AIC L2 — Alberta Insurance Council - General Insurance Level 2 Quick Reference

Last revised: June 24, 2026

Compact independent Quick Reference for AIC L2 candidates covering Alberta general insurance regulation, broker duties, auto, property, liability, claims, and calculation traps.

Exam identity and study focus

Item	Reference
Official vendor/provider	Alberta Insurance Council.
Official exam title	Alberta Insurance Council - General Insurance Level 2
Official exam code	AIC L2
Page purpose	Independent Quick Reference for final review and original practice support
Best use	Review after studying the official materials; use it to test distinctions, calculations, and scenario judgment

AIC L2 questions are usually applied, not purely definitional. Expect scenarios requiring you to identify the correct coverage, recognize a regulatory or ethics issue, calculate an insurance result, or choose the best broker action.

High-yield exam map

Area	What to know cold	Common trap
Alberta regulation and licensing	Role of the regulator/council, certificate authority, conduct, disclosures, trust handling, complaint response	Treating a sales issue as harmless when it is actually misrepresentation, conflict, or trust-money mishandling
Broker duties	Needs analysis, advice, documentation, binding authority, renewals, supervision, E&O prevention	Binding or promising coverage outside authority
Insurance contracts	Utmost good faith, material fact, insurable interest, indemnity, subrogation, contribution, warranties, conditions	Confusing representation, warranty, and material change
Underwriting	Hazards, risk selection, rating, deductibles, limits, loss history, exposure basis	Ignoring moral hazard or occupancy changes
Personal property	Homeowners, tenants, condominium, valuation, exclusions, water, vacancy, endorsements	Assuming “all risks” means all losses are covered
Commercial property	Building, stock, equipment, business interruption, equipment breakdown, crime, floaters	Mixing property damage coverage with financial loss coverage
Liability	CGL, occurrence vs claims-made, duty to defend, aggregates, products/completed operations, tenants legal liability	Treating professional negligence as standard CGL
Automobile	Alberta SPF/SEF concepts, liability, accident benefits, DCPD, physical damage, endorsements	Confusing own-vehicle physical damage with third-party liability
Claims	Notice, proof, mitigation, reservation of rights, appraisal, subrogation, salvage, fraud	Advising coverage before facts and insurer position are known
Calculations	Coinsurance, ACV, earned premium, loss ratio, combined ratio, deductibles	Applying the deductible before the coinsurance penalty

Alberta regulation, licensing, and market conduct

Regulator-facing vocabulary

Term	Exam-ready meaning
Certificate of authority	Alberta licensing authorization for insurance activity. Candidates should distinguish being licensed from being authorized by a specific insurer or agency to bind coverage.
Insurance Act	Core Alberta statute governing insurance contracts, licensing, conduct, and enforcement. Do not rely on casual industry practice if the statute or regulations control.
Alberta Insurance Council.	Administrative/licensing body associated with council functions for Alberta insurance licensing and discipline.
General insurance	Property and casualty insurance lines such as automobile, habitational, commercial property, liability, crime, surety, marine, and related coverages.
Insurer	Entity accepting risk and issuing the policy. The broker/agent does not personally insure the risk unless acting outside authority and creating an E&O problem.
Agent/broker	Intermediary dealing with clients and insurers. In exam scenarios, identify who the intermediary represents for each function: advising client, collecting premium, binding under authority, delivering policy terms.
Binding authority	Permission from insurer/agency contract to put coverage into effect. It is limited by class, amount, terms, underwriting rules, and timing.
Trust money	Premiums, return premiums, and other insurance funds handled in a fiduciary capacity. Must be separated, recorded, and remitted properly.
Material fact	Fact that would influence a reasonable insurer in accepting, declining, rating, or setting terms.
Material change	Change after policy inception that affects risk. Usually must be reported promptly to the insurer.
Unfair or deceptive act	Misleading, coercive, dishonest, or improper market conduct. Exam questions often hide this inside sales or renewal scenarios.
E&O exposure	Professional liability risk from negligent advice, missed coverage, poor documentation, late action, or unauthorized promises.

Compliance and ethics decision table

Scenario clue	Best exam response	Why it matters
Client asks, “Can you say my business is just storage, not manufacturing?”	Refuse and explain disclosure obligations	Misrepresentation of a material fact can void coverage and create discipline/E&O exposure
Broker receives premium payable to insurer	Treat as fiduciary/trust money; record and remit as required	Premium funds are not operating cash
Client wants coverage effective immediately	Bind only if you have authority and all binding conditions are met; otherwise request insurer approval	A broker cannot create insurer liability outside authority
Insurer declines or restricts coverage	Communicate promptly, accurately, and document	Delay can create uncovered loss and E&O exposure
Client rejects recommended coverage	Document the offer, explanation, and rejection	A signed rejection or clear file note is key evidence
Advertising says “lowest premiums guaranteed” without support	Avoid unsupported or misleading claims	Marketing statements are conduct evidence
Referral fee or inducement offered	Confirm legality, disclosure, and agency/insurer rules before proceeding	Secret or unauthorized inducements are high-risk
Complaint received	Acknowledge, escalate according to procedure, preserve file, avoid retaliation	Complaint handling is a compliance function
Conflict of interest	Disclose, manage, or avoid the conflict	Client must not be misled about the broker’s role or incentives
Confidential client data requested by third party	Obtain authority or confirm legal basis before disclosure	Privacy and confidentiality duties continue after sale

Level 2 operational and supervision focus

Function	Level 2 exam emphasis
File quality	Applications, quotes, coverage comparisons, client instructions, binder terms, insurer correspondence, declinations, and renewal notes should be clear enough for another licensed person to reconstruct the advice.
Supervision	Less experienced staff need procedures, referral points, file review, and limits on what they may bind or advise.
Escalation	Refer complex risks, complaints, coverage disputes, authority questions, and potential E&O incidents to management, insurer, or designated responsible person.
Renewal control	Track renewal dates, insurer changes, coverage reductions, premium changes, outstanding subjectivities, and client decisions.
Binding control	Confirm effective date/time, insurer, named insured, location/risk, limits, deductibles, subjectivities, and endorsements.
E&O prevention	Use checklists, confirmations, written recommendations, rejection documentation, diaries, and peer review.

Insurance contract principles

Principle	Practical exam use
Offer and acceptance	Application or quote is not always coverage. Coverage begins when acceptance/binding requirements are met.
Consideration	Premium and promise to indemnify support the contract. Non-payment can affect coverage according to policy terms and law.
Capacity and legality	Parties must have legal capacity; insurance cannot cover illegal interests.
Insurable interest	The insured must face financial loss from damage, liability, or event insured.
Utmost good faith	Both insured and insurer must deal honestly; insured must disclose material facts.
Indemnity	Most P&C policies aim to restore, not enrich, the insured. Replacement cost is a policy modification of strict indemnity.
Subrogation	After paying, insurer may pursue responsible third parties in the insured’s name. Insured must not prejudice this right.
Contribution	If multiple policies cover the same interest and loss, insurers may share according to policy provisions.
Proximate cause	Dominant effective cause of loss determines coverage when multiple causes exist.
Waiver	Voluntary relinquishment of a known right. Can arise from conduct or written agreement.
Estoppel	A party may be prevented from denying a position if another party reasonably relied on it to their detriment.
Contra proferentem	Ambiguous policy wording may be interpreted against the drafter, but only after ordinary interpretation fails.

Representation, warranty, condition, exclusion

Concept	Meaning	Trap
Representation	Statement made to induce the insurer to provide coverage	A false material representation can affect coverage even if not labelled “warranty”
Warranty	Promise that a fact is true or that something will/ will not be done	Breach can have severe coverage consequences
Condition	Policy obligation before or after loss	Breach may limit or defeat recovery depending on wording and law
Exclusion	Removes coverage otherwise inside the insuring agreement	Endorsements may carve back part of an exclusion
Definition	Controls scope of a term	Many coverage answers turn on defined words like “insured,” “automobile,” “business,” “occurrence,” or “vacant”

Risk, underwriting, and pricing

Risk management choices

Method	Use when	Insurance example
Avoid	Activity is too hazardous or not worth the reward	Refuse to store flammable materials
Reduce/control	Risk can be lowered with prevention or mitigation	Sprinklers, alarms, driver training, contractual controls
Retain	Loss frequency/severity is tolerable	Higher deductible, self-insured retention
Transfer by contract	Another party should assume responsibility	Hold harmless, indemnity agreement, lease insurance clause
Transfer by insurance	Fortuitous loss can be pooled and priced	Property, CGL, auto, crime, umbrella

Hazards and underwriting indicators

Item	Meaning	Underwriting relevance
Physical hazard	Tangible feature increasing chance or severity of loss	Poor wiring, wood heat, poor housekeeping, obsolete building
Moral hazard	Dishonesty or intent to cause/benefit from loss	Fraud history, financial distress, suspicious claims
Morale hazard	Carelessness because insurance exists	Poor maintenance, weak controls
Legal hazard	Lawsuits, legal environment, contract exposure	High-liability operations, unfavorable contracts
Adverse selection	Higher-risk insureds seek coverage more actively than lower-risk insureds	Underwriting questions and pricing protect the pool
Spread of risk	Many similar independent exposure units improve predictability	Concentrated catastrophe exposure is harder to insure
Frequency	How often losses occur	Deductibles and prevention may target frequency
Severity	Size of losses	Limits, reinsurance, risk control, and underwriting authority target severity

Rating concepts

Rating concept	Exam use
Exposure basis	Unit to which rate applies: vehicle, payroll, sales, area, value, receipts, or operations.
Manual rating	Rate from filed/manual class and territory factors.
Schedule rating	Debits/credits for risk-specific features.
Experience rating	Past loss experience affects future premium.
Deductible	Insured retains first portion of covered loss; can reduce frequency claims and premium.
Limit	Maximum insurer payment, subject to policy terms.
Aggregate	Maximum for all covered claims in a period for certain coverages.
Minimum retained premium	Premium retained despite cancellation if policy wording/contract allows.
Subjectivity	Condition to be met for quote/binder/coverage continuation, such as inspection, repairs, or documentation.

Core calculations

Coinsurance

Coinsurance requires the insured to carry insurance equal to a stated percentage of the property value. If the limit carried is too low, the insured shares the loss.

\[ \text{Required insurance} = \text{Insurable value} \times \text{Coinsurance percentage} \]\[ \text{Coinsurance factor} = \frac{\text{Limit carried}}{\text{Required insurance}} \]\[ \text{Claim payment before deductible} = \min\left(\text{Loss},\ \text{Policy limit},\ \text{Coinsurance factor} \times \text{Loss}\right) \]\[ \text{Final payment} = \max\left(0,\ \text{Claim payment before deductible} - \text{Deductible}\right) \]

Example logic: if the insured should have carried 800,000 but carried 600,000, the factor is 600,000 / 800,000 = 75%. On a partial loss, the insurer pays 75% of the covered loss before applying the deductible, subject to the policy limit.

Property valuation

\[ \text{Actual cash value} = \text{Replacement cost} - \text{Depreciation} \]

Valuation basis	Meaning	Trap
Replacement cost	Cost to repair/replace with like kind and quality without depreciation, subject to conditions	Often requires actual repair/replacement and adequate limits
Actual cash value	Depreciated value at time of loss	Not the same as market value
Agreed value	Insurer and insured agree on value for the policy period	Often tied to statement of values and waiver of coinsurance
Stated amount	Maximum payable may be capped at stated amount	Not automatically guaranteed value
Functional replacement cost	Replaces obsolete property with functionally equivalent modern property	Useful for older buildings/equipment
Market value	Price property would sell for	Usually not the standard basis for insured property loss

Premium and performance formulas

\[ \text{Earned premium} = \text{Written premium} \times \frac{\text{Time expired}}{\text{Policy term}} \]\[ \text{Unearned premium} = \text{Written premium} - \text{Earned premium} \]\[ \text{Loss ratio} = \frac{\text{Incurred losses}}{\text{Earned premium}} \]\[ \text{Expense ratio} = \frac{\text{Underwriting expenses}}{\text{Written premium}} \]\[ \text{Combined ratio} = \text{Loss ratio} + \text{Expense ratio} \]

Formula result	Interpretation
Loss ratio under 100%	Losses are less than earned premium, before expenses
Combined ratio under 100%	Underwriting profit before investment income
Combined ratio over 100%	Underwriting loss before investment income
Pro rata cancellation	Unearned premium returned based on time not used
Short-rate cancellation	Insurer retains more than pro rata when insured initiates cancellation, if permitted by policy terms

Personal property insurance

Habitational forms

Form/type	Typical coverage structure	Key exam distinction
Homeowners comprehensive	Broadest common homeowner form; building and contents covered for all risks of direct physical loss unless excluded	“All risks” still has exclusions and conditions
Homeowners broad	Building often all risks; contents often named perils	Contents are narrower than building
Homeowners basic/named perils	Covers only listed perils	If peril is not named, no coverage unless endorsed
Tenants package	Personal property, additional living expense, personal liability; no building coverage except tenant improvements if included	Tenant needs contents and liability, not dwelling building coverage
Condominium unit owners	Contents, improvements/betterments, loss assessment, contingent coverage, personal liability	Must coordinate with condo corporation master policy
Seasonal/secondary residence	More restricted terms may apply	Vacancy, water, theft, and occupancy conditions are common traps

Homeowners coverage parts

Coverage	What it protects	Common issue
Dwelling/building	Main residence and attached structures	Renovations, occupancy change, bylaws, replacement cost conditions
Detached private structures	Garages, sheds, fences, other separated structures	Business use or rental use may restrict coverage
Personal property	Contents owned/worn/used by insured	Special limits for valuables, money, securities, watercraft, business property
Additional living expense	Extra cost to maintain normal standard of living after insured loss	Requires insured damage making premises unfit or access prohibited under covered circumstances
Fair rental value	Lost rent when rented portion cannot be occupied due to insured loss	Not the same as business income coverage
Personal liability	Legal liability for bodily injury/property damage	Business, auto, professional, and intentional acts are common exclusions
Voluntary property damage/medical payments	Goodwill payments without legal liability	Small, condition-based coverage; not a substitute for liability limits

Property peril distinctions

Peril/loss	Exam distinction
Fire	Direct fire damage usually covered; intentional fire by insured is not.
Smoke	Sudden accidental smoke may differ from repeated/industrial smoke.
Explosion	Usually covered as a peril, but boilers/equipment may require equipment breakdown for full treatment.
Windstorm/hail	Exterior opening and water entry rules matter.
Theft	Vacancy, mysterious disappearance, and property away from premises can restrict coverage.
Vandalism/malicious acts	Vacancy restrictions are common.
Freezing	Heat maintenance and shut-off requirements matter.
Water escape	Sudden escape from plumbing differs from seepage, flood, ground water, sewer backup, or overland water.
Sewer backup	Often endorsement-dependent.
Overland water/flood	Often limited, excluded, or endorsement-dependent; do not assume standard coverage.
Earthquake	Usually excluded unless endorsed.
Wear and tear	Maintenance issue, not fortuitous insured loss.
Faulty workmanship/design	Often excluded, but resulting damage may be treated separately depending on wording.

Vacancy vs unoccupancy

Concept	Meaning	Coverage impact
Unoccupied	Insured is temporarily away but intends to return; contents remain	Conditions may require heat, inspections, or water shutoff
Vacant	Occupants have moved out with no intent to return or premises lacks normal contents/use	Stronger restrictions; vacancy permit may be needed
Material change	Occupancy/use changes from what insurer accepted	Must be reported promptly

Commercial property

Commercial property components

Coverage/item	What it protects	Exam cue
Building	Building, additions, fixtures, permanently installed property	Ownership, lease responsibility, bylaws, valuation
Stock	Merchandise, raw materials, finished goods	Selling price vs cost valuation may matter
Equipment/contents	Furniture, machinery, tools, office contents	Mobile property may need floater
Tenants improvements	Improvements paid for by tenant and not removable	Lease determines insurable interest
Property of others	Customer goods or property in insured’s care	Bailee exposure may need specific coverage
Debris removal	Cost to remove insured debris after covered loss	Usually subject to limits/conditions
Newly acquired property	Temporary automatic coverage for new locations/property	Time and amount limits are wording-specific
Valuable papers/records	Cost to reconstruct documents	Data restoration may need separate coverage
Outdoor signs/property	Often limited or separately insured	Wind/hail and location details matter

Commercial property forms

Form	Scope	When to choose
Named perils	Only listed perils	Lower cost, simpler risks, limited appetite
Broad/all risks	Direct physical loss unless excluded	Better for businesses needing wider protection
Floater	Property that moves or is at various locations	Contractors equipment, tools, installation property
Builders risk/course of construction	Building under construction/renovation	Project-based property coverage
Installation floater	Materials/equipment being installed	Contractors installing property at customer sites
Transportation/cargo	Property in transit	Shipment exposure beyond premises
Equipment breakdown	Pressure, mechanical, electrical breakdown	Boiler/machinery-type losses not treated as ordinary property perils
Crime	Dishonesty, theft of money/securities, fraud	Crime is not the same as property theft coverage

Business interruption and time element coverage

Concept	Meaning	Trap
Business interruption	Covers loss of income from covered property damage interrupting operations	Requires covered property loss unless coverage extends otherwise
Gross earnings/gross profits	Methods for measuring lost business income	Know the wording method; do not mix formulas casually
Extra expense	Additional cost to continue or reduce interruption	May be covered even if it does not fully restore income
Ordinary payroll	Payroll coverage may be limited or selected	Important for employee retention after loss
Indemnity period	Period during which covered interruption loss is measured	Starts/ends according to wording, not necessarily policy expiry
Waiting period	Time deductible before BI responds	Different from dollar deductible
Contingent business interruption	Loss due to damage at supplier/customer/dependent property	Must be specifically included
Civil authority/ingress-egress	Access prevented by authority or physical obstruction	Wording controls distance, cause, and duration
Values worksheet	Used to set limits and coinsurance	Understated values create coinsurance problems

BI exam approach

Was there insured physical damage?
Did it affect insured operations?
What income would have been earned but for the loss?
What expenses continued?
What expenses were saved?
What extra expenses reduced the loss?
What waiting period, limit, coinsurance, and indemnity period apply?

Liability insurance

CGL structure

CGL area	Covers	Watch for
Bodily injury and property damage liability	Legal liability from an occurrence	Expected/intended injury, contractual limits, care/custody/control, pollution, auto, aircraft/watercraft
Personal and advertising injury	Specific offenses such as libel, slander, certain privacy or advertising injuries	Not the same as bodily injury
Medical payments	No-fault medical-type payments to others under policy conditions	Limited goodwill coverage, not full liability
Products-completed operations	Injury/damage arising from products or completed work	Aggregate limits and completed operations hazard
Premises/operations	Ongoing business operations and premises liability	Slip/fall, operations at job sites
Tenants legal liability	Damage to rented premises for which tenant is legally liable	Limit and peril basis matter
Non-owned automobile liability	Liability from business use of vehicles not owned by insured	Does not repair the non-owned auto itself
Employer’s liability	Employee injury liability gap in some circumstances	Workers compensation exclusions/interaction matter
Contractual liability	Liability assumed under contract	Not all indemnity agreements are automatically covered

Occurrence vs claims-made

Trigger	Coverage responds when	Exam trap
Occurrence	Injury/damage occurs during policy period, even if claim is made later	Current policy may not respond to old damage
Claims-made	Claim is first made during policy period, subject to retroactive date and reporting rules	Missing reporting deadline can defeat coverage
Retroactive date	Claims from acts before this date are excluded	A “new” policy may not cover prior acts
Extended reporting period	Allows reporting after policy ends for acts within covered period	It does not cover new acts after expiry

Liability coverage selection

Exposure	Better coverage fit
Retail customer slip and fall	CGL premises liability
Product injures customer after sale	CGL products-completed operations
Contractor damages worksite while working	CGL, but care/custody/control and “your work” exclusions must be checked
Accountant gives negligent advice	Professional liability/E&O
Director sued for governance decision	Directors and officers liability
Data breach and notification costs	Cyber/privacy coverage
Employee theft of money	Commercial crime, not CGL
Pollution release	Pollution liability or specific endorsement
Large catastrophic liability	Umbrella/excess liability
Rented premises fire damage	Tenants legal liability if included and adequate

Automobile insurance in Alberta

Core policy concepts

Concept	Exam-ready distinction
SPF 1	Standard owner’s automobile policy form concept for owned vehicles.
Named insured	Person/entity named on policy; affects who has rights and obligations.
Insured automobile	Vehicle described or otherwise qualifying under policy wording.
Permitted driver	Driver using vehicle with consent, subject to licence/use restrictions.
Third-party liability	Protects against legal liability to others for bodily injury/property damage arising from automobile use.
Accident benefits	Statutory/standard benefits payable without needing to prove fault, subject to policy terms.
Uninsured/underinsured protection	Responds when responsible motorist lacks adequate collectible insurance, subject to wording.
Direct Compensation for Property Damage	Own insurer handles qualifying not-at-fault vehicle/property damage under Alberta auto framework and policy terms.
Collision/upset	Optional physical damage coverage for collision or upset of insured automobile.
Comprehensive	Optional physical damage for covered non-collision losses, subject to exclusions.
Specified perils	Narrower physical damage for listed perils only.
All perils	Combines collision and comprehensive-type protection and may address theft by certain persons, subject to wording.

Automobile physical damage comparison

Coverage	Responds to	Does not replace
Collision/upset	Collision with object/vehicle, upset/rollover	Liability coverage
Comprehensive	Fire, theft, vandalism, glass, windstorm, hail, falling object, other non-collision perils as worded	Collision if excluded
Specified perils	Only named physical damage perils	Broad comprehensive protection
All perils	Broadest common physical damage option	Exclusions, deductibles, and conditions still apply

Common Alberta SEF endorsement decision table

Endorsement concept	Use when client needs	Trap
SEF 20 Loss of Use	Rental vehicle/taxi/transportation after insured physical damage claim	Requires covered loss and wording conditions
SEF 27 Legal Liability for Damage to Non-Owned Automobiles	Coverage for liability for damage to rented/borrowed vehicles	Not the same as owned-auto collision coverage
SEF 43 / limited waiver of depreciation concept	Newer vehicle protection from depreciation after covered total/partial loss	Eligibility and duration are wording-specific
SEF 44 Family Protection	Additional protection when at-fault motorist has insufficient insurance	Does not increase third-party liability owed to others
Glass limitation/deletion concept	Reduce or restrict glass coverage	Client may be surprised by windshield limitations
Permission/excluded driver endorsement concept	Restrict or clarify who may drive	Breach can jeopardize coverage

Auto scenario traps

Scenario	Correct reasoning
Client drives for delivery/rideshare but policy says personal use	Use change may be material; insurer must be told before assuming coverage
Employee uses own car for company errands	Employer may need non-owned auto liability; employee still needs personal auto coverage
Rental car on vacation	Consider SEF 27-type coverage, credit card terms, rental contract, territory, vehicle type, and liability limits
New expensive vehicle	Discuss collision/comprehensive/all perils, deductible, depreciation waiver, replacement cost options if available
Commercial fleet	Rating, drivers, radius, use, cargo, filings, loss history, and fleet controls matter
Garage/dealer risk	Standard owner’s policy is not enough; garage automobile coverage may be required
Vehicle modified or used off-road	Eligibility, value, and use must be disclosed
Driver has poor record	Underwriting, facility/market placement, deductibles, and restrictions may apply

Specialty commercial coverages

Coverage	Protects against	Key distinction
Commercial crime	Employee dishonesty, money/securities theft, forgery, fraud	Crime covers dishonest acts; property policy covers physical property loss only as worded
Fidelity bond	Employee dishonesty protection, often for employer benefit	Not the same as surety bond guaranteeing contract performance
Surety bond	Three-party guarantee: principal, obligee, surety	Surety expects reimbursement from principal after loss
Equipment breakdown	Sudden mechanical/electrical/pressure breakdown	Excluded wear and tear/maintenance remains uninsured
Cyber	Privacy breach, network security, cyber extortion, data restoration, liability	CGL may not address data/privacy loss adequately
Professional liability/E&O	Negligent professional advice/services	Usually claims-made
D&O	Management liability for directors/officers	Entity coverage and exclusions matter
Employment practices liability	Wrongful dismissal, harassment, discrimination claims	Not standard CGL bodily injury coverage
Marine cargo	Goods in transit	Property policy may limit off-premises/transit coverage
Contractors equipment	Mobile equipment/tools	Auto policy may not cover equipment damage
Wrap-up liability	Project-specific liability for multiple participants	Does not replace each party’s entire insurance program
Umbrella/excess	Higher limits above primary policies	Umbrella may be broader; excess usually follows underlying terms

Claims and loss handling

Claims workflow

    flowchart TD
	A[Loss reported] --> B[Record facts and policy details]
	B --> C[Advise insured to protect property and prevent further loss]
	C --> D[Notify insurer promptly]
	D --> E[Confirm coverage is not admitted by broker]
	E --> F[Insurer investigates and reserves rights if needed]
	F --> G[Proof/documentation/valuation]
	G --> H[Coverage decision and settlement negotiation]
	H --> I[Payment, denial, appraisal, or dispute process]
	I --> J[Subrogation/salvage/recovery and file closure]

Claims duties and documents

Item	Purpose	Exam trap
Notice of loss	Alerts insurer so investigation can begin	Late notice can prejudice insurer
Proof of loss	Formal claim details and amount claimed	Broker should help process, not fabricate facts
Mitigation	Insured must protect property from further damage	Reasonable emergency repairs are different from full unauthorized reconstruction
Inventory	Supports contents/stock claim	Lack of records affects recovery
Reservation of rights	Insurer investigates without waiving coverage defenses	Not a denial by itself
Non-waiver agreement	Confirms investigation does not waive rights	Protects insurer while facts are developed
Appraisal	Resolves amount of loss disputes, not usually coverage disputes	Do not use appraisal to decide whether policy covers the cause
Subrogation	Insurer recovery against responsible third party	Insured should not release third party without insurer consent
Salvage	Damaged property value after insurer pays	Insurer may be entitled to salvage depending on settlement
Fraud	False claim or false statements	Can void claim and create legal/disciplinary consequences

Broker role in claims

Do	Do not
Report promptly to insurer	Admit liability or guarantee payment
Explain process and policy obligations	Tell client to hide facts or alter documents
Document all communications	Adjust the claim unless licensed/authorized
Encourage mitigation and records	Authorize major repairs without insurer direction
Flag urgent limitation or coverage issues	Ignore denial letters or missed deadlines
Escalate complaints and E&O concerns	Debate coverage casually without reviewing wording

Statutory and policy conditions to recognize

Condition theme	What it requires
Misrepresentation	Truthful disclosure at application and renewal
Property of others	Clarifies coverage for property not owned by insured
Change of interest	Insurer must know if ownership/interest changes
Material change	Insured must report risk changes promptly
Termination	Policy cancellation/non-renewal must follow required process
Requirements after loss	Notice, proof, inventory, cooperation, protection of property
Fraud	Fraudulent claim conduct can defeat recovery
Entry/control	Insurer may inspect damaged property without taking control
Appraisal	Process for amount-of-loss disagreement
When loss payable	Payment timing follows policy/statutory process
Replacement	Insurer may repair, replace, rebuild, or pay as wording allows
Legal action	Suit against insurer must meet policy/statutory prerequisites and limitation rules

Coverage selection matrix

Client fact pattern	Coverage or action to consider first
Homeowner with jewelry, bicycles, collectibles	Schedule valuable articles or increase special limits
Basement sewer exposure	Sewer backup endorsement; clarify overland water/flood difference
Condo owner worried about master policy deductible	Loss assessment and deductible assessment coverage
Tenant with dog and home office	Tenant package plus liability and business property/use review
Contractor moving tools between jobs	Contractors equipment/tools floater
Retail store dependent on one supplier	Contingent business interruption
Restaurant with refrigeration equipment	Equipment breakdown and spoilage
Manufacturer selling products	CGL with products-completed operations and adequate aggregate
Consultant giving professional advice	Professional liability/E&O
Company employees using personal vehicles	Non-owned automobile liability
Business handles customer goods	Bailee/customer property coverage
Non-profit board	D&O liability
Business stores client data	Cyber/privacy coverage
Large liability contract requirement	Umbrella/excess and certificate review
Construction project with many parties	Builders risk and wrap-up liability review

Common AIC L2 traps

Trap	Safer exam habit
“All risks” means every loss	Read exclusions, conditions, definitions, and endorsements
Quote equals bound coverage	Confirm binding authority and acceptance
Broker may alter facts to help client	Material misrepresentation is misconduct and E&O risk
Premium can be used temporarily for agency expenses	Treat premiums as fiduciary/trust funds
Liability policy pays because accident happened	Confirm insured, occurrence/claim trigger, legal liability, exclusions, and limits
CGL covers professional advice	Professional liability is usually needed
Property policy covers equipment breakdown	Mechanical/electrical breakdown often needs separate coverage
Crime coverage and theft coverage are interchangeable	Employee dishonesty, money, and fraud need crime wording
Auto physical damage covers injury to others	Third-party liability/accident benefits address injury; physical damage repairs vehicle
Non-owned auto covers damage to the borrowed vehicle	Non-owned auto liability and SEF 27-type coverage must be distinguished
Vacancy is same as being away on vacation	Vacancy is a more serious occupancy change
Deductible always applied first	For coinsurance, calculate penalty before deductible unless wording says otherwise
Appraisal decides coverage	Appraisal usually decides amount, not whether the policy responds
Client silence means no change	Renewal review should ask about material changes

Final review checklist

Can you explain the difference between insurer authority, broker advice, and client instruction?
Can you identify when a fact is material to underwriting?
Can you calculate coinsurance, ACV, earned premium, loss ratio, and combined ratio?
Can you choose between homeowners comprehensive, broad, tenants, and condo coverage?
Can you separate water escape, sewer backup, overland water, flood, seepage, and freezing issues?
Can you distinguish commercial property, business interruption, equipment breakdown, and crime?
Can you select CGL, professional liability, D&O, cyber, umbrella, or pollution coverage from a scenario?
Can you explain occurrence vs claims-made triggers?
Can you identify SPF/SEF automobile coverage gaps and endorsement solutions?
Can you describe proper claims handling without admitting coverage or liability?
Can you spot trust-money, conflict, disclosure, complaint, and E&O issues?
Can you document a client’s rejection of recommended coverage in a defensible way?

Practical next step

Use this Quick Reference as a checklist: cover the right column of each table, answer from memory, then build short practice scenarios for every missed distinction before moving to full-length AIC L2 practice questions.

Scenario Guide

Technical Skills and Risk Management