CAIB 3 Practice Exam Questions and
Answers
Question 1
b) Explain the benefits of suretyship gained by both the principal and the obligee
Correct Answer
Principal gain confidence by the fact that the surety is satisfied with their ability to
carry out the required task. The guarantee of performance by the surety gives the
obligee the necessary confidence to undertake various projects.
Question 2
What determines if a product is defective?
Correct Answer
A defective product is one that contained something that it should not have; or
something that should have been there was omitted in its manufacture.
Question 3
Unlike establishing the amount of a payment for loss to building, stock or equipment
the settlement of ocean marine cargo losses requires a different set of
determinations. For this reason the Ocean Marine Cargo Insurance policies contain
the "Valuation Clause" which limits the amount of insurance that can be purchase.
a) Indicate the values which determine the amount of insurance.
Correct Answer
The values that are typically insured include the value of the cargo based on invoice
cost; shipping costs or freight; other expenses, such as export packing, inland
freight, insurance premiums, and miscellaneous expenses; duties and taxes; plus ten
percent.
Page 1 of 72
,Question 4
b) How can businesses that don't have a good data base of their own loss experience
still arrive at a realistic forecast?
Correct Answer
By using probability analysis and trend analysis future losses can be predicted with
some certainty.
Question 5
Insurers limit their financial risk under the Commercial General Liability policy by
restricting the maximum amount available under the Aggregate Limit and to exclude
certain exposures.
a) When the Aggregate Limit is insufficient to cover the insured's liability exposures
additional coverage under an Umbrella Liability Policy must be purchased.
What other name(s) is given to the policy that provides increased limits of liability
only?
Correct Answer
The policy is generally referred to as Excess Liability Policy also known as "follow
form" coverage, because it provides the same coverages as the primary policy.
Question 6
Key to an organization's survival and profitability lies in its effectiveness to manage
the exposures to both predictable and unpredictable losses.
a) Explain the purpose of risk management
Correct Answer
The purpose of risk management is to minimize the adverse effects of accidental
losses upon an organization.
Page 2 of 72
,Question 7
b) The current insurer has advised you and your client that they are pulling out of the
market which leaves you with no choice but to place the insurance with another
insurer. What implication does this move have for your client should a claim be made
against them for an occurrence that happened during the policy term but is not
entered while the policy is in force, and how you would have dealt with this potential
risk?
Correct Answer
For any claim against the Insured to be covered it must also be reported to the
Insurer before the expiration of the policy. As there would be no coverage under the
new policy I would have attached the Extended Reporting Period Endorsement to
the current policy to ensure that the expired policy would still cover a claim for an
occurrence that took place during the policy term.
Question 8
c) Explain the method of retrospective rating and the main factor upon which this
rating is based
Correct Answer
Before the policy is issued both the Insurer and the Insured agree that the final
premium charged will fall within an established minimum and maximum range. The
Insured's loss ratio is the main factor that determines the premium to be charged.
Question 9
c) Indicate the two factors considered in the selection criteria?
Correct Answer
1. the effectiveness which relates to how well the chosen techniques will deliver the
desired goals.
2. the economy of which focuses on the least expensive of the possible effective
ways to ensure the fulfillment of the organization's goals.
Page 3 of 72
, Question 10
Your client, the proprietor of pub, is insured under the Commercial General Liability
Policy. Indicate whether or not the policy would respond in the following instances.
State COVERED or NOT COVERED
The insured entered a claim for the recovery of a $1,000 payment made as a goodwill
gesture to a customer, a well-known entertainer, who injured himself during a fall
from a bar stool
Correct Answer
NOT COVERED - REFERENCE: Ch. 2, pg. 4
Question 11
Your client, the proprietor of pub, is insured under the Commercial General Liability
Policy. Indicate whether or not the policy would respond in the following instances.
State COVERED or NOT COVERED
The insured received a $3,000 bill for a dental procedure from a customer who broke
a tooth when she bit on a piece of bone in the pizza she had consumed at the pub.
The customer had informed the server of the incident
Correct Answer
COVERED - REFERENCE: Ch. 2, pg. 3, 5
Question 12
What is the name given to the collection of written decisions?
Correct Answer
Case Law
Page 4 of 72
Answers
Question 1
b) Explain the benefits of suretyship gained by both the principal and the obligee
Correct Answer
Principal gain confidence by the fact that the surety is satisfied with their ability to
carry out the required task. The guarantee of performance by the surety gives the
obligee the necessary confidence to undertake various projects.
Question 2
What determines if a product is defective?
Correct Answer
A defective product is one that contained something that it should not have; or
something that should have been there was omitted in its manufacture.
Question 3
Unlike establishing the amount of a payment for loss to building, stock or equipment
the settlement of ocean marine cargo losses requires a different set of
determinations. For this reason the Ocean Marine Cargo Insurance policies contain
the "Valuation Clause" which limits the amount of insurance that can be purchase.
a) Indicate the values which determine the amount of insurance.
Correct Answer
The values that are typically insured include the value of the cargo based on invoice
cost; shipping costs or freight; other expenses, such as export packing, inland
freight, insurance premiums, and miscellaneous expenses; duties and taxes; plus ten
percent.
Page 1 of 72
,Question 4
b) How can businesses that don't have a good data base of their own loss experience
still arrive at a realistic forecast?
Correct Answer
By using probability analysis and trend analysis future losses can be predicted with
some certainty.
Question 5
Insurers limit their financial risk under the Commercial General Liability policy by
restricting the maximum amount available under the Aggregate Limit and to exclude
certain exposures.
a) When the Aggregate Limit is insufficient to cover the insured's liability exposures
additional coverage under an Umbrella Liability Policy must be purchased.
What other name(s) is given to the policy that provides increased limits of liability
only?
Correct Answer
The policy is generally referred to as Excess Liability Policy also known as "follow
form" coverage, because it provides the same coverages as the primary policy.
Question 6
Key to an organization's survival and profitability lies in its effectiveness to manage
the exposures to both predictable and unpredictable losses.
a) Explain the purpose of risk management
Correct Answer
The purpose of risk management is to minimize the adverse effects of accidental
losses upon an organization.
Page 2 of 72
,Question 7
b) The current insurer has advised you and your client that they are pulling out of the
market which leaves you with no choice but to place the insurance with another
insurer. What implication does this move have for your client should a claim be made
against them for an occurrence that happened during the policy term but is not
entered while the policy is in force, and how you would have dealt with this potential
risk?
Correct Answer
For any claim against the Insured to be covered it must also be reported to the
Insurer before the expiration of the policy. As there would be no coverage under the
new policy I would have attached the Extended Reporting Period Endorsement to
the current policy to ensure that the expired policy would still cover a claim for an
occurrence that took place during the policy term.
Question 8
c) Explain the method of retrospective rating and the main factor upon which this
rating is based
Correct Answer
Before the policy is issued both the Insurer and the Insured agree that the final
premium charged will fall within an established minimum and maximum range. The
Insured's loss ratio is the main factor that determines the premium to be charged.
Question 9
c) Indicate the two factors considered in the selection criteria?
Correct Answer
1. the effectiveness which relates to how well the chosen techniques will deliver the
desired goals.
2. the economy of which focuses on the least expensive of the possible effective
ways to ensure the fulfillment of the organization's goals.
Page 3 of 72
, Question 10
Your client, the proprietor of pub, is insured under the Commercial General Liability
Policy. Indicate whether or not the policy would respond in the following instances.
State COVERED or NOT COVERED
The insured entered a claim for the recovery of a $1,000 payment made as a goodwill
gesture to a customer, a well-known entertainer, who injured himself during a fall
from a bar stool
Correct Answer
NOT COVERED - REFERENCE: Ch. 2, pg. 4
Question 11
Your client, the proprietor of pub, is insured under the Commercial General Liability
Policy. Indicate whether or not the policy would respond in the following instances.
State COVERED or NOT COVERED
The insured received a $3,000 bill for a dental procedure from a customer who broke
a tooth when she bit on a piece of bone in the pizza she had consumed at the pub.
The customer had informed the server of the incident
Correct Answer
COVERED - REFERENCE: Ch. 2, pg. 3, 5
Question 12
What is the name given to the collection of written decisions?
Correct Answer
Case Law
Page 4 of 72
