CAIB 2 Practice Exam Questions and Correct Answers

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 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 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 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 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? 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 a. Physical hazard: where and how the buildings look alike Moral hazard: Ethics (Financial, Associates, Moral characteristics) b. Physical Hazard