OTL C81 STUDY 1 - STUDY 6 UPDATED QUESTIONS AND
ANSWERS
What type of risk is insurable? What type of risk is non-insurable? - CORRECT ANSWER✅✅Pure risk is
insurable as there is no chance to profit
Speculative risk has the chance or earnings, and therefore cannot be insured
What is the main reason we have insurance? - CORRECT ANSWER✅✅The world is filled with risk -
insurance is based on the existence of risk.
Risk is the chance of a loss - very little in life is certain.
What are the three types of insurable risks? List and explain. - CORRECT ANSWER✅✅Personal - Life
insurance, bodily injury, death, unemployment, old age
Property - Loss to property from damage or destruction. Can be direct (damage to building) or indirect
(loss of rent because of damage)
Liability - Responsibility to pay for injury or damage to property as a result of your own negligence (Ex.
Run a red, kill pedestrian)
What are the 3 classes/lines of insurance? - CORRECT ANSWER✅✅Personal lines - Insurance relating to
individuals in their private capacity (Home, vacation rentals, surgical, jewellery)
Commercial lines - Insurance relating to commercial operations (retail stores, trucking operations,
contractors)
Special risks - insurance relating to marine exposures, aviation, and high-risk industrial operations
Define Peril and Hazard. How do they differ? - CORRECT ANSWER✅✅Peril - The event which may cause
a loss to occur
,Hazard - the condition which may cause a peril to occur, or makes the loss more severe.
A peril includes fire, windstorms, rain.
Hazards are things like loose tiles, exposed electrical wires
A good example: Flood is a peril but the exposed wires in the basement are hazardous and will make the
situation worse if they become wet
Old electrical wiring can be a physical hazard that contributes to the peril of fire
Compare physical and moral hazards. - CORRECT ANSWER✅✅Physical - can see or touch. Usually
identified through inspection of the risk.
ex: Slippery floors, loose handrail, exposed wires
Moral - Human element of risk, you can't see or touch it.
ex. Fraud, arson, financial problems
Why does a peril need to be the proximate cause of a loss and not the remote cause of a loss to be
covered by insurance? - CORRECT ANSWER✅✅Proximate cause: Natural and continuous sequence
unbroken by any new independent cause - think of it as the domino effect.
Remote cause: Cause that is not the proximate cause and is separate from the chain of events. (ex. Rain
entering house as a result of wind damage that broke down a wall)
Why should an insurance broker use the risk management approach when setting up insurance for a
client? - CORRECT ANSWER✅✅Brokers often sell insurance based on existing coverage - errors and
oversights by the first may be reproduced by following brokers.
, The Risk Management approach analyzes risks to quantify the potential for losses in a specific
investment and to decide what is the appropriate action to take (or not to take)
List and explain the pre and post-loss objectives of risk management. - CORRECT ANSWER✅✅Pre:
Social Responsibility - Conduct yourself in such a manner to help the community (ex. COVID shutdowns
and local businesses helped homeless)
Externally Imposed Obligations - All people need to have a criminal check
Peace of Mind - what can we cover on our own before we need to take a loan or reinsure?
Cost of Risk - Cost associated with managing the business
Post:
Social Responsibility - still have to be good member of community
Survival - Instead of growth, you want to survive
Operational Continuity - Some places cannot just shut down (wifi, hydro)
Stable Earnings
Sustained Growth - Growth is less of a priority after a loss, you turn into just surviving.
Compare Brokers and Producers. - CORRECT ANSWER✅✅Broker: Licensed independent person or firm
who acts on behalf of an Insured in placing business with any one of a number of different insurance
companies
Producer: Broker or Agent who sells insurance
What are the 3 categories of perils? - CORRECT ANSWER✅✅Human: Vandalism, arson, theft
Natural: Earthquakes, floods, tornados
Economic: Consumer tastes have changed, currency fluctuations, stock market, etc.
EXAM: Which of the following would NOT be used in the risk exposure identification process?
Surveys
Previous insurance
ANSWERS
What type of risk is insurable? What type of risk is non-insurable? - CORRECT ANSWER✅✅Pure risk is
insurable as there is no chance to profit
Speculative risk has the chance or earnings, and therefore cannot be insured
What is the main reason we have insurance? - CORRECT ANSWER✅✅The world is filled with risk -
insurance is based on the existence of risk.
Risk is the chance of a loss - very little in life is certain.
What are the three types of insurable risks? List and explain. - CORRECT ANSWER✅✅Personal - Life
insurance, bodily injury, death, unemployment, old age
Property - Loss to property from damage or destruction. Can be direct (damage to building) or indirect
(loss of rent because of damage)
Liability - Responsibility to pay for injury or damage to property as a result of your own negligence (Ex.
Run a red, kill pedestrian)
What are the 3 classes/lines of insurance? - CORRECT ANSWER✅✅Personal lines - Insurance relating to
individuals in their private capacity (Home, vacation rentals, surgical, jewellery)
Commercial lines - Insurance relating to commercial operations (retail stores, trucking operations,
contractors)
Special risks - insurance relating to marine exposures, aviation, and high-risk industrial operations
Define Peril and Hazard. How do they differ? - CORRECT ANSWER✅✅Peril - The event which may cause
a loss to occur
,Hazard - the condition which may cause a peril to occur, or makes the loss more severe.
A peril includes fire, windstorms, rain.
Hazards are things like loose tiles, exposed electrical wires
A good example: Flood is a peril but the exposed wires in the basement are hazardous and will make the
situation worse if they become wet
Old electrical wiring can be a physical hazard that contributes to the peril of fire
Compare physical and moral hazards. - CORRECT ANSWER✅✅Physical - can see or touch. Usually
identified through inspection of the risk.
ex: Slippery floors, loose handrail, exposed wires
Moral - Human element of risk, you can't see or touch it.
ex. Fraud, arson, financial problems
Why does a peril need to be the proximate cause of a loss and not the remote cause of a loss to be
covered by insurance? - CORRECT ANSWER✅✅Proximate cause: Natural and continuous sequence
unbroken by any new independent cause - think of it as the domino effect.
Remote cause: Cause that is not the proximate cause and is separate from the chain of events. (ex. Rain
entering house as a result of wind damage that broke down a wall)
Why should an insurance broker use the risk management approach when setting up insurance for a
client? - CORRECT ANSWER✅✅Brokers often sell insurance based on existing coverage - errors and
oversights by the first may be reproduced by following brokers.
, The Risk Management approach analyzes risks to quantify the potential for losses in a specific
investment and to decide what is the appropriate action to take (or not to take)
List and explain the pre and post-loss objectives of risk management. - CORRECT ANSWER✅✅Pre:
Social Responsibility - Conduct yourself in such a manner to help the community (ex. COVID shutdowns
and local businesses helped homeless)
Externally Imposed Obligations - All people need to have a criminal check
Peace of Mind - what can we cover on our own before we need to take a loan or reinsure?
Cost of Risk - Cost associated with managing the business
Post:
Social Responsibility - still have to be good member of community
Survival - Instead of growth, you want to survive
Operational Continuity - Some places cannot just shut down (wifi, hydro)
Stable Earnings
Sustained Growth - Growth is less of a priority after a loss, you turn into just surviving.
Compare Brokers and Producers. - CORRECT ANSWER✅✅Broker: Licensed independent person or firm
who acts on behalf of an Insured in placing business with any one of a number of different insurance
companies
Producer: Broker or Agent who sells insurance
What are the 3 categories of perils? - CORRECT ANSWER✅✅Human: Vandalism, arson, theft
Natural: Earthquakes, floods, tornados
Economic: Consumer tastes have changed, currency fluctuations, stock market, etc.
EXAM: Which of the following would NOT be used in the risk exposure identification process?
Surveys
Previous insurance
