Chapter 1

Question 1

What is Insurance

Answer 1

Means of managing risk

Undertaking by one person to indemnify another person against loss or liability for loss in respect of a certain risk/peril to which the object of the insurance may be exposed.

Question 2

Risk

Answer 2

Chance of financial loss to which an object of insurance is exposed

3 categories: Personal, property, liability

Question 3

What are the two types of Risks?

Answer 3

Two types of risk:

Speculative: Involves the possibility of either financial gain or financial loss - Not Insurable

Pure: Involves the chance of financial loss with no chance of financial gain - Insurable

Question 4

What are the 3 categories of risk

Answer 4

1. Personal risk
2. Property risk
3. Liability risk

Question 5

What are the 4 ways people can chose to deal with risk?

Answer 5

CART

Control - reduce frequency ie. alarm systems

Avoid - chance of loss eliminated ie. rent vs. own

Retention - pay for it themselves; deductible is a form of retention

Transfer - In exchange for a premium, insurance co. assumes financial responsibility for losses. “to spread the losses of the few among the many”.

Question 6

Contract

Answer 6

A contract is an agreement between two or more persons which:

Creates an obligation to do, or not do, a particular thing.

All contracts contain 5 elements which must be present for the contract to be enforceable at law.

Agreement

Consideration

Legality of Object

Legally able to contract

Genuine Intent

Question 7

What are the 5 elements of a contract?

Answer 7

1. Agreement - A meeting of the minds, an offer & an acceptance
2. Consideration - an exchange of something of value A return promise. An act performed. An agreement not to act.

3. Legality of object - must be legal & legally acquired

4. Legal capacity - minors, alcohol, mental capacity, trade names

5. Genuine Intention - no duress, concealment or fraud All Cool Ladies Love Golf

Question 8

An insurance contract requires 3 additional elements to be enforceable

Answer 8

Insurable Interest: Must own it, or have it legally (service or repair), held legally responsible to third party for bodily injury or property damage.

Utmost Good Faith Higher standard of honesty than needed of other contracts. complete honesty of parties critical to the contract.

Indemnity Ensures people receive the actual amount of their loss, no more and no less. value of insured property immediately prior to loss.

Question 9

Utmost Good Faith on each side?

Answer 9

Insurer:

must be able to rely on truthfulness of insured’s statements regarding: ICCR

• Information about the risk.
• Details of previous claims. -
• Cancellations. -
• Refusals of insurance.

Insured:

Terms of the contract clear/understandable

Claims handled promptly, fairly& without unnecessary delays in settlement.

Question 10

Role of Broker

Answer 10

Both agent of the insured & insurer:

Duties owed to Insured:

• Careful and prompt attention to their instructions. -
• Expert advice.
• Competitive pricing of products.

Duties owed to insurer: -

• Collection of premiums.
• Passing on relevant information obtained from insured.

Question 11

Status of Contract When Essential Element(s) Not Present

Answer 11

Void/Voidable

Void: A void contract, one which is unable in law to support purpose for which it was intended.

Voidable: One which is void as to the wrongdoer but not void as to the wronged party, unless he elects to so treat it.

Question 12

Insurance Binder

Answer 12

Broker committed insurer to provide a contract of insurance on subject matter.

• Can be oral (but should be confirmed immediately in writing) or
• Written

​Binder - contract details, same rules of insurance as contracts of insurance

Question 13

Binding Authority

Answer 13

Insurer’s Agency Agreement provides broker with authority and limits authority -

Extend of authority often stated in insurer’s rate manual -

broker exceeds authority & loss occurs - Broker’s E&O claim

Question 14

Types of losses Insured

Answer 14

Property policy - direct damages vs. indirect damages

Direct - actual damage caused to ppty from an inured peril (cause of the loss)

Indirect damages or losses:

• food in freezer when electrical motor fails,
• loss of rental income from apart.bldg after fire
• loss of profits to bus. after windstorm levels bldg

All risks vs. named perils (fire, lightening, smoke, falling objects)

Question 15

Measuring the amount of the loss: (AIL)

Lesser of:

Step 1: Determine ACV (actual cash value)

Step 2: Determine interest of insured

Step 3 Verification of limit of insurance provided by policy

Answer 15

policy will include a description of the method used to calculate the amt of indemnity to be paid in event of insured loss

Lesser of:

1. actual cash value of ppty at time of loss
2. interest of the insured in the ppty
3. lmt. of insurance provided by policy Actual cash value not provided in policy

Question 16

Actual Cash Value (ACV) (Step 1 in measuring the loss)

Answer 16

• new or replacement cost of ppty at time of loss less depreciation
  
  • new cost - quotes from 2 or 3 sources
  • Depn - condition of object/resale value/normal life expectancy
• Intrinsic value only - no sentimental value

Question 17

Replacement cost & Valued policies (Step 1 in measuring the loss AIL)

Answer 17

Replacement cost - provide replacement or repair with new ppty of like kind with no depn RC not available on articles which: - can’t be replaced (antique) -Not maintained in good working condition - no longer used for original purpose Valued policies- insurer & insured agree on value at time of policy issued - usually done by appraisal, need to update appraisal from time to time

Question 18

Verification of limit of insurance provided by policy (Step 3) in measuring the loss)

Answer 18

Adjuster confirms amt of ins. provided by policy Scheduled - ppty is itemized on policy Blanket - single lmt of ins. for all ppty in a specific category insurer always has the right to settle claim on basis of repair or replacement instead of payment of money

Question 19

The purpose of insurance

Answer 19

respond to losses which are both: - Accidental - Future Insurance not meant to respond to losses which are deliberate or already occurred.

Question 20

Role of Government in the Insurance Industry

Answer 20

regulated by federal and provincial statutes intent of these laws is to ensure that: a) Insurance Companies financially competent to discharge their obligations. b) Forms of contracts are drafted fairly. c) Business conducted to general benefit of public. Insurance is fiduciary in nature.

Question 21

Fiduciary

Answer 21

One who occupies a position of special trust or confidence in the handling or supervising of the affairs or funds of another.

Question 22

regulated by federal and provincial statutes

Answer 22

Federal: Monitors federally licensed insurance companies to ensure their solvency & financial stability. Provincial Government: Each province has a Superintendent of Insurance who administers the provincial Insurance Act. Main areas of responsibility concern: a) Supervising terms of conditions of insurance contracts. b) Licensing insurers, agents, brokers, and adjusters. c) Monitoring solvency of provincially licensed insurers.

Question 23

PACICC

Answer 23

Property and Casualty Insurance Compensation Corporation

bankruptcy occurs & claims can’t be paid, PACICC pays all claims.

All participating insurance co.’s charged assessment to cover total amt.of claims.

Amt of each insurer’s assessment based on total direct premiums written by it.

Amts that can be claimed under this plan: - Max of $250,000 for all claims arising from single occurrence.

• Refund up to 70% of unearned premiums to a max of $700 per policy.

Question 24

Insurance Act Standards for peril of fire

Answer 24

Four Standards: 1.Basic Coverages 2.Standard exclusions 3.Fire Statutory Conditions Legislated 4. Other Legislated rqmts.

Question 25

#1 of 4 Ins. Act Std: Basic Coverage Legislated - Fire

Answer 25

Must contain 3 coverages: 1. Fire (not a defined term) 2. Lightening 3. Explosion of Natural, coal or manufactured gas

Question 26

BCL - Fire (Must contain 3 coverages: 1. Fire (not a defined term) 2. Lightening 3. Explosion of Natural, coal or manufactured gas)

Answer 26

Fire not a defined term, courts apply popular meaning. -involves the presence of a visible flame or glow - actual ignition or burning is required Can be friendly or hostile Friendly fire - one contained in its proper receptacle ie. burning wood in a fire place Hostile fire - a fire that has passed outside the limits assigned to it. Spark from fire in fireplace is thrown onto the rug and burns rug - hostile fire.

Question 27

BCL - Fire What kinds of damages will legislated fire cover

Answer 27

hostile fire other losses regarded as fire losses: Damages that arise proximately - natural cause or continous sequence for the peril causing the loss -damage caused by water and extinguishing agents -physical damage to bldg caused by firefighters -damage resulting from other actions to prevent spread (water damage or demolition to adjacent bldgs.

Question 28

BCL - Lightening

Answer 28

Covers losses caused directly by lightning such as damage to chimneys, roofing, siding, etc

Question 29

BCL - Explosion of natural, coal or manufactured gas

Answer 29

Covers explosions caused by actual ignition. N o coverage for concussion types of explosions due to build- up of internal pressure in hot water heaters or boilers used for heating.

Question 30

#2 of 4 Ins. Act Std: Standard Exclusions

Answer 30

Two types of exclusions: Ppty and Losses: For which other more specialized coverage forms are available. ie. auto, aircraft etc Which are uninsurable eg. war, rebellion, revolution

Question 31

Losses Excluded under Fire policies

Answer 31

Losses Excluded under Fire Policies - include the following: - Loss or damage due to direct application of heat - Lightning damage to electrical devices \* - Other electrical currents - Contamination by radioactive material - Riot \* - Insurrection - Civil commotion \* - Rebellion - Invasion - Civil War - War - Hostilities - Act of foreign enemy - Military power \* not rqd. to provide but most policies today do cover

Question 32

#3 of 4 Ins. Act Std: 3.Fire Statutory Conditions Legislated

Answer 32

15 Statutory Conditions Misrepresentation - three forms \* \*false description of the property to the prejudice (disadvantage) of the insurer \* Misrepresentation of a material fact - a material fact is one which is deemed crucial in determining if policy will be issued at all, premium and or conditions \*Fraudulent omission of a material fact The onus to prove misrepresentation rests with the insurer - can only void policy if able to show the misrep was directly linked to the loss.

Question 33

#3 of 4 Ins. Act Std: 3.Fire Statutory Conditions Legislated

Answer 33

15 Statutory Conditions: 1). Misrepresentation 2). Property of others 3). Change of Interest 4). Material Change

Question 34

Statutory condition # 3 - Change of Interest

Answer 34

exceptions: - authorized assignment under bankruptcy act -change of title by succession - inheritance -change of title by operation of law (insured certified as mentally unfit -change of title by death

Question 35

Statutory condition # 4 - Material change (important to know)

Answer 35

Any change within the knowledge and control of the insured which: - Arises after policy issued, & - Serves to increase chance of loss. A material change is something which is both i) substantial and ii) continuing. When a material change is reported to the insurer, it may: a) Return the unearned premium and cancel the policy, or b) Retain the risk and advise the insured's in writing of the additional premium required

Question 36

Insurer wants off risk

Answer 36

15 days notice of termination sent by registered mail or 5 days written notice hand delivered

Question 37

15 Statitory Conditions of: Fire Accident & Sickness Automobile To ensure everyone plays fair

Answer 37