Practice Exam Flashcards
Define Fire Resistant
The building can withstand a minimum number of hours in a controlled test fire
Define Non-Combustable
All structural members (i.e. floors, roofs and supports) are constructed out of non combustible materials (i.e. steel, iron and concrete)
Define Common Hazard
Conditions common to all buildings which influence their loss potential
Define Detatchment
Proximity of your insured building to other commercial buildings
Define Risk Classification
Classifying risk according to their probability of loss
Define Soft Market
Hard competition between insurers, rates low, high interest rates
Define Hard Market
Low profit margins kill competition, strict underwriting, no discounts
Define Tenants Improvements
Improvements made by insured, that is not otherwise insured, if the insured is not the owner of the building
Define Condition
A requirement for the insurer to do or not do something
Define Subrogation
Right of the insurer to “step into the shoes” of the insured and sue the responsible party
Define Material Fact
A fact that if the insurer found out, would cause them to either decline to insure or charge a higher premium
Define Fraudulent
Wilfully acting to deceive or cheat
Define Loading
Additional premium charged on top of the fire rate
Define Centrifugal Force
Inertia that tends to move an object away from the centre around which it revolves
Define Mechanical Breakdown
Failure in the working mechanism of the machinery
Define Electrical Breakdown
Failure in the electrical mechanism
Define Trade Losses
Types of losses expected as part of the operations of a business
Define Wear and Tear
Deterioration in value by ordinary and reasonable use
Define Latent Defect
Hidden defect that would not be discovered by reasonable inspection
Define Media
Devices that store data (CD, DVDS, hard drives, etc.)
Define Data
Information stored on media
Define Bailee for Hire
Has custody of property of others for purpose other than sale and are compensated
Define Ordinary Care
Legal duty of bailee to exercise the same care as a prudent and diligent owner
Define Common Carrier
They furnish transportation to all members of the public
Define Contract Carrier
Someone that carries for pay goods of certain customers
Define Private Carriers
Hauls their own goods or goods entrusted to them as bailees. Including shippers who own or lease their vehicles
Define Catastrophic Limit
Max amount an insurer will pay for in one disaster
Define Physical Protection
Physical barriers to restrict unauthorized access
Define Electronic Protection
Electronic barriers to restrict unauthorized access
Define Line Security
Ability of a phone line to withstand tampering
Define Securities
Instruments or contracts representing money or other property (includes stamps)
Define Robbery
Taking of insured property from a custodian by a person who has:
i) Caused or threatened to cause custodian bodily harm
ii) Committed an unlawful act witnessed by a custodian
iii) Taken property from a custodian killed or rendered unconscious
Define Custodian
Insured, partner or any employee authorized to have care/custody of insured property
Define Fixed Expenses
Expenses that continue during the period of interruption
Define Semi-variable experiences
Expenses that may or may not continue during the period of interruption
Define Gross Profits
Net profit + insured standing charges
Define Net Profit
Gross profit - all expenses
Define Ordinary Payroll Expenses
Payroll expenses for all employees insured except officers and executives, managers, and contract employees not stopped if the business is interrupted
Define Contributing Properties
Major supplier (manufacturer or supplier that the insured depends on for goods)
Define Recipient Properties
Major customer (customers who the insured depends on to purchase products)
What are magnet properties and give some examples.
Businesses that attract a large number of customers to the area (major retail chains).
What is considered a newly acquired location and how are they covered?
Location acquired by the insured (covered for 30 days from acquisition)
What are 2 common characteristics of business interruption insurance?
a) Insures the same perils as the commercial policy
b) Indemnity may continue beyond policy expiry
c) Are contracts of indemnity
d) Pays for expenses necessary to reduce further loss
What are 3 ways for a client to insure their property while in transit?
a) Transportation floater - broad form
b) Transportation floater - limited form
c) Motor cargo rider: for an insured who carries his own goods
d) Trip transit coverage: covers a single trip
Your client’s business has been doing well for the last few years and is planning to hire on a lot more staff. To accommodate these extra people, your client is planning to move to a larger office. He mentions to you that he is worried about his computers being damaged during the trip to the new location. Which insurance would you recommend to him?
Trip transit coverage
What is the definition of warranty?
A guarantee that certain facts are true and shall remain true.
What is the difference between an endorsement and a rider?
a) Endorsement: changes terms of the policy
b) Rider: adds additional coverage
What is it called when an underwriter selects those applicants that are most likely to suffer loss?
Adverse Selection
What is a hazard and what are the 3 types? Define them.
a) Hazard = a condition that may cause a peril to occur
b) Physical hazard: a condition relating to use of tangible property that may cause peril to occur
c) Moral hazard: characteristics of the applicant that may cause a peril to occur
d) Morale hazard: attitude of the client
What are the 2 general ways property can be covered? Explain them.
a) Scheduled coverage: covers only property specifically identified
b) All property: insures building, stock or equipment under a single limit of insurance
What is supporting business?
a Good business (risks) that a broker gives to an insurer. The insurer will take this into consideration to support a broker’s bid to insure a substandard risk.
What is accommodation business?
Accommodation business is normally substandard risk that the insurer decides to insure because of their positive relationship with the broker (ie. they have good supporting business).
Please explain straight line depreciation in the context of ACV
Straight line depreciation assumes that depreciation happens at a constant rate (in a linear fashion).
What is the main difference between actual cash value and replacement value?
Replacement value doesn’t take depreciation into account
Please explain plateau accelerated depreciation in the context of ACV
This method of calculation assumes that the rate of depreciation is greatest in the first few years before eventually tapering off.
What is the income method of calculating values and for what type(s) of property is it typically used?
Income times cap rate. This method is typically used for dilapidated income properties
What is the main difference between reinsurance and a subscription policy?
Reinsurance = the insurer cedes part of the risk to other insurers. The original insurer is the lead insurer handling policy and claims.
Subscription = a group of insurers agreed to participate in an insurance coverage
What does the extra expenses endorsement do and provide some examples of what it would cover?
The insurer will pay extra expenses needed to continue the business after a loss.
Covers: overtime salaries, renting a temporary premise, installing phones.
When will an insurer pay expediting expenses?
When the expenses reduce the overall cost of the claim for the insurer.
There are 3 ways property may be valued in the insurance context, which of the following methods entails: repair or replacement of lost or damaged property less the application of any depreciation?
Actual Cash Value
When a building is over 25 years old, an insurer will typically ask for additional information about these 5 things.
Roof
Wiring
Breakers
Plumbing
Heating
Your client Bob is an electrician. He was paid $15,000 to do a wiring job for a retail store under construction. 5 months after the job was done, some part of the wiring malfunctioned due to an error one of Bob’s employees made during installation. This caused a fire that damaged the building. In this situation, what would the insurer be prepared to pay for? What would the insurer not pay for?
The damages to the building would be covered. The cost to re-wire the building would not be covered. (Faulty workmanship is usually not covered, however, resulting damage is.)
What are 3 characteristics of a reinsurance policy?
a) All participants share losses and premiums
b) It is a contract between an insurer and their reinsurers
c) Controlled and claims paid by primary insurer
When is a subscription policy used?
a) When that line of business isn’t covered under a reinsurance treaty
b) To protect reinsurers from the risk
c) The per-claim limit is too big to absorb in 1 loss (rmbr: the lead insurer pays the claim first in reinsurance)
d) A broker wants to spread a good risk among markets (keep their insurer’s happy see: accommodation business)
Why is a reinsurance policy typically preferable over a subscription policy?
Subscription policies are negotiated separately with each participating insurer
What parties cannot be subrogated against?
A named insured or insureds partner
What are the bills of lading and explain them.
a) Standard bill of lading: used to reflect the amount a common carrier would be liable for under tariffs
b) Valued bill: requested by the owner when the value of goods exceeds the standard bill’s value
c) Released bill: release a carrier from any liability
What are the types of protection and describe them.
a) Perimeter protection: methods to secure access to premises when business is closed
b) Area protection: protects areas within the building where valuable property is stored
c) Point protection: protects individual items (i.e. safes, vaults, chests, expensive equipment)
Briefly explain the coverages provided by burglary insurance.
Unlawful taking of property by a person unlawfully entering or leaving the premises leaving evidence of forced entry
Identify the 3 exposures insured by bylaws endorsement
a) Increased cost of construction
b) Loss of value in the undamaged portion of the building
c) Cost of demolition of undamaged portion and debris removal
All of the following is true about Equipment Breakdown insurance except one, pick it out:
a) Excludes coverage for losses to boilers and machinery
b) Insurer can suspend coverage on any object found to be in dangerous condition or poorly maintained
c) Insures objects against accidents
d) Limits apply to each accident
A
What obligation, if any, is placed on the broker by the presence of the by-laws exclusion in most commercial property policies?
The broker should ask the client if they know of any by-laws that might increase costs of reinstating property after an insured loss
List 3 reasons why insurers may exclude certain perils and property items
a) Losses that are considered uninsurable (ie. war or nuclear energy)
b) Exclude losses that have potential to become catastrophic (ie. flood or earthquake)
c) Exclude losses covered by more specialized coverage forms (ie. automobile or plane)
In Canada, the Insurance Act requires that every policy covering fire also cover…
Lighting & explosion of natural, coal or manufactured gas
Which of the following methods are not used by common carriers to limit liability (there are more than 1)?
a) Appraised bill of lading
b) Standard bill of lading
c) Variable bill of lading
d) Released bill of lading
A & C
The insured is planning an advertising program to mail out brochures to customers with every order. Bobby had 5000 brochures that were delivered to his warehouse. Under what category would these brochures be covered under?
Stock
In crime insurance policies, there are different definitions related to the wrongful taking of insured property. Which term has the broadest meaning?
Theft
Other than physical damage to property, give 3 examples of sources of business interruption losses:
a) Failure of public utilities
b) Transportation related accidents
c) Physical damage to a neighbouring premises
d) Physical damage to major supplier or customer
e) Actions of civil authority
f) Strikes, employee, lockouts
What is the period of indemnity provided under the gross earnings endorsement form
Starts from time of loss until the reinstatement of damaged property
By-laws requiring a building be rebuilt after a loss should be discussed with clients. What are 2 types of changes which might be required by such by-laws?
a) Required use of improved construction materials
b) Installation of fire suppression systems
c) Installation of wheelchair ramps
d) Minimum/maximums of height and floor area
Discuss the coverage provided by the profits form as it relates to period of indemnity and due diligence and dispatch.
a) Period of indemnity: starts from time of loss and continues until income restored to pre-loss levels (as if the loss hasn’t occurred)
b) Due diligence and dispatch: Insured is required to do everything they reasonably can to ensure the physical damage is reinstated after a loss. As opposed to the gross earnings form where everyone involved must exercise due diligence and dispatch.
Name some advantages and disadvantages of a Package Policy Approach
Pro:
- Simplicity of Application Form
- Costs of insurance to consumer are determined on the spot
- coverages provide adequate protection for most small commercial businesses
- broad coverages provided eliminate many of the claims problems common to more limited policy forms
Cons:
- one size does not fit all
- no standard package policy forms
