C72 Introduction To Risk Management

Front 1

What is a loss Exposure

Back 1

A loss exposure is a situation or physical circumstance that makes an individual or an organization vulnerable to loss, damage or injury and will lead to financial loss.

Front 2

What types of risks are the focus of study for risk management?

Back 2

Managing pure risk exposures is the focus of study for risk management.

Front 3

Give an everyday example of how risk management is practiced?

Back 3

Today when you decide to cross the street at a cross walk instead of jaywalking in the middle of a block you are practicing risk management.

Front 4

Risk Managers are responsible for managing which of the following risks:

a. Speculative Risk

b. Pure Risk

c. Business Risk

d. Loss Exposures

Back 4

b. Pure Risk

Front 5

All of the following are post-loss objectives, except one. Which is the exception?

a. Externally Imposed Obligations

b. Cost of Risk

c. Social Responsibility

d. Sustained Growth

Back 5

b. Cost of Risk

Front 6

All of the following are “Items subject to loss”, except one. Pick the exception:

a. Physical Assets

b. Legal Liabilities

c. Extra Expenses

d. Human Assets

Back 6

c. Extra Expenses

Front 7

A situation or physical circumstance that makes an individual or an organization vulnerable to loss, damage or injury and will lead to financial loss is known as:

a. A Pure Risk

b. A Loss Exposure

c. A Peril

d. Risk Tolerance

Back 7

b. A Loss Exposure

Front 8

Perils can be grouped by origin into three general categories. Which is not one of the categories:

a. Human

b. Economic

c. Natural

d. Property

Back 8

d. Property

Front 9

Key person insurance policies can be designed to indemnify a business in all of the following circumstances except one. Pick the exception:

a. Death of a one of the partners

b. Disability of one of the partners

c. Funding the purchase of shares in the business from a partner’s estate

d. Lost income due to the dissolution of a partnership

Back 9

d. Lost income due to the dissolution of a partnership

Front 10

Name the three elements of a loss exposure (3 marks)

Back 10

Each loss exposure has three distinct elements:

Item subject to loss

Potential cause of the loss (peril)

Financial consequences of the occurrence

Front 11

Outline the Human Asset Exposures that may affect a corporation (6 marks)

Back 11

Human Asset Exposures that may affect a corporation are:

Loss of Life

Retirement

Disability and loss of earnings

Rehabilitation

Medical Expenses

Dental Expenses

Front 12

A corporation’s risk management plan should support the goals of an organization. Name and describe a corporation’s pre-loss objectives (8 marks)

Back 12

A corporations pre-loss objectives include:

1. Social responsibilities: serves to improve the organization’s overall public image. An organization should be recognized as a “good corporate citizen” by its conduct.

2. Externally imposed obligations are set out in statute, in contract, or simply as a commitment to a customer. Failure to abide by the law can result in serious penalties and can ruin a business relationship.

3. Peace of mind (tolerance level of uncertainty): each organization has a different tolerance level for uncertainty, a threshold beyond which the organization will not survive financially. By removing or minimizing uncertainty about loss exposures, management can concentrate on business operations.

4. Operate economically: all costs associated with managing pure risk are known as cost of risk. This will also include insurance premiums and the costs to recover from any uninsured losses.

Front 13

Explain how producers and underwriters use the principles of risk managment

Back 13

Risk management techniques can be a valuable tool to assist producers in doing a better job for a client. Underwriters improve their understanding of risks associated with a current or prospective insured.

Front 14

Discuss the traditional methods used by broker to compete for an account

Back 14

Brokers often sell insurance by quoting on policies using the existing coverage’s as a guide or quoting on coverage’s that an insurer is willing to provide for the client. Traditionally, a competing broker armed with renewal dates of the policies in force will offer similar policies for a lower premium. In both of these cases, the risks the organization faces are never analyzed and the needs of the client are never uncovered. Errors and oversights of the first producer are merely repeated by the second producer. The price may be reasonable for the coverage but it may not provide adequate or relevant protection for the clien

Front 15

Discuss the objectives of risk management before and after a loss occurs

Back 15

A corporations pre-loss objectives include:

1. Social responsibilities: serves to improve the organization’s overall public image. An organization should be recognized as a “good corporate citizen” by its conduct.

2. Externally imposed obligations are set out in statute, in contract, or simply as a commitment to a customer. Failure to abide by the law can result in serious penalties and can ruin a business relationship.

3. Peace of mind (tolerance level of uncertainty): each organization has a different tolerance level for uncertainty, a threshold beyond which the organization will not survive financially. By removing or minimizing uncertainty about loss exposures, management can concentrate on business operations.

4. Operate economically: all costs associated with managing pure risk are known as cost of risk. This will also include insurance premiums and the costs to recover from any uninsured losses.

Post Loss-

1. Social responsibility- Also practiced after a loss occurs. It is still important to consider the employees and community at large.

2. Survival - Major financial object for an organization is to survive. In a worst case scenario, an organization may be forced into bankruptcy or liquidation because funds were not available after a loss to restore the business to its pre-loss position.

3. Operational continuity - for some organizations this is vital. The service they provide may be indispensable to the community or they may lose market share if the product is not available.

4. Maintain stable earnings - Maintaining profits after a loss can be achieved in several ways.1. Cutting variable costs a. employee layoffs b. management perks 2. Reducing energy consumption 3. Reduction in raw material orders

5. Sustain growth i. May not be a high priority after a loss ii. Stable earning may be more important post-loss

Front 16

Describe the Risk Manager's role

Back 16

The individuals responsible for managing risk within an organization. Deal with “Pure Risk” vs. “Business” or “Speculative” Risk.

Duties of the Risk Manager

a. To develop and co-ordinate risk management functions

b. Finance Manager usually responsible for the purchasing of insurance

c. Include such duties as

i. Identifying loss exposures

ii. Preventing loss

iii. Reducing loss

iv. Loss financing

v. Education

vi. Acting as a resource

d. Risk Manager will;

i. Understand the insurance market

ii. Know policies and coverage

iii. Recognise the producers role in assisting the risk managementprocess

Front 17

What kind of business would benefit from risk management techniques?

Back 17

Risk management techniques have been adopted by most large corporations but the concepts of risk management are also appropriate for small firms, governments, or other public entities.

Front 18

What are the consequences of merely offering a prospective client replacement policies rather than identifying and analyzing the clients risk exposures?

Back 18

The consequences of not identifying and analyzing the risks the organization faces may be critical. The survival of the organization may be threatened. The broker may be blamed for not advising the client to purchase appropriate insurance; the insurer is likely to bear the client’s anger and frustration; the adjuster will have to explain that there is no coverage and prepare for a legal battle.

Front 19

What do producers accomplish for clients using the risk management process? (5 marks)

Back 19

The producer can work with the client instead of selling to the client. Risk management concepts are not used and the producer who thinks in risk management terms will stand out from the crowd.

The risk management process is used to:

1. Determine the exposures clients need to manage

2. Provide a plan of action to manage those risks.

3. Recommend insurance coverage for those risks best served by insurance coverage.

Front 20

What goals must risk management objectives achieve?

Back 20

Risk management objectives must be aligned with the fundamental goals of an organization. The objectives help focus decisions made in the risk management program to support the overall goals an organization has set for itself.

Front 21

What are two components of risk management objectives?

Back 21

The objectives of risk management can be broken into two components:

Pre-Loss objectives: those to be accomplished before a loss occurs.

Post-Loss objectives: those to be met after a loss occurs.

Front 22

Name and describe five post loss objectives (10 marks)

Back 22

1. Social responsibility- Also practiced after a loss occurs. It is still important to consider the employees and community at large.

2. Survival - Major financial object for an organization is to survive. In a worst case scenario, an organization may be forced into bankruptcy or liquidation because funds were not available after a loss to restore the business to its pre-loss position.

3. Operational continuity - for some organizations this is vital. The service they provide may be indispensable to the community or they may lose market share if the product is not available.

4. Maintain stable earnings - Maintaining profits after a loss can be achieved in several ways.1. Cutting variable costsa. employee layoffsb. management perks2. Reducing energy consumption3. Reduction in raw material orders

5. Sustain growth i. May not be a high priority after a lossii. Stable earning may be more important post-loss

Front 23

Describe and then name three external obligations

Back 23

Externally Imposed Obligations

i. Obligations imposed by governments, regulatory boards orcustomers

ii. Set out in statute, contracts or as a commitment to customers

iii. Compliance with such obligations are a pre-loss objective

iv. Failure to comply with obligations can result in1. penalties imposed by law2. dissatisfaction of customers or business partners

Examples of Obligations

i. Customer seeking security through guarantees

ii. Warranty

iii. Proof of Products Liability Insurance (Certificates)iv. Public Entities may only do business with a company the producesproof of insurance or deposit a surety bond

Front 24

Describe a situation that demonstrates a conflict between objectives.

Back 24

Objectives can conflict with one another. An organization’s priorities must be examined to develop a plan consistent with the organization’s goals overall. The plan to accomplish each objective must be analyzed comparing costs to benefits.

Economic Aspect

i. It is important to determine the organization’s priority

ii. Continuing operations after a loss may not be as economicallyviable as shutting down an operations for a period of time after thelossiii. Plans must be examined in detail to ascertain which place wouldbe more beneficial and hold with the company’s objectives

b. Social Responsibility Aspect

i. This goal rarely has an immediate financial impact on the company

ii. If the choice is between being socially responsible and operationalcontinuity or survival the choice is usually clearly on the side ofthe business

iii. Ex. Noise Reduction

Front 25

What are the three elements of a loss exposure?

Back 25

1. Item subject to loss;

2. Potential cause of the loss (peril);

3. Financial consequences of the occurrence.

Front 26

What four categories are used to classify items subject to a loss?

Back 26

1. Physical assets;

2. Loss of use of those assets;

3. Legal liabilities;

4. Personal health and earning capacity (human assets).

Front 27

Describe Physical Assets

Back 27

Physical assets include any tangible property.

Premises: building, equipment, stock, valuable papers, accounts receivable, etc.

Off Premises: Items in Transit. postal or courier service, automobile, private truck carrier, boat, aircraft, etc.

Perils: fire, smoke, windstorm, water damage, hail, vehicle impact, etc.

Front 28

Describe loss of use of a physical asset.

Back 28

When a physical asset is damaged or destroyed, its use is impaired. The organization will incur a loss of use of the physical asset. Income may be reduced or operating expenses may be increased as a result.

Property: business interruption, rental income, extra expense.

Transportation: costs of freight and passage.

Front 29

Describe legal liability and give examples

Back 29

The most common legal obligation arises from the legal duty to take care in one’s relationships with others so as to not cause injury. One is exposed to legal liabilities arising from negligent acts or omissions.

Examples: bodily injury, property damage, personal injury, employers’, tenants’ legal, contractual, etc.

Front 30

Describe the human asset loss exposure and give examples

Back 30

Members of an organization are subject to the possibility of illness, disability, or premature death – the human asset exposure.

Examples: loss of life, retirement, disability and loss of earnings, rehabilitation, medical expenses, etc.

“Key Person” Insurance may be required to providefinancing for the loss of an owner or senior executive

Front 31

What are the three classifications of perils?

Back 31

1. Human -> caused by human behavior such as vandalism, arson and theft.

2. Natural -> caused by natural forces in the weather and earth.

3. Economic -> such events as changes in consumer tastes, currency fluctuations, depreciation, etc.

Front 32

What are the financial effects of losses?

Back 32

When an item is damaged, the organization will be affected by:

1. The reduced value of an asset;

2. The decreased income derived from the asset;

3. The increased expenses to keep the asset operating.

Front 33

Why do producers find it satisfying to work with an organization's professional risk manager?

Back 33

Experienced producers usually find it gratifying to deal with professional risk managers because risk managers usually have a keen understanding of the exposures facing the company and the importance of insurance.

Knowing the risk management process gives the producer insight into clients’ needs and provides the skills to “talk the same language” as a professional risk manager.

Front 34

What are the three classifications of perils?

Back 34

Perils – Can be grouped by origin into three general categories;

a. Humani. Caused by human behavior

ex arson, vandalism and theft

b. Naturali. Caused by natural forces

ex. Weather, earthquakes, flood

c. Economici. Caused by changes in the market, currency fluctuations stockmarket decline, technological advances1. Generally not insurable as they are considered business ortrade risks

Front 35

The risk management process is used to:

Back 35

The risk management process is used to:

1. Determine the exposures clients need to manage;

2. Provide a plan of action to manage those risks.

3. Recommend insurance coverage for those risks best served by insurance coverage.

Front 36

All costs associated with managing pure risks are known as

Back 36

Cost of Risk

Front 37

What are the steps of the risk management process?

Back 37

1. Identify and Analyze

2. Formulate Options

3. Select the Best Technique

4. Implement the plan

5. Monitor and Modify

Front 38

How are client needs determined?

Back 38

Client’s needs are determined by identifying loss exposures. Thus, by using risk management techniques, a needs-based sales approach is achieved.

Front 39

What outside sources can be helpful to identify and treat loss exposures?

Back 39

Both full-time risk managers and insurance personnel may seek help from outside resources

i. Fire Department- can point out fire hazards and recommendcorrective and preventative actions

ii. Police – offer crime prevention services

iii. Lawyers and Accountants – can provide loss estimates and assistwith resourcing funds to handle loss costs

Front 40

What are four methods commonly used to identify exposures?

Back 40

1. Surveys

2. Flow Charts

3. Financial Statements

4. Inspections

Front 41

Discuss the Survey method used to identify exposures

Back 41

Check lists, Survey Forms or Questionnaires used to systematically determine exposures. Should be relevant to the business seeking coverage. Not an application, but resembles one. Names the subject of insurance, highlights the exposure to the risk,and suggests an insurance products that is applicable

Contents Schedule

Survey specific to contents and legal liabilities Income loss plans included as well

Software Programs

Checklists available on software rating programs

Expensive and options may only be available in largerinsurance companies

Front 42

What are the drawbacks of checklist forms?

Back 42

The checklist describes subject of insurance, highlights the perils these exposures are subject to and lists the types of insurance policies appropriate for the exposures mentioned. Loss exposures are not described in detail.

Front 43

What do flow charts identify?

Back 43

A flow chart of a business process may help in identifying exposure to loss. It maps the sequence of business activity in its basic components using graphic representation. A flow chart reveals the bottlenecks in production.

Front 44

What information is revealed in financial statements?

Back 44

Used to assist in exposure identification

Identifies assets such as building, stock and contents

Amounts for valuation should not be used for risk loss analysis

Income Statement provides hints to other company activity. Ex. rental income from the building

Front 45

What are the drawbacks of on-site inspections?

Back 45

Site inspections are expensive, especially when an independent professional inspection is required.

Front 46

What are the advantages of on-site inspections?

Back 46

First-hand impressions are much more useful than third-hand information such as flow charts, questionnaires and financial statements. The producer will get a better understanding of the operation which increases the ability to better serve the client.

»Joint inspections improverelations

•Discussconditions and standards to minimize loss

Front 47

What factors are considered in the analysis of loss exposures?

Back 47

1. Likelihood of the loss occurring (loss frequency)

2. Seriousness of the loss (loss severity)

3. Financial effect of all losses in any given period of time (frequency times severity)

4. Reliability of the predictions of frequency and severity.

Front 48

What are the Prouty classifications for measuring loss frequency and severity?

Back 48

Which of the following is an example of an organization’s post-loss objectives?Select one:a. Sustaining Growth b. Maintaining Good Willc. Managing the Cost of Riskd. Fulfilling Contractual Obligations

Front 49

What type of changes must be considered when predicting the frequency and severity of losses?

Back 49

The objective is to predict with as much certainty as possible what the probabilities are of future losses (both frequency and severity) so as to better analyze the exposure to loss. Calculations based on the past can reliably predict the probabilities of future events only If everything else remains unchanged. Social & economic changes for example.

Front 50

What are the two major classifications used in treating loss exposures?

Back 50

1. Loss control techniques: to control the exposure to prevent losses or reduce their severity.

2. Loss financial techniques: to pay for losses which do occur.

Front 51

What are the two basic theories of loss control?

Back 51

1. Domino Theory: The first theory was conceived by H.W. Heinrich. He concludes that all losses are the result of unsafe acts of persons – accidents are the fault of people. It held that unsafe acts begin the chain of events which ultimately lead to accidents.

2. Energy Release Theory: Dr. William Haddon stated that accidents result from mechanical failures. Machinesrelease too much energy to be controlled as required

Front 52

Name the five loss control techniques.

Back 52

1. Avoidance

2. Loss prevention

3. Loss reduction

4. Separation or diversification

5. Noninsurance risk transfer

Front 53

Describe and give an example of each loss control technique.

Back 53

Avoidance: When a company decides not to engage in a new business venture it avoids the risks associated with it. The company may have decided the risk exposures inherent in the venture were too risky.

Loss prevention: Regular inspection and testing of machinery and equipment is a loss prevention activity. Loss prevention is a frequently used risk management technique because it is so effective.

Loss reduction: are used to lessen the severity of those losses which do occur. Installing automatic sprinklers or other fire suppression devices designed to slow or stop the spread of fires are example of loss reduction.

Separation or diversification: Costly as it is difficult to implement. Items subject to loss can be moved to separate locations to reduce the concentration of value should a loss occur at one location. The potential of one loss wiping out the entire operation becomes less likely. Duplication- duplicating data. If the contents of one large warehouse were distributed into two.

Non-insurance transfers: passes any financial responsibility for a loss to someone else. Probably of a loss remains the same, but the asset or activity from which the exposure to loss arises is transferred to another party. An example would be a contractor subcontracting a hazardous process to another firm.

Front 54

How is retention defined in risk management?

Back 54

Retention is absorbing all or part of the loss and is sometimes the only risk management technique available. A plan to retain risk works best for losses that are not too serious and fairly predictable. In other words, they should be low in severity and high in frequency.

Front 55

What is the difference between active and passive decisions in risk retention?

Back 55

An active decision is one made consciously, whether it involves doing something or not doing something. Ex. increased deductibles

When an exposure is retained because it was never identified, it is known as a passive retention. This is an unwelcome situation since no plan will exist to deal with the unexpected loss

Some risks must be retained,either because they are uninsurable (including trade risks) or transferring therisk would be cost prohibitive (War, Shoplifting)

Front 56

What are the five sources of funds to pay for retained losses?

Back 56

1. Current expenses

2. Unfunded reserves

3. Funded reserves

4. Borrowing

5. Captive insurers

Front 57

Review the advantages of disadvantages of loss retention

Back 57

•Advantages

•Losses are reduced as management ismore conscious of the costs•

•Easy to administer Current Expensingand Reserves

•Cost savings if there are no claims

Disadvantages

•Funds may not be available for largelosses••Tie up resources•

•Can be Expensive to set up andadminister••Loss of insurer services such as riskmanagement advice & claims services

- Could increase the organizations taxes depending on timing and severity of claims.

Front 58

What are the benefits of large deductibles?

Back 58

Large retention levels can only be justified if adequate loss history is available to reasonably predict future losses and the company has the financial resources to pay for losses that do occur. Retention is best practiced for smaller, predictable losses.

Commercial insurance purchased with larger deductibles will result in savings that can be applied towards the purchase of higher limits of insurance. It is better to protect against a single large loss that might impair a company’s survival than to save a few dollars to maintain low limits of insurance.

Front 59

What are unbundled services?

Back 59

Larger organizations may want to pick and choose the services they purchase from an insurer. It is viewed by clients as a way to reduce premium costs. It is a way to customize the services they need. Not all insurers offer this service and it is not generally used.

Front 60

What are the two methods used to transfer responsibility for paying losses?

Back 60

1. Transfer of loss to other entities by business contract

2. Transfer of loss to an insurer through an insurance policy

Front 61

What do hold-harmless agreements and indemnification clauses achieve?

Back 61

Hold-harmless agreement or indemnification clauses are not loss control measures. The potential frequency or severity of loss is not affected - only the financial consequences of a loss are transferred, the asset or activity remaining with the organization. Financial responsibility is shifted to the other contracting party for specified future losses.

Front 62

What other safeguards are used to strengthen the reliability of hold-harmless agreements and indemnification clauses?

Back 62

When hold-harmless agreements and indemnifications clauses are drafted, the requirements for liability insurance should be part of the contract. The policy should include a waiver of subrogation against the indemnitee. The insurance should also include the indemnitee as an additional insured. In this way, the indemnitee has the right to report a claim directly to the insurer when the indemnitor is unable or unwilling to do so. The indemnitee will be more secure in the fact that the promise to pay is strengthened with an insurance policy.

Front 63

*Review the advantages and disadvantages of noninsurance transfers.

Back 63

Advantages:

· Exposure may not be insurable

· Transfer may be less expensive than insurance

· Agreement may be tailored to meet individual needs

· Exposure can be controlled by the party in the best position to do so

Disadvantages:

· Transfer may not be as complete as intended

· Agreements subject to litigation and reinterpretation by courts of law

· Indemnitor may be unable to pay the loss

· Strength of agreement susceptible to economic environment

Front 64

How does insurance transfer risk?

Back 64

Insurance is a mechanism by which insureds exchange, which is transfer, the uncertainty of future losses for the certainty of a fixed sum (the premium).

Insurance differs from hold-harmless agreements since the contract of insurance deals principally with the transfer of risk. Insurance is available to cover many exposures whether they arise from potential damage to physical assets, the potential loss of use of physical assets, third-party liabilities or the human-asset exposures of sickness, disability and death.

Front 65

What must a potential client consider when selecting a producer and an insurer?

Back 65

First the financial strength of the insurer must be considered. A second consideration is the willingness of the insurer to provide the required coverages. A third consideration is the range of additional services offered by the insurer and producer. Finally, the cost of the coverage must be considered.

Front 66

Common methods of exposure identification include all of the following, except:

a. Financial Statements

b. Inspections

c. Balance Sheets

d. Flow Charts

Back 66

c. Balance Sheets

Front 67

Dr. William Haddon, Jr. developed which theory:

a. Energy Release Theory

b. Domino Theory

c. Minimum Expected Loss Theory

d. Avoidance Theory

Back 67

a. Energy Release Theory

Front 68

Loss Prevention activities include which of the following:

a. Driver Safety Programs

b. Strict Control Procedures for handling cash

c. Safety Guards on Machines

d. All of the above

Back 68

d. All of the above

Front 69

The purpose of a captive insurer is to:

a. Fund Losses

b. Provide Re-Insurance

c. Minimize Taxes

d. Insure Hard to Place Risks

Back 69

a. Fund Losses

Front 70

In a contract for services, the party performing the work is called the:

a. Obligee

b. Indemnitee

c. Contractor

d. Indemnitor

Back 70

d. Indemnitor

Front 71

Name five contracts that might contain a Hold-Harmless Agreement (5 marks)

Back 71

Five contracts that might contain a Hold-Harmless Agreement are:

a lease of premises or equipment

construction agreements

contracts of sale and supply

purchase order agreements

service contracts

Front 72

Discuss the advantages and disadvantages of Loss Retention (8 marks)

Back 72

When an organization is large enough to have a credible spread of risk, loss costs may be reduced when losses are retained since Insurers add overhead and profit to the estimated cost of losses when establishing a premium. For companies that spend a generous amount of money to buy insurance, retention can be used to gain control of the premium dollars and perhaps improve their cash flow. Unfortunately retention levels are much lower for the average sized company and the potential loss exposure faced by the average insured far outweighs the cost of premium. Loss retention also encourages companies to actively practice loss prevention since companies must pay for at least part of the loss. Unfortunately if losses are heavy, retention could be a drain on cash flow. In a no loss scenario, the customer saves in premium. If a company saves on premium by practicing retention for smaller, predictable losses, the can use the premium savings to purchase larger limits of insurance to better protect against a single, large, crippling loss. If you choose to retain losses, you miss out on the advantage of deducting insurance premiums from taxable income and reducing taxes since money set aside from future losses cannot be deducted. Also, if you choose to retain losses you do not get to use the services provided by insurance companies in the event of a claim that include loss control support, claims investigation and administration, exposure identification, and defense strategy and costs in the case of liability claims.

Front 73

What is the problem with avoidance?

Back 73

Although avoidance seems to present a desirable technique it is not often a viable alternative. It is more likely that a decision to avoid a certain risk exposure will lead to newly created exposures that require attention and perhaps another risk treatment as they are impractical or impossible to avoid.

Front 74

What is the problem with Loss prevention and reduction techniques?

Back 74

Most loss prevention and loss reduction measures cost money. Loss control programs are often resisted because of the costs involved. The cost of each loss control technique must be measured against future benefit.

Front 75

Discuss the techniques used to identify and analyze loss exposures.

Back 75

The four methods commonly used to identify exposures are:

1. Surveys

2. Flow Charts

3. Financial Statements

4. Inspections

Once exposures are identified, each loss exposure in analyzed considering the following:

1. Likelihood of the loss occurring (loss frequency)

2. Seriousness of the loss (loss severity)

3. Financial effect of all losses in any given period of time (frequency times severity)

4. Reliability of the predictions of frequency and severity.

Front 76

Formulate options to deal with loss exposures using the various methods available:

- Loss control

- Loss financing

- Loss financing transfer

Back 76

Loss Control techniques include:

1. Avoidance

2. Loss prevention

3. Loss reduction

4. Separation or diversification

5. Noninsurance risk transfer

Loss financing methods include

1. Current expenses

2. Unfunded reserves

3. Funded reserves

4. Borrowing

5. Captive insurers

Loss Financing Transfer methods include:

· A lease of premises or equipment

· Construction agreements

· A bailment contract

· Contacts of sale and supply

· Purchase order agreements

· Service contracts

· Insurance

Front 77

Once exposures are identified, predictions are made on the likelihood and probable seriousness of potential losses. What is considered when each loss exposure is analysed? (four marks)

Back 77

Likelihood of the loss occurring (loss frequency)

Seriousness of the loss (loss severity)

Financial effect of all losses in any given period of time (frequency times severity)

Reliability of the predictions and severity

Front 78

What aspect is a key factor in determining the risk financing method to be used?

Back 78

Knowing the potential cost of losses helps when considering the financial impact these losses could have.

Front 79

Discuss the five types of loss retention methods and their advantages and disadvantages?

Back 79

Current Expensing: Losses are paid from current funds.

Advantages: Easy to administer, no special accounting required

Disadvantages: Funds may not be available when needed, Funds may be needed for business pursuits

Unfunded Reserve: An account is designated to pay for losses on the balance sheet of the organization. A reserve is set aside for losses in financial statement but no cash or asset would be specificially earmarked.

Advantages: Losses are identified in an accounting entry

Disadvantages: If many losses occur, funds to pay must be gathered

Funded Reserves: Money is actually set aside to pay for loses

Advantages:money is available to pay losses, fund can be built up slowly

Disadvantages: control needed so as not to spend funds elsewhere, requires accounting expertise, opportunity cost

Borrowing Money is borrowed to pay losses

Advantages: relatively easy if the company has assets to cover the loan

Disadvantages: lender may believe company has planned poorly, will reduce company's line of credit

Captive Insurer: The company operates its own insurer. Groups and large companies

Advantages: capitalized on good loss experience, direct access to reinsurance market, custom policies, commitment to loss control is conscientious

Disadvantages: complex and costly to set up and administer, needs significant commitment from senior management.

Front 80

Review Prouty Table

Back 80

Front 81

Describe in a contract for services, who is the indemnitee and who is the indemnitor?

Back 81

In a contract for services, the party performing the work is the indemnitor and usually agrees to accept the financial responsibility of paying for certain losses for the party who is receiving the benefit of the work - the indemnitee. It is usually the party in the more powerful position who will insist on transferring the exposure.

Front 82

Are hold-harmless agreements binding on third parties?

Back 82

No they are not binding on third parties.

Front 83

Hold harmless agreements should be restricted to __________.

Back 83

Negligence

Front 84

Insurers set premiums based on:

Back 84

Premiums= expected loss costs + profit + expenses + contingencies

Front 85

Describe Brokers conflicts of interest

Back 85

»Higher commissions for highersales»

»Better service provided, the more renewals and referralsthe broker will receive»

»Some offer risk management services to theirclients on a fee basis|

Front 86

What factors affect the selection of the best risk management technique for risk exposures?

Back 86

Once exposures have been identified andanalyzed and alternative risk management techniques formulated to minimize theeffects of those exposures, the best apparent technique or combination oftechniques for dealing with each exposure is chosen.

Treatment methods will be combined andintegrated to effectively and economically control exposures.

Front 87

Described the “insurance method” approach to the purchase of insurance?

Back 87

One approach to technique selection which was once very widely used was the insurance method.

The potential client asked the producer or the insurer to price all possible insurance coverages and to assist in prioritizing the various kinds of insurance into three categories: essential, desirable and available.

The buyer would then start with the essential coverages and continue to buy until funds budgeted for insurance were used up.

Front 88

What is the “minimum expected loss method”?

Review the Ten-Year Projection of the BonTon Department Store.

Back 88

The technique wherein the cost of each possible risk management technique is calculated and the results of applying each technique to potential losses is estimated. The program that best meets the organization’s objectives with the lowest overall cost is the one which will be chosen.

Front 89

What is the major problem associated with the minimum expected loss method? (5 marks)

Back 89

The major problem in using this approach is that loss costs are often difficult to predict with certainty and the effect of major capital expenditures for loss control must be adjusted to the short term.

Lostincome while plans are being implemented (construction costs, lost productiondue to training)

Front 90

Contrast the Insurance Method and the Minimum Expected Loss Method as they are used to minimize the effects of loss exposures (4 marks)

Back 90

One approach to technique selection which was once very widely used was the insurance method.The potential client asked the producer or the insurer to price all possible insurance coverages and to assist in prioritizing the various kinds of insurance into three categories: essential, desirable and available.The buyer would then start with the essential coverages and continue to buy until funds budgeted for insurance were used up. The disadvantage to this method is that it only related cost to insurable exposures and ignored risk management methods other than insurance. It is easy to understand and practical so many individuals and small businesses use it today.

The technique wherein the cost of each possible risk management technique is calculated and the results of applying each technique to potential losses is estimated. The program that best meets the organization’s objectives with the lowest overall cost is the one which will be chosen. The major problem in using this approach is that loss costs are often difficult to predict with certainty and the effect of major capital expenditures for loss control must be adjusted to the short term.

Front 91

The Cost of Risk is Composed of all of the following except:

a. Insurance Premiums

b. Cost of Loss Control

c. Budgeted Losses

d. Retained Losses

Back 91

c. Budgeted Losses

Front 92

Describe three elements that you would include in an organization’s Emergency Response Plan

Back 92

Three elements of an Emergency Response Plan would include a:

•Media Interaction Plan

•Rapid Recovery Plan

»Loss Prevention Strategy including Education for employees and Communication with employees

Front 93

Discuss the factors that affecthow risk treatments are implemented

Back 93

Implementing Chosen Techniques:

What should be done? Once agreed upon details need to beworked out. Insurance policy terms must be negotiated and coverage must fit newrisk management program.

•Who should do it? What departments are involved, who arethe decision makers. The risk manager is usually a staff officer without line managerial authority to direct operations.

•Prioritizing

Is the financial cost of the risk management program within budget

Large expenditures may have to wait until budget review

Low cost items can be implemented right away Priorities must be set to ensure effective implementation of the plan

Front 94

Explain how risk managementprograms are monitored

Back 94

•Benchmarks, measure, change, new exposures

Regularre-evaluation (and change) of programs is necessary.

Changesmust be detected and the risk management program adapted to them.•Newexposures develop, old exposures are eliminated

Standardsand benchmarks must be established to measure performance and evaluateprograms.

Brokers/producersbring risk management principles to organizations. They must maintain regular contact withclients to determine if needs have changed.

Anideal risk management program is carefully formulated, tested and monitoredover a long period of time.

Front 95

The cost of risk is composed of:

Back 95

The cost of loss control

insurance premiums

retained losses

overhead of the risk management department

Front 96

How to apply Risk Management Techniques to a Case Study

Review the Yummy Ice Cream Company case study.

Back 96

1. Identify the Exposurea. What is the exposure to property, business, human assets, material,customers etc

2. Dealing With the Exposure

a. Loss Preventioni. What techniques can the company implement themselvesminimize lossii. More cost effectiveiii. Examine the everyday routines and implement improvements

b. Loss Controli. What controls can be implemented to contain the possibility ofloss/ii. Testing of ram materialsiii. Fire and burglary preventions/Guardsiv. Maintenance1. Building and grounds2. Parking3. Machinery

c. Retention1. Can the company withstand a loss2. Size of deductibles3. What are projected losses base on past data?4. Loss payment account set up to handle projected loss5. Cost of doing business losses6. Uninsurable losses

d. Non-Insurance Transfer1. Leases or rented property2. Outstanding Contracts for external service3. Contracts for internal services

e. Recommended Insurance1. Is there coverage available for such losses?

Front 97

What is the disadvantage to the insurance method?

Back 97

The disadvantage to this method is that it only related cost to insurable exposures and ignored risk management methods other than insurance. It is easy to understand and practical so many individuals and small businesses use it today.

Front 98

Give two reasons why risk management is an important tool for producers?

Back 98

Producers can use the risk management process to make an objective study of a client's exposures or needs and to develop ways to treat those exposures. Most insurance buyers cannot afford a full time risk manager, leaving the door open to producers to fill a need and permits producers to be on the clients side with a value added service.

The risk management approach may quickly reveal an uninsured exposure that may secure an entire account.

Front 99

There is an important practical point to be considered before starting a risk management survey. What is it?

Back 99

The producer must be informed as to the client’s insurance needs and requirements.

This means asking questions about the nature of the business, assessing and analyzing foreseeable risks, reviewing documents, inspection premises, collecting information for an insurer to properly assess the risk, providing information from an insurer to properly assess the risk, providing information about the available insurance coverage and other risk transfer methods. Producers have a duty to use reasonable care and skill to effect insurance coverage to protect their client’s interests.

Front 100

What points arise in connection with pre-sale preparation?

Back 100

In meeting with a prospective insured, they should become thoroughly familiar with risk management concepts and practices.

•Keep upon trade journals & newsletters•Participatein seminars

•RelevantConferences

•ContinuedEducation

•DevelopPeer Network

Gather information on particular company.

Look into the association for the particular client's business type.

In the sales interview, the producer’s goals are to:·

Sell the risk management concept·

Establish credibility·

Gather information

Any survey or questionnaire should be completed as possible before the meeting starts

Front 101

Explain what is meant by the phrase “the producer and the prospect become a team.”

Back 101

The sales interview becomes a team process as, together, the producer and potential client:

· Define goals

· Develop information to attain the goals

Information is developed as a joint effort and the producer can help to analyze the information and determine which risk management techniques should be employed and how they will be implemented.

Front 102

What are the advantages of the risk management approach?

Back 102

Because risk management is systems-oriented, it requires investigation into all aspects of the client’s activities and all phases of the existing insurance program. Concepts and programs are sold rather than just insurance policies. Producers can easily move from one area of insurance to another and sell accounts rather than individual policies. This means more comprehensive treatment of exposures for the client and usually a higher income for the producer. The risk management process is expected to connect the client to the producer.

Front 103

Review the objectives of risk management.

Back 103

1. Social responsibility. - Maintaining an appropriate public image

- Adopting proper safety measures

2. Externally imposed obligations -> meeting legal obligations. Ex. Compulsory auto insurance.

3. Peace of mind -> retaining only an acceptable level of risk

4. Cost of risk -> ensuring overall cost of risk management program is reasonable

5. Survival -> ensure business continuity

6. Operation continuity -> establish a business continuity plan

7. Maintain stable earnings - consider overall impact of loss to company's financial statements

8. Sustain growth - survival of certain businesses (ex.New businesses) might depend on rate of growth

Front 104

What is meant by “real property” and “personal property”?

Back 104

Real Property: is land, building and other permanent structures on the land.

Personal Property: is often defined to mean the right or interest that a person has in personal, movable or other property that is separable from real property.

Front 105

What three types of personal property are identified in the study? Given an example of each

Back 105

Personal property can be divided into 3 classes:

1. Personal property intended for permanent placement. Ex: counters, boilers, fixtures

2. Personal property subject to movement but not necessarily intended for frequent movement. ex: photocopiers, cash registers

3. Personal property intended for frequent movement ex: contractors equipment, automobiles.

Front 106

Some types of property are subject to more perils than others. Provide illustrations of this statement.

Back 106

A building for example, can be damaged or destroyed by fire, windstorm, vehicle or aircraft impact, earthquake, flood, lightning, and vandalism. Some parts of a building may be subject to a greater number of perils than other parts such as glass.

Personal property is exposed to the same perils as real property and also to other perils such as theft. All personal property must consider theft by employees and others.

Boilers require special treatment from being able to explode or break down. Require special insurance policies.

Some perils are more likely to cause total loss to personal property intended for permanent placement than real property such as water damage to a building vs its furnishings.

The class of personal property intended for movement is exposed o the broadest range of perils. All the same perils as real and personal property but also from perils arising from transportation such as collision.

Property confronted by the most perils is property intended to move about or float. Covered by special policies known as floater policies.

Front 107

Give two examples of exclusions in fire policies that call for special insurance arrangements.

Back 107

The basic fire and EC (extended coverage) policies are intended to give coverage at specified locations. There are normally restrictions on coverage away from the named locations and on property while in transit.

Also, certain property is excluded from fire and EC policies or only covered for certain risks and special insurance is need for full protection. Excluded are money, precious metals, securities, evidence of debt or title, automobiles and watercraft. There are limitations on coverage provided for vessels under pressure such as boilers. Typically, the hazards of explosion, bursting and cracking require a specialized policy.

Front 108

What types of indirect loss exposures exist for businesses?

Back 108

Indirect losses are losses that result from direct damage to property. Indirect losses are usually more difficult to identify than direct losses because they are one step removed in the chain of causation. Examples.

· Business interruption

· Contingent business interruption – supplier/customer/leader business

· Extra expense

· Rent

· Leasehold interest

· Building bylaws

· Demolition

· Spoilage

Front 109

Do individuals have indirect loss exposures?

Back 109

Yes, individuals as well as organizations can have indirect losses. The “business interruption exposure” to individuals is an example of Human Asset Loss Exposures. Coverages for these exposures can be arranged as part of the employer’s or principal’s business interruption insurance.

- Employee income and Key Personnel insurance

Ex: the manager of a store who is compensated on a percentage of sales basis. If the store is damaged by an insured peril and closes, the manager and the store have a loss until operations resume.

Front 110

Explain how rent and rental value exposures are linked to the terms of a building lease.

Back 110

There are usually two relevant clauses in a lease:

1. Rent abatement clause

2. Fire clause

The rent abatement clause says that if the leased premises are made untenantable by fire or certain other perils the rent is cancelled or reduced for the period of time that the building is untenantable, according to whether the premises are wholly or partly unusable. If a lease does not have this clause, rent must still be paid in full even though the premises cannot be used.

The fire clause deals with prolonged interruption of tenancy by fire and certain other perils. If it will take a X number of months to restore the premises, the lease may be cancelled at the option of the lessor and the tenant is free to make other arrangements.

Rent insurance indemnifies the owners of a property if the owner’s rental income is interrupted by an insured peril.

Rental value indemnifies the occupant from the loss of use of the premises.

Front 111

What types of business have an extra expense exposure? Give two examples.

Back 111

Some businesses by their vary nature cannot have a business interruption because their business is such that they must stay in operation regardless of what happens.

An example is a newspaper publisher. If the building or printing presses are damaged by a fire, the business will usually not stop publishing for whatever period of time is required to rebuild. Some alternative means will be employed, perhaps printing the paper in a nearby town and shipping it in by truck. The alternative means employed to stay in operation are sometimes very expensive. The loss exposure involved is the additional expenses incurred.

Another example of extra expense exposure is an insurance agency. If a fire totally destroyed the agency, somehow the agency would be tending to customers the next morning. A bank is another example.

For the most part, a business needs either business interruption or extra expense according to whether it would close down when a loss occurred (business interruption) or continue operations with alternative facilities at increased cost (extra expense).

Front 112

What is meant by leasehold interest?

Back 112

A tenant in leased quarters may have another indirect exposure known as the leasehold interest exposure. It is the amount of loss between the rent for the damaged building and the rent for substitute quarters. Note the amount of the leasehold interest exposure decreases with time as the termination of the lease approaches, since the coverage extends only to the normal termination date of the lease.

Front 113

Explain the exposures arising from building by-laws.

Back 113

Another kind of indirect loss may result from the operation of building codes, the laws that establish the minimum standards for fire safety required for buildings. The codes usually apply only to a new construction. The owner may suffer three kinds of loss under the code:

1. A building that is only partially damaged may have to be torn down -> converting a partial loss to a total loss

2. The cost of tearing it down must be paid

3. The new building must be built to code requirements -> increasing the cost of construction

Front 114

Explain what is meant by the liability exposure. Give two examples.

Back 114

The liability exposure is the possibility that the individual or firm will be held legally responsible for damages suffered by another party. A part of the exposure is the cost of defending against such claims. Liability arises when the rights of one party are violated by the actions or inaction of another so as to result in injury or damage.

ex: - A shopper in an enclosed shopping mall has the right to expect that the floor will be dry and the escalators in safe working order. If the customer slips on a wet floor suffering a broken bone or is hurt by being thrown forward when an escalator suddenly stops, they may have a cause of action based upon a violation of their rights.

Front 115

What is meant by negligence?

Back 115

Negligence: is the failure to use that degree of care which a reasonable person in the same situation would use in order to avoid injury to another. Generally when an employee is acting on the behalf of their employer, the employer is legally responsible for the actions of the employee.

Front 116

Given an example of an intentional act by an employee. How far does personal injury insurance cover this expense?

Back 116

An employee spots what they think is a shoplifter. The employer applies a hammerlock and drags the shopper kicking and screaming into the back room to discover the shopper was not shoplifting. The shopper then sues the store for assault, battery, etc. Typically only the employers vicarious liability for the acts of the employee will be covered.

As long as bodily injury or property damage are not expected or intended from the insured’s standpoint, most liability policies will respond. Insurance is generally not available to an insured who intends to physically injure someone or something. Assault is an intention tort and not covered by insurance.

Many liability policies provide personal injury liability coverage to deal with this exposure and others such as malicious prosecution, libel and slander, etc.

Front 117

What is meant by absolute liability?

Back 117

Absolute liability is a modification of negligence liability. It is held that engaging in inherently dangerous activities, regardless of the degree of care employed, is sufficient to create liability if a third party is injured.

The use of explosives, for example, is considered so dangerous that persons injured in connection with their use can recover for their injuries even if the user of the explosives used very special care.

Front 118

Explain the premises and operations exposures?

Back 118

The premises exposure has to do with things that occur on the premises. Ex Slip and Fall

The operations exposure is broader than just premises because it includes operations both on and off the premises. ex. employee delivering off premises

Certainly the distinction between premises and operations is important if a liability insurance policy covers one but not the other. However, the current liability forms usually do not make such a distinction.

Front 119

What is meant by products and completed operations exposures?

Back 119

A product liability action exists:

1. When physical possession of the product has been relinquished and

2. When the bodily injury or property damage occurs away from the premises.

The completed operations exposure is the counterpart of the products exposure for businesses that sell services rather than or in addition to physical items (products) thus, completed operations exposure relates to services.

Front 120

What is the general rule regarding the liability of an independent contractor? In what circumstances does the situation change?

Back 120

The general rule is that one is not responsible for the acts of independent contractors. Thus, if the subcontracted painter drops a bucket of paint on a customer, it is the painter’s problem, not the store owner’s.

Imputed Liability -

Unfortunately for owners, such as the store owner, the acts of independent contractors may be imputed to them, such as when the owner exercises any supervision over the independent contract. If the owner provides equipment or supplies, the courts are likely to interpret the relationship to be employer/employee rather than independent contractor. General contractors may also be held liable for the acts of their subcontractors if they furnish equipment or supplies, exercise supervision over them or delegate very dangerous work to them.

Front 121

What points arise about automobiles, aircraft and watercraft and associated liability exposures?

Back 121

Liability arising out of the ownership, maintenance, use, loading, or unloading of automobiles, aircrafts, and large watercraft is commonly excluded in the comprehensive general liability policy. Specific policies are designed to deal with liability exposures of owned motorized vehicles.

Auto liability can also arise even for companies or people that own no automobiles. If a hired or borrowed car is operated negligently and damage results, the operator may be held responsible. Non-owned auto, watercraft, and aircraft coverage can be added to CGL.

Front 122

Explain the situation regarding Workers’ Compensation and Employers’ Liability.

Back 122

Workers’ compensation laws were adopted to provide benefits for injured employees regardless of whether or not the employer was negligent.

In Canada, Workers’ Compensation is almost entirely provided by provincial government bodies generally known as Workers’ Compensation Boards. Workers comp involves a tradeoff. The worker receives compensation when injured on the job. The amounts are specified by law and it makes no difference who caused the injury or sickness. In return the employee gives up the right to sue the employer.

In a few instances, Workers’ Compensation does not apply and the employer can be sued by an injured employee if a work injury is caused by the fault of the employer. Coverage for this exposure is known as Employers Liability.

Front 123

Note the chief points about bailee exposures, give examples of bailees.

Back 123

A bailee is a person or firm that holds possession of personal property that belongs to another. The owner of the property is called the bailor and the agreement under which the property is held is known as a bailment. Thus it is basically non-owned property in the possession of the insured.

Professional bailees owe a greater degree of care than do gratuitous bailees who hold other people’s property for the benefit of the bailor. Dry Cleanersii. Mechanic Shopsiii. Computer Repair Shop

Both types may be held liable if their negligence causes damage to the bailor’s property

Care, Custody and Control Exclusion - Property damage liability insurance does not apply to damage to propertythat is in the care custody and control of the insured when the damagetakes place. Damage that occurs while the property is being worked on is alsoexcluded. Limited coverage may be available

Front 124

What points arise in connection with the transport of property by a) common carriers b) contract carriers c) the insured’s own vehicles?

Back 124

The liability of contract carriers depends on the terms of the contract. If the contract is silent on the matter of liability, then the contract carrier is liable only if the property being transported is damaged as a result of the carrier’s negligence. If the property is damaged in transit without any negligence on the part of the contract carrier, the loss falls upon the shipper. Thus, it is even more important for the shipper to insure the goods shipped by a contract carrier than it is for good shipped by a common carrier.

If goods are shipped on the owner’s own trucks, there is even less likelihood of recovering for any damage to the goods. The owner’s insurance becomes even more important in such situations.

Front 125

Note the factors to be considered in regard to leased premises.

Back 125

If a tenant negligently damages the building they rent, they are are liable. This is Fire Legal Liability.

The lease should be examined to see what is the responsibility for insurance. It may be that the tenant is required to insure the rented premises for the benefit of the landlord in which case a Fire Legal Liability coverage would not be enough since it only operates if the tenant is legally liable for the damage, and not if it occurs through no fault of his.

Front 126

What considerations apply when reviewing human assets loss exposure?

Back 126

Modern management generally recognizes that trained personnel are an organization’s most valuable resource or asset. The risk management role with regard to this asset is twofold:

1. To protect the firm from economic loss or disruption due to the death or disability of a key person(s)

2. To apply the risk management process on behalf of all employees in order to offer the employee compensation package necessary to maintain a stable, committed work force.

Scenarios

a. Death/disability of a founding CEOi. Causes financial loss due to short term decrease in earningii. Person is no longer contributing may still be dependent on the firmfor income

b. Death/disability of a major shareholderi. Continuity of stock concerns – buy out optionsii. Estate may not cooperate with the operation

c. Death/disability/accidents/injury to employeesi. Can be a serious economic impact to a firmii. Can be an economic impact to the employees family

d. Employee benefit programsi. Not required by lawii. Provided as incentive to remain with companyiii. Aids in employee moraleiv. Diminishes risk to employeesv. Diminishes risk of loss of personnel due to illness and turnovervi. Increases the firms overall profile

Front 127

Provide an example of Bailee Exposure, Absolute Liability,and Vicarious Liability

Back 127

Bailee Exposure - A drycleaner with the customers clothes

Absolute Liability - Nuclear exposures

Vicarious Liability - An employer being liable for the employees actions

Front 128

Explain how producers use risk management in their approach to sales

Back 128

Producers can use the risk management process to make an objective study of a client's exposures or needs and to develop ways to treat those exposures. Most insurance buyers cannot afford a full time risk manager, leaving the door open to producers to fill a need and permits producers to be on the clients side with a value added service.The risk management approach may quickly reveal an uninsured exposure that may secure an entire account.

Because risk management is systems-oriented, it requires investigation into all aspects of the client’s activities and all phases of the existing insurance program. Concepts and programs are sold rather than just insurance policies. Producers can easily move from one area of insurance to another and sell accounts rather than individual policies. This means more comprehensive treatment of exposures for the client and usually a higher income for the producer. The risk management process is expected to connect the client to the producer.

The producers goal is to establish credibility, gather information, and sell the risk management process.

Front 129

Describe indirect loss exposures and provide examples relating them in a general way to insurance coverage.

Back 129

Indirect losses are losses that result from direct damage to property. Indirect losses are usually more difficult to identify than direct losses because they are one step removed in the chain of causation. Examples.· Business interruption· Contingent business interruption – supplier/customer/leader business· Extra expense· Rent· Leasehold interest· Building bylaws· Demolition· Spoilage

Give examples of each

Front 130

Describe property loss exposures and provide examples relating them in a general way to insurance coverage.

Back 130

Real Property: is land, building and other permanent structures on the land.

Personal Property: is often defined to mean the right or interest that a person has in personal, movable or other property that is separable from real property.

A building for example, can be damaged or destroyed by fire, windstorm, vehicle or aircraft impact, earthquake, flood, lightning, and vandalism. Some parts of a building may be subject to a greater number of perils than other parts such as glass.Personal property is exposed to the same perils as real property and also to other perils such as theft. All personal property must consider theft by employees and others.Boilers require special treatment from being able to explode or break down. Require special insurance policies.Some perils are more likely to cause total loss to personal property intended for permanent placement than real property such as water damage to a building vs its furnishings.The class of personal property intended for movement is exposed o the broadest range of perils. All the same perils as real and personal property but also from perils arising from transportation such as collision.Property confronted by the most perils is property intended to move about or float. Covered by special policies known as floater policies.

Front 131

What are the four methods of risk analysis

Back 131

1. Property Exposed to Direct Loss

•Land & Buildings

•Personal Property

•Fixed

•Regular Movement

•Intended for Movement

•Measure Direct Loss

•ACV or Replacement

2. IndirectLoss Exposure

•Income

•Boiler & Machinery

•Extra Expense

•Valuable Papers

•Bylaws

3. LiabilityLoss Analysis

•Premises

•Operations

•Products

•Completed Operations

•Contractual

•IndependentContractors

•Watercraft &Aircraft

•Auto

4. Human Asset Exposures

Owners

•Death, Disability

•Retirement

Employees

•Benefits

Front 132

Describe how surveys are used to analyze the loss exposures of an insured or potential insured.

Back 132

The purpose of a survey or questionnaire is to provide a through and systematic framework for exposure identification.

While questionnaire are very useful risk management tools and probably should be used in all cases, they do suffer from one inherent flaw. A questionnaire must be designed to be used for a wide variety of business firms.

This approach is satisfactory for most small businesses because small businesses tend to have relatively little variation in their operations. Larger firms tend to have much more variation, even if they are in the same industry.

Front 133

Describe the financial statement method of risk analysis

Back 133

Financial Statement Analysis

Similar to the flow chart method. Requires detailed examination of financial records to determine lossexposures not discovered by physical examination

Examples:

Outstanding loans to identify existing liens

Inventory of goods - What kinds of goods are included in raw materials inventory?

Front 134

Which of the following is an example of an organization’s post-loss objectives?

a. Sustaining Growth

b. Maintaining Good Will

c. Managing the Cost of Risk

d. Fulfilling Contractual Obligations

Back 134

a. Sustaining Growth

Front 135

Depreciation is a loss caused by which category of peril?

a. Natural

b. Inherent

c. Economic

d. Consequential

Back 135

a. Natural

Front 136

3.Which of the following is an example of a company’s physical assets?

a. Key person insurance policies

b. A building owned by the company

c. Income from renting part of a building

d. The company’s commons stock share value

Back 136

b. A building owned by the company

Front 137

What does the first step in the risk management process involve?

a. Estimating the amounts subject to loss

b. Reviewing available insurance coverage

c. Determining the resources available to handle loss costs

d. Identifying loss exposures and determining a client’s needs

Back 137

d. Identifying loss exposures and determining a client’s needs

Front 138

Which of the tools used to identify loss exposures helps uncover the bottlenecks in an organization’s production processes?

a. Survey

b. Flow Chart

c. Questionnaire

d. Financial Statement

Back 138

b. Flow Chart

Front 139

Which theory related to loss control measures concludes that all losses are the result of unsafe acts of persons?

a. Domino Theory

b. System Safety Model

c. General Theory of Control

d. Mechanical Release Model

Back 139

a. Domino Theory

Front 140

A Propane Tank manufacturer contracts with a fuel dealer to fill and store its propane tanks because handling and storing propane is hazardous. This is an example of which loss control technique?

a. Diversification

b. Loss Avoidance

c. Loss Financing Transfer

d. Noninsurance Risk Transfer

Back 140

d. Noninsurance Risk Transfer

Front 141

A business using hazardous materials in its manufacturing processes creates an emergency plan to detail how it will handle a serious spill. Such a plan is an example of which risk management technique?

a. Loss Reduction

b. Loss Avoidance

c. Loss Prevention

d. Loss Containment

Back 141

a. Loss Reduction

Front 142

Which of the following is an example of an indirect loss?

a. A burglar is injured when he breaks into a shop

b. A home is struck by lightning and fire damage results

c. A tenant must find other accommodations following a fire and the landlord loses the rental income.

d. A tenant is overcome by smoke during a fire and must be hospitalized

Back 142

c. A tenant must find other accommodations following a fire and the landlord loses the rental income.

Front 143

10.What legal doctrine holds that an employer can be held liable for negligent acts of employees committed in the course of their employment?

a. Absolute Liability

b. Vicarious Liability

c. Contractual Liability

d. Presumptive Liability

Back 143

b. Vicarious Liability

Front 144

Identify and describe 5 pre and post loss objectives?

Back 144

A corporations pre-loss objectives include:1. Social responsibilities: serves to improve the organization’s overall public image. An organization should be recognized as a “good corporate citizen” by its conduct.2. Externally imposed obligations are set out in statute, in contract, or simply as a commitment to a customer. Failure to abide by the law can result in serious penalties and can ruin a business relationship.3. Peace of mind (tolerance level of uncertainty): each organization has a different tolerance level for uncertainty, a threshold beyond which the organization will not survive financially. By removing or minimizing uncertainty about loss exposures, management can concentrate on business operations.4. Operate economically: all costs associated with managing pure risk are known as cost of risk. This will also include insurance premiums and the costs to recover from any uninsured losses. Post Loss-1. Social responsibility- Also practiced after a loss occurs. It is still important to consider the employees and community at large.2. Survival - Major financial object for an organization is to survive. In a worst case scenario, an organization may be forced into bankruptcy or liquidation because funds were not available after a loss to restore the business to its pre-loss position.3. Operational continuity - for some organizations this is vital. The service they provide may be indispensable to the community or they may lose market share if the product is not available.4. Maintain stable earnings - Maintaining profits after a loss can be achieved in several ways.1. Cutting variable costs a. employee layoffs b. management perks 2. Reducing energy consumption 3. Reduction in raw material orders5. Sustain growth- May not be a high priority after a loss. Stable earning may be more important post-loss

Front 145

Describe Energy Release Theory using an example (4)

Back 145

Energy Release Theory: Dr. William Haddon stated that accidents result from mechanical failures. Machines release too much energy to be controlled as required.

Example: If a driver was unable to avoid an accident by stopping a car, it was the fault of the car which released too much energy to be controlled as required.

Front 146

Describe the processes of analyzing loss exposures using: a.Non-Mathematical Methods

b.Statistical Probability Methods

Back 146

13. a) Frequency and severity can be classified in nonmathematical terms using Prouty Measures developed by Richard Prouty. This method relies on judgement and common sense to estimate losses.Frequency:Almost nil· - extremely unlikely to happen, virtually no possibility Slight· it could happen, but has notModerate·it happens once in a whileDefinite - it happens regularly Severity:·Maximum possible loss – the worst that can happen·Maximum probably loss – the worst that is likely to happen·Annual expected dollar loss – the expected average severity times expected frequencyb) Statistical Probability - This method uses mathematical models to predict loss frequency and severity. It is not practical for smaller businesses. Operates on the law of larger numbers - The larger the sample group the more credible the predictions. The chance of the event occurring is represented as a percentage. Exposures must exist separately from one another meaning it is unlikely 2 or more units will be affected by the same occurrence. The exposure must also be similar and share the same major characteristicsSmaller entities can rely on insurers predictions. Probabilities can be calculated even if the loss exposure is not independent i.e. one forest fire threatening several chain stores in different townsPredictions must consider change for example:i. Socio-economic changeii. Public opinioniii. Change in construction materialiv. By-lawsThe Average Severity of Loss describes a range in which losses can fall. Law of Larger numbers applies and is a Key Factor in determining which risk financing method is to be used. Retentions of low severity, high frequency losses should be retained to save capital for higher severity losses that are low frequency

Front 147

Define Indirect Losses and provide an example.

Back 147

Indirect losses are losses that result from direct damage to property. Ex: fire at a electrical utility company interrupts service and ruins frozen meat in a storage companies locker.

Front 148

What triggers a liability loss?

Back 148

Liability arises when the rights of one party are violated by the actions or inaction of another so as to result in injury or damage.

Front 149

What is meant by vicarious liability?

Back 149

Vicarious liability: Under this concept, one party (employer or a parent) becomes responsible for the actions or missions of another (employee or child).

Front 150

Liability can arise from: (5)

Back 150

- Negligence

-Actions of others (vicarious liability)

-Intentional torts

-absolute liability

-Contract

Front 151

Give examples of liability exposures: (11)

Back 151

- Premises and operations

- Products and completed operations

- Personal Injury

- Contractual
- Independent Contractors

- Automobile

- Watercraft

- Aircraft

- Employer's Liability

- Fire legal Liability

- Bailee Liability

Front 152

What is a released bill of lading?

Back 152

When the owner of the goods being shipped may agree to a stated valuation for those goods in case of loss.

Front 153

What is the purpose of exclusions?

Back 153

Exclusions limit the insurer's exposure to loss. Sometimes perils are excluded because they are uninsurable such as War, Wear & tear, and Mold and fungus.

Sometimes there are exclusions when another form of coverage is appropriate such as automobile and watercraft policies so that businesses without the exposure are not subsidizing businesses that do not require it.

Front 154

Name 5 other indirect losses other than business interruption

Back 154

•RentAbatement Clause•Stopsrent if property is un-tenantable

•RentalValue•Paysfor lost rental income

•ExtraExpense•AdditionalCosts to continue operations

•LeaseholdInterest•Favorablerental terms lost•Coveragereduces as lease ages

•Bylaws•Increasedrebuilding costs (demolition)

Front 155

Name the 11 Liability exposures

Back 155

•Premises& Operations

•Products& Completed Operations

•PersonalInjury

•Contractual

•IndependentContractors

•Automobile

•Watercraft

•Aircraft

•Employer’sLiability

•BaileeLiability

•FireLegal Liability

Front 156

Describe automobile fleets

Back 156

usually 5 or more vehicles.

»Rates are based on the lossexperience of the fleet

•Owner/operators- sometimes insurance costs are better on the fleet, sometimes better on theirown

•Somepolicies offer a “retro endorsement”which provides a credit based on the loss ratio

»SEF 21B - Fleets can be writtenon a blanket basis»

»SEF 21A - Rates can be based onreceipts which can be helpful during tougher economic times.

Front 157

Describe Human Asset LossExposures and their impact to a corporation (20 marks)

Back 157

Members of an organization are subject to the possibility of illness, disability, or premature death – the human asset exposure.

Modern management generally recognizes that trained personnel are an organization’s most valuable resource or asset.

The risk management role with regard to this asset is twofold:

1. To protect the firm from economic loss or disruption due to the death or disability of a key person(s)

2. To apply the risk management process on behalf of all employees in order to offer the employee compensation package necessary to maintain a stable, committed work force.

Scenarios:

Death/disability of a founding CEO causes financial loss due to short term decrease in earning. The CEO is no longer contributing but may still be dependent on the firm for income

Death/disability of a major shareholder

Continuity of stock concerns – buy out options.Estate may not cooperate with the operation.

Death/disability/accidents/injury to employees-Can be a serious economic impact to a firm. Can be an economic impact to the employees family

Employee benefit programs

Not required by law. Provided as incentive to remain with company. Aids in employee morale.Diminishes risk to employees. Diminishes risk of loss of personnel due to illness and turnover. Increases the firms overall profile

Front 158

Describe the liability exposuresto a business operation which may arise from:

»Premisesand operations (5 marks)

»Productsand completed operations (5 marks)»ContractualLiability (5 marks)

»Actingas a Bailee (5 marks)

Back 158

The premises exposure has to do with things that occur on the premises.

Ex Slip and Fall

The operations exposure is broader than just premises because it includes operations both on and off the premises.

ex. employee delivering off premises

A product liability action exists:

1. When physical possession of the product has been relinquished and

2. When the bodily injury or property damage occurs away from the premises.

The completed operations exposure is the counterpart of the products exposure for businesses that sell services rather than or in addition to physical items (products) thus, completed operations exposure relates to services.

Contractual liability exposure involves the transfer of liability from where it would normally lie to someone else. The transfer may be accomplished in a contract which has some other principal purpose. Examples include:

Leases

Construction Contracts

Contracts of sale

railroad side track agreements

utility right of ways

A bailee is a person or firm that holds possession of personal property that belongs to another. The owner of the property is called the bailor and the agreement under which the property is held is known as a bailment. Thus it is basically non-owned property in the possession of the insured.

Professional bailees owe a greater degree of care than do gratuitous bailees who hold other people’s property for the benefit of the bailor.

Dry Cleaners

ii. Mechanic Shops

iii. Computer Repair Shop

Front 159

What factors must be considered to design a risk management program

Back 159

Identify& Analyze

CorporateGoals

•Preloss

•Postloss•

LossExposure

Item

•PhysicalAsset

•Lossof Use

•LegalLiability

•HumanAssets

Peril

•Human

•Natural

•Economic

FinancialConsequence

•Reducedvalue

•Decreasedincome

•Increasedexpenses

FormulateOptions

LossControl

•Avoid

•Prevent

•Reduce

•Separate

•Non-InsuranceTransfer

LossFinancing

Retain

•CurrentExpenses

•UnfundedReserve

•FundedReserve

•Borrow

•CaptiveInsurer

Transfer

•Non-Insurance

•Insurance

SelectTechnique

MELM

•ConsidersAll Costs

Insurance

•Buyto the Budget

Implement

•What

•Who

•How

•When

•Where

Modify& Monitor

RisksChange

Successof Plan

•Benchmarks

•Standards

•Measurable

Front 160

For risk management purposes, the Balance Sheet is useful in:

A) Measuring the value of assets

B) Measuring the historical cost of assets

C) Identifying the depreciated value of assets

D) Identifying exposures

Back 160

D) Identifying exposures

Front 161

Describe how flow charts are used to analyze the loss exposures of an insured or potential insured.

Back 161

In applying the flow chart method, the producer draws a chart showing the flow of labour, materials and other production factors through the firm, from supplies to customers, and the flow of money through the firm in the opposite direction.

Through the use of the flow chart, the producer can examine the firm’s operations systematically, step by step, in search of loss exposures.

Front 162

Describe the Two forms of Business Interruption and Extra Expense

Back 162

GrossEarnings

•Coverage ends whenrepairs completed

•Customers Will ReturnOnce The Business Reopens

Profits Form

•Coverage ends whensales return to pre-loss levels

•Permanent Loss ofCustomers

Extra Expense

•Pays costs to continueoperatingbody

•Business must continueoperatingbody>

Front 163

Identify what should be done during the Exposure Analysis portion of the risk management process and then transitioning into the Loss exposure treatment.

Back 163

•ExposureAnalysis (Identify & Analyze)

Identify the itemexposed and the financial consequence

Consider LossFrequency & Severity

•Large Loss Principle –should be insured

•Small Loss Principle –should be retained

•LossExposure Treatment (Formulate a Plan) Retention –deductibles

Control (prevent &reduce)

Non-insurance Transfer

Insurance

Front 164

All of the following are pre-loss objectives, except one. Pick the exception:

a. Externally Imposed Obligations

b. Cost of Risk

c. Social Responsibility

d. Sustained Growth

Back 164

d. Sustained Growth

Front 165

3.All of the following are examples of premises and operations liability exposures, except one. Pick the exception:

a. An employee driving a forklift, knocks over a display, injuring a customer

b. A customer sits in a chair, it breaks, causing the customer to fall and injure their back

c. A customer becomes ill after eating a pizza delivered to their home

d. A crane operator drops a load of concrete onto a parked car

Back 165

c. A customer becomes ill after eating a pizza delivered to their home

Front 166

One of the disadvantages to using financial statements in Risk Analysis is:

a. Financial statement are usually difficult to understand and interpret

b. Accounting methods for property valuation are different than insurance methods

c. Most clients do not want to reveal confidential financial information

d. A financial statement will not give any insight into the costs of indirect losses

Back 166

b. Accounting methods for property valuation are different than insurance methods

Front 167

5.All of the following are “Items subject to loss”, except one. Pick the exception

a. Physical Assets

b. Legal Liabilities

c. Extra Expenses

d. Human Assets

Back 167

c. Extra Expenses

Front 168

A Flow Chart:

a. Is a form of financial statement

b. Is a map of business activity

c. Is the same as a checklist

d. Is a list of business hazards

Back 168

b. Is a map of business activity

Front 169

Buying a fire extinguisher is an example of:

a. Non-insurance risk transfer

b. Loss reduction

c. Loss prevention

d. Current expensing

Back 169

b. Loss reduction

Front 170

Passive retention is a situation in which:

a. The exposure has been consciously retained by the client

b. The exposure is too small to cause a concern

c. The exposure has been retained because it was not identified

d. The exposure is a trade risk

Back 170

c) The exposure has been retained because it was not identified

Front 171

A bailee is a person or firm that:

a. Holds possession of personal property that belongs to another

b. Is the beneficiary of a bail bond

c. Receives goods

d. Acquires a bail bond

Back 171

a. Holds possession of personal property that belongs to another

Front 172

A method of financing losses in which a corporation sets funds aside to pay for losses is:

a. A funded reserve

b. A captive insurer

c. Current expensing

d. Cost analysis

Back 172

a. A funded reserve

Front 173

Which statement best summaries the legal concept of vicarious liability?

a. One party is held responsible for the actions of another party

b. The failure to use a degree of care that a reasonable person in the same situation would use

c. Injury or property damage caused to a third party due to negligence

d. One party releases another party in contract from their legal claims

Back 173

a. One party is held responsible for the actions of another party

Front 174

13.Which of the following is not an example of an indirect or consequential loss:

a. Damage to stock in a freezer due to a power interruption

b. The additional costs of installing a sprinkler system, after an insured loss, in order to comply with local building codes

c. Paying staff overtime to keep the business operating after a loss

d. Damages to a building caused by fire fighters

Back 174

b. The additional costs of installing a sprinkler system, after an insured loss, in order to comply with local building codes

Front 175

14.Avoidance, as a loss control method

a. Is one of the most practical ways to deal with risk

b. Is one of the least practical methods of dealing with risk

c. Will not create any additional exposures

d. Always reduces the possibility of a loss occurring

Back 175

b. Is one of the least practical methods of dealing with risk

Front 176

The large loss principle:

a. Suggests that all large losses will result in a premium increase

b. States that in the long run the insurer will take in what they pay out in claims

c. Eliminates the deductible if the claim exceeds a specific value

d. Suggests that devastating exposures should be insured or transferred

Back 176

d. Suggests that devastating exposures should be insured or transferred

Front 177

When property is insured on an Actual Cash Value basis, in the event of a loss, the insurer will settle the loss based on:

a. The actual cost of the property when it was purchased by the insured

b. The cost to replace the property with a deduction for depreciation

c. The value of the property indicated on the insured’s financial statements

d. The cost to replace the property with a new item of similar like, kind and quality

Back 177

b. The cost to replace the property with a deduction for depreciation

Front 178

Which of the following is not a loss prevention or reduction method:

a. Upgrading heating and electrical systems

b. Separation or Diversification

c. Installing a sprinkler system

d. Training staff on safe practices

Back 178

b. Separation or Diversification

Front 179

Which of the following is not a source of funds to meet the cost of retained losses:

a. Current expensing

b. Captive insurers

c. Borrowing

d. Insurance policies

Back 179

d. Insurance policies

Front 180

Perils can be grouped by origin into three general categories. Which is not one of the categories:

a. Human

b. Economic

c. Natural

d. Property

Back 180

d. Property

Front 181

Key person insurance policies can be designed to indemnify a business in all of the following circumstances except one. Pick the exception

a. Death of a one of the partners

b. Disability of one of the partners

c. Funding the purchase of shares in the business from a partner’s estate

d. Lost income due to the dissolution of a partnership

Back 181

d. Lost income due to the dissolution of a partnership

Front 182

Illustrate a type of Products and Completed Operations Exposure (5 marks)

Back 182

Products and Completed Operations

Product liability arises out of a finished bodily injury or property damage from the insureds product - whether it is on or off of the insureds premises. This could be a sharp object accidentally being served in the food at a restaurant and injuring a client while being swallowed or if someone were to purchase a product such an ATV and have the brakes fail while being used by the operator and injure the operator.

Completed operations liability arises out of an operation of the insured that results in bodily injury or property damage to a third party. This could be a plumber incorrectly who fixed a boiler at a clients house and then the boiler explodes causing the house to burn down. The object being worked on is excluded by a Commercial General liability policy but the ensuing damages are covered.

Front 183

Explain what is meant by the “small loss principle” (5 marks) (double check in text book)

Back 183

The small loss principle suggests that small and frequent exposures should be retained. Small and frequently expected losses are costly to the insurer. Most times it ends up costing the insured more to claim small and frequent losses rather than retain them because the insurance company has expenses in process claims and have to make a profit on top of paying out claims - this is how they set their premium. Claiming small and frequent expected losses will cause premiums to go up and insureds end up exchanging dollars with the insurance company. By increasing the retention and retaining the small losses, insureds can save on premium, thus allowing the premium to go towards increasing limits to insure the large devastating exposures.

Front 184

Discuss the advantages and disadvantages to non-insurance risk transfers (10 marks) (double check text book)

Back 184

Advantages of Non-insurance Risk Transfers-Cheaper than retaining or insuring the risk- Can continue operation instead of using the avoidance technique without accepting the liability that arises out of that operation/ hazard- Used to transfer large loss exposures- Can be used to transfer otherwise non-insurable exposures- Corporations with leverage can use non-insurance risk transfers to their advantage and transfer liability to third parties who need the work Disadvantages of Non-Insurance Risk Transfers-Indemnitor may not be able to pay for losses when transferring risk - Their insurance policy may deny the claim- Some contracts and hold harmless agreements may not hold up in court - contract could be unreasonable - The contract or hold harmless agreement may not be as solid as thought. May have gaps or ways around accepting the risk transfer.- Can still be brought into lawsuit if proven to have supervision over the subcontractor / indemnitor - Depending on the economic situation at the time, it may prove more difficult to use non-insurance risk transfers to another party

Front 185

Discuss the coverage provided under a typical named perils wording mentioning exclusions and any special features

Back 185

Coverages

· Fire or lightening;

· Explosion;

· Impact by aircraft, spacecraft or land vehicle;

· Riot, vandalism or malicious acts;

· Smoke;

· Leakage from fire protective equipment;

· Windstorm or hail

Some insurers provide additional perils such as water escape from a plumbing system, accidental rupture or freeze up of a plumbing, heating or air conditioning system and theft. An apartment building or other commercial building with residential occupancy would likely be considered acceptable by underwriters of this extended coverage.

When a loss occurs, there is a provision for covering property temporarily removed from the insured premises to prevent or restrict damage.

Exclusions:

1. Damage to electrical devices, appliances or wiring caused by electric current is excluded but not ensuing fire damage.

2. Damage to goods by their undergoing a process involving the application of heat.

3. War

4. Nuclear

5. Money and securities

6. Miscellaneous types of property

7. Vacancy and unoccupancy

8. Bylaws

Exception to misc prop exclusion: Watercraft being held for sale is covered

Front 186

Briefly describe how coverage is provided for farm risks.

Back 186

A detailed application is required which brings out the features of the particular farm. Included in the form is a provision for insuring the farmers house and contents. Commonly used clauses for farms include:

Rebuilding Clause – Deferred Payment: provides that if a building is damaged to more than 2/3 of its value, the insurance company will pay initially only 50% of the total payable. To collect the remainder, the insured must actually rebuild within nine months of the loss and within 200 feet of the damaged building.

Extended Coverage: this divides into two parts: the farmer’s dwelling and contents and the other part to the rest of the farm. The insurance on the farmer’s dwelling and contents is like that for other private dwellings and the “all other” coverage is similar to the commercial EC. The chief differences between the EC coverage for

Farm Machinery and Equipment Floater: covers mobile machinery and equipment against all risks anywhere in Canada and the USA and is subject to 80% coinsurance.Livestock: covers accidental death or unnecessary destruction plus theft and the animals are usually insured by class. +-

Front 187

What are the two main classifications for property policies?

Back 187

Named perils: lists the specific perils such as on a Fire & Extended Coverage (EC) form.

All-risk: covers all perils except those excluded in writing.

Front 188

What kind of risks would be considered for each of these two types of policies?

Back 188

The type of coverage businesses choose will depend on their objectives. The condition of the property, its use and overall value will play a role in the decision.

In some cases, the insurer’s underwriting criteria will determine the type of coverage. For risks that an insurer considers to be substandard only very limited insurance will be available. The type of coverage an insured wants is tempered by what an insurer is prepared to risk. In some cases only the most basic fire insurance policy will be offered.

Front 189

What are the four main parts of a policy?

Back 189

1. Declaration (or Schedule)

2. Wordings

3. Statutory Conditions where laid down by statute law, usually the Insurance Act of a province or the General Conditions in Quebec.

4. Endorsements (as applicable)

Front 190

Why is it important to accurately identify the insured?

Back 190

If not identified accurately, the property or business meant to be insured might not be.

Front 191

How would a sole proprietorship be named in a policy?

Back 191

A sole proprietorship will include the name of the owner of the business he/she operates.

For example, Penelop Pocket d/b/a Pocket of Miracles is a typical format used. The abbreviation d/b/a means “doing business as” and o/s, another short form means “operating as.”

Front 192

What details do the declarations (or schedule) contain?

Back 192

· Property insured and its address;

· Insured mailing address;

· The policy period;

· Occupancy of the building or use of the insured object;

· The sum insured;

· Any loss payees other than the insured;

· The premium.

Front 193

What are manuscript wordings?

Back 193

These wordings are specially drafted by larger corporate clients as a joint effort of the insurer and the insured.

Front 194

What are the advantages and disadvantages of using manuscript wordings?

Back 194

The insured has the advantage of having a policy that provides the precise coverage needed by the corporation. However, insureds lose the legal advantage of contra proferentem when they participate in making up the contract wording.

Front 195

Given an example of some risks that will often need a specific policy form designed especially for it.

Back 195

A condominium high rise for example will be covered using a special form designed especially for condominiums.

A building under construction needs a special builder’s risk policy.

Front 196

Review the comments about Statutory Conditions and General Conditions (Quebec).

Back 196

Statutory Conditions which are set out in the provincial Insurance Acts, are part of every fire policy issued in the common law provides and apply to most property policies.

The corresponding conditions in Quebec are called General Conditions.

Front 197

What are the main features of wordings as described under Commonly Used Wordings.

Back 197

Printed wordings comprise mainly of:

1. Descriptions of the property insured including its location, detailed definitions of building, equipment, etc.

2. Standard clauses which:

· Widen the coverage, for instance, the permission clause

· Control the way the coverage operates, for instance, the coinsurance clause

Front 198

Explain the two practical points mentioned about becoming familiar with wordings.

Back 198

By reading the wordings, one must keep the following two objects in mind:

1. To know, at least in a general way, what they cover and what restrictions apply. Note any important differences between the policies of the different companies.

2. Some of the forms set out essential underwriting information. By entering the details of a risk on a spare form you can secure the information that the company underwriter needs to give you a quotation.

Front 199

Do you think applications are useful? Give your reasons.

Back 199

Written applications are required by law for certain insurances. Whether specifically required or not, a properly completed and signed application is invaluable. It provides rating and underwriting information and is a producer’s best ally should a dispute arise.

Front 200

**List the six common policy forms mentioned and comment on their use.

Back 200

1. Retail Store Form: used to cover the building and contents of retail stores. It is not widely used today having been largely superseded by the package policies.

2. Mercantile Building and Contents: This form can be employed for small businesses where the retail store form does not apply.

3. Package Policies: businesses under 1) and 2) can be insured under package policies which include additional coverages such as business interruption, liability and crime.

4. Building and Contents: used for larger risks that have only “incidental” stock to cover. (E.g. schools, hospital, etc). There are usually two forms, one with coinsurance and one without.

5. Building, Equipment and Stock: used for larger risks where stock is part of the business (manufacturers/wholesalers) with two variations: non-sprinklered and sprinklered. The non-sprinklered form can be with or without coinsurance (usually 80%). The sprinklered form normally calls for 90% coinsurance.

6. Stock Insurance: having a high limit with the actual amounts of stock reported and the premium adjusted accordingly for businesses with varying amounts of stock throughout the year.

Front 201

What are the alternative methods of insuring stock?

Back 201

One calls for regular reports of value, usually monthly. Premium is paid initially on 75% of the limited insured. At the end of the year the value reports are averaged. The actual premium due is calculated on the average value and the insured either pays extra or gets a return. Coinsurance is 100%.

Small firms may not find it possible to make regular reports of value thus may opt for the adjustable stock plan “Stock Form (with Premium Adjustment Option)” This allows the insured to adjust his premium after year-end but does not penalize him if he does not do so. With this form, he has to deposit 100% of the premium, compared with 75% under the first plan.

The third alternative is the Peak Season Endorsement. This simply increases the stock coverage at specified times by set amounts and the premium is paid on this basis. Provided the increased amounts are carefully fixed and reviewed from time to time, this is often the best basis for a small risk.

Front 202

How did the expression “fire and EC” come about?

Back 202

Historically we refer to the basic coverage as Fire and EC. There was a time when the perils of fire, lightening and explosion represented the basic coverage and a separate extended coverage endorsement was attached to it. The extended coverage perils are now party of the main wording and is today describes the most basic named perils form.

Front 203

***** What perils are covered under the most basic named perils policy?

Back 203

· Fire or lightening;

· Explosion;

· Impact by aircraft, spacecraft or land vehicle;

· Riot, vandalism or malicious acts;

· Smoke;

· Leakage from fire protective equipment;

· Windstorm or hail

Front 204

****What are some of the other perils that might be covered under a broader named perils coverage?

Back 204

Some insurers provide additional perils such as water escape from a plumbing system, accidental rupture or freeze up of a plumbing, heating or air conditioning system and theft. An apartment building or other commercial building with residential occupancy would likely be considered acceptable by underwriters of this extended coverage.

Front 205

*****Why is it important to carefully review the actual policy wording to be used?

Back 205

It is extremely important to check the actual policy wording to be used. Definitions change and extensions added that will change the coverage as it is provided under the typical basic forms.

Front 206

*****Why would an insured choose a named perils policy?

Back 206

A cost-conscious insured may choose to be insured with a named perils form especially when it is an exceptional form that incorporates many more additional perils than the norm.

Front 207

What additional property coverage is provided in a loss situation?

Back 207

When a loss occurs, there is a provision for covering property temporarily removed from the insured premises to prevent or restrict damage.

Front 208

What are the exclusions usual to a named perils property policy?

Back 208

1. Damage to electrical devices, appliances or wiring caused by electric current is excluded but not ensuing fire damage.

2. Damage to goods by their undergoing a process involving the application of heat.

3. War

4. Nuclear

5. Money and securities

6. Miscellaneous types of property

7. Vacancy and unoccupancy

8. Bylaws

Front 209

Name the types of property that can be insured.

Back 209

· Building

· Building, equipment and stock

· Contents of every description

· Property of every description

· Accounts receivable

· Property in transit

· Cash and securities

· Jewellery and art

· Business interruption

· Extra expense

Front 210

What is included in the definition of building in a typical policy?

Back 210

Building includes additions and extensions, permanent fittings and fixtures, items required for maintenance and building services.

Front 211

What is included in the definition of equipment in a typical policy?

Back 211

Equipment generally means all contents usual to the insured’s business including furniture, fittings, fixtures, machinery, tools, utensils and other appliances.

Tenants improvements to the building are covered under equipment if the insured does not own the building.

Front 212

What is included in the definition of stock in a typical policy?

Back 212

Stock means merchandise of every description plus packaging, wrapping and advertising material, including similar property belonging to others which the insured is under an obligation to insure or for which he/she is legally liable.

Front 213

Explain what is meant by Actual Cash Value (ACV)?

Back 213

It is the cost to replace with new items less physical depreciation (wear and tear).

If ACV insurance is bought and there is a loss t hen the insured will either have to buy secondhand replacements for the items destroyed or buy new, and make up the difference from his own pocket.

Front 214

Review the comments about Replacement Cost

Back 214

Replacement cost pays the full cost of replacement or repair, without any deduction for depreciation.

Front 215

How is coverage limited for records?

Back 215

The coverage on records including books of account is limited to the value of the blank books and the cost of reproducing the information they contain from source data. There is no cover for the cost of “reworking” the information.

Front 216

What information is provided about coinsurance?

Back 216

Coinsurance either encourages or requires the insured to cover close to full value by imposing a share of the loss on him if he fails to do so. Total losses do sometimes occur and unless the insured has coverage for 100% of value, he can suffer a partly uninsured loss even though he has met the coinsurance requirement. Insurance to full value is the only way to be sure of avoiding paying part of the loss.

Front 217

What is said about stated amount?

Back 217

There is a snag to insuring on a coinsurance basis as values keep rising owing to inflating and the amount insured can quickly fall below the required percentage and if this happens, the insured will have to pay part of the loss himself.

The stated amount method avoids this by the insured filing a statement at the start of the policy year to the insurance company setting out the 100% value of the property insured.

Front 218

***Discuss what is required to underwrite and rate property risks

Back 218

In addition to the applicant’s name, address, business, location of the property and amount to be insured, the following information is needed for underwriting and rating:

· Construction

· Heating methods

· Business and processes

· Nearby properties

· Fire protection

· Past losses

· Length of time in business

Front 219

Explain the differences between flat rating and insurer rating?

Back 219

Flat rating is for simple risks such as small stores and offices whereby rates are laid down by insurers and premiums are calculated by producers.

Insurer ratings are for more complex risks rated by the insurers on the basis of information such as the above obtained by the producer, and in some instances, an inspection by the insurer.

Front 220

From whom can you get help with submission?

Back 220

A good company field inspector can be of great help to a producer; especially a new one and the company underwriters can also give valuable assistance.

Front 221

Note the points that arise about bylaws coverage.

Back 221

The older buildings erected before the higher standards were enacted are allowed to stand, but if they are seriously damaged by fire, the local authority will probably require reconstruction or repairs to conform to the current regulations. This will often mean that undamaged portions of “non conforming” buildings have to be torn down and rebuilt and can incur large expenses.

If the insured buys replacement cost insurance, his policy can be extended to cover the additional cost arising from the operation of the bylaws.

The standard endorsements giving effect to this extra insurance provide coverage for the following:

· Value of undamaged portion of buildings

· Demolition and debris removal cost of undamaged portion of buildings

· Increase in cost of construction or repair

Front 222

What points are mentioned about the consequential loss – cold storage endorsement?

Back 222

One type of consequential loss can be covered by an endorsement on a property policy called the Consequential Loss Assumption Clause – Cold Storage.

This applies to spoilage of refrigerated stock caused as a consequence of the first loss, say fire damage to the refrigeration system. The most obvious examples of the need for this coverage are frozen or chilled foods and milk in supermarkets and convenience stores.

Front 223

Note the points arising from inflation and automatic increases clauses.

Back 223

Clauses are often available to increase sums insured so as to help combat the effects of inflation. Increases may be linked to specified indices. Other clauses may provide for a fixed percentage increase on buildings or equipment at stated intervals. Stock is not usually held for long enough to warrant an automatic increase clause.

Front 224

***Review the discussion of personal property of officers and employees.

Back 224

Coverage is qualified to cover for personal property of offices (presidents, secretary, and treasurer) as follows:

· It is available at the option of the insured

· It does not apply if the owner has insurance, unless the insured has an obligation to insure or is legally liable

Some insureds may wish to extend the coverage to apply to visitors or other such as directors who are not officers.

Some insureds also like to be able to withhold coverage in some circumstances, such as where the loss was due to gross carelessness on the part of the owner of the damaged property.

Front 225

How does coverage for tenant’s improvements operate?

Back 225

Tenant’s improvements/betterments are improvements to the building made or acquired by the tenant. These belong to the tenant so long as his lease is in force, but cannot be removed when it ends and then become the property of the landlord.

Their value to the tenant thus decreases as the lease gradually runs out.

Front 226

Note the considerations that apply to blanket coverage.

Back 226

The word blank indicates that coverage is provided applying to all property with very few restrictions.

It may be to the insured’s advantage to have one or the other type of blanket coverage particularly where the insured’s property is often moved from one location to another. An average rate will be set based on the exposures at each location and a coinsurance clause will apply when any type of blanket coverage is arranged.

Front 227

Note the chief points about farm forms.

Back 227

Commonly used clauses for farm policies include:

Rebuilding Clause – Deferred Payment: provides that if a building is damaged to more than 2/3 of its value, the insurance company will pay initially only 50% of the total payable. To collect the remainder, the insured must actually rebuild within nine months of the loss and within 200 feet of the damaged building.

Extended Coverage: this divides into two parts: the farmer’s dwelling and contents and the other part to the rest of the farm. The insurance on the farmer’s dwelling and contents is like that for other private dwellings and the “all other” coverage is similar to the commercial EC. The chief differences between the EC coverage for dwelling and contents and that for the remainder of the farm are:

· The explosion coverage for the dwelling and contents is wider

· Rupture or escape of water from heating, plumbing, or air conditioning systems

· The windstorm or hail coverage differs

Front 228

What is the Rebuilding Clause - Deferred Payment clause on a farm policy?

Back 228

Provides that if a building is damaged to more than 2/3 of its value, the insurance company will pay initially only 50% of the total payable. To collect the remainder, the insured must actually rebuild within nine months of the loss and within 200 feet of the damaged building.

Front 229

What further coverages may be required for farms?

Back 229

Farm Machinery and Equipment Floater: covers mobile machinery and equipment against all risks anywhere in Canada and the USA and is subject to 80% coinsurance.

Livestock: covers accidental death or unnecessary destruction plus theft and the animals are usually insured by class.

Front 230

All of the below are elements of a policy except:

a. Statutory Conditions

b. Declarations

c. Exclusions

d. Endorsements

Back 230

c. Exclusions

Front 231

When property is insured on an Actual Cash Value basis, in the event of a loss, the insurance will settle the loss based on:

a. The actual cost of the property when it was purchased by the insured

b. The cost to replace the property with a deduction for depreciation

c. The value of the property indicated on the insured’s financial statements

d. The cost to replace the property with a new item of similar like kind and quality

Back 231

b. The cost to replace the property with a deduction for depreciation

Front 232

A rebuilding clause provides that:

a. If the building is damaged more than fifty percent, that the insurer will pay two thirds if rebuilt within 9 months and 200 feet of the original building

b. The insurer will pay the cost to repair plus any increase in cost of construction or repair

c. Any improvements made by the tenant will be included in repairs if the building suffers a loss

d. If a building is damaged to more than two thirds of its value, that the insurer will pay fifty percent if rebuilt within 9 months and 200 feet of the original building

Back 232

d. If a building is damaged to more than two thirds of its value, that the insurer will pay fifty percent if rebuilt within 9 months and 200 feet of the original building

Front 233

Consequential Losses can be covered by an endorsement called:

a. Consequential Loss Assumption Clause – Cold Storage

b. Consequential Loss Assumption Clause – Business Interruption

c. Consequential Loss Assumption Clause – Spoilage

d. Consequential Loss Assumption – Refrigeration

Back 233

a. Consequential Loss Assumption Clause – Cold Storage

Front 234

Personal Property of Officers and Employees is defined as covering all of the following except:

a. Personal Property of the Officers

b. Personal Property of Employees

c. Personal Property of the Directors

d. Personal Property of their Significant Others

Back 234

d. Personal Property of their Significant Others

Front 235

There is no cover for property that is vacant or unoccupied for more than:

a. 45 Days

b. 60 Days

c. 30 Days

d. 90 Days

Back 235

c. 30 Days

Front 236

All of the following are excluded from Basic Named Perils Form, except:

a. Damage to Electrical Devices

b. Any loss due to bylaw preventing it from being restored

c. Money, bullion, stamps, tickets and tokens

d. Watercraft held for sale

Back 236

d. Watercraft held for sale

Front 237

What are the key elements of an endorsement - what does an endorsement do?

Back 237

Some will broaden coverage because the insured has requested some additional coverage. Others will limit coverage because the underwriter has deemed it necessary to limit certain aspects of coverage.

Front 238

What not covered under the Impact by aircraft, spacecraft or land vehicle coverage?

Back 238

Damage caused by vehicles owned or under the control of the insured or that of his or her employees is not insured.

Front 239

What is covered what is excluded within the named perils Riot, vandalism, or malicious acts coverage?

Back 239

Open assemblies of strikers are not excluded

Any loss or damage caused by work stoppage or its interruption is excluded. Flood caused by failure of a dam is excluded whether or not it is caused by vandalism. Any theft or attempted theft is also excluded.

Front 240

What is covered what is excluded within the named perils Smoke coverage?

Back 240

Only includes smoke from a sudden, unusual, and faulty operation of a furnace. The effects of cumulative damage are excluded.

Smoke from fire damage is covered under the fire policy as well as any consequential loss from fire.

Front 241

What is covered under the named perils leakage from fire protective equipment coverage?

Back 241

Applies to leakage from sprinklers but also covers a few other instances of damage such as falling or freezing of fire protective equipment.

Front 242

What is excluded under named perils Windstorm or hail coverage?

Back 242

Interior damage is excluded by would only be covered if insured perils first damaged the exterior of the building. Any damage caused by surface water such as tidal wave or flood is excluded.

Front 243

Describe the Vacancy and unoccupancy exclusion

Back 243

There is no cover on property at locations that the insured knows are vacant, unoccupied, or shut down for more than 30 consecutive days.

Front 244

Describe the Miscellaneous types of property exclusion

Back 244

Automobiles, watercraft, amphibious or air cushion vehicles, spacecraft, trailers, and attached motors or other accessories are excluded.

The exclusion does not apply to watercraft, amphibious or air cushion vehicles held for sale, nor to unlicensed automobiles or trailers used in the insured business when on his premises.

Front 245

What is the coinsurance formula

Back 245

Insurance Carried

___________________ X Loss = Amount of

Insurance required payment by insurer

Front 246

Electronic Data Processing policies cover which of the following risks generally not covered by All Risks policies:

a. Electrical Damage

b. Equipment Breakdown

c. Air Conditioning Failure

d. All of the above

Back 246

d. All of the above

Front 247

2.Difference in Conditions policies cover:

a. Fire and Extra Expense

b. All Risks policies and Basic Fire policies

c. Named Perils and Extended Coverage policies

d. Fire and Extended Coverage policies

Back 247

d. Fire and Extended Coverage policies

Front 248

The All Risks policy is expected to cover all of the below major perils, except:

a. Marine Shipments

b. Water Damage

c. Theft by Employees

d. Fire and Lightning

Back 248

c. Theft by Employees

Front 249

Office Contents Floaters are:

a. Standard Forms amongst insurers

b. All Risks form covering undesignated offices

c. Provides coverage for unlimited amounts at other premises and in transit

d. Generally requires coinsurance and a deductible

Back 249

d. Generally requires coinsurance and a deductible

Front 250

Special construction hazards not covered by a Named Perils policy includes:

a. Collapse, theft of materials and transportation

b. Collapse, theft by employees and transportation

c. Faulty material, dishonesty of employees, and waterborne transit

d. Valuable papers, theft of materials and transportation

Back 250

a. Collapse, theft of materials and transportation

Front 251

Valuable papers coverage insures all of the following except:

a. Manuscripts

b. Abstracts

c. Bonds

d. Drawings

Back 251

c. Bonds

Front 252

Accounts Receivable policies cover which of the following:

a. Bookkeeping errors

b. Attempts to conceal wrongful acts

c. Collections costs in excess of normal including interest on loans

d. Collections costs and interest on loans considered not in excess of usual expenses

Back 252

c. Collections costs in excess of normal including interest on loans

Front 253

Does an all-risks policy insure every kind of loss?

Back 253

All-risk policies do not specify certain perils, rather all types of losses are covered except for those excluded. All-risks policies are intended to be broader than named peril policies and thus they are often called Broad Form wordings. All-risks policies do not insure against every possible kind of loss; no policy does this.

Front 254

***What major perils does an all risks insurance policy cover that are not typically included in a named perils policy?

Back 254

An all-risks policy is expected to cover certain major perils that are not included in the basic named perils form:

· Theft - Includes burglary. Does not cover theft caused by employees

· Water damage

· Transportation risks - Limited cover for marine shipments

Front 255

***Review the perils exclusions in an all-risk policy.

Back 255

Perils excluded from an all-risks policy:

· Earthquake and floods

· Water seepage into basements

· Centrifugal force, mechanical or electric breakdown.

· Atmospheric changes, rust or corrosion, marring, scratching or crushing

· Smoke from agricultural smudging

· Rodents, insects or vermin

· Delay, loss of market, loss of use

· Employee dishonesty

· Snowslide, landslide, and earth movement

· Settling, expansion, contracting, moving, shifting or cracking unless concurrently and directly caused by a peril not otherwise excluded.

Front 256

What are trade losses and what four all risk exclusions are trade losses?

Back 256

Trade losses are expected as part of the cost of doing business:

-Rust and corrosion

-Loss of weight

-Inventory shortages

-Damage by rodents and insects

Front 257

What are inevitable losses and give an example.

Back 257

Inevitable losses must be anticipated by Insureds by they are not insurable. Wear and tear for example.

Front 258

*** Review the property exclusions in an all-risk policy.

Back 258

The wide coverage provided by all-risks insurance is tempered by excluding and limiting certain types of property.

· Coverage is limited for growing plants, trees, shrubs or flowers in the open to named perils excluding windstorm, hail, theft, or attempted theft. There is a limit imposed per item which includes any expense incurred for removal.

· Coverage is limited for furs, fur garments, jewels, jewellery, costume jewellery, watches, pearls, precious and semi-precious stones, and pre-recorded video tapes to named perils except when the items Is less than $1,000. Coverage is provided on an all-risks basis for items up to $1,000

· Property insured under Marine Insurance and property while waterborne are only covered while on a regular ferry or railway car transfer in connection with land transportation.

· Property on loan, on rental, or property sold by the insured under a deferred payment plan is excluded except while such property is in the custody of a carrier for hire for the purpose of delivery at the risk of the insured.

· Property in the custody of a sales representative is only covered if an amount of insurance is shown on the Declarations page.

· Property illegally acquired, kept, stored or transported is excluded. As well, property seized or confiscated for breach of any law or by order of public authority is excluded.

Front 259

***What are the chief features of the CPF ?

Back 259

The CPF (Commercial Property Floater) is essentially a “contents” form and covers stock, equipment and tenant’s improvements. There is limited coverage for damage to the building caused by theft. The insured must own the building or be liable for the damage for coverage to apply.

· Coverage is all risks subject to various exclusion subjected on a typical all-risks policy.

· Applies at specified locations, newly acquired premises and elsewhere in transit.

. Transit is limited to Canada & US

· There is a coinsurance clause (90%)

· A deductible is required

· A detailed application is usually required

. Limited coverage for damage to building due to theft

. Can cover property in the custody of sales rep

Front 260

***What are the chief features of the CBF?

Back 260

The CBF (commercial building form) covers building and corresponds to the CPF for contents. It was designed to insure commercial buildings as well as office buildings, apartment blocks, churches, hospitals and other non-mercantile risks.

· Available in either the all-risk or named perils forms.

· Application may or may not be required

Front 261

When does the CPF cover damage to a building?

Back 261

The insured must own the building or be liable for the damage for coverage to apply.

Front 262

What is the Commercial Building, Equipment and Stock – Broad Form and what are its advantages?

Back 262

It offers the advantage of a single all-risk wording to insure a building, its equipment and stock where coverage is required on both building and contents. Basically combines both the CPF and CBF.

Because of its format, can also be used to insure a building only which may be required for a building owner who rents premise to others. (landlord)

May be used to insure contents only (tenants)

It is intended for retailers, wholesalers, distributors and similar non-manufacturing risks.

Front 263

What is the first step to take when leased premises are involved?

Back 263

Ask to see the leases and examine them and providing proper coverage cannot be done before this.

Front 264

*** Discuss how leases affect insurance needs

Back 264

Tenants Insurances: This requires the tenant to have certain insurances and to provide a certificate of insurance or other evidence that coverage is in force.

Landlords insurances: This clause states what insurances the landlord will carry.

Repairs: The repairs clause sets out the tenants responsibility for repairs to the building. A frequent requirement is for the tenant to carry out repairs except for damage by fire and certain other named perils.

Other requirements: Leases quite often refer to business interruption, liability, and other coverages

•Rentabatement clause & fire clause

•Holdharmless clause

•Tenant’sLegal Liability limit

•Wouldthere be subrogation against tenant•Tenant’simprovements & trade fixtures

Front 265

Review the points discussed under “Tenant’s Insurances with regards to leases

Back 265

Insurance may be on the leased building and or contents. The building insurance may be required to be in the name of the landlord and subrogation against the tenant may be waived. The waiver is achieved by a clause in the policy in which the insurer agrees not to take over any right the landlord may have against the tenant for the damage.

•Indemnity& Subrogation

••Maintenanceobligations (HVAC)

••TenantsImprovements

••Is therea fire clause or a rent abatement clause

••Liabilitylimit requirements

Front 266

Review the points discussed under “Landlord’s Insurances.” with regards to leases

Back 266

The chief coverage arranged by the landlord is usually on the building. Remember that the tenant may still be liable despite the waiver of subrogation clause discussed earlier. This can happen either if the sum insured is not enough to pay the entire damage, or if the loss is caused by a peril not insured.

Tenant’s legal liability insurance can be arranged that will provide coverage against both shortage of the sum insured, and deficiency in the perils insured.

•Insuresthe building

•Certificateof Insurance from the tenant •CGL& TLL Limits

•RentalIncome Coverage

•Fire& rent abatement clause

•Commonareas

•HoldHarmless agreement

Front 267

What point arises about amendments to a lease?

Back 267

If you are representing the tenant and a clause in the lease causes difficulty, it may be possible to persuade the landlord to alter the lease. The lease will have been drawn up by a lawyer and the landlord frequently does not know exactly what his/her lease says and may be quite agreeable to changing it.

Front 268

Why are builders risk / course of construction policies needed?

Back 268

Policies previously described that cover buildings do not apply during construction. For this a builders’ risk policy is needed.

Front 269

Explain the circumstances surrounding occupied buildings with regards to Builders Risk / Course of Construction policies?

Back 269

Builders’ risk policies cease to provide coverage once the completed building is occupied or handed over to the owner.

When the builders risk cover ceases, a permanent building policy is needed immediately and should be effective on handover or occupation date.

Front 270

Why is it essential to review the construction contract?

Back 270

This will specify details of the insurance required and to be certain that what you offer is at least as extensive. It may be wise to offer wider coverage, but not narrower. If there is some feature you cannot secure advise your client in writing.

Front 271

What is the usual basis for the sum insured on a COC/ Builders Risk policy?

Back 271

The amount of insurance is usually based on computed value. The individual building project is insured for the full estimated completed value from the start of construction. At the start, the actual value is very small, increasing gradually until it reaches the full amount near the end of the construction period. The rate is adjusted to take this into account.

Front 272

What points arise about items not provided by the general contractor on a COC policy?

Back 272

The value at risk may include items not provided by the general contractor and therefore not included in the contract price, for example, elevators and boilers. To make sure these are covered, one must obtain a builders’ risk policy.

Contractors’ sheds, scaffolding and form work (for concrete) are usually covered by the builders risk policy since they are generally used on the particular job only. However contractor’s equipment and tools are not because they are generally used by the contractor for a serious of jobs. Most contractors buy an equipment floater to insure equipments and tools on an annual basis.

Front 273

What points should be watched about a) the period of insurance b) construction cost running over budget?

Back 273

The builders’ risk policy is written for the period required to finish the work but can be extended for an additional premium. When coverage ceases the actual cost is reported and if less than the estimate, the corresponding premium is returned to the insured. There can be no additional charge at this point if the estimate has been exceeded because this is the maximum sum insured.

Front 274

Why is all-risks coverage desirable on a Builders Risk policy and what are the usual important exclusions?

Back 274

Construction involves special hazards not covered by named perils such as:

· Collapse

· Theft of materials

· Transportations

Among the exclusions in the all-risks policies are:

· Earthquake

· Flood

· Dishonesty of employees

· Faulty material, workmanship or design

· Penalties and fines under the construction contract

· Most waterborne transit, all airborne transit

Front 275

Note the points that arise on a builders risk policy about:

a) deductible

b) interest covered

c) blanket cover

d) contractor’s installation floater?

Back 275

a) A deductible is usual.

b) Where a contractor is involved simultaneously in a number of jobs in different housing projects, it may suit him to cover all of these under a blanket type of policy which is available.

c) A contractors’ installation floater which can be through of as a “mini” builders’ risk policy is available for minor construction, reconstruction and alteration work.

Front 276

What points arise about valuable papers extension on an all risks policy?

Back 276

Most property policies that insure contents, whether fire and EC, named perils or all-risks cover records to some extent. However, coverage is limited by a records clause as in the Building, Equipment, and Stock form. That is, they only insure the cost of blank books plus the cost of copying from source material, but not the cost of reworking.

Valuable papers insurance fills this gap and can be important to professional people and businesses. Includes various records such as:

-books

-papers

-files

-maps

-drawings

-abstracts

-deeds

-mortgages

-manuscripts

-Coverage is all risks

-applies at specified premises with an extension while the property insured is being conveyed outside these premises and while temporarily within other premises.

-usual limit is 10% of the limits of insurance or $5000, whichever is less.

Excludes loss due to electrical or magnetic injury, disturbance or erasure of electronic recordings, except by lightning. (EDP) Money and securities is also excluded.

Premium reduction for off premises storage of duplicates

Front 277

What points arise about accounts receivables on an all risks policy?

Back 277

It will pay collection costs in excess of normal and even interest on loans to tide the insured over when collections are delayed.

This is another all risks policy

»Covers expense of compiling newrecords for billings

»»Also covers excess collectioncosts and interest on loans»

»Excludes: bookkeeping errors andattempts to conceal wrongful acts by disposing of or altering records

Front 278

What points arise about office contents floaters on an all risks policy?

Back 278

•Forprofessional offices – lawyers, accountants, doctors

•Limitedcoverage for transit, cash, valuable papers, extra expense

•Can alsobe added to retail & mercantile risks

•Coversoffice furniture, equipment, supplies, computer equipment

•Allrisk; Co-insurance 80-90%; Low deductible

•Deductible– text says $200; but often $500 (lower than regular commercial)

Front 279

What assumption should you make about EDP?

Back 279

The reduction in the cost of Electronic Data Processing (EDP) equipment and the introduction of mini computers means that you should assume that each business or professional client probably uses a computer and will need coverage.

This coverage should apply to the actual computer and its associated equipment (hardware) plus diskettes, magnet takes (software).

Front 280

Why do ordinary policies not provide adequate coverage for EDP?

Back 280

Ordinary property policies do not normally exclude hardware or software but they do not provide adequate coverage. EDP items are subject to various perils not covered by typical all-risks policies. Among these perils are:

· Equipment breakdown

· Air conditioning failure

· Electrical damage

Front 281

What features will be included in a good EDP package policy?

Back 281

A good package policy will include the following features:

· All-risks coverage with few exceptions (flood and earthquake are usually covered)

· Equipment breakdown, air conditioning failure, and electrical damage are covered.

· Damage to equipment and media/data during processing is covered.

Can include business interruption - 30 days

*Air conditioning failure must be due to damage by an insured peril and result in corrosion, rust or changes in humidity or temperature. Electrical damage does not include change in power supply such as interruption or power surge if originating more than 1000 feet away from the building containing the EDP equipment

Front 282

What is the: a) basis of loss settlement b) usual coinsurance percentage on an EDP extension?

Back 282

a) Coverage for equipment is ACV, but replacement cost can be bought. For media/data coverage is usually the cost of repairing or replacing.

b) Coinsurance of 80% is usual for equipment, but not for media/data.

Front 283

**What are the other coverages usually provided in an EDP package?

Back 283

The EDP package may provide other coverages such as:

1. Valuable papers

2. Accounts receivable

Most EDP packages include extra expense and Business interruption is an option. Neither extra expense or BI is subject to the 30 consecutive days limit mentioned earlier nor is extra expense restricted by monthly limits on the amount payable.

Front 284

Review the points mentioned about: a) leased EDP equipment b) mini-computer policies.

Back 284

a) As with all leased property, the EDP equipment lease should be examined and it may state that the owners insure the equipment and that subrogation against the lessee is waived thus giving the lessee full benefit of the insurance.

If subrogation is not expressly waived, a request in writing should be made. If there is a refusal, an legal liability for damage insurance must be acquired.

b) These policies are intended for insureds with equipment of limited value but may be subject to restrictions in regards to the sums insured for additional coverages such as extra expense.

Front 285

***What is the formula that expresses the principle behind a DIC policy?

Back 285

A Different in Conditions (DIC) policy covers the difference in conditions (i.e. extra coverage) between a fire and extended coverage policy (FEC) or named perils policy and an all-risks policy (AR) and can be expressed as:

FEC + DIC = AR

Front 286

Note the points made in regard to DIC:

a) widening coverage

b) method of writing a policy?

Back 286

a) DIC widens the coverage but does not increase the dollar amount of insurance. DIC is often written for a smaller amount than the FEC policy because the extra hazards are covers often could not cause a total loss as a fire could.

b) The most common way of writing a DIC is for the insurer to take an all-risks policy and then states in it it does not cover the perils insured by the insured’s policy.

Front 287

What points should be noted about DIC coverage in regard to:

a) flood and earthquake

b) business interruption insurance

c) deductibles?

Back 287

a) Flood and earthquake are normally excluded but can be added for an additional premium. They may also be limited to sums insured smaller than the main DIC insurance.

b) If an insured needs DIC coverage for physical damage, he will also have a BII exposure.

c) A deductible is usual in a DIC policy. It may be considerably higher than for FEC, particularly as respects earthquake and/or flood.

Front 288

****What underwriting information should be obtained for a DIC submission?

Back 288

· The likelihood of an earthquake occurring

· The height of the land which may cause floods

· Transportation details

· Burglary safeguards

· Loss experience

•Earthquake written bygeographical territory

•Flood underwritten by locationand proximity to water

•Transportation – max value ofshipment; location max; owned or hired trucks; radius of ops; alarms

Front 289

Name certain specialized coverage's for distinctive exposures that can be added to an all risk property policy.

Back 289

-Builders Risk (course of construction)

-Valuable Papers and Records

-Accounts Receivable

-Office Contents Floater

-Electronic Data Processing (EDP)

-Leased Equipment

-Mini-computer policies

-Difference in Conditions (DIC)

Front 290

Name and describe four valuable records

Back 290

-books

-papers

-files

-maps

-drawings

-abstracts

-deeds

-mortgages

-manuscripts

Front 291

What principle does Additional Insured reflect?

Back 291

Vicarious Liability

Front 292

List the specialty coverage's available as separate Liability policies.

Back 292

Environmental Impairment Liability (EIL)

Errors and Omissions

Directors and Officers Liability

Wrap Up General Liability

Excess Liability Policies

Umbrella Policies

Front 293

**What general types of exposures are covered by the Commercial General Liability policy?

Back 293

The commercial general liability policy covers exposures that arise from business pursuits and business premises.

Front 294

What is the key point to remember about the protection offered under a liability policy?

Back 294

Liability insurance protects insureds against legal liability imposed upon them because of an injury or damage to a third-party. This coverage is not intended to cover damage or injury to insureds under the policy.

Front 295

What types of things are compensated to an entitled third party?

Back 295

The coverage compensates the entitled third party for such things as medical and funeral expenses, repair bills, loss of income, pain and suffering, loss of property and the loss of use of such property.

This coverage is not intended to cover damage or injury to insureds under the policy.

Front 296

What vital questions must be asked when a liability claim occurs and how does this differ from the questions asked in a property claim?

Back 296

When a liability policy is involved there are two vital questions asked:

1. Does the policy cover the damage or injury?

2. Is the insured legally liable?

Front 297

What are the benefits of liability coverage to an insured?

Back 297

The important benefits of this coverage to insureds include:

· An investigation and assessment of claims;

· An analysis of the legal liability;

· A defence of the insured again third party claims.

Front 298

True or False

Whether the insured is liable or not dictates whether the coverage comes into play on GL policies.

Back 298

False

Front 299

**** What are the three methods used to trigger insurance coverage under liabilities policies?

Back 299

Liability policies are written to trigger cover on:

· An occurrence basis;

· A claims-made basis; or

· Some other formula

The occurrence based policy covers those accidents that occur during the term the policy is in force.

The claims-made triggers coverage when a claim is made against the insured.

Front 300

What does a retroactive date accomplish in a claims-made policy?

Back 300

A retroactive date limits coverage to accidents that occur within the prescribed period.

Front 301

What is the usual test of liability at law?

Back 301

Whether the damage or injury was caused by negligence. If it was, then the person who was negligent must pay damages to the person who was injured or whose property was damaged.

Front 302

What contracts are covered under the standard CGL wording?

Back 302

a) A lease of premises;

b) A sidetrack agreement;

c) An easement or licence agreement in connection with vehicle or pedestrian private railroad crossing at grade;

d) Any other easement agreement;

e) Indemnification of a municipality as required by ordinance, except in connection with work for a municipality;

f) An elevator maintenance agreement;

g) Any contract when tort liability of another is assumed.

Front 303

*** If an individual is named as the insured in a CGL policy who is automatically covered?

Back 303

If an individual is named as the insured, his/her spouse is automatically included in the coverage for the business.

Front 304

Who is covered when a joint venture or partnership is named as insured?

Back 304

Coverage applies to the members and partners of the group and their spouses for their activities in the business described.

Front 305

Who is covered when an organization or company is named as insured?

Back 305

The executive officers and directors are insured as well as stockholders. Coverage is limited to business duties.

Front 306

What are the limitations applicable to employees as insureds under a policy?

Back 306

Employees are considered insureds when their action falls within the scope of their employment.

There are certain circumstances that are not covered:

· One employee causing injury or damage to another employee in the course of employment;

· Persons eligible for workers’ compensation benefits;

· An employee providing professional health-care services

Front 307

What costs are covered under the CGL policy further to compensatory damages to be paid to third parties?

Back 307

The expense of handling the claim and defense costs are usually covered.

Defence costs are usually paid in addition to the limit.

Front 308

What is said about CGL limits of insurance generally?

Back 308

The insured should choose the limit of coverage desired. The decision on how much insurance to buy will be influenced by:

· How the insured will be affected by a loss;

· How probably it is that a loss will occur;

· A review of awards and an estimate of the amounts of loss that have occurred;

· An analysis of the clients assets must be protected

- A review of financial statements

- How claims will affect the principle owners of the company

Front 309

Given an example of the all-risks coverage in a CGL policy.

Back 309

The CGL policy covers all legal liability for bodily injury or property damage except what is excluded, in other words, the all-risks method.

Front 310

Given an example of the named perils coverage in a CGL policy.

Back 310

Personal injury insurance, on the other hand, is generally written on the named perils basis

Front 311

*Describe how occupiers’ liability risk exposures can be managed.

Back 311

In addition to tort liability. Customers or others who visit the insured’s premises might be injured and the legal liability of the insured is covered by the CGL policy.

Lease agreements must be verified for hold harmless agreements. The insured should have a maintenance program in place and if a maintenance is contracted to an outside firm, the insured has an obligation to choose a responsible and competent company to do the work. Proper lighting and use of the right products in maintaining the premises are important. Insured should have a program in place to deal with any accident situation.

Front 312

Review the typical exclusions to a CGL policy.

Back 312

Commonplace exclusions:

· Injury to employees - covered under WCB. Most policies provide contingent employers liability.

· Automobiles, watercraft and aircraft. - Specific insurance available to cover risks

· Care, custody or control (does not cover personal property no matter whom it belongs to) - not considered to be a liability exposure. Insureds property policy provides some coverage.

· Products: damage caused by the insured’s product is covered.

· Being worked upon - subsequent damage covered

· Pollution - very broad - most always available for liability arising out of certain hostile fires. EIL policy may be needed to cover exclusions.

Front 313

How must a producer handle policy exclusions under a liability policy?

Back 313

Exclusions are a warning flag. If any of them relate to the insured’s activities carefully review it to consider its effects. Warn the insured about the uninsured risk and suggest an action plan.

Front 314

** Name the perils insured under the Personal Injury insuring agreement under a CGL policy.

Back 314

CGL policies usually provide a separate insuring agreement for personal injury in addition to bodily injury and property damage. This is a named perils coverage that typically covers liability arising out of:

· False arrest, detention, or imprisonment

· Malicious prosecution

· Wrongful entry into, or eviction of a person from a room, dwelling, or premises that the person occupies;

· Oral or written publication of material that slanders or libels a person or organization or disparages a person’s or organization’s goods, products or services;

· Oral or written publication of material that violates a person’s right of privacy

Advertising, publishing, broadcasting, or telecasting done by or for the insured are not covered under the standard CGL policy. This exposure would represent a substantial risk if the insured were principally engage in one of these activities. Separate policy should be bought.

Front 315

*What perils are typically covered under the Tenants’ Legal Liability section of the CGL policy?

Back 315

Property occupied or rented by the insured is not covered under the main coverage of a liability policy. The CGL policy does provide a separate insuring agreement to cover tenant’s legal liability.

Typically, tenant’s legal liability insuring agreements provide coverage for damage caused by:

· Fire;

· Explosion;

· Smoke;

· Leakage from fire protective equipment

Front 316

* Discuss how lease agreements affect insurance.

Back 316

The landlord usually buys fire or all-risks property insurance to cover the premises. This policy will reimburse the landlord should a loss occur. If X Inc. negotiates with the landlord, it might benefit from the landlord’s insurance. The landlord can have his/her insurer waive subrogation against X Inc., its directors, officers and employees.

Even if the landlord’s policy is amended to protect the tenant, this may not completely eliminate the exposure. If the landlord’s policy only covers named perils; the landlord would still seek restitution from X Inc. if the damage that occurred was not covered under the policy. If the property policy had inadequate limits of insurance, this would represent another area of concern.

Front 317

Given an example of a risk exposure covered by the Non-owned Automobile liability coverage.

Back 317

It is a general rule of law that an employer is responsible for the negligent acts or omissions of an employee in the course of employment. The employee is also responsible but often does not have the resources to pay for damages. General liability insurance provides coverage in these circumstances.

This principle extends to employees driving on their employer’s business even if they are driving their own automobiles. An owner’s automobile policy does not insure his/her employer in such circumstances, and if the employee’s policy does not have a large enough limit to pay the full amount of damages when the case involves a badly injured third person, the employer may be liable for the balance.

Coverage of this exposure can be provided under a non-owned automobile insurance policy. The limit is generally the same as for general liability.

Note that non-owned automobiles does not apply to the insured’s vehicles, whether owned or leased. This requires a separate standard automobile policy.

Front 318

How do EIL policies operate in relation to CGL policies?

Back 318

Environmental Impairment Liability (EIL) policies are used to cover a broad range of pollution exposures and gradual pollution. These policies cover the pollution exposure not covered by CGL policies.

Front 319

What are other features of coverage generally offered under an EIL policy besides bodily injury and proper damage?

Back 319

Coverage generally extends beyond the physical damage of bodily injury and property damage to include interference with environmental rights or amenities protected by law and off-site clean-up costs. Specifically covers claims arising from:

Emissions, discharges, dispersals, disposals, seepage, releases or escapes of liquids, gases, solids or thermal irritants into or upon the land, the atmosphere, or any watercourse or body of water.

Coverage is also generally provided for claims arising from smells, noises, vibrations, light, electricity, radiation, and changes in temperature.

Front 320

What are some typical exclusions to an EIL policy?

Back 320

· Events that occur before the policy inception date if the insured could reasonably have foreseen a claim occurring;

· Routine clean-ups within a waste facility;

· War;

· Non-compliance with a statute;

· Fines or penalties;

· Premises owned, occupied or rented to the insured;

· Intentional illegal dumping of waste;

· Liability imposed under the Nuclear Liability Act

Front 321

**What type of companies are likely to need EIL coverage?

Back 321

· Municipalities, manufacturers, chemical companies, waste managers, service station, gas bars;

· Premises with storage tanks;

· Manufacturing processes that emit airborne particles or gasses or discharge waste material onto land or into water;

· Companies that ship their waste off-site;

· Companies located in areas where natural surroundings are an important part of the economic resource of the community

· Storage of large quantities of materials that might damage the environment.

Front 322

What type of situations represent a pollution exposure?

Back 322

Companies that ship their waste off-site: Even when an independent contractor is used to handle waste, your insured still has an obligation to ensure that the contractor chosen is responsible and well-qualified to safely and lawfully carry out the waste disposal.

Front 323

What are some typical characteristics of EIL policies

Back 323

Policies are generally written on a claims-made basis and are written on specific locations. Site must be inspected and approved, thus automatic coverage is not available.

Usually policy limits include bodily injury, property damage, clean-up costs, and defence expenses. Deductibles apply to defence expenses.

Front 324

Give an example of possible claim under an errors and omissions policy.

Back 324

The results of mistakes made by an insured in the exercise of his/her special skill/profession are excluded from general liability policies. E.g. a pharmacist giving the wrong drug for a prescription.

Front 325

What professions have a high potential for loss under errors and omissions policies?

Back 325

Pharmacists, beauty parlours, opticians, optometrists, hearing-aid stores and funeral directors.

Front 326

Policies covering special skills, professional skills, and health related services are generally known as:

Back 326

- errors and omissions insurance

- malpractice insurance

- professional liability insurance

Front 327

From what types of things can liability arise for directors and officers of a corporation?

Back 327

The laws governing corporations, bankruptcy, employment standards, environmental damage, and other issues have put directors at increasing risk.

Corporate and institutional directors and officers can be sued personally for the decisions they make and because they hold the positions they do. Giving unfit or unprofessional advice by authorizing excessive company spending or making unauthorized loans or generally failing to supervise company affairs adequately can lead to lawsuits.

Front 328

Review the list of common circumstances that can lead to lawsuits.

Back 328

· Mergers, acquisitions or divestiture activity

· Decline in stock price;

· Mismanagement;

· Environmental pollution;

· Bankruptcy or insolvency;

· Employment practices exposures;

· Inaccurate disclosures;

· Making investments in other countries;

· Boardroom disputes;

· Breach of contract.

Front 329

What type of organization is susceptible to directors’ and officers’ liability claims?

Back 329

When individuals accept the responsibility of being board members, they expose themselves to personal liability. It does not matter how large or how small the organization is.

It does not matter whether it is a non-profit entity or not.

Front 330

What are indemnification clauses?

Back 330

Most corporations write indemnification clauses into their bylaws. They permit corporations to pay or reimburse directors and officers for all expenses incurred in litigation arising out of their duties as directors or officers. The law imposes certain restrictions in order to protect the corporation.

Front 331

What is unique of the insuring agreement for directors’ and officers’ liability policies?

Back 331

Insuring agreements of D&O policies are unique in that they include two payment options:

a) To directors and offices for their personal liability;

b) To corporations when they reimburse directors and officers for liability incurred in (a)

Front 332

Discuss exclusions of directors’ and officers’ liability policies.

Back 332

Typical dishonesty, bodily injury and property damage are excluded. Fidelity insurance and CGL policies are meant to cover such exposures. If pollution risks are excluded, an EIL policy may be required.

Front 333

How does a Wrap-Up General Liability policy operate?

Back 333

A wrap-up general liability policy is designed for construction risks. The policy covers all contractors, sub-contractors and the owner while involved in the construction project. The duplication and extra expense of conducting an investigation and mounting a defence separately for each defendant would be saved.

Front 334

How does an excess policy operate to provide coverage?

Back 334

Excess policies provide extra limits of insurance over the underlying policies that are in place. If the insurance market at the primary level is not prepared to offer anything more, the client may seek greater limits through the purchase of an “excess” policy.

It is common for an excess policy to follow the insuring provision of the underlying policy. Less gaps in coverage.

Front 335

What aspects of the excess liability policy must be analyzed to compare to underlying policies?

Back 335

The coverage must be analyzed for any differences in:

· Policy period;

· Loss reporting features;

· Coverage triggers;

· Whether loss be paid “on behalf of” the insured or the policy is an “indemnification” policy;

· Any additional exclusions that do not appear on the underlying policy.

Limits of insurance must be examined with the following aspects in mind:

· Defense and supplementary costs;

· Aggregate limits;

· The insured’s options if the underlying policy limits are eroded or exhausted by claims;

· The products liability aggregate limit, if there is one.

Front 336

What coverage is offered under umbrella policies?

Back 336

Umbrella policies are similar to excess policies however they are designed to cover excess coverage over any underlying policies and to cover other perils that are not insured by underlying policies.

Front 337

What list is usually included in the umbrella application for insurance?

Back 337

Applications for umbrella coverage always include a detailed schedule of the underlying policies. The insurer should be notified if the underlying insurance is modified.

Front 338

Why is it important to have concurrent liability policies?

Back 338

Generally, it is expected that insureds will purchase the minimum limits required by the umbrella insurer for the underlying policies and then top up coverage with greater limits on the umbrella policy.

Umbrella policies should have the same effective dates as underlying policies to achieve “drop down” of coverage when underlying aggregate limits are exhausted. If this is not possible, then an endorsement should be added to the umbrella policy to protect the insured against being penalized by the reduction of underlying aggregate limits caused by non-current policies.

Front 339

What kind of operation is likely to have sexual harassment claims?

Back 339

Sexual harassment claims are a concern as most CGL policies have specific exclusions to remove any type of coverage for anything the insured did or failed to do in this regard.

Restaurants have tended to be targets for sexual harassment claims.

Front 340

Discuss loss control measures to manage sexual harassment claims.

Back 340

The client can take proactive measures to manage such exposures:

· Form a policy on the standards of acceptable behaviour;

· Effectively communicate the standards on all employees;

· Develop a procedure to deal with allegations of unacceptable behaviour;

· Implement loss control measures to screen new employees before they are hired;

· Train supervisors to deal with the concerns raised with such an exposure.

Front 341

Liability policies are written to trigger on all of the following, except:

a. An occurrence basis

b. A claims made basis

c. A voluntary basis

d. Another formula basis

Back 341

c. A voluntary basis

Front 342

The important benefits of liability insurance include:

a. Whether the insured is liable

b. Defense of the insured against first party claims

c. An analysis of negligence

d. Investigation and assessment of claims

Back 342

d) Investigation and assessment of claims

Front 343

Employees are covered by the employer’s liability insurance policy in which of the following circumstances:

a. Employee causes injury or damage to another employee in the course of their employment

b. Employee is covered by Worker’s Compensation

c. Employee causes injury or damage to a third party in the course of their employment

d. Employee is providing healthcare services

Back 343

c. Employee causes injury or damage to a third party in the course of their employment

Front 344

Contracts covered under a CDGL policy include all of the following, except:

a. Lease of premises

b. Sidestep agreement

c. A contract in which tort liability is assumed of another

d. Easement or license agreement

Back 344

b. Sidestep agreement

Front 345

The CGL policy commonly excludes which of the following:

a. Watercraft held for sale

b. Property in the insured’s care, custody and control

c. Injury to third parties

d. Products causing bodily injury or property damage

Back 345

b. Property in the insured’s care, custody and control

Front 346

Environmental Impairment Liability excludes all of the following, except:

a. Events that occur before the policy inception date

b. Premises owned, occupied or rented to the insured

c. Routine cleanup within a waste facility

d. Fine or penalties

Back 346

a. Events that occur before the policy inception date

Front 347

Corporations will write indemnification clauses into their bylaws for which of the following reasons:

a. Permit the corporation to reimburse Directors and Officers for expenses incurred

b. Permit the corporation to reimburse Directors and Officers for their personal liabilities

c. Direct how the corporation will insure it’s Directors and Officers for their fidelity exposures

d. Direct how the corporation will insure it’s Directors and Officers for Bodily Injury and Property Damage caused by their negligence

Back 347

b. Permit the corporation to reimburse Directors and Officers for their personal liabilities

Front 348

What does a CGL policy actually insure an insured for and when does it respond?

Back 348

Liability insurance protects insureds against legal liability imposed upon them because of an injury or damage to a third-party. The obligation is imposed on the insured must be legally binding. Liability coverage does not respond when insureds feel a moral obligation to reimburse a third party for an injury that happens to occur on their premises. However, liability policies do include a "no-fault" coverage that will pay for certain medical expenses.

Front 349

Individuals serving on boards are personally liable for a wide range of statutory obligations including:

Back 349

Unpaid wages, vacation and severance pay, and unpaid taxes. They can also be held responsible for certain breaches of environmental and health and safety legislation. In addition, they have significant liabilities under law, including fiduciary duties to their shareholders.

Front 350

What are the insurance benefits of purchasing a separate policy to cover environmental impairment liability:

Back 350

- A separate annual aggregate limit of coverage which does not interfere with the CGL policy limits.

- A likelihood that renewal of the CGL policy will not be compromised by an environmental impairment claim or a serious pollution exposure.

Front 351

Apart from the responsibility that the law imposes on someone, how can anyone be liable to others? Name and describe.

Back 351

By Contract / agreement. Contracts will contain a special clause imposing liability that does not exist under the ordinary law. Such a clause can make the person under contract responsible for injury or damage to the public, even though he or she would not have been liable without the special clause. This liability is referred to as contractual liability.

Front 352

Is occupiers liability a:

a) Statute

b) Common law

c) Civil Code

d) none of the above

Back 352

b) Common law

Front 353

List the different categories of coverage provided by a CGL policy.

Back 353

Products and Completed Operations

Personal Injury

Tenants Legal Liability

Non-Owned Automobile

Front 354

Which of the following is a difference between the Profits Form and Gross Earnings Form:

a. The Gross Earnings Form does not contain an explicit co-insurance clause

b. The Profits Form has an exclusion for Stock

c. Profits Form includes delays caused by the application of Bylaws

d. Gross Earnings includes lost earnings caused by damage to finished stock

Back 354

c. Profits Form includes delays caused by the application of Bylaws

Front 355

Which of the following is not a form of business interruption:

a. Gross Profits Form

b. Extra Expense

c. Additional Increased Cost of Working

d. Net Profits Form

Back 355

d. Net Profits Form

Front 356

The stated amount of coinsurance for business interruption covers which of the following:

a. Physical Damage

b. Policy Period and Indemnity

c. Difference in Conditions

d. Gross Earnings

Back 356

a. Physical Damage

Front 357

The coverage extension for Interruption by Civil Authority is subject to what important provision:

a. Three week limit of coverage

b. Prohibition must be the direct result of damage to neighbouring premises

c. Coverage is for the period of restriction imposed by the civil authority

d. Coverage is only for the primary business premises

Back 357

b. Prohibition must be the direct result of damage to neighbouring premises

Front 358

The Profits Form direct exclusions are located under which section:

a. The Actual Sustained Loss section

b. The Provisions section

c. Exclusion section

d. Defined Indemnities section

Back 358

b. The Provisions section

Front 359

Ordinary Payroll provides what coverage to an organization:

a. Salaries of the rank and file employees

b. Salaries of the key personnel

c. Payroll following a loss for a period subject to the coinsurance provisions of the policy

d. Payroll to a level and limit according to the insured’s choice

Back 359

a. Salaries of the rank and file employees

Front 360

What is Business Interruption?

Back 360

Business interruption insurance pays for income lost because of the interruption of business or the extra expense necessary to keep the business going after a loss. Many firms that do not have BII fail to survive a bad fire or other disaster, because they do not have the resources to draw on while their income gradually returns to normal.

Front 361

Is Boiler and Machinery automatically picked up under business interruption?

Back 361

No - Consider the Fine's Flowers case. The insured was a market gardener with produce in greenhouses. Agent provided Machinery Breakdown coverage but neglected to insure pumps that kept the greenhouses supplied with hot water during cold weather. Agent had to pay the loss of the destroyed produce.

Front 362

*What are the main types of BII coverages?

Back 362

1. Profits

2. Gross Earnings

3. Extra Expense and Additional Increased Cost of Working

BII policies are written by attaching a BII wording to a property policy such as fire and EC or all-risks. This method adopts the perils insured in the property policy but has the disadvantage of including provisions that are inapplicable to BII and must be disregarded.

Front 363

*What is the difference between Profits and Gross Earnings on the one hand and Extra Expense and Additional Increased Cost of Working on the other?

Back 363

Profits and Gross Earnings are alternative types of income restoration policies whereas the Extra Expense and Additional Increased Cost of Working only pay the additional expense of continuing in business after a loss as occurred.

Front 364

*Does the Profits policy cover gross or net profits?

Back 364

Profits form is based on a British form and covers gross profits, not merely net profits.

Front 365

*What are the three main differences between Profits and Gross Earnings?

Back 365

1. Period of Indemnity

On a profits form, as long as there is a profit loss as a result of the damage cause by perils insured against - the policy will respond. The indemnity period is defined in the policy. Payments can take place up to 12 months after the damage took place.

On a Gross Earnings form, payment for the loss of gross earnings is made up to the time required to rebuild the insured damage with due diligence and dispatch. The premium adjustment clause limits the indemnity period to a maximum of 12 months as the date of loss.

2. Coinsurance

Profits - Always 100% - You will not find a "coinsurance" clause in the Profits form. However, a provision in the insuring clause has the effect of requiring 100% coinsurance.

Gross Earnings - 80% or 50% (there is no coninsurance form available for mercantile risks)

3. Stock

Profits - No exclusion

Gross Earnings - Lost earnings cause by damage to finished stock excluded (manufacturers only)

4. Bylaws

Profits - Includes any delays caused by the application of bylaws.

Gross Earnings - No cover for delays caused by the application of bylaws.

Front 366

* How is the choice made between Profits and Gross Earnings?

Back 366

The question is: Will the result of the business return to normal as soon as the damaged property is made good? If they will, then gross earnings coverage is sufficient (and may cost less). Otherwise, profits is needed.

Front 367

*Explain how adjustable BII policies work. What is an important benefit obtained from an adjustable policy?

Back 367

Both Profits and Gross Earnings policies are normally subject to coinsurance. The best way to prevent the insured’s being penalized by coinsurance is to provide an adjustable policy.

The insured choose a sum insured that he believes will be more than adequate and pays a deposit premium based on that amount. Then at the end of the policy year, he declares his actual figures and the premium are adjusted accordingly. There is a maximum return premium of 50% of the deposit, but the insured should be able to estimate his results accurately enough not to be penalized by this.

Under no circumstances does the adjustable policy provide more insurance than the limits stated in the policy.

Front 368

Explain the need to forecast results well into the future with regards to business interuption.

Back 368

Insured’s must forecast future results so as to adequately specify the amount of insurance required. Don’t forget also that although the insured may have compiled with the coinsurance requirement, the sum insured may not be enough to pay the entire loss caused by a prolonged interruption.

Front 369

Do you consider the stated amount or adjustable basis the better method? Give your reason.

Back 369

The stated amount basis is available for BII as for physical damage. When properly arranged it avoids the application of a coinsurance penalty. However, for BII the problem is not only coinsurance, but estimating an adequate amount of insurance for a possible claim that could affect a period well over a year ahead.

The adjustable basis which helps sole this problem is therefore usually better than the stated amount, that does not.

Front 370

The Profits form uses the addition method of calculating the sum insured whereas Gross Earnings employs a deduction system. What is the difference?

Back 370

The Profits policy uses an additional method for calculation. The net profit before tax is taken and this is added to the charges that do not reduce in proportion to the drop in revenue following an interruption of business. For example, interest on loans and advertising. The policy calls these standing charges. The total of the net profit before tax plus the insured standard charges constitutes the sum insured.

Gross earnings on the other hand, proceeds by a system of deducting items from a gross figure. To obtain the gross amount for a manufacturer, the net sales value of production is added to the other earnings derived from the business. For non-manufacturing businesses, the net sales/revenue is added to other earnings. From the gross figures, certain deductions are made.

Front 371

How is insurance in respect of a manufacturer’s finished stock handled when the insured has

a) a Gross Earnings policy

b) a Profits policy?

Back 371

One of the differences between the Profits and Gross Earnings form for manufacturers is that Gross Earnings excludes loss of earnings caused by damage to finished stock. On the other hand, the Profits form (and the Gross Earnings for non-manufacturers) does not exclude it.

The usual method of dealing with this is through the insurance on the stock against physical damage (fire and EC, etc). For manufacturers with Gross Earnings policy, the physical damage policy cover stock for its selling price. In all other instances where profits or gross earnings is bought, stick is insured for cost price.

Front 372

How are ordinary payroll and the wages and salaries of key employees handled?

Back 372

Both Profits and Gross Earnings policies insure in full the wages and salaries paid to key employees whose services would not be dispensed with the following an interruption of business.

It is usual to insure wages (except those for key employees) for a comparatively short period. In fixing the period, the insured should be guided by such factors as the ease (or difficulty) of obtaining replacement workers when the business gets back into operation, time required for training, and legal requirements such as union contracts.

The Profits form does not insure ordinary payroll at all unless a separate item is added and the Gross Earnings policy covers 100% payroll (and includes the amount in any coinsurance calculation).

Front 373

What is the reason for insuring auditor’s fees?

Back 373

Accountants are expensive to employ and it is wise to include an item in the policy to pay for the fees of the accountants employed by the insured. This item will not be subject to coinsurance.

Front 374

What points arise about supplier’s and customer’s premises with regards to Business Interruption?

Back 374

Suppliers: - Supplier’s premises – Contributing Property

Damage at a supplier’s premises can be insured under Profits and Gross Earnings forms. You should investigate the degree of dependence, which is rarely total and may apply to only one line of products leaving others in full production. It is not usual to change the sum insured, but the degree of dependence (% of total gross earnings) will affect the additional premium charged.

Customers: Buyer’s premises – Recipient Property

Similarly a firm may be selling much its products to one or perhaps a few customers and if the customers’ premises are damaged, they may not be able to buy the insured’s product for some time, cause loss to your insured.

Department store in mall – Leader (or magnet) Property

Front 375

*Discuss the advantages and drawbacks of the no coinsurance form.

Back 375

This form is useful where the client has a limited BII exposure, wants a simple policy and wants to pay as little as possible for it. It is generally only available for non-manufacturing risks and is on the gross earnings basis in that it covers only for the time needed to restore damage, there is no cover for loss arising afterwards as in the profits policy.

Premium savings hardly makes acceptance of the restriction in the No-Coinsurance form worthwhile.

Front 376

*What factors need consideration in regard to extra expense type coverages?

Back 376

Economical Extra Expense pays the extra expense of staying in business in so far as this does not exceed the loss of gross profit or gross earnings avoided. In other words, they will always pay 99 cents of extra cost to save $1 of loss gross profit/earnings but not $1.01.

An Extra Expense type policy, which will not pay any loss gross profit/earnings, will pay extra expense without regard to any saving in loss profit or earnings. There are certain limitations but basically the Extra Expense form covers the extra charges incurred to keep a business going.

Some businesses may need both earnings coverage and extra expense coverage since in some circumstances, they might need only restoration of earnings and in others, they could maintain their earnings if the extra cost of continuing can be recovered

No coinsurance since the sum insured can only be approximated. The amount recoverable is limited to certain percentages of the sum insured per month. Ex: 40% first month, 30% second, 20% after until limit is exhausted.

Front 377

*Give details of the limitation related to EDP media in BII policies. What should be done about this?

Back 377

It limits the period of time for which the insurer must pay when the interruption results from damage to EDP media (discs, tapes, etc) and programming records.

The time period is:

· 30 consecutive days; or

· The time required to restore other damaged property, whichever is greater.

The insured can ask the insurer for an extension at an extra cost. The limitation does not apply to damage to hardware.

Front 378

How are BII policies rated?

Back 378

Rating for BII policies is based on a percentage of the rate for physical damage insurance. ex: fire and EC, All risks.

Front 379

*Review the information about interruption of access by order of civil authority.

Back 379

It provides limited coverage where interruption of business is caused because access to the premises described in the policy is prohibited by order of civil authority. Coverage is subject to two important provisions:

· A time limit of two weeks;

· The prohibition must be the direct result of damage to neighbouring premises by a peril insured.

Front 380

*Note the important exclusions in BII policies.

Back 380

The Gross Earnings forms have a section called Additional Exclusions. The Profits form specifies restrictions and extensions in a section called Provisions.

Gross Earning exclusions:

· Bylaws: can cause delays and prolong period of interruption

· Interference: increase in loss due to interference with rebuilding, repair or replacement at the insured’s premises or in the resumption of business by strikers or others

· Suspension, Lapse or Cancellation: loss of income resulting after the indemnity period from suspension, lapse, cancellation of a lease, licence, contract or order.

· Fire, Damages or Penalties: excludes fines, damages for breach of contract or non-completion of orders and penalties of any nature.

Profits form exclusions:

· Bylaws: include delay caused by the application of a bylaw and does not extend the period of indemnity beyond the time stated in the declarations.

· Fire, Damages or Penalties: excludes fines, damages for breach of contract or non-completion of orders and penalties of any nature.

Front 381

*What points arise from the examination of a client’s lease?

Back 381

- The lease will show the dollar amount of the rent and this must be shown to insure properly.

- May be a requirement for the tenant to pay a percentage of the earnings derived from their business to the landlord. Common with retail stores. If rented premises are damaged or destroyed these payments will be reduced or stop altogether - landlord should insured against exposure in BII coverage.

Lease could require the tenant to have BII so that payments to the landlord could continue.

Two lease clauses that affect this point:

Rent abatement clause- provides that if the premise are rendered wholly or partly untenantable by damage from specified causes, the rent either ceased altogether or reduced in proportion to the extent that the premises can't be used.

Fire Clause- provides that if say 25% or more of the premises is damaged, or repairs will take more than six months, the landlord may cancel the lease. (The figures vary in different leases).

Front 382

Where rent is only one item in a clients operations, it is best covered how?

Back 382

As part of a Profits, Gross Earning, or Extra Expense (AICW) policy.

Front 383

When is a policy confined to coverage on rent adequate?

Back 383

Where rent is only one item in a client’s operations, it is best covered as part of a Profits, Gross Earnings or Extra Expense (or AICW) policy. An example is a manufacturer who has more space than he needs and rents out part of his premises. There is no difficulty about insuring rent under a regular BII policy.

However, if rent is the only or chief source of income, rent insurance is usually sufficient. For instance, this is true of an owner of apartment block(s) whose income is derived from the rent they produce.

Front 384

What is the main difference between the Profits and Gross Earnings approaches to separate rent insurance?

Back 384

The two separate rent insurance are as follows:

1. Gross Rentals

2. Rent and Rental Value

The first follows the profits method of providing coverage until results return to normal, subject to a time limit.

Rent and Rental Value is based on gross earnings approach in which coverage stops when restoration has been completed. Obviously the gross rentals are preferable unless he/she can re-lease his premises as soon as the damage is made good. The words rental value refers to a situation where the premises of an owner/occupier are damaged and he has to rent elsewhere.

Front 385

How does leasehold insurance work?

Back 385

If the client has a bargain rent, he may have to pay considerably more should his premises be badly damaged by a fire. Many leases contain a fire clause which in effect says that if the premises are severely damaged by fire, the landlord may cancel the lease.

Leasehold interest can be arranged to provide cover. Claims are settled by a cash payment which is discounted at a rate of interest stated in the policy because payment is made immediately instead of at intervals as the increased rent is payable. Leasehold insurance is not cancelable except in a few situations specified in the policy.

Front 386

What is meant by delayed opening coverage?

Back 386

If a planned start-up date of a business is delayed because of damage during construction, expected earnings will not be achieved in time. Examples include a factory, department store, etc.

BII (Profits and Gross Earnings basis) can be arranged based on projected earnings.

It is important to realize that the same effect may result from damage at the premises of a major supplier and these risks can be insured.

Front 387

Can you insure the Business Interruption Exposure of a Selling Agent's Commission?

Back 387

Coverage can be arranged that will pay commission lost by selling agents or manufacturers representatives because the manufacturers premises have been damaged and production interrupted.

Front 388

Describe the unique Business Interruption exposure faced by private schools, colleges, business and trade schools.

Back 388

Private schools, colleges, business and trade schools stand to lose tuition fees if, because of damage at their premises, they cannot provide instruction. If the premises are not ready when needed, a school can lose its fees for the entire year depending on when the damage occurs in relation to the start of the school year.

Neither the Profits nor the Gross Earnings form provide proper coverage unless modified.

Another point is that schools and colleges may have sources of income in addition to tuition fees such as:

-Sales of books and supplies

-research grants

-admission charges for athletic events.

Profits policy doesn't need much changes since coverage is not limited to the time required for restoration of damage as is Gross Earnings. Period of indemnity needs to be lengthened to 24 months.

Gross Earnings policies can be modified

- Coverage may provided from the date of damage to the day before the beginning of the school year following restoration.

-Of restoration is not completed 30 days before opening day, coverage extends to the day preceding the second school year after restoration.

-Definition of gross earnings much includes not only fees, but also the additional income above.

Front 389

What is a package policy?

Back 389

A package policy is a general term, and various policies in common use are really packages. For instance, a homeowners policy is basically a package combining physical damage (Named Perils or All-Risk’s) on buildings and contents, with Liability in a single policy. Many commercial policies cover several lines of insurance with one policy. A multi-line policy or multi-peril policy fits this general description.

Package policies are designed to provide most of the needed coverages for particular business insureds in a single document. Such policies typically cover property (both building and contents, as need), business interruption, general liability, and often crime, with various special features and optional extra coverages.

Front 390

What are the advantages and disadvantages of a package policy?

Back 390

Advantages:

· Lower premium

· One insurer is involves for easier handling and reduced work.

· Convenience

· Avoid gaps

· Special features and extensions that are difficult to obtain on good term for individual risks.

Disadvantages:

· Lack of flexibility, because the insurer needs to have coverage as uniform as possible to keep the cost of handling low.

· Packages vary in detail between insurers

· Endorsements – if they are added to the policy, special care must be taken. Endorsements will apply to the whole policy or to a part of it. The endorsements should specifically identify the particular line of insurance to which it applies.

Front 391

Describe the types of risk that are eligible and excluded from most business packages.

Back 391

Eligibility (Type of Risk Covered::

· Small to medium size businesses such as retail sale operations, contractors, motels, hotels (no cooking), offices, apartment blocks, condominiums.

Excluded Risks:

· Cooking hazards

· Manufacturers

· Large risks

Front 392

What does the typical business package cover?

Back 392

Package policies are not standardized, but a typical policy covers:

· Property Insurance:

- Building (coverage is needed if the insured owns the building or is responsible for insuring it)

- Contents (stock, equipment and tenant’s improvements)

· Business Interruption:

- Extra Expense (Gross Earnings or Profits in some packages)

· General Liability

· Crime: often limited in the regular package, with optional extensions.

Front 393

Review the usual coverage features.

Back 393

Property:

· Named perils

· Replacement cost

· Subject to coinsurance unless amended

· “Inflation guard” coverage

· Seasonal or Peak period automatic increase on contents

· Consequential Loss: this feature is not found in all policies.

Business Interruption:

· Named Perils

· Extra Expense

· Gross Earnings

· Profits

Crime:

· Money and securities – inside and outside hold-up

· Forgery

· Counterfeit Money

General Liability:

· Tenant’s Legal Liability: which covers damage to rented premises for which the insured is legally liable, if caused by certain perils.

· Non-Owned Automobile: covers the insured’s legal liability for negligent driving of non-owned vehicles used on is business.

Front 394

Review the optional coverages offered for Package Policies.

Back 394

These vary between insurers, and some coverages that are optional for one insurer may be standard for another and vice versa. Here are some of the usual options:

· “All-risks” coverage for Buildings, Contents and Business Interruption.

· Among the important exclusions in the all-risks coverage are Earthquake and Flood. Earthquake, but not Flood, is usually an optional extension of the all-risks insurance.

· Exterior signs - all-risks coverage

· Exterior (building) glass – special coverage

· Accounts Receivable

· Valuable Papers

· Crime coverage extensions: i) Employee Dishonesty ii) Stock and Safe Burglary

· Electronic Data Processing (e.g. “mini” computers)

· Boiler and Machinery – boilers, heating and air conditioning, etc.

· Innkeepers Liability – special liability coverage on the property of guests for motels, hotels, etc

· Errors and Omissions - Some may not provide at all.

Front 395

Discuss limits under a package policy and how package policies are rated by underwriters.

Back 395

There are limits set out on the coverages and these vary between insurers. Usually all policies have deductibles applicable to property, business interruption and crime. One deductible would be applicable per loss. It is less likely that the liability coverages carry a deductible.

Insurers try to provide simplified rating for packages based on location of risk, type of occupancy and amounts of insurance purchased. The premium thus produced will pay for all standard features. Options are available at extra cost.

In view of the different standard and optional coverages, the only way to make a proper cost comparison between different package policies is to list the desirable coverages and work out the actual premium under each plan, noting any remaining coverage differences of importance.

Front 396

What comments are made about packages provided by your own companies?

Back 396

Get to know well the coverages provided and excluded in the packages issued by your own insurers, including the options.

Watch for eligibility of the risks that you have in mind for a package policy, limits available, etc. Occasionally, none of the packages will fit the risk.

Front 397

What types of risks have package policies available to them?

Back 397

Generally speaking, the types of risks for which package policies are available have simple exposures to loss and the standard coverages and options offered are quite adequate.

Front 398

How is liability insurance handled in a Package Policy.

Back 398

One or more liability coverages could be incorporated into the package policy.

Liability policies wordings may differ radically from the standard CGL policy and one must not assume that a standard CGL policy will be used.

Front 399

Discuss crime coverages offered in package policies.

Back 399

Crime coverage varies between the packages of different insurers. Few companies provided full coverage in their standard package. The crime coverages are usually available are:

a) Money and securities – hold-up insurance inside the insured’s premises.

b) Money and securities – hold-up outside the insured’s premises.

c) Forgery – loss through the acceptance of forged cheques, money orders and similar documents.

d) Counterfeit Money – loss due to acceptance of counterfeit money

e) Employee dishonesty

f) Stock burglary

g) Safe burglary

Coverages (a) through (d) are typical of companies that provide limited crime coverage in their standard package.

Often the most important coverages are:

· Inside and outside hold-up

· Employee dishonesty

· Stock and/or safe burglary depending on the client’s business and his method of handling cash.

Front 400

What perils are covered under B&M policy?

Back 400

Boiler and Machinery coverage is available, generally as an option, under most package policies. Unlike industrial or manufacturing firms which may have large boilers and heavy machinery, the businesses to which package policies apply have exposure quite like a private home.

The objects covered are usually heating, hot water and air conditioning systems. The perils covered are typically described as “breakdown” which includes boiler explosion, rupture of boilers or piping, and breakdown of the air conditioning system.

Front 401

What objects are covered in a B&M policy?

Back 401

The objects covered are usually heating, hot water and air conditioning systems. The perils covered are typically described as “breakdown” which includes boiler explosion, rupture of boilers or piping, and breakdown of the air conditioning system. Some packages cover refrigeration systems which are important to stores selling food.

Front 402

What does glass insurance cover?

Back 402

Damage to glass is normally covered in a package policy against named perils or all risks. Coverage for glass may be incorporated directly into the package policy wording. An all-risks policy may provide only limited named perils coverage for exterior glass. A named perils policy may provide coverage for exterior glass or vitrolite and lettering and ornamentation for any accidental breakage. There may or may not be a limitation on the amount of insurance per plate glass.

A plate glass rider may be added to the policy. This usually covers “exterior” glass such as windows and doors of a store but not interior glass such as shelving and mirrors.

Typical exclusions under a glass rider are:

· Fire;

· War risks;

· Losses during construction, alteration or addition to the premises other than ordinary repair or maintenance;

· Vacancy;

· Increased cost or repair due to bylaws.

Front 403

Typical exclusions under a glass rider include:

a. Losses during construction other than ordinary repair

b. Increased cost to repair due to bylaws

c. Fire

d. All of the above

Back 403

d. All of the above

Front 404

Typical package policies of insurance cover:

a. Errors and Omission coverage

b. Fiduciary Liability

c. Ordinary Payroll

d. None of the Above

Back 404

d. None of the Above

Front 405

Most business package policies are best suited for:

a. Small and medium sized businesses

b. Manufacturers

c. Restaurants

d. Large warehouses

Back 405

a. Small and medium sized businesses

Front 406

The business package policy provides all of the following advantages, except

a. Gaps in coverage may be avoided

b. Consolidation of business under one form

c. One insurer is involved, reducing work and handling

d. Flexibility of the policy form

Back 406

d. Flexibility of the policy form

Front 407

**Dispute**

Non-Owned Automobile Liability provides coverage during business operations for:

a. The employee’s legal liability for negligent operation of a motor vehicle

b. The employer’s legal liability for an employee’s negligent operation of a motor vehicle

c. Both the employer and employee for negligent operation of a motor vehicle

d. An employee using their own vehicle on an errand

Back 407

b) The employer’s legal liability for an employee’s negligent operation of a motor vehicle

Front 408

There are several usual optional coverages in package policies, these include all of the following except:

a. Directors and Officers Liability insurance

b. Errors and Omission Liability insurance

c. Fidelity Liability insurance

d. Boiler and Machinery Liability insurance

Back 408

a. Directors and Officers Liability insurance

Front 409

The following is usual to find in a policy of Crime:

a. Full coverage for loss due to employee dishonesty

b. Hold-up inside but not outside the business premises for money and securities

c. Acceptance of counterfeit money

d. Forgery by the insured

Back 409

c. Acceptance of counterfeit money

Front 410

A policy of Boiler and Machinery provides what coverage in particular:

a. Apparatus involved in heating, hot water and air conditioning

b. The coverage provides for the apparatus itself but not the consequential damages

c. Expediting repairs and water damage to an unlimited amount

d. Contents lost due to an insured All Risks peril

Back 410

a. Apparatus involved in heating, hot water and air conditioning

Front 411

»Extra expense as a businessinterruption coverage includes

(A) Additional expense incurred by a businessthat must remain in operation despite a loss.(B) Additional costto rent premises when the building will not be rebuilt following a loss.

(C) Expense ofpaying sales staff to retain them when they temporarily have nothing to sellfollowing a loss.

(D) Costs thatcontinue to accrue following a loss even though business operations stop.

Back 411

(A) Additional expense incurred by a business that must remain in operation despite a loss.

Front 412

Which of the following riskswould NOT be eligible for a package policy?

(A) Motels

(B) Retail stores

(C) Condominiums

(D) Restaurants

Back 412

(D) Restaurants

Front 413

A client wants to purchasebusiness interruption coverage. Income for the business will be restoredfollowing a loss as soon as the business resumes operations. The incomerestoration policy required by this insured is

(A) Profits.

(B) Gross earnings.

(C) Extra expense.

(D) Ordinary payroll.

Back 413

(B) Gross earnings.

Front 414

Business package policies lackflexibility because

(A) Flexibility would detract from theconvenience.

(B) Special featuresand special extensions of coverage make flexibility unnecessary.

(C) The smallto medium size businesses these policies target have the same exposures.

(D) Uniform coverageis required to keep the cost of handling low.

Back 414

(D) Uniform coverage is required to keep the cost of handling low.

Front 415

When crime coverage is providedunder a package policy, the policy generally provides

(A) Limited coverage, with an option forwider coverage.

(B) A widerange of broad crime coverages requiring careful underwriting.

(C) Broad coveragefollowing an acceptable inspection of the premises before coverage is bound.

(D) Full coveragein the standard package, although limits are low.

Back 415

(A) Limited coverage, with an option for wider coverage.

Front 416

**A waiver of subrogation on behalfof a tenant is achieved by

(A) A repairs clause in a lease that makes the tenant responsible for repairsexcept for damage caused by fire and certain other perils.

(B) A clausein which the insurer agrees not to take over any right the landlord may haveagainst a tenant for damage.

(C) A leaseagreement that transfers the obligation for insuring the building to thetenant.

(D) An agreementbetween tenant and landlord stipulating the lessor is responsible for repairingor rebuilding following damage or destruction by an insured peril.

Back 416

(B) A clause in which the insurer agrees not to take over any right the landlord may have against a tenant for damage.

Front 417

Which of the following statementsis true of all-risk policies?

(A) They cover all risks of physical damage subject to lists of perilsand property that are excluded.

(B) Coverage is broad but not the most comprehensive coverageavailable.

(C) They insure against every possible kind of loss and providecomplete peace of mind.

(D) All direct and indirect losses are covered unless specificallyexcluded.

Back 417

(A) They cover all risks of physical damage

Front 418

An employee negligently carriesout an assigned task and injures a third party. The employer is generally

(A) Not responsible for an act that is carried out in a negligent way

(B) Not responsible if the manner in which the task was completed wasexpressly forbidden

(C) Responsible for the employee’s negligence along with the employee

(D) Solely responsible for the acts of the employees

Back 418

(C) Responsible for the employee’s negligence along with the employee

Front 419

The operation of a coinsuranceclause is designed to

(A) penalize those insureds that do not carry insurance close to fullvalue.

(B) protect the insurer from paying the policy limits.

(C) index policy limits according to inflation rates.

(D)increase policy premiums mid-term

Back 419

(A) penalize those insureds that do not carry insurance close to full value.

Front 420

Manuscript wordings for property

(A) Have been developed over the years tocover risks with distinctive needs.

(B) Are speciallydrafted as a joint effort of the insurer and the insured, usually a largecorporate client.

(C) Are insurers’own versions of standardized named perils and all risks policy forms.

(D) Allow apolicy to be customized by adding riders, appropriate for the particular risk,to a standard basic form.

Back 420

(B) Are specially drafted as a joint effort of the insurer and the insured, usually a large corporate client.

Front 421

Personal injury coverage on aliability policy covers liability arising from

(A) Slander or libel of a person ororganization.

(B) Injury orproperty damage to a third party when the insured is legally liable.

(C) A moralobligation for injury that occurs on the insured’s premises.

(D) Injury,sickness or disease sustained by a person, including death resulting from anyof these.

Back 421

(A) Slander or libel of a person or organization.

Front 422

The Non-owned Automobile Policyexists because:

(A) A company car may occasionally need to be replaced by a temporarysubstitute automobile.

(B) An employeemay drive his or her car to and from work even though it is not insured.

(C) When anautomobile is used on an employer’s behalf, the employer can be heldaccountable for its operation.

(D)An employer has a responsibility to hire drivers that are capable andcompetent.

Back 422

(C) When an automobile is used on an employer’s behalf, the employer can be held accountable for its operation.

Front 423

The Profits approach to businessinterruption provides income restoration

(A) Until the damaged property has beenrestored.

(B) Unless lossof profit results from application of a bylaw.

(C) During theperiod that results are affected by an insured peril.

(D) And theextra expenses incurred to keep a business going in spite of the loss.

Back 423

(C) During the period that results are affected by an insured peril.

Front 424

Which of the following policiescovers building and construction materials during construction?

(A) Builders’ Risk

(B) Commercial Building Form

(C) Wrap-up General Liability

(D) Commercial General Liability

Back 424

(A) Builders’ Risk

Front 425

Which of the following wouldcover loss to maps and drawings including the cost of reworking them?

(A) Building, Equipment and Stock form

(B) Office Contents Floater

(C) Valuable Papers and Records policy

(D) Commercial Property Floater

Back 425

(C) Valuable Papers and Records policy

Front 426

Property coverages that are notincluded on a farm policy but which can be added by endorsement include

(A) Stock and equipment.

(B) Private dwellingand contents.

(C) Farm machineryand equipment.

(D) Explosion coverageon the dwelling.

Back 426

(C) Farm machinery and equipment.

Front 427

The operating expenses thatcontinue or may continue in the event of a partial or total shutdown ofbusiness covered under Profits business interruption coverage are called

(A) Average daily value.

(B) Standing charges.

(C) Daily indemnity.

(D) Extra expense.

Back 427

(B) Standing charges.

Front 428

An excess liability policy:

(A) Is generally more restrictive than the underlying policy.

(B) Commonly followsthe insuring provisions of the underlying policy.

(C) Is generallybroader than the underlying policy.

(D) Drops downto cover losses when the underlying aggregate has been exhausted.

Back 428

(B) Commonly follows the insuring provisions of the underlying policy.

Front 429

The insured’s three-year-old sofawas destroyed by fire. Establishing the cost of a new similar sofa and thendeducting the physical depreciation will determine the

(A) Replacement cost.

(B) Coinsurance penalty.

(C) Purchase pricenew.

(D) Actual cashvalue.

Back 429

(D) Actual cash value.

Front 430

Explain why co-insurance clausesexist and their effect. (6 marks)

Back 430

•Co-insuranceis the joint assumption of risk between and insured and insurer

•Simply,co-insurance means that if you do not carry the proper amount of insurance,when there is a loss you will be penalized

•Theinsured will share in the cost if they are not insured to value

•Theclause is commonly 80%, 90% or 100% but can also be other %’s

•Usuallythe insd receives a reduction in premfor utilizing the co-insurance clause

•Thereis still a deductible applied

•Normalpremium is based on the assumption the full value is insured/co-insuranceallows the insured to take a lower value of insured, lowering the premium &taking on more of the risk themselves in the event of a claim

•Coinsurance helps to ensure that property etc isinsured at least to the value to ensure that he is not going to be penalized inthe event of a loss

Front 431

What purpose is served by aStated Amount clause in a property policy? (6 marks)

Back 431

•Agreementto insurance for an agreed amount of insurance based on a completed statementof value

•Usedinstead of coinsurance

•Theinsured must file a statement of values annually/sometimes semi annually

•Someform of appraisal is used

•Aslong as the stated amount is maintained, no coinsurance will apply

•Thisdoesn’t account for inflation/can have a special clause applied to account forinflation to automatically increase the values agreed upon to ensure thecorrect amount of insurance is maintained

•Usuallyin effect for 1 year

•Essentiallythe purpose of stated amount is to eliminate the applying of a co-insuranceclause

•Theinsd is agreeing to ensure that theyalways keep the specified limits as stated , if they do not then theco-insurance clause will be applied

Front 432

Outline the provisions of the CommercialProperty Floater and how it works. (6 marks)

Back 432

•Providingcoverage for contents

•Stock,equipment and tenants improvements

•Limitedcoverage for damage to the bldgcaused by theft (must own or be responsible)•Appliesat specified locations (declaration pages)

•Newlyacquired locations/specified time•Transit/limitedto Canada & the continental USA/excluding Alaska

•Anadd cntsin the custody of a sales representative

•Allrisk – subject to exclusions•Normallyco insurance is applied/usually 90% but can be any other

•Normallydetailed application is required

Front 433

Discussthe purpose of Difference inConditions coverage and how it operates. (6 marks)

Back 433

•Nota frequently used policy

•Doesn’tincrease the $ of insurance

•Widenthe coverage/smaller amount than the main policy

•Thepolicy normally states all risk & then states perils alreadyinsured under an other policy are not covered

•Notnormally subject to any co-insurance clause/dedapplies

•Insome cases more economical for the insured to obtain coverage forsomething specific

•Maybe a way for an insured to either obtain a coverage or even increasethe limits over what their main carrier is offering

•Eg:Insd hasBasic Fire & ECpolicy in place, but he wants to make sure that the equipment he has onthe premises is also covered for most things that can happen. He purchases a policy just for the equipmentfor all risk coverage and requests a $10000 deductible

•Anexample of changing the property coverage can be illustrated asformula: FEC + DIC = AR

•Underwriterswill require normal underwriting information such as the earthquakearea, any flood zones, any transportation exposures,what safe guards are used for burglary-theft and of course loss history

Front 434

With respect to businessinterruption insurance, outline the differences between the Period of Indemnityon a Profitsform and that on a GrossEarnings form. (7 marks)

Back 434

•Profits

- As long as there is a profitloss as a result of the damage caused by insured peril

- Defined in the policy

- 12 months after the damage tookplace

- Based on British form

- Covers for gross profits

- How the indemnity iscalculated/addition

•GrossEarnings

- Up to the time required torebuild the insured damage with due diligence & dispatch- Premium adjustment clauselimits the indemnity period to 12 months as of the date of loss

- Based on USA form

- How the indemnity is calculated/deductions

Front 435

List 5 Usual Exclusions to theEnvironmental Impairment Liability (EIL) policy (5 marks)

Back 435

•Eventsthat occur before inception

•Routineclean ups within a waste facility

•War

•Non-compliancewith a statute

•Finesor penalties

•Premisesowned, occupied or rented to the insd

•Intentionalillegal dumping of waste

•Liabilityimposed under the nuclear liabact

Front 436

Indicate, for each of the following situations, whether a premises,operations, products, completed operations or contractual liability exposure exists. (1 Mark Each)

•A patron slips on the wet floorwhile entering a store.

•Wiring thathad been installed by an electrician a few days before short-circuits causing afire.

•An indemnity agreement is signedtransferring liability from where it would normally lie to someone else.

•A patron bites into a foreignsubstance while dining in a restaurant.

•A pedestrian trips over a ladderleft on the sidewalk by a roofing contractor.

Back 436

- Premises

- Completed Operations

-Contractual

-Completed Operations

- Could be a premises liability or it could be a contractual liability depending on the contract between the premise owner and the roofing contractor.

Front 437

List and describe 5 importantpoints to consider when rating a package policy (10 marks)

Back 437

•Simplifiedrating based on location, type of occupancy & amounts of insurancepurchased•Premiumpays for all the features

•Optionalcoverages are at extracost

•Youshould rate out each of the coverages in the package based on eachindividual coverage to see if the cost is beneficial to provide as a package(cost comparison)•Normallya flat base charge for the basic package

•Typeof operation & exposure/fitting in to the package policy

•Theinsureds requirements for coverage & ultimately them providing thefinal decision on coverage

Front 438

The duty of the Risk Manager is what?

Back 438

Identifying loss exposures,preventing losses, reducing loss, loss financing, educating other corporatemanagers and acting as a resource

Front 439

Risk Managers are responsible forwhat risks?

Back 439

Pure Risk

Front 440

What are the “Items Subject toLoss?”

Back 440

Physical Assets, Legal Liabilities,and Human Assets

Front 441

Prouty Measures analyze what twofactors ?

Back 441

Frequency and severity

Front 442

In the sales interview, theproducer’s goals are to:

Back 442

Sellthe risk management concept, establish credibility, and gather information?

Front 443

What did the case of Fine Flowersv. General Accident, establish?

Back 443

Boiler and Machinery must always beconsidered.

Front 444

The principle difference betweenProfits and Gross Earnings Forms is what?

Back 444

The Period of Indemnity

Front 445

Standing Charges are what?

Back 445

The charges that do not reduce inproportion to the drop in revenue following an interruption of businessactivity.

Front 446

What are the three businessinterruption policies available?

Back 446

Profits, Gross Earnings, and ExtraExpense and Additional Cost of Working.

Front 447

Which BII Form excludes Bylaws?

Back 447

Gross Earnings

Front 448

Common methods for exposureidentification are?

Back 448

Surveys, Flow Charts, FinancialStatements, and Inspections.

Front 449

A loss exposure is:

Back 449

A situation or physicalcircumstance that makes an individual or organization vulnerable to loss,damage or injury leading to financial loss

Front 450

A Rent Abatement Clause is a:

Back 450

A clause stating that if a premisesis untenentable by insured peril, that rent iscancellable or reduced for the duration

Front 451

Loss Exposures are analyzedconsidering what?

Back 451

Likelihood of the Loss Occurring,Seriousness of the Loss, Financial Effect of the Loss, and Reliability ofPredictions of Frequency and Severity.

Front 452

What exposure is both a pre-lossexposure and a post-loss exposure?

Back 452

Social Responsibility

Front 453

Excess Liability policies must beanalyzed to ensure what?

Back 453

Policy period, loss reportingfeatures, coverage triggers, paid “on behalf of” or an “indemnification”policy, and any exclusions that aren’t mirrored from the underlying coverage

Front 454

Business Package policies typicallycover what?

Back 454

Property Insurance, BusinessInterruption, General Liability, and Crime

Front 455

CGL policies commonly exclude what?

Back 455

Injuryto employees, automobiles, watercraft and aircraft, and property in the care,custody and control of the insured, pollution and property being worked on.

Front 456

Typically Tenant’s Legal Liabilitypolicies cover for what?

Back 456

Covers damage to rented premises for which is insured is legally liable if caused by certain perils

Front 457

What payment options are includedin D&O policies, these are?

Back 457

a) To directors and offices for their personal liability;

b) To corporations when they reimburse directors and officers for liability incurred in (a)

Front 458

What are the four main componentsof property policies?

Back 458

Declarations, Wordings, StatutoryConditions, Endorsements

Front 459

What two clauses often appear incontracts to transfer the financial consequences of a loss?

Back 459

Hold Harmless and IndemnificationClauses

Front 460

What are two advantages tononinsurance risk transfers?

Back 460

Exposuresthat aren’t transferable, transfers can be less expensive than insurance,exposures can be identified and controlled andtailored

Front 461

What are three examples ofnoninsurance risk transfers?

Back 461

leases, construction agreements,bailment contracts, contracts of sale or supply, service contracts, purchaseorder agreements

Front 462

What two basic approaches to losscontrol measures, and who developed them?

Back 462

Domino Theory by Henrich andEnergy Release Theory by Haddon

Front 463

What are three disadvantages to anoninsurance transfer?

Back 463

Transfers may not be complete,agreements subject to litigation, indemnitor unable to pay, and economicenvironment may impact the agreement

Front 464

Whattwo major techniques are used to classify risk exposures?

Back 464

LossControl and Loss Financing

Front 465

Losscontrol techniques include:

Back 465

avoidance, loss prevention, lossreduction, separation, diversification, and noninsurance risk transfer

Front 466

Sourcesto fund the costs of retained losses include what?

Back 466

currentexpenses, unfunded reserves, funded reserves, borrowing, captive insurers

Front 467

What is the MELM method?

Back 467

Thecost of each possible risk management technique is calculated and the resultsof applying each technique to potential losses estimated?

Front 468

Whatare the methods used in the Risk Management Process?

Back 468

Identifyexposures, select best risk management technique, implement technique, monitorresults, and modify where necessary

Front 469

Describethe coverage provided by an EDP policy (Electronic Data Processing) insurance,and identify (1) business type that may need this coverage?

Back 469

equipment breakdown, air conditioning failure and electrical damage included.

assume that each business or professional client probably uses a computer and will need coverage.This coverage should apply to the actual computer and its associated equipment (hardware) plus diskettes, magnet takes (software).

May provide other coverages such as Valuable papers and accounts receivables.