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C16 BUSINESS OF INSURANCE -PRACTICE
EXAM 2025 UPDATED ACTUAL EXAM WITH
CORRECT SOLUTIONS.
Explain the economic laws of Supply and Demand, and explain
why these laws do not strictly apply to automobile insurance. -
correct answer- pages 3-3 and 3-13. the economic theory of
supply and demand proposes that more resources will be
allocated to a product that increases revenue. The law of
supply provides that the higher the price, then more will be
supplied. the law of demand provides that, with all other factors
equal, less will be demanded as the price rises.
For the insurance market, supply is represented by the capacity
of the market, or the willingness of insurers to insure risks. The
demand is represented by consumers' need for insurance
coverage. In most cases consumers have some flexibility about
the level of insurance they purchase, but they generally do not
have the freedom to choose not to purchase it. this is the case
for automobile insurance, which is mandated by law, and as a
result demand remains fairly constant.
In addition, since auto insurance rate and availability are
regulated, supply tends to fluctuate less, even when prices are
low. Insurers do not have the flexibility to increase prices to
where they want, nor do they have the freedom to choose not
to provide insurance.
In these ways, both the supply and demand of auto insurance
is significantly influenced by regulation, and less by market
forces.
Rate peaks and valleys are mostly caused by problems with
supply rather than a change in demand. This is not so evident
,2 | Page
with automobile insurance, given that its supply and price is
regulated in most jurisdictions.
Your employer, Reliable Insurance Brokers, has asked you to
prepare a Marketing Plan. Identify and describe two of the key
components you will include in your plan. - correct answer-
1.Product or service overview: what will be the features, pricing
structure, distribution strategy, positioning, promotions and
advertising that will be used to attract customers. the products
need to be responsive to consumer needs. Perhaps the insurer
will offer complementary services and products.
2. A marketing plan must include tracking and evaluating
results. this can be done in various ways, including a tracking
number or code, a promotion code, a survey to evaluate
customer satisfaction, evaluation of complaints.
3. Budget and resources description. All marketing budgets are
limited, and need someone to be held accountable for it.
Discuss the impact of the stock market on the insurance
industry. - correct answer- The investment markets have a
significant impact on insurance companies because they hold a
significant amount of capital investments, and rely on
investment returns to augment underwriting profits. The
investment markets generally are in a bull market when there is
a soft insurance market. this is because an insurer can afford to
compete more on premiums because they know they will make
it up on strong investment returns, and when investment
returns wane, an insurer takes steps to increase its
, 3 | Page
underwriting profit by increasing prices and tightening up policy
terms and requirements, such as loss control.
Also, in economic downturns, insurance purchasers tend to be
more cautious of their assets, and rely more on insurance.
Identify and define the functions of the two board of director
committees mandated by law for all Canadian insurers. -
correct answer- The Insurance Acts of Canada and the
provinces and territories require insurer boards of directors to
include two committees:
1. Audit committee, which is responsible to improve the
companies financial reporting process.
2. Conduct Review committee, which is mainly responsible to
handle conflict of interest issues, and prevent self-dealing.
List the main factors that influence how an insurance company
organizes itself. - correct answer- Ultimately an insurer
organizes itself in the way that allows it to operate as efficiently
as possible in producing profits, and is dependent on a number
of factors:
1. how power and control are distributed
2. how well systems are integrated between departments and
others
3. how communication works
4. how well services are coordinated
5. the size of the company
C16 BUSINESS OF INSURANCE -PRACTICE
EXAM 2025 UPDATED ACTUAL EXAM WITH
CORRECT SOLUTIONS.
Explain the economic laws of Supply and Demand, and explain
why these laws do not strictly apply to automobile insurance. -
correct answer- pages 3-3 and 3-13. the economic theory of
supply and demand proposes that more resources will be
allocated to a product that increases revenue. The law of
supply provides that the higher the price, then more will be
supplied. the law of demand provides that, with all other factors
equal, less will be demanded as the price rises.
For the insurance market, supply is represented by the capacity
of the market, or the willingness of insurers to insure risks. The
demand is represented by consumers' need for insurance
coverage. In most cases consumers have some flexibility about
the level of insurance they purchase, but they generally do not
have the freedom to choose not to purchase it. this is the case
for automobile insurance, which is mandated by law, and as a
result demand remains fairly constant.
In addition, since auto insurance rate and availability are
regulated, supply tends to fluctuate less, even when prices are
low. Insurers do not have the flexibility to increase prices to
where they want, nor do they have the freedom to choose not
to provide insurance.
In these ways, both the supply and demand of auto insurance
is significantly influenced by regulation, and less by market
forces.
Rate peaks and valleys are mostly caused by problems with
supply rather than a change in demand. This is not so evident
,2 | Page
with automobile insurance, given that its supply and price is
regulated in most jurisdictions.
Your employer, Reliable Insurance Brokers, has asked you to
prepare a Marketing Plan. Identify and describe two of the key
components you will include in your plan. - correct answer-
1.Product or service overview: what will be the features, pricing
structure, distribution strategy, positioning, promotions and
advertising that will be used to attract customers. the products
need to be responsive to consumer needs. Perhaps the insurer
will offer complementary services and products.
2. A marketing plan must include tracking and evaluating
results. this can be done in various ways, including a tracking
number or code, a promotion code, a survey to evaluate
customer satisfaction, evaluation of complaints.
3. Budget and resources description. All marketing budgets are
limited, and need someone to be held accountable for it.
Discuss the impact of the stock market on the insurance
industry. - correct answer- The investment markets have a
significant impact on insurance companies because they hold a
significant amount of capital investments, and rely on
investment returns to augment underwriting profits. The
investment markets generally are in a bull market when there is
a soft insurance market. this is because an insurer can afford to
compete more on premiums because they know they will make
it up on strong investment returns, and when investment
returns wane, an insurer takes steps to increase its
, 3 | Page
underwriting profit by increasing prices and tightening up policy
terms and requirements, such as loss control.
Also, in economic downturns, insurance purchasers tend to be
more cautious of their assets, and rely more on insurance.
Identify and define the functions of the two board of director
committees mandated by law for all Canadian insurers. -
correct answer- The Insurance Acts of Canada and the
provinces and territories require insurer boards of directors to
include two committees:
1. Audit committee, which is responsible to improve the
companies financial reporting process.
2. Conduct Review committee, which is mainly responsible to
handle conflict of interest issues, and prevent self-dealing.
List the main factors that influence how an insurance company
organizes itself. - correct answer- Ultimately an insurer
organizes itself in the way that allows it to operate as efficiently
as possible in producing profits, and is dependent on a number
of factors:
1. how power and control are distributed
2. how well systems are integrated between departments and
others
3. how communication works
4. how well services are coordinated
5. the size of the company
