CAIB 1: Chapter 1.1 - Textbook Questions

4 ways to deal with risk

Risk Avoidance

Risk Reduction/Control

Risk Retention

Risk Transfer

most practical way for dealing with risk

Risk transfer, achieved through insurance

5 elements required in all contracts

Agreement

Consideration

Legal Capacity

Legality of Object & Purpose

Genuine Intention

Which is not permitted to enter a contract

Trade Names

3 additional elements of insurance contracts

Utmost Good Faith

Indemnity

Insurable Interest

3 duties owed by brokers to INSUREDS

Careful and prompt attention to instructions

Expert advice

Competitive pricing on products

2 duties owed by brokers to INSURERS

Collection of premiums

Passing on of relevant information obtained

Point in time used by insurers to measure the amount of indemnity to be paid by the policy

Measured by the value of the insured property as it existed immediately prior to the less

Where the broker obtains the authority to bind an insurer on a risk

Agency Agreement

What should a broker do who has provided an oral binder on a risk

Should be immediately confirmed in writing

What might happen when brokers exceed their binding authority and a loss occurs

Errors & Omissions claim

3 ways brokers might exceed their binding authority (given by an insurer)

May bind property risk for higher amounts than set out in the agency contract

May bind risk which is on the decline list in the agency contract

May bind a liability risk for higher limits than set out in the agency contract

3 criteria used to determine amount of indemnity to be paid (property insurance policy)

Interest of the insured in the property

Actual Cash Value of item at time of loss

Limit of insurance provided by the policy

Which amount is deemed to represent the actual amount of the insured’s loss

The least of ACV, insurable interest, limit of insurance

Formula for ACV

ACV = RC - Depreciation

3 factors considered by adjustor when determining amount of depreciation to be charged

Condition of object

Normal Life expectancy

Resale value

3 reasons why governments are involved in the regulation of industry

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

explain the role of the Property Casualty Insurance Compensation Corporation

To protect the consumer against insurer insolvency.

3 coverages required under all policies of fire insurance

Fire

Lightning

Explosion of Natural, Coal, or Manufactured Gas

Would fire insurance policy cover: Fire damage to dwelling which arose when iron used to press insured’s pants overheated? Damage to pants being ironed at the time?

Dwelling: yes (resultant damage)

Pants: may not be covered

Would fire insurance policy cover: lightning damage to wiring in motor of deep freeze? Resultant fire damage to deep freeze?

lightning damage to wiring: not covered

resultant damage: covered

Would fire insurance policy cover: damage to electrical wiring in fridge moto caused by power surge? resultant fire damage to fridge?

Electrical damage: not covered

Resultant damage: covered

Would fire insurance policy cover: fire damage to insured’s dwelling caused during invasion of foreign enemy?

Not covered