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& CIP PROGRAM ]‘ '[ | EXAMINATION Insurance Institute JULY 2004 Canada C130 ESSENTIAL SKILLS FOR THE INSURANCE BROKER AND AGENT IMPORTANT The time allowed for this exam is 3 hours. Total marks: 200 You must hand in this paper and any paper used for rough work to the supervisor when you leave the examination room. Failure to do so may result in disqualification. Section A: Multiple-Choice Questions Question 1. For the following multiple-choice questions, fill in the circle of the letter that identifies the most correct answer. Example: ® ® @ © DO NOT MARK THE ANSWERS ON THESE PAGES. USE THE FIRST PAGE OF YOUR ANSWER BOOK. 1. Which of the following has traditionally been offered by insurance companies but is not actually insurance? (A) Fidelity bonds (B) Surety bonds (C) Workers compensation (D) Employment insurance Page 1 of 8

2. C130 ESSENTIAL SKILLS FOR THE INSURANCE BROKER AND AGENT CIP PROGRAM EXAMINATION JuLy 2004 Wholesale brokers are (A) employees who manage the insurer’s regional offices. (B) entrepreneurs that contract other agents or brokers to act as producers for an insurer. (C) government regulators who set the rules for licensing of agents and brokers in the province. (D) intermediaries that specialize in non-standard or difficult-to-place risks. When evaluating the client’s exposures, the broker must (A) monitor the insurer’'s progress in outstanding claims for the insured. (B) obtain the information necessary to identify the client’s potential losses. (C) determine whether the client meets the strategic marketing plan for the brokerage. (D) negotiate with the insurers to complete the instructions for placing insurance coverage as requested by the insured. A disadvantage of using wholesale brokers is that they (A) provide access to a greater number of insurers. (B) identify the insurance needs of a risk that may be overlooked by the average broker. (C) specialize in finding non-standard markets. (D) may be unlicensed and unregulated. The first step in the sales planning process is (A) projecting a sales forecast. (B) determining the target market. (C) contracting with insurance companies. (D) setting goals and objectives for each member of the sales team. When an underwriter asks a broker if the broker’s client would be interested in a quote for increased liability limits for his personal umbrella policy, the underwriter is (A) developing a referral. (B) up-selling. (C) cross-selling. (D) asking for an X-date. A legal obligation arising from bodily injury or property damage caused to a third party through an unintentional act of the insured, the insured’s children or pets, is known as (A) liability. (B) risk management. (C) a moral hazard. (D) a peril. Page 2 of 8

-3- C130 ESSENTIAL SKILLS FOR THE INSURANCE BROKER AND AGENT CIP PROGRAM EXAMINATION JuLy 2004 8. Which of the following is NOT considered an aspect when evaluating an insured’s loss 10. 11. 12. 13. exposures? (A) The peril that might cause the loss. (B) The amount of the financial loss the insured may suffer if he has a loss. (C) The subject of insurance exposed to loss. (D) The policy conditions attached to the coverage. A puddle of water at the entrance to a small grocery store is an example of a (A) physical hazard. (B) moral hazard. (C) direct hazard. (D) indirect hazard. Used in liability policies, a factual statement about the risk that must be communicated to the underwriter so the risk can be properly assessed, is known as a (A) misrepresentation condition. (B) representation condition. (C) legal liability disclosure. (D) common disclosure. Under the policy wording, the definition of “persons insured” (A) is limited to the names listed on the application for insurance. (B) can be more inclusive than the names listed on the policy only if they are indicated in the broker’s section of the application. (C) include all those who fall under the policy wording regardless of whether or not their names appear on the policy. (D) is anyone related to the insured who has legal capacity. Commercial insurance applications should be signed and dated by the applicant because (A) the application forms part of the policy. (B) it is required by provincial law. (C) it confirms that the statements made in the application are accurate and complete. (D) the policy is invalid without a signed application. A broker's legal capacity to confirm coverage for a homeowner’'s policy without first submitting an application and receiving the policy is known as (A) assessing the risk. (B) binding authority. (C) qualifying the risk. (D) point-of-sale delivery. Page 3 of 8

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-4- C130 ESSENTIAL SKILLS FOR THE INSURANCE BROKER AND AGENT CIP PROGRAM EXAMINATION 14. 15. 16. 17. 18. 19. JuLy 2004 Statutory Conditions or General Conditions govern a(n) (A) Excess liability policy. (B) Comprehensive Dishonesty, Disappearance and Destruction crime policy. (C) Building, Stock and Equipment Form. (D) Broker’s Errors and Omissions policy. Which of the following statements is true of deductibles? (A) Insureds may elect to pay large numbers of small claims themselves as a method of reducing premiums. (B) Deductibles are used as a loss preventive method. (C) Deductibles never apply to defence costs. (D) Insurers may insist on a maximum amount of a deductible. In the case of a total homeowner’s loss, the insured might be eligible for guaranteed replacement cost if the (A) insured added a solarium to the house six months ago without telling his insurer. (B) increased cost of replacement is because of a new by-law in the neighbourhood. (C) insured decides to take the value of the house in cash and build elsewhere. (D) property was insured at full replacement cost on the last renewal. The best coverage for an insured living in a co-operative with condominium by-laws is a (A) homeowner’s policy. (B) tenant’s package policy. (C) co-operative tenant’s policy. (D) condominium unit owner’s policy. In yacht policy wordings, coverage is usually restricted to (A) operation within the seven major oceans in the world and the harbours leading into these waterways. (B) racing sponsored by the World Yachting Association. (C) specific dates when the boat is in described waters. (D) a lay-up period which must be arranged by the insured on a yearly basis. Reimbursement of an employee’s lost earnings as a result of an automobile accident caused by a negligent driver is an example of (A) punitive damages. (B) exemplary damages. (C) general damages. (D) special damages. Page 4 of 8

5 C130 ESSENTIAL SKILLS FOR THE INSURANCE BROKER AND AGENT CIP PROGRAM EXAMINATION 20. 21. 22. 23. 24, JuLy 2004 Law of precedent is another name for the system known as (A) Civil Code. (B) Common Law. (C) Statute Law. (D) Appellant Law. Generally under common law, parents could be held responsible for their child’s negligence in the situation where the child (A) killed a pedestrian with a vehicle the child took for a joyride. (B) slashed the tires of the neighbour’s car after overhearing his parents say they didn't like the neighbour. (C) released a safety switch while visiting his parent’s sheet metal plant. An employee lost an arm as a result. (D) slashed the neighbour’s car tires with a knife the parents gave the child to perform this act. The ability to pay for any damage incurred as a result of a driver’s negligence is known as (A) financial responsibility. (B) priority of payments. (C) absolute liability. (D) third party liability. The Canadian province in which automobile insurance must be purchased from both the government and private insurers is (A) Quebec. (B) British Columbia. (C) Saskatchewan. (D) Ontario. When underwriting an automobile application, insurers check the vehicle identification number in the Insurance Bureau of Canada (IBC) database to verify that the (A) insured has no outstanding criminal charges. (B) vehicle to be insured is not a phantom. (C) vehicle is registered for highway use. (D) rating class is correct. Page 5 of 8

-6- C130 ESSENTIAL SKILLS FOR THE INSURANCE BROKER AND AGENT CIP PROGRAM EXAMINATION JuLy 2004 25. When preparing a pre-contact review process for renewals, the best procedure for a 26. 27. 28. 29. broker is to (A) ensure that the brokerage list is divided into a list for insurer renewals, one for the brokerage issued renewals and one for specialty markets. (B) contact the insurer if you don’t have the renewal by the expiry date. (C) prepare one brokerage renewal list in chronological order. (D) deal with all the low risk renewals first and then concentrate on the high risk renewals. During a portfolio transfer, the pre-agreed terms between the insurer and broker often include (A) the renewal of all policies with a predetermined percentage increase. (B) the requirement that all policies be transferred to the new insurer. (C) the underwriting and pricing of each piece of business separately. (D) All of the above Written notices from the insured to the insurer identifying the broker of record on a policy, are known as (A) binders. (B) cover letters. (C) writs. (D) letters of authorization. In provinces where it is permitted, with whom would an insured contract to protect the insured’s interests against an insurer during a claim? (A) Ombudsman (B) Claims examiner (C) Claims superintendent (D) Public adjuster A reservation of rights letter is sent to a(n) (A) insured by a third party when initiating a legal action against that insured. (B) insured when the insurer wishes to continue investigating a claim on behalf of that insured but does not want to put itself in the position of creating an estoppel. (C) insurer by the insured when it is taking action against the insurer for not paying its first party claim. (D) third party when an insurer is settling a claim in favour of that third party. Page 6 of 8

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-7- C130 ESSENTIAL SKILLS FOR THE INSURANCE BROKER AND AGENT CIP PROGRAM EXAMINATION JuLy 2004 30. If a spectator at the ballgame is injured by a well-hit ball, and commences a lawsuit against the baseball team and the batter, a defence that might be used by the team and batter is (A) scienter. (B) volenti non fit injuria. (C) forfeiture. (D) estoppel. (2 marks each = 60 marks) Section B: Narrative Questions Question 2. Prepare a chart to compare and contrast the different types of insurance intermediaries under the following headings: (a) Type of Producer (b) Compensation (c) Status with insurer (d) Producer services offered (20 marks) Question 3. (a) Using examples, contrast moral hazard and morale hazard. (10 marks) (b) Discuss the process, preparations and advantages of meeting a new client in person. (10 marks) Question 4. Identify the information that would be included in a policy binder. (20 marks) Question 5. Discuss the Automobile Insurance plans and providers that exist in the Canadian provinces and territories. Highlight the provincial differences in your answer. (20 marks) Section C: Application Questions Question 6. Your client Jack Fixit o/a Acme Home Repairs is a one-person business. Mr. Fixit is a handyman who does minor repairs, electrical or plumbing jobs in homes and small offices. Mr. Fixit tells you he has never had a claim and is very careful. If he buys liability insurance it will drive up his costs. He must pass these costs along to his customers and he may no longer be competitive. Explain the meaning of “legal liability” to Mr. Fixit and why he should buy liability insurance for his business. What coverages would you recommend based on your knowledge of his exposures and why? (20 marks) Page 7 of 8

C130 ESSENTIAL SKILLS FOR THE INSURANCE BROKER AND AGENT Question 7. Question 8. 8- Your colleague, Marie Mercer, is on holidays and the calls from her clients are being transferred to you during this period. At the other end of the telephone line is Mohammed Sandu a long-standing client who regularly refers new business to the brokerage. He is calling to complain that Marie did not answer his request for a quote for insurance for his new cottage; the sale is closing tomorrow. Mohammed is very angry that Marie left him a message on his answering machine asking for additional information when all he asked was that she would provide him with a quote. As a professional broker, you are aware that complaints are a form of communication and the manner in which you act will have a positive or negative effect on Mr. Sandu and for your brokerage. What considerations will you make and what will you avoid in your conversation with Mr. Sandu? How will you interact with Mr. Sandu to ensure a positive outcome? Ima Celeb is an international computer software entrepreneur whom you met in university. She owns a $3,000,000 house in Montreal, a $2,000,000 residence in London and a $2,000,000 vacation residence in the Hamdens. She employs a staff of ten to run her residences. Her yacht is located on the Mediterranean and is available for business meetings and private personal holidays. Ima has a passion for high-risk activities such as sky diving and car racing. Ima presently has her insurance business with an insurance brokerage that is being sold and has considered that now might be a good time to move the business to you since she has heard from other classmates that your service has been excellent. You have submitted this information to knowledgeable underwriters and are awaiting their quote for this complex account. Aside from the above submission, you realize that Ima is a prime candidate for a personal umbrella policy. Develop a presentation for Ima providing her with the reasons that she needs an umbrella policy. What limitations do umbrellas have? How will you proceed once Ima has agreed to purchase the umbrella policy? LA A A & 4 CIP PROGRAM EXAMINATION JuLy 2004 (20 marks) (20 marks)