Mid Term Flashcards
Which of the following distinguishes pure risk from speculative risk?
b. Speculative risk is insurable, while pure risk is not.
Pure risk involves only loss potential, while speculative risk involves the chance of profit.
Which scenario best illustrates an example of pure risk?
b. Owning a car that may incur damage from a collision.
Pure risk scenarios typically involve situations that can result in loss without the potential for profit.
Which of the following events is considered an insurable peril?
b. Fire damage to a residential property.
Insurable perils are events that can be covered by insurance policies.
Fill in the blank: Pure risk involves the possibility of _______.
loss only.
Fill in the blank: Speculative risk involves the possibility of both _______ and _______.
loss, profit.
True or False: Pure risk is insurable because it only has loss potential.
True.
True or False: Economic recession causing market losses is considered an insurable peril.
False.
Which type of risk includes scenarios like investing in a startup?
Speculative risk.
Speculative risks involve situations where there is a chance of profit or loss.
Which federal agency is primarily responsible for supervising insurance companies and ensuring their financial soundness in Canada?
Office of the Superintendent of Financial Institutions (OSFI)
OSFI is the main regulatory authority overseeing insurance companies in Canada.
What does the order of commencement issued by the superintendent signify?
The company is officially approved to commence and carry on business, with specified classes of insurance it may underwrite.
This indicates regulatory approval for the company to operate in the insurance market.
Which legislation generally deals with registration and licensing of motor vehicles, licensing drivers, and traffic control of vehicles on highways?
The Highway Traffic Act
This act provides the framework for regulating road traffic and vehicle operation.
Statutory conditions applying to accident and sickness, automobile, and fire insurance policies are designed primarily to:
Standardized conditions that provide insureds with a consistent approach to claims settlement by establishing certain rights and obligations from both the insured and insurer.
These conditions ensure fairness and clarity in the claims process.
What must foreign insurance companies do to write business in Canada?
Comply with the same requirements as Canadian insurers and obtain an order from the superintendent approving the types of risks they may insure.
Foreign insurance companies in Canada operate under what regulation?
Provincial regulation without any federal oversight.
What is required for foreign insurance companies to register in Canada?
Register with the local chamber of commerce.
What exemption do foreign insurance companies from G7 countries have in Canada?
Exempt from capitalization and reserve requirements.
What does the Personal Information Protection and Electronic Documents Act (PIPEDA) protect?
The collection, use, and disclosure of personal information, ensuring that such data is kept confidential and used only for its intended purpose.
A claims adjuster mistakenly emails a client’s personal details to an unauthorized recipient. This incident is an example of what?
A privacy breach.
Fill in the blank: PIPEDA ensures that personal information is kept _______.
confidential.
True or False: Foreign insurance companies in Canada are subject to federal oversight.
False.
What type of approval do foreign insurers need to insure specific risks in Canada?
An order from the superintendent.
Which type of reinsurance involves a proportional sharing of both the premiums and the losses?
Proportional (pro rata) reinsurance.
What is an appropriate response step when a privacy breach occurs?
Identify and contain the breach, assess the risks, notify affected parties as required, and implement measures to prevent future incidents.
Which legal framework governs the terms of insurance contracts in Quebec?
General conditions under The Civil Code of Québec.
Under common law, which of the following is NOT a required element for forming a valid contract?
A unilateral mistake by one party.
What are the requirements for a valid contract in the Civil Code of Quebec?
A valid contract must have a Cause, Consent, and Capacity to contract.
It does not require consideration expressed in monetary terms.
What does the requirement of insurable interest in an insurance contract mean?
The insured must have a legal or financial relationship with the property such that its loss would cause economic harm.
Ownership of the property is not required in every case.
How does the insurer calculate indemnity based on the actual cash value (ACV) method?
The insurer pays the replacement cost minus depreciation for wear and tear.
What does ‘like, kind, and quality’ (LKO) mean in a replacement cost policy?
The damaged property is replaced with property that is similar in type, condition, and quality, even if it is used.
What is the purpose of salvage in an insurance claim?
To enable the insurer to reduce loss when part of the damaged property was not completely destroyed.
What does subrogation in an insurance contract permit the insurer to do?
Assume the insured’s legal rights to recover costs from a third party responsible for the loss after indemnifying the insured.
What does the principle of contribution in insurance ensure?
Insurers covering the same risk share the loss on a proportional basis so that the insured does not profit by claiming from more than one policy.
What is required by utmost good faith (uberrimae fidei) in an insurance contract?
Both parties are obligated to disclose all material facts that might affect the risk evaluation, premium determination, or policy terms.
Which scenario best illustrates non-disclosure in an insurance application?
An applicant intentionally misrepresenting that their home is constructed of brick when it is in fact brick composite to impress the insurance agent.
What is the primary function of an insurance policy?
It evidences the contract between the insurer and the insured, clearly stating the coverage, terms, and conditions.
A certificate of insurance is best described as?
A temporary document binding coverage until the formal policy is issued.
Which statement best distinguishes a binder from a cover note?
A binder is a temporary memorandum to insure a risk pending formal policy issuance, whereas a cover note is issued by a broker or agent to notify the insured of the insurance protection provided.
What information is included in the insuring agreements section of an insurance policy?
A description of the property covered, the subject matter of insurance.
The insuring agreements section outlines the essential coverage details of the insurance policy.
Which of the following statements about the assignment of insurance contracts is correct?
An insurance contract is a personal contract that generally cannot be assigned to another party without the insurer’s consent, except for the assignment of claim proceeds.
This highlights the personal nature of insurance contracts and the need for insurer approval for assignments.
What best describes the difference between treaty reinsurance and facultative reinsurance?
Treaty reinsurance covers class of risks automatically under a binding agreement, whereas facultative reinsurance is negotiated individually for each risk.
This distinction is critical for understanding how different types of reinsurance operate.
In non-proportional (excess of loss) reinsurance, how is a loss typically shared between the insurer and the reinsurer?
The insurer pays all losses up to a predetermined amount (the priority), and the reinsurer pays the portion of the loss that exceeds that amount, up to an agreed limit.
This structure allows insurers to manage risk exposure effectively.
Coverage summery section in an insurance policy includes:
The names and address on the insured and insurer.
Effective date end date and term.
Premium deductible and insured amounts.
While policies differ a. Riding to coverage what are the five main sections:
Coverage summery, insuring agreements, stat conditions/Quebec general conditions, policy conditions and signature clause.
Pro rate cancellation in the context of terminating an insurance policy refers to:
Cancelling the policy with a refund that is proportional to the unused portion of the premium.
How do insurers typically handle the renewal of insurance contracts?
By sending renewal receipts or certificates to summarize the essential details of the insurance.
Types of Insurance Providers
Stock companies
Mutuals - stock and factory
Governments of Insurers
Captive insurance companies
Lloyds insurance market
How do stock market companies differ from mutual insurance companies in managing profits and losses?
Stock company distribute profits as dividends to shareholders and use subscribed capital for deficits whereas muts share profits amount policy holders.
What is the purpose of reinsurance for an insurer
To transfer part of its rush to another insurer, thereby increasing capacity maintaining reversed balances and smoothing financial results.
What is an insurance peril?
Fire damage to a residential property.
Give an example of a physical hazard.
Slippery floors in a commercial building
What is the meaning of proximate cause
The cause that in a natural continuous and unbroken chain. Produced and event that would otherwise not have occurred.
What is the agents primary role.
Represent one insurer by helping arrange insurance between the insurer and the prospective insureds.
What is an agents primary role?
Represent one insurer by helping arrange insurance contract between the insurer and prospective r insureds.
What is a public adjuster?
A staff adjuster who works directly with the insurance company to settle claims.
What is a product offered under general insurance?
Property and casualty insurance.
