Study 3 The Application Process - MC Flashcards
What facts are considered material in nature?
A. All facts about the risk to be insured
B. Facts about the risk that would impact the terms offered
C. Facts that are disclosed by the client to the insurance provider
D. All facts required so that the risk can be properly assessed
Facts about the risk that would impact the terms offered
Rationale: Whether a particular fact in a given situation is material is a question that must be decided in
individual circumstances. Decisions are based on what the insurance company’s reaction would have
been had it known the truth: Would the premium it charged have been different, would the terms have
been different, or would it not have written the risk at all?
What is the name of the national association of property and casualty insurers and independent
insurance brokers who work together to achieve electronic business solutions for the insurance
industry, including the creation of industry-standard application forms?
A. Centre for Insurance Applications
B. Canadian Standard Insurance Organization
C. National Electronic Business Solutions
D. Centre for Study of Insurance Operations
Centre for Study of Insurance Operations
Rationale: The Centre for Study of Insurance Operations/Centre d’Étude de la Pratique d’Assurance
(CSIO/CEPA) is a national association of property and casualty insurers and independent insurance
brokers working together to achieve electronic business solutions for the insurance industry. One of its projects is the creation of industry-standard application forms.
Which of the following is a special class of loss payee that has a registered interest on real property offered as security for the money that the mortgagee has loaned the property owner?
A. Insured
B. Mortgagee
C. Named insured
D. Applicant
Mortgagee
Rationale: A mortgagee is a special class of loss payee. Mortgagees have a registered interest on real
property—that is, buildings or land—offered as security for the money that they have loaned the property
owner.
Why is the existence of multiple loss payees concerning to underwriters?
A. It can indicate poor cash flow, which can result in poor or delayed maintenance.
B. It becomes cumbersome to add too many lenders to the policy documents.
C. Underwriters can’t know the details of the relationship between the loss payees, resulting in too
many questions for the broker.
D. It indicates that the applicant has poor credit and is definitely a moral hazard.
It can indicate poor cash flow, which can result in poor or delayed maintenance.
Rationale: These underwriting concerns relate to possible financial instability and to the moral hazards
that could arise out of that instability: When cash flow is poor, the result could be poor or delayed
maintenance—and a property that is not well cared for.
Which of the following best defines the term “material fact”?
A. A fact that would affect a contract of insurance enough to influence an insurer’s decision
regarding whether to accept or reject the risk
B. A fact that would affect a contract of insurance enough to influence the time to issue the policy
documents
C. Any fact regarding the risk to be insured
D. A fact that would affect a contract of insurance enough to influence an insurer’s decision on the
payment options available to the client
fact that would affect a contract of insurance enough to influence an insurer’s decision regarding whether to accept or reject the risk
Rationale: A material fact would affect a contract of insurance enough to influence an insurer’s decision
regarding whether to accept or reject the risk and what premium should be set. Material facts must be
disclosed by the applicant if asked about.
Why is the initial information collected when qualifying clients including interests and hobbies useful?
A. The intermediary can then upsell and cross-sell insurance products, earning more commission.
B. It allows the intermediary to focus on physical items used that might need insurance.
C. It allows the intermediary to see if they have things in common.
D. The intermediary can access information that can be helpful when trying to uncover needs
unique to the client.
The intermediary can access information that can be helpful when trying to uncover needs unique to the client.
Rationale: The initial information collected helps the intermediary acquire information to analyze the
prospect’s needs, and qualify which insurers to approach. Some insurers may be eliminated right away
because they are not a good fit for the client, allowing for more focused consideration of the intermediary’s other markets.
Legally, knowledge of the intermediary is considered to be knowledge of which of the following people? A. Broker B. Insurer C. Adjuster D. Client
Insurer
Rationale: Legally, knowledge of the intermediary is considered to be knowledge of the insurer
What is “utmost good faith”?
A. A phrase in a legal document calling for the highest standards of integrity on the part of the
insured and the insurer
B. A legal principle that calls for perfect candor from the applicant only
C. A legal principle that applies to all contracts, including insurance contracts
D. A phrase in a legal document calling for the highest standards of integrity on the part of the
intermediary
A phrase in a legal document calling for the highest standards of integrity on the part of the insured and the insurer
Rationale: “Utmost good faith” is a phrase in a legal document calling for the highest standards of
integrity on the part of the insured and the insurer.
What is an insurer’s retention?
A. The maximum amount that the insurer can insure
B. The amount of premium required to pay for all expected losses during a calendar year
C. The insurer’s acquisition costs for a calendar year
D. The amount of exposure and premium that is passed on to the reinsurer on a proportional basis
The maximum amount that the insurer can insure
Rationale: Retention is the maximum amount that the insurer can insure.
Which one of the following is a valid reason for an underwriter to decline a risk?
A. The insurer writes that class of business.
B. The underwriter personally knows and does not like the applicant.
C. The risk is much more hazardous than the average risk.
D. The risk is standard.
The risk is much more hazardous than the average risk.
Rationale: Risks may be rejected for one of several reasons. The insurer may not insure that class of
business. The risk may be so much more hazardous than the average that the potential for loss is almost
certain. The risk may be substandard, and although the potential for improving or upgrading it exists, the
applicant is not prepared to carry out suggested improvements.
