C16 BUSINESS INSURANCE EXAM 2025/2026 | ACTUAL
EXAM WITH COMPLETE QUESTIONS AND ANSWERS |
CALIFORNIA INSURANCE LICENSE | BUSINESS INSURANCE
COVERAGES
What is a risk pool? - CORRECT ANSWERS-1. A risk pool is a sharing and spreading of risk
between insurers and re-insurers.
2. Formed risk pools are syndicates of insurance or reinsurance companies that have organized to
underwrite a particular risk or group of similar risks.
Explain the law of large numbers. - CORRECT ANSWERS-1. A mathematical premise which
states that the degree of uncertainty is reduces as the number of events increase.
2. Insurance relies on the forecasts of loss certainty in a large group of similar risks.
3. Enough risks must be priced in such a way as to ensure that sufficient capital enters the pool of funds
to accommodate what is being drawn out to pay for claims.
Define adverse selection. - CORRECT ANSWERS-1. Describes the process by which potential
policyholders use their private knowledge of their own high level of risk when deciding whether or not
to buy insurance.
2. High-risk individuals will try to buy lots of insurance and pay a comparatively high rate of premium if
they are allowed.
3. Low-risk clients might not buy any insurance because the price is too high.
In insurance, what is a tail? - CORRECT ANSWERS-1. Refers to the amount of time between an
incident and the determination of the claim.
2. Short-tail lines are those where the injury becomes known quite quickly.
,3. Long-tail lines are those which a claim may be separated from the circumstances that caused it by as
many as 10, 15, 20 years or more. Many product liability lines have long-tail exposures.
Name TWO concerns of Ontario automobile excess reinsurers that relate to the effects of long-tail
liabilities. - CORRECT ANSWERS-1. Severe Injuries.
2. Long-tail trends for prior accident years.
3. Inadequate reserving at the primary insurance level
-Primary insurance companies rely on reinsurers to back stop auto coverage particularly for catastrophic
claims that end up costing over 1M.
-As of recent times there have been relatively light catastrophic events which led to minor rate increase
for reinsurance catastrophe treaties.
-Claims from two to five million have reinsurance layers. There has been a general increase in the
number of claims exceeding thresholds such as 2M-5M over the past 10 years.
-Predicting long tail pricing because it is difficult to accurately predict the outcome of claims that have
not yet occurred and will remain open for years before the final settlement is reached
-Reinsurers have seen patterns of very late reporting of catastrophic injury claims by insurers and after
being recognized and reported, they continue to develop adversely for years
List three ways that insurance benefits society. - CORRECT ANSWERS--Insurance provides a
certain freedom of action, encouraging activities to flourish in industries, commerce, organizations and
families
-Insurance industry facilitates growth but depends on growth of the economy
, -Insurance may facilitate borrowing towards the purchase of a home, car or cottage (an asset)
-Insurance industry contributes to the economy by providing employment to thousands of Canadians
-Insurance companies hold large investment holdings, such as investments to help finance governments
and businesses.
-Risk exposures are escalating. As the planet becomes more crowded, weather becomes more erratic,
values become more concentrated, technologies become more advances and our societies become more
litigious
-Money paid to indemnify people and fix property and bodily injury boosts the economy
Why is there a need for residual market mechanisms? - CORRECT ANSWERS--Residual market
mechanisms are established by the auto mobile insurance industry to provide a last resort insurance
facility for consumers. Not-for-profit Facility Association (FA)
-Quebec operates it's residual independently
-This ensures that insurance coverage is available even to those who are considered to be high risk and
unattractive to mainstream insurers
-Every insurer licensed to write auto liability insurance in FA industries is required to be a member of the
organization and to follow rules set by the board of directors regarding scope of coverage, terms and
standards of coverage provided
-The FA does not issue insurance policies, instead it designates certain companies to provide specific
services and this includes claim handling
In property and casualty insurance, what are the two traditional methods of distribution and how do
they differ? - CORRECT ANSWERS-1. Independent broker/agents:
EXAM WITH COMPLETE QUESTIONS AND ANSWERS |
CALIFORNIA INSURANCE LICENSE | BUSINESS INSURANCE
COVERAGES
What is a risk pool? - CORRECT ANSWERS-1. A risk pool is a sharing and spreading of risk
between insurers and re-insurers.
2. Formed risk pools are syndicates of insurance or reinsurance companies that have organized to
underwrite a particular risk or group of similar risks.
Explain the law of large numbers. - CORRECT ANSWERS-1. A mathematical premise which
states that the degree of uncertainty is reduces as the number of events increase.
2. Insurance relies on the forecasts of loss certainty in a large group of similar risks.
3. Enough risks must be priced in such a way as to ensure that sufficient capital enters the pool of funds
to accommodate what is being drawn out to pay for claims.
Define adverse selection. - CORRECT ANSWERS-1. Describes the process by which potential
policyholders use their private knowledge of their own high level of risk when deciding whether or not
to buy insurance.
2. High-risk individuals will try to buy lots of insurance and pay a comparatively high rate of premium if
they are allowed.
3. Low-risk clients might not buy any insurance because the price is too high.
In insurance, what is a tail? - CORRECT ANSWERS-1. Refers to the amount of time between an
incident and the determination of the claim.
2. Short-tail lines are those where the injury becomes known quite quickly.
,3. Long-tail lines are those which a claim may be separated from the circumstances that caused it by as
many as 10, 15, 20 years or more. Many product liability lines have long-tail exposures.
Name TWO concerns of Ontario automobile excess reinsurers that relate to the effects of long-tail
liabilities. - CORRECT ANSWERS-1. Severe Injuries.
2. Long-tail trends for prior accident years.
3. Inadequate reserving at the primary insurance level
-Primary insurance companies rely on reinsurers to back stop auto coverage particularly for catastrophic
claims that end up costing over 1M.
-As of recent times there have been relatively light catastrophic events which led to minor rate increase
for reinsurance catastrophe treaties.
-Claims from two to five million have reinsurance layers. There has been a general increase in the
number of claims exceeding thresholds such as 2M-5M over the past 10 years.
-Predicting long tail pricing because it is difficult to accurately predict the outcome of claims that have
not yet occurred and will remain open for years before the final settlement is reached
-Reinsurers have seen patterns of very late reporting of catastrophic injury claims by insurers and after
being recognized and reported, they continue to develop adversely for years
List three ways that insurance benefits society. - CORRECT ANSWERS--Insurance provides a
certain freedom of action, encouraging activities to flourish in industries, commerce, organizations and
families
-Insurance industry facilitates growth but depends on growth of the economy
, -Insurance may facilitate borrowing towards the purchase of a home, car or cottage (an asset)
-Insurance industry contributes to the economy by providing employment to thousands of Canadians
-Insurance companies hold large investment holdings, such as investments to help finance governments
and businesses.
-Risk exposures are escalating. As the planet becomes more crowded, weather becomes more erratic,
values become more concentrated, technologies become more advances and our societies become more
litigious
-Money paid to indemnify people and fix property and bodily injury boosts the economy
Why is there a need for residual market mechanisms? - CORRECT ANSWERS--Residual market
mechanisms are established by the auto mobile insurance industry to provide a last resort insurance
facility for consumers. Not-for-profit Facility Association (FA)
-Quebec operates it's residual independently
-This ensures that insurance coverage is available even to those who are considered to be high risk and
unattractive to mainstream insurers
-Every insurer licensed to write auto liability insurance in FA industries is required to be a member of the
organization and to follow rules set by the board of directors regarding scope of coverage, terms and
standards of coverage provided
-The FA does not issue insurance policies, instead it designates certain companies to provide specific
services and this includes claim handling
In property and casualty insurance, what are the two traditional methods of distribution and how do
they differ? - CORRECT ANSWERS-1. Independent broker/agents:
