C16 BUSINESS INSURANCE EXAM NEWEST 2024-2025 COMPLETE 98
QUESTIONS AND CORRECT DETAILED ANSWERS (VERIFIED ANSWE
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1. The premiums of the many are used to
pay the losses of the few.
2. The premiums shall be commensurate
with the risk.
-Insurance fulfils a societal need
-Provides consumers with financial se-
List the two fundamental principles of
curity for particular types of accidental
insurance.
losses. Also underpins the economy fa-
cilitating economic growth and societal
development
-Insurance is the promise to indemnify
another person against the possibility of
a loss
-Significant claim is paid based on a
nominal premium
1. Risks spread over a larger geographic
area soften the burden of localized dis-
asters on insurers.
Why would an insurer spread risks over
diverse geographic areas? 2. For example, a severe windstorm in
one part of the country would have a
devastating effect on an insurer who had
concentrated its risks in this one area.
1. A risk pool is a sharing and spreading
of risk between insurers and re-insurers.
What is a risk pool? 2. Formed risk pools are syndicates of
insurance or reinsurance companies that
have organized to underwrite a particular
risk or group of similar risks.
1. A mathematical premise which states
that the degree of uncertainty is reduces
as the number of events increase.
2. Insurance relies on the forecasts of
, C16 BUSINESS INSURANCE EXAM NEWEST 2024-2025 COMPLETE 98
QUESTIONS AND CORRECT DETAILED ANSWERS (VERIFIED ANSWE
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loss certainty in a large group of similar
risks.
Explain the law of large numbers. 3. Enough risks must be priced in such
a way as to ensure that sufficient capital
enters the pool of funds to accommodate
what is being drawn out to pay for claims.
1. Describes the process by which poten-
tial policyholders use their private knowl-
edge of their own high level of risk when
deciding whether or not to buy insurance.
Define adverse selection. 2. High-risk individuals will try to buy lots
of insurance and pay a comparatively
high rate of premium if they are allowed.
3. Low-risk clients might not buy any in-
surance because the price is too high.
1. Refers to the amount of time between
an incident and the determination of the
claim.
2. Short-tail lines are those where the
injury becomes known quite quickly.
In insurance, what is a tail?
3. Long-tail lines are those which a
claim may be separated from the circum-
stances that caused it by as many as
10, 15, 20 years or more. Many product
liability lines have long-tail exposures.
, C16 BUSINESS INSURANCE EXAM NEWEST 2024-2025 COMPLETE 98
QUESTIONS AND CORRECT DETAILED ANSWERS (VERIFIED ANSWE
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1. Severe Injuries.
2. Long-tail trends for prior accident
years.
3. Inadequate reserving at the primary
insurance level
-Primary insurance companies rely on
reinsurers to back stop auto coverage
particularly for catastrophic claims that
end up costing over 1M.
-As of recent times there have been rela-
tively light catastrophic events which led
to minor rate increase for reinsurance
Name TWO concerns of Ontario auto- catastrophe treaties.
mobile excess reinsurers that relate to
the effects of long-tail liabilities. -Claims from two to five million have rein-
surance layers. There has been a gener-
al increase in the number of claims ex-
ceeding thresholds such as 2M-5M over
the past 10 years.
-Predicting long tail pricing because it is
difficult to accurately predict the outcome
of claims that have not yet occurred and
will remain open for years before the final
settlement is reached
-Reinsurers have seen patterns of very
late reporting of catastrophic injury
claims by insurers and after being rec-
ognized and reported, they continue to
develop adversely for years
, C16 BUSINESS INSURANCE EXAM NEWEST 2024-2025 COMPLETE 98
QUESTIONS AND CORRECT DETAILED ANSWERS (VERIFIED ANSWE
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-Insurance provides a certain freedom of
action, encouraging activities to flourish
in industries, commerce, organizations
and families
-Insurance industry facilitates growth but
depends on growth of the economy
-Insurance may facilitate borrowing to-
wards the purchase of a home, car or
cottage (an asset)
-Insurance industry contributes to the
economy by providing employment to
thousands of Canadians
List three ways that insurance benefits
society.
-Insurance companies hold large invest-
ment holdings, such as investments to
help finance governments and business-
es.
-Risk exposures are escalating. As the
planet becomes more crowded, weath-
er becomes more erratic, values be-
come more concentrated, technologies
become more advances and our soci-
eties become more litigious
-Money paid to indemnify people and
fix property and bodily injury boosts the
economy
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