Chapter 2 Flashcards
Which of the following can a domestic insurer without foreign influence do?
Develop its own strategy. Rationale: A domestic insurer without a foreign parent does not have to worry about the parent restricting
its subsidiary’s writing in a particular class of business. It has more control over its direction, can make its
own decisions, and can develop its own strategy without interference.
For which of the following reasons do policyholders avoid reporting claims when they should?
All of the above.
Rationale: Policyholders sometimes do not report claims because they are afraid that their rates will go up
or that they may be dropped by their insurer if they make too many claims.
Which of the following is not a type of alternative risk financing?
Managing general agency
Rationale: The common vehicles used in Canada for alternative risk transfer include captive insurance
companies, self-insured retentions, and reciprocal insurance exchanges. A managing general agent is a
type of insurance agent or broker that has underwriting authority.
From an underwriting perspective, which of the following is a primary focus for Public Safety Canada?
Emergency management
Rationale: The most important of Public Safety Canada’s programs from an underwriting perspective is
the emergency management program. Many factors can cause emergencies, such as natural disasters,
industrial accidents, terrorism, and computer viruses. Public Safety Canada works to reduce their impact.
What is the Canadian Standards Association responsible for?
Setting standards and codes indicating acceptable levels of safety, quality, and
performance
Rationale: CSA Group develops standards and codes indicating acceptable levels of safety, quality, and
performance for a wide range of products used in industry and by consumers.
Reducing avoidable death and injury by promoting safety in traffic, at home, or in the
workplace. Rationale: The Canadian Highway Safety Council, the National Safety League of Canada, and the
Canadian Industrial Safety Association merged to form the Canada Safety Council (CSC). Its primary
objective is to reduce avoidable death, injury, and damage by recognizing problems and promoting safety
in traffic, at home, or in the workplace.
Which of the following addresses concerns about accountability and consent regarding private
information?
Personal Information Protection and Electronic Documents Act
Which of the following does environmental legislation not rely on to assign responsibility for pollution?
Negligence
What is the time during which the insured may take legal action against an insurer called?
Limitation period
Rationale: The time during which an insured may take legal action against an insurer for an act or
omission of the insurer is called a limitation period
When parties to a dispute agree to suspend the limitation period while negotiating, what are these
understandings called?
Tolling agreements
List five developments within the insurance industry that influence an insurer? (5 marks)
Answers:
1. Developments in the insurance industry that influence an insurer (any five of the following):
Competition
Mergers and acquisitions
Market dislocation
Development of prior accident-year reserves
Claim frequencies
Unexpected events
Profitability and investments
Financial strength and rating agencies
Product innovation
The alternative market
The employment environment
Reinsurance
List and describe three vehicles for alternative risk financing. (5 marks)
Vehicles for alternative risk financing (any five of the following):
Captive insurance company (captive)
o An insurer owned and controlled by its insured or insureds. A captive is usually a specialpurpose subsidiary created to insure the risks of its parent organization or organizations.
Self-insured retention (SIR)
o The amount of a potential loss that is not covered by the insurance purchased by the insured
from the insurer. While a deductible reduces the amount of an insurer’s payment to or on behalf
of an insured in settlement of a loss and the insurer remains responsible for adjusting the claim,
an insurer is not involved in losses that fall within a SIR.
Reciprocal insurance exchange (reciprocal)
o A means of risk financing in which a number of subscribing organizations together appoint a
central underwriter as attorney-in-fact to share their costs of risk financing.
Describe five of the major legislative and judicial influences on insurers. (5 marks)
Environmental legislation
o The impact of environmental legislation on insurers can be difficult to predict and costs are
involved in determining whether coverage exists for environmental losses. With so many
uncertainties, environmental legislation and litigation are significant potential sources of
exposure for insurers.
Limitation periods
o The time during which an insured may take legal action against an insurer for an act or omission
of the insurer
Class actions
o Brought against another party by a group of people (the plaintiffs) with comparable claims
against that party (the defendant). Organizations that need to defend themselves against a
class action will normally call on their insurers to help them do so.
Judicial decisions
o Decisions arising from lawsuits will always have an influence on an underwriting department
and must be tracked closely.
Facility Association
o The Facility Association provides automobile insurance for owners and operators of motor
vehicles who may otherwise have difficulty obtaining such insurance through a regular market.
. List five Canadian organizations
Canadian Industry groups associated with the insurance industry (any five of the following):
Public Safety Canada
Canadian Standards Association
Council of Canadian Fire Marshals and Fire Commissioners
Canada Safety Council
Canadian Boiler and Machinery Underwriters’ Association
Insurance Institute for Highway Safety
What are the
responsibilities of Public Safety Canada? (5 marks)
Responsibilities of Public Safety Canada:
National security
Emergency management
Countering crime
Border strategies
Impaired driving
