CIP chapter 1-5 quiz PDF

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CIP120 – Underwriting Essentials Q&As – Chapter 1 – 3 inclusive 1. An underwriter is best described as a professional? Who invests shareholder’s capital by accepting or rejecting risk to implement an insurer’s strategic plan. 2. Concerning the tools of an underwriter, the knowledge needed includes a. The environment b. The product c. The risk d. All of the above 3. Which of the following is an indication of the moral hazard of a risk? a. Poor financial condition 4. Bottomry is best described as a. A loan extended to the owner of goods or ships in transit between ports 5. Reinsurance is used to a. Transfer part of an insurer’s risk 6. Giving brokers the PEN means a. Permitting brokers to underwrite within specified limits 7. Concerning insurance contracts, the insured is regarded as the a. Second party 8. Pure risk exists when a. There is only a chance for loss 9. Manuscript wordings a. Are used when a unique coverage is required for a particular risk 10. Concerning contract law, consideration is a. Money or a thing of value given by one party in exchange for an act or promise of the other party 11. The parties to an insurance contract are identified in the a. Declarations 12. Concerning policy wordings, the concept of “contra Proferentum” indicates that a. Coverage ambiguity will be decided in favour of the insured 13. To indemnify means to a. Return someone after a loss to the same financial position enjoyed immediately before the loss 14. Concerning the underwriting process, when the applicant is a corporation a. The people in charge of the corporation should be investigated 15. Where a mortgage exists on a property, the mortgagee a. Has an interest in the property as security for a debt 16. When an insurance applicant’s name appears in the database of the investigative services division of IBC a. It may suggest suspicion of criminal activity 17. When marketing a risk, an insurance broker is said to be blocking the market when

CIP120 – Underwriting Essentials Q&As – Chapter 1 – 3 inclusive a. Approaching a number of insurers for quotes, thus preventing competing brokers from obtaining quotes from the same insurers 18. When underwriting a new risk a. All denied claims should be investigated

NARRATIVE QUESTIONS 1. Define the term underwriter. (3 marks) An underwriter is an insurance professional employed to accept or reject risk on behalf of an insurer 2. In terms of capacity, list the criteria that amounts of insurance are determined by. (3 marks) 1. The occupancy of the risk. 2. The level of public fire protection 3. The type of construction 3. What are the 2 common elements of risk? (2 marks) Pure risk and speculative risk which is insurable risk. 4. Explain the concept of “Contra Proferentum”. (2 marks) A legal term that provides that any ambiguity in a contract must be interpreted against the person who drew the contract because she had the opportunity to make it clear. 5. What are the five elements of a contract? (5 marks) Agreement, capacity of parties to contract, consideration, genuine intention, legality of object. 6. What is insurable interest? Why is it required in an insurance agreement? (5 marks) The applicant has an insurable interest in the object of the insurance when there are damages or losses would cause a financial loss or other hardships. Because insurance exists to protect people against the risk of loss by promising to indemnify them should a loss occur and insurable interest is to prevent antisocial behaviour. Without it, insurance could become not merely a way to transfer risk but a way to profit from some else’s loss. 7. Why is unemployment on a personal lines policy an indication of a potential moral hazard? (2 marks) At best, she may be unable to pay the premium. At worst, the unemployed applicant might deliberately cause a loss for the cash she might receive to settle the claim. 19. Expert systems are best suited for assessing Smaller, more homogenous risks 20. The acronym COPE stands for a. Construction, Occupancy, Protection, Exposure 21. Tenants legal liability is required to protect a. Tenants against his or her liability for damages caused by an insured peril to the premises he or she occupies 22. Concerning commercial property risks, coverage against loss of revenue caused by physical damage can be obtained through a. Business interruption insurance 23. Concerning the underwriting of property insurance, use of an expert system a. Is most beneficial when underwriting smaller homogenous risks

CIP120 – Underwriting Essentials Q&As – Chapter 1 – 3 inclusive

24. Concerning building occupancy, which of the following would be considered to be a special hazard? a. Welding equipment found in an automobile repair garage 25. The likelihood of damage to a building as a result of hazards in nearby buildings is considered to be its a. Exposure 26. Three ways civil law may impose liability are through a. Negligence, nuisance, and breach of contract 27. A person who enters the premises with permission when the occupier has a financial interest in that person’s presence is considered to be a(n) a. Invitee 28. A hold harmless clause is used to a. Transfer liability from where it would normally lie, to someone else 29. The personal umbrella policy will pay for damages that exceed the limit of the a. Underlying policy 30. Concerning negligence, the ABC rule requires that the following be established a. That a duty of care exists, that the duty was breached and that the breach caused the damage 31. An insurer will generally not issue a personal umbrella policy if the primary policy is underwritten by another insurer because a. The umbrella insurer would have little ability to have the insured reduce liability exposures

NARRATIVE QUESTIONS

8. What three things must be present before a third party’s injury or loss can become a loss under a liability policy? (3 marks) An intentional act A negligent act A failure to act 1 ）The third party must consider the injury or loss serious enough to pursue a grievance; 2 ）The grievance must be difficult enough to resolve that the parties to the lawsuit are unable to settle it out of court; 3 ）The resulting trial must end in favour of the third party.

9. What are the two systems of civil law in Canada? (2 marks) The common law and the civil code just for Quebec. 10. What are the three ways that civil law may impose liability? (3 marks) breach of contract ，negligence， nuisance

11. Concerning negligence, the ABC rule requires what three things need to be established? (3 marks) A stands for a duty of care. B stands for breach the duty of care

CIP120 – Underwriting Essentials Q&As – Chapter 1 – 3 inclusive C stands for a causal relationship between the breach and the damage.

12. What are the two widely underwritten types of liability exposures? (2 marks) Premises liability Product liability 13. An occupier owes the lowest duty of care to whom? (1 mark) trespasser 14. What are the two most crucial areas of premises liability? (2 marks) Occupancies, maintenance and housekeeping 15. What does the acronym COPE stand for? (4 marks) COPE —An acronym that stands for the four property risk characteristics an underwriter reviews when evaluating a submission for property insurance:  Construction (e.g., frame, masonry, masonry veneer, superior construction, mixed masonry/frame);  Occupancy how the building is being used for commercial property and whether it is owner-occupant or renter-occupied for homeowners and the number of families for which the building is designed);  Protection (e.g., quality of the responding fire department including whether it is paid or volunteer, adequacy of water pressure and water supply in the community, distance of the structure to the nearest fire station, quality of the fire hydrant, and the distance of the structure to the nearest hydrant); and  Exposure risks of loss posed by neighboring property or the surrounding area, taking into consideration what is located near the property, such as an office building, a subdivision, or a fireworks factory).

16. Using COPE, explain how and underwriter would assess a homeowner’s risk or commercial risk. (20 marks)

CIP120 – Underwriting Essentials Q&As – Chapter 1 – 3 inclusive

17. With respect to personal umbrella coverage, what are the three main benefits in addition to those available on the primary policy? (3 marks) Limits of insurance in excess of those in the primary policy Drop-down coverage to cover certain exposures that the primary policy does not Territorial limits wider than those in the primary policy 18. Describe the information that an underwriter might find in a line guide. (10 marks) Licensing: where the insurer is licensed to accept business; Types of business: the market the insurer wants to deal with and seeks that kind of business; Lines of insurance: it specified the lines of business that an insurer can offer, which list on the insurer’s licence; Territory: in which a risk is located and the employer considers acceptable or desirable. Capacity: how much capital is available for underwriting policies; Reinsurance: the amount of discretion an insurer allows an underwriter over the reinsurance. Generally, there are 3 polices: 1. Judge the business by underwriters; 2.approach the head office; 3. approach the head office if the amount of a reinsurance exceeds the amount agreed. Pricing: an underwriter accepts risk on behalf of an insurer in exchange for premium. Some insurers have elaborate rating manuals that fix rates for various classes of business and others have recommended rates.

CIP120 – Underwriting Essentials Q&As – Chapter 1 – 3 inclusive 19. Through the use of examples, explain why moral hazards are considered more subjective than physical hazards. (6 marks)

20. “The insurance mechanism is impossible without underwriting.” Explain what is meant by this quote, using a definition of underwriter. (4 marks) An insurer assumes a risk on behalf of an insured for a premium. To survive and make a profit, the insurer must seek insureds that pose acceptable risks of loss but avoid insureds that pose unacceptable risks of loss. Underwriting is a process of accepting or rejecting a risk on behalf of insurer, which also helps in deciding the appropriate premium for an insured. 21. Briefly explain why it is important for an underwriter to understand the coverage being sold. (4 marks) 22. Compare and contrast insurance contracts to other types of contract. (8 marks) Insurance contracts have 2 unique features compared with other types of contract: 1. insurable interest: an insurance applicants must have an insurable interest in the object of the insurance. The applicant has an insurable interest in the object of the insurance when there are damages or losses would cause a financial loss or other hardships; 2. indemnity: the principle of indemnity is to place the insured back in the same financial position that they were before a loss. the amount of indemnity subjects to the amount of insurance, specific limits on certain items, deductible and coinsurance; 3. utmost good faith: a legal principle calling for the highest standard of integrity on the part of the insured and the insurer.

23. Using an ex. ample, explain frequency of loss and severity of loss (8 marks)...