CAIB 2 Exam with Accurate Solutions
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 - ANSWER-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 - ANSWER-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 - ANSWER-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 - ANSWER-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? -
ANSWER-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 - ANSWER-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 - ANSWER-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 - ANSWER-a. Loss of money by fire - covered
b. Fire damage to licensed delivery van while parked on the insureds premises
overnight - not covered
c. Lightning damage caused to chimney - covered
1. The commercial building, equipment, and stock broad form policy contains an
additional coverage section entitled of coverage. This additional coverage selection
provides for the payment of losses which would not otherwise be insured by the policy.
An important extension of coverage is provided for the building damage by theft.
A. This extension of coverage is not available to all insureds. Identify two (2) types of
insureds who would qualify for coverage under this additional insuring agreement
B. What other coverages are provided under this extension of coverage? - ANSWER-a.
If you own the building not covered, its not covered by the broad form policy
Renting the part of the building and took responsibility for damages to that area
b. Debris removal, outdoor plants, personal belonging to staff
1. The owner of the Dress Smart Mensware inc. requests that you provide them with a
premium quotation for all risks coverage. On your recommendation, they purchased the
commercial building, equipment, and stock broad form policy. The building, stock and
equipment are owned by the company and insured under the policy.
Indicate whether losses caused by the following perils would be insured by the policy.
State whether covered or not covered.
A. Fading of clothing in display window caused by continuous exposure to sunlight
B. Loss of stock which is first discovered upon taking a year end inventory
C. Water damage to clothing caused by rupture of overhead water lines - ANSWER-a.
Not covered
b. Covered
c. 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 - ANSWER-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 - ANSWER-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 - ANSWER-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 - ANSWER-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? -
ANSWER-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 - ANSWER-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 - ANSWER-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 - ANSWER-a. Loss of money by fire - covered
b. Fire damage to licensed delivery van while parked on the insureds premises
overnight - not covered
c. Lightning damage caused to chimney - covered
1. The commercial building, equipment, and stock broad form policy contains an
additional coverage section entitled of coverage. This additional coverage selection
provides for the payment of losses which would not otherwise be insured by the policy.
An important extension of coverage is provided for the building damage by theft.
A. This extension of coverage is not available to all insureds. Identify two (2) types of
insureds who would qualify for coverage under this additional insuring agreement
B. What other coverages are provided under this extension of coverage? - ANSWER-a.
If you own the building not covered, its not covered by the broad form policy
Renting the part of the building and took responsibility for damages to that area
b. Debris removal, outdoor plants, personal belonging to staff
1. The owner of the Dress Smart Mensware inc. requests that you provide them with a
premium quotation for all risks coverage. On your recommendation, they purchased the
commercial building, equipment, and stock broad form policy. The building, stock and
equipment are owned by the company and insured under the policy.
Indicate whether losses caused by the following perils would be insured by the policy.
State whether covered or not covered.
A. Fading of clothing in display window caused by continuous exposure to sunlight
B. Loss of stock which is first discovered upon taking a year end inventory
C. Water damage to clothing caused by rupture of overhead water lines - ANSWER-a.
Not covered
b. Covered
c. Covered
