums can be budgeted for and large amounts of money need not be set
aside in case of loss.
When an insured does not have to set funds aside in case of a loss, these funds can be used in
other ways.
When losses are indemnified by insurance companies, insureds have the resources to replace or
repair damaged objects. This stimulates the economy.
2. Employment opportunities: The insurance industry directly employs over 115,000 people;
also other organizations employ people as losses are paid for and replacement and repairs are
undertaken. This results in a need for employees in the construction industry, auto body shops,
and other industries.
,3. The security provided by insurance leads to an increase in the availability of credit. Lenders
would not be willing to extend credit without insurance.
4.Insurers support loss prevention initiatives—fire prevention, safer vehicles, influence on
lawmakers for stricter penalties with respect to drinking and driving, and programs to combat
fraud
3) Identify and briefly describe four basic types of insurance companies or market answer - 1. A
stock insurance company is a corporation owned by its shareholders.
6) What are the differences between treaty and facultative reinsurance? answer - Treaty
Reinsurance
Automatic reinsurance
Insurer must cede risk and reinsurer
must accept risk
Facultative Reinsurance Not automatic—per risk basis
Choice to reinsure or not
7) Reinsurance is insurance for insurance companies. It is a method of spreading risk for
insurers. Which of the following is NOT a reason for reinsuring?
a) To reduce the effect of a catastrophic loss
b) To increase the insurer's capacity to write business
c) To promote the collection and pooling of loss information
d) To provide stability in a fluctuating market answer - c
,8) What is the difference between an agent and a broker? answer - A broker is an independent
business person who is authorized to sell insurance policies on behalf of an insurer. They usually
represent many insurers.
An agent represents one company only. They are employees of an insurance company.
9) Carlos Marrero is an agent for Elite Insurance Company. Although he represents only Elite
Insurance, he is not a company employee and is responsible for his own expenses. Carlos is paid
a commission for the policies he sells, but the client list belongs to Elite Insurance Company.
What type of company is Elite Insurance?
a) Exclusive agency company
b)Partnership
c) Independent agent selling company
d) Sole proprietorship answer - a
2-1)What is the difference between an independent brokerage system and a direct writer?
answer - A direct writer markets their products directly to the public. An independent brokerage
sys-tem does not. It uses independent brokers to sell their products.
2-2) You are a broker for Creative Solutions Brokerage Ltd. Your top priority is to produce
business. You understand that it is not easy to sell something without having substantial
knowledge about it. Continuing education is essential and aligns with the mandate of the
provincial regulatory body. Brokers and agents must take _____ hours annually of approved
courses and seminars relating to their business.
a) 10
b)15
c) 24
d) 30 answer - b
, 2-3) Based on the principal and agent legal relationship, it is understood that an insurer's
(principal's) knowledge of a risk is the same as that of the intermediary (agent). What does this
mean?
a) Full disclosure to the intermediary by the client is required
b)Information given to the intermediary by the client is deemed to be given to the insurer
c) Both the insurer and the intermediary are expected to be knowledgeable
d) Both the insurer and the intermediary are partners in protecting the client from fortuitous
events answer - b
2-4) Which of the following is considered to be a fiduciary?
a) An insured
b)An insurance agent
c) A lessor
d) The Alberta Insurance Council answer - b
2-5) As an insurance broker, you must communicate factual statements about a risk to an
underwriter, so the risk may be properly assessed. This duty of disclosure
a) is fundamental to the principle of utmost good faith that underlies all insurance transactions
b)does not impact the insurer
c) falls solely on the shoulders of the applicant and broker
d) requires accurate transmission of the risk particulars to the insured answer - a
2-6) Briefly describe a broker's or agent's role in the claims process answer - A broker or agent
must promptly report any claim to the insurer. A first notice of loss may need to be completed
as part of the initial claims process. Manage the insured's expectations and provide guidance
Verified Answers
1) The philosophy behind insurance is to
a) provide a vehicle through which wealthy individuals and corporations may protect their
property against catastrophic loss
b)allow insurers to grow larger and more stable, thus creating jobs and supporting the economy
c) spread the losses of the few amongst the premiums of the many
d) spread the losses of the many amongst the premiums of the few answer - c
2) Identify and briefly describe four benefits of insurance to society answer - 2) 1.Spread the
losses of the few among the premiums of the many. This benefits society in that it allows an
insured to have "peace of mind."
Money needed for premiums can be budgeted for and large amounts of money need not be set
aside in case of loss.
When an insured does not have to set funds aside in case of a loss, these funds can be used in
other ways.
When losses are indemnified by insurance companies, insureds have the resources to replace or
repair damaged objects. This stimulates the economy.
2. Employment opportunities: The insurance industry directly employs over 115,000 people;
also other organizations employ people as losses are paid for and replacement and repairs are
undertaken. This results in a need for employees in the construction industry, auto body shops,
and other industries.
,3. The security provided by insurance leads to an increase in the availability of credit. Lenders
would not be willing to extend credit without insurance.
4.Insurers support loss prevention initiatives—fire prevention, safer vehicles, influence on
lawmakers for stricter penalties with respect to drinking and driving, and programs to combat
fraud
3) Identify and briefly describe four basic types of insurance companies or market answer - 1. A
stock insurance company is a corporation owned by its shareholders.
6) What are the differences between treaty and facultative reinsurance? answer - Treaty
Reinsurance
Automatic reinsurance
Insurer must cede risk and reinsurer
must accept risk
Facultative Reinsurance Not automatic—per risk basis
Choice to reinsure or not
7) Reinsurance is insurance for insurance companies. It is a method of spreading risk for
insurers. Which of the following is NOT a reason for reinsuring?
a) To reduce the effect of a catastrophic loss
b) To increase the insurer's capacity to write business
c) To promote the collection and pooling of loss information
d) To provide stability in a fluctuating market answer - c
,8) What is the difference between an agent and a broker? answer - A broker is an independent
business person who is authorized to sell insurance policies on behalf of an insurer. They usually
represent many insurers.
An agent represents one company only. They are employees of an insurance company.
9) Carlos Marrero is an agent for Elite Insurance Company. Although he represents only Elite
Insurance, he is not a company employee and is responsible for his own expenses. Carlos is paid
a commission for the policies he sells, but the client list belongs to Elite Insurance Company.
What type of company is Elite Insurance?
a) Exclusive agency company
b)Partnership
c) Independent agent selling company
d) Sole proprietorship answer - a
2-1)What is the difference between an independent brokerage system and a direct writer?
answer - A direct writer markets their products directly to the public. An independent brokerage
sys-tem does not. It uses independent brokers to sell their products.
2-2) You are a broker for Creative Solutions Brokerage Ltd. Your top priority is to produce
business. You understand that it is not easy to sell something without having substantial
knowledge about it. Continuing education is essential and aligns with the mandate of the
provincial regulatory body. Brokers and agents must take _____ hours annually of approved
courses and seminars relating to their business.
a) 10
b)15
c) 24
d) 30 answer - b
, 2-3) Based on the principal and agent legal relationship, it is understood that an insurer's
(principal's) knowledge of a risk is the same as that of the intermediary (agent). What does this
mean?
a) Full disclosure to the intermediary by the client is required
b)Information given to the intermediary by the client is deemed to be given to the insurer
c) Both the insurer and the intermediary are expected to be knowledgeable
d) Both the insurer and the intermediary are partners in protecting the client from fortuitous
events answer - b
2-4) Which of the following is considered to be a fiduciary?
a) An insured
b)An insurance agent
c) A lessor
d) The Alberta Insurance Council answer - b
2-5) As an insurance broker, you must communicate factual statements about a risk to an
underwriter, so the risk may be properly assessed. This duty of disclosure
a) is fundamental to the principle of utmost good faith that underlies all insurance transactions
b)does not impact the insurer
c) falls solely on the shoulders of the applicant and broker
d) requires accurate transmission of the risk particulars to the insured answer - a
2-6) Briefly describe a broker's or agent's role in the claims process answer - A broker or agent
must promptly report any claim to the insurer. A first notice of loss may need to be completed
as part of the initial claims process. Manage the insured's expectations and provide guidance
