Exam Identity and How to Use This Reference
| Item | Detail |
|---|
| Official provider | Insurance Brokers Association of Canada |
| Official exam title | CAIB New Edition 1.0 - CAIB 1 |
| Official exam code | CAIB 1 |
| Page purpose | Independent Quick Reference for focused review and practice support |
| Best use | Revisit high-yield definitions, policy logic, broker responsibilities, underwriting and claims workflows, and common exam traps |
CAIB 1 questions commonly test whether you can apply insurance concepts in practical broker situations, not merely repeat definitions. Focus on who owes what duty, what the policy actually says, what changes coverage, and what information affects underwriting or claims decisions.
Core Insurance Concepts
| Concept | Exam-ready meaning | Common trap |
|---|
| Risk | Uncertainty about financial loss | Risk is not always negative in general usage, but insurable risk focuses on loss exposure |
| Pure risk | Chance of loss or no loss | Usually insurable if other criteria are met |
| Speculative risk | Chance of loss, no loss, or gain | Generally not insurable under ordinary insurance principles |
| Peril | Cause of loss, such as fire, windstorm, theft | Do not confuse peril with hazard |
| Hazard | Condition that increases chance or severity of loss | A hazard is not the loss cause itself |
| Physical hazard | Tangible condition increasing risk | Example: faulty wiring |
| Moral hazard | Dishonesty or intent to cause loss | Example: fraudulent claim |
| Morale hazard | Carelessness due to insurance protection | Example: leaving doors unlocked because property is insured |
| Loss | Reduction in value or financial harm | Policy must cover the type of loss and property/person affected |
| Indemnity | Restore insured to pre-loss financial position | Insurance is not intended to create profit from a claim |
| Insurable interest | Financial interest in the subject of insurance | Must exist as required by law/policy; especially important at claim time |
| Utmost good faith | Parties must disclose material facts honestly | Misrepresentation or non-disclosure can affect coverage |
| Material fact | Fact that would influence underwriting or terms | The test is significance to insurer, not whether client thought it mattered |
| Proximate cause | Dominant effective cause of loss | Used when multiple events contribute |
| Subrogation | Insurer’s right to recover from responsible third party after paying insured | Insured must not impair insurer’s recovery rights |
| Contribution | Sharing loss among multiple policies covering same interest | Prevents double recovery |
| Deductible | Amount insured absorbs before insurer pays | Usually reduces claim payment, not the policy limit unless wording states otherwise |
| Limit of insurance | Maximum insurer will pay for covered loss | Sub-limits may apply to specific property or coverage extensions |
| Exclusion | Removes or restricts coverage | Exclusions can override broad insuring language |
| Condition | Rule the insured or insurer must follow | Breach may affect recovery depending on wording and law |
Insurable Risk Checklist
A risk is more likely to be insurable when it has these characteristics.
| Requirement | Why it matters | Example of issue |
|---|
| Large number of similar exposures | Allows prediction of losses | One unique, unmeasurable exposure is difficult to rate |
| Accidental and fortuitous loss | Insurance is for uncertain events | Intentional damage by insured is not ordinary fortuitous loss |
| Definite and measurable loss | Claim must be verifiable | Vague business disappointment is difficult to insure |
| Financially significant loss | Loss must justify insurance mechanism | Very small predictable losses may be retained |
| Premium must be economically feasible | Premium must be reasonable compared with risk | Extremely high probability of loss may be uninsurable |
| Not catastrophic beyond insurer capacity | Insurer must manage accumulation | Catastrophe exposures may require limits, exclusions, or reinsurance |
| Lawful subject matter | Contract cannot insure illegal activity | Illegal property or unlawful activity creates enforceability issues |
Risk Management Responses
| Response | Meaning | Insurance example | Exam distinction |
|---|
| Avoid | Do not engage in exposure | Do not rent out basement suite | Eliminates activity, not just finances it |
| Reduce/control | Lower frequency or severity | Install alarms, improve maintenance | Does not remove need for insurance |
| Retain | Absorb loss internally | Higher deductible | Can be intentional or unintentional |
| Transfer | Shift financial consequence | Insurance policy, contractual indemnity | Insurance is one form of risk transfer |
| Share | Spread risk among parties | Co-insurance, pooling | Often confused with transfer |
Insurance Contract Fundamentals
| Contract element | Meaning in insurance | CAIB 1 application |
|---|
| Offer | Proposal to enter contract | Application or request for coverage may be part of offer process |
| Acceptance | Agreement to terms | Binder or policy issuance may evidence acceptance |
| Consideration | Value exchanged | Premium by insured; promise to indemnify by insurer |
| Capacity | Legal ability to contract | Minors, corporations, and representatives raise authority questions |
| Legality | Lawful purpose | Cannot insure illegal subject matter |
| Genuine intention | Parties intend legal relationship | Insurance contract creates enforceable obligations |
| Certainty of terms | Coverage must be identifiable | Ambiguous wording may create disputes |
Void, Voidable, and Cancelled
| Status | Practical meaning | Example exam clue |
|---|
| Void | Treated as if no valid contract existed | Illegal subject matter or fundamental defect |
| Voidable | One party may avoid contract because of defect | Material misrepresentation or non-disclosure |
| Cancelled | Valid contract ended according to cancellation rules | Insurer or insured terminates policy mid-term |
| Expired | Term ended naturally | Policy period ended and no renewal in force |
| Lapsed | Coverage ended because required action was not completed | Non-payment where policy terms permit lapse |
Parties and Roles
| Party | Role | Key duties or interests |
|---|
| Insured | Person or organization protected by policy | Disclose material facts, pay premium, comply with conditions, report claims |
| Named insured | Person/entity listed in declarations | Has primary policy rights and duties |
| Additional insured | Added party protected for specified interest | Coverage often limited to wording of endorsement |
| Insurer | Party accepting risk for premium | Underwrite, issue policy, pay covered claims, act according to contract |
| Broker | Intermediary advising client and arranging coverage | Needs analysis, disclosure, documentation, market placement, service |
| Agent | Legal representative with authority to bind principal | Authority may be actual, implied, or apparent |
| Adjuster | Investigates and resolves claims | Confirms facts, coverage, quantum, and settlement |
| Underwriter | Evaluates and prices risk | Determines acceptability, terms, conditions, premium |
| Reinsurer | Insures insurer’s risk | Usually not directly involved with insured’s claim |
Broker Duties and Professional Conduct
| Duty area | Practical expectation | Exam trap |
|---|
| Needs assessment | Ask enough questions to identify exposures | Do not simply renew without checking changes |
| Disclosure to insurer | Provide material risk information accurately | Withholding client information can create coverage and E&O issues |
| Explanation to client | Explain key coverage, exclusions, limits, duties | Sending a policy without highlighting major limitations may be inadequate |
| Documentation | Record advice, instructions, refusals, and changes | If it is not documented, it is hard to prove |
| Timeliness | Act promptly on applications, changes, cancellations, and claims | Delay can prejudice client or insurer |
| Confidentiality | Protect client information | Share only as needed and authorized |
| Avoid conflict of interest | Put client’s insurance needs ahead of improper influence | Commission does not remove duty to advise properly |
| Referral/escalation | Seek help for unfamiliar or complex risks | Guessing creates E&O exposure |
| Claims assistance | Help insured report and understand process | Broker does not decide coverage unless authorized by insurer |
Agency Authority
| Authority type | Meaning | Example |
|---|
| Actual express authority | Specifically granted authority | Written agreement allows broker to bind certain classes |
| Actual implied authority | Authority necessary to perform express duties | Issuing ordinary documents needed to place coverage |
| Apparent authority | Third party reasonably believes authority exists because of principal’s conduct | Insurer’s conduct suggests broker may bind coverage |
| No authority | Person cannot legally commit principal | Broker promises coverage outside binding authority |
Authority Traps
| Scenario clue | Likely issue |
|---|
| “The broker said I was covered” | Was the broker authorized to bind, or only to submit? |
| “The insurer never received the application” | Documentation, transmission, and authority problem |
| “Coverage was requested after the loss” | No fortuity; timing is critical |
| “Client told broker but broker did not tell insurer” | Material disclosure and broker E&O risk |
| “Certificate was issued” | Certificate evidences coverage but usually does not broaden policy terms |
Insurance Policy Structure
| Policy part | What it does | What to check first |
|---|
| Declarations | Identifies insured, policy period, limits, premiums, locations, forms | Is the correct person/property/period shown? |
| Insuring agreement | Main promise of coverage | What loss, property, liability, or event is covered? |
| Definitions | Gives special meaning to terms | Defined words may be narrower than ordinary meaning |
| Exclusions | Removes coverage | Is the cause, property, activity, or person excluded? |
| Conditions | Sets duties and rules | Notice, proof of loss, vacancy, changes, cancellation |
| Endorsements | Modify standard wording | Endorsements can add, restrict, or delete coverage |
| Statutory conditions | Required conditions in certain insurance contracts | Know they can affect claims and cancellation processes |
| Warranties | Promises or conditions important to risk | Breach can have serious coverage consequences |
Coverage Analysis Method
Use this sequence for policy questions.
- Identify the insured: named insured, spouse, family member, employee, additional insured?
- Confirm policy period: did the loss occur during coverage?
- Identify subject matter: building, contents, liability, automobile, business property?
- Classify the loss: property damage, bodily injury, loss of use, theft, liability claim?
- Find the insuring agreement: does the initial grant of coverage apply?
- Apply exclusions: is the peril, activity, person, or property excluded?
- Apply exceptions to exclusions: is coverage restored in limited cases?
- Check conditions: notice, proof, vacancy, changes, cooperation, mitigation.
- Apply limits, sub-limits, deductibles, and valuation rules.
- Consider other insurance, contribution, salvage, and subrogation.
Property Insurance Reference
| Topic | Key point | Exam trap |
|---|
| Direct loss | Physical damage to insured property | Example: fire damages building |
| Indirect/consequential loss | Financial loss resulting from direct damage | Example: extra living expense after insured home is uninhabitable |
| Named perils | Covers only listed perils | If peril is not named, no coverage unless extension applies |
| Broad/all-risks style wording | Covers fortuitous loss unless excluded | “All risks” does not mean every loss is covered |
| Replacement cost | Cost to repair/replace with new property of like kind and quality, subject to conditions | Often requires actual replacement before full recovery |
| Actual cash value | Depreciated value at time of loss | Not the same as original purchase price |
| Valued policy | Amount agreed in advance for certain property | Applies only where wording provides |
| Blanket insurance | One limit applies over multiple items/locations/categories | Not the same as scheduled insurance |
| Scheduled insurance | Specific item listed with specific amount | Useful for high-value items |
| Pair and set | Loss to part of a set may reduce value of whole | Policy wording controls settlement |
| Debris removal | Cost to remove debris after covered loss | Usually tied to insured damage and may have limits |
| Sue and labour | Insured must take reasonable steps to protect property after loss | Expenses may be addressed by policy wording |
| Vacancy | No occupants and often no contents or normal use | Vacancy can suspend or restrict coverage |
| Unoccupancy | Temporarily away but intention to return | Different from vacancy |
| Change in risk | Material change affecting underwriting | Must be reported according to policy requirements |
Common Property Perils and Coverage Logic
| Peril or event | Coverage logic to remember | Typical issue |
|---|
| Fire | Core property peril in many forms | Intentional fire by insured is a major exclusion issue |
| Lightning | Often paired with fire in basic peril lists | Verify direct physical damage |
| Explosion | May be covered with limitations | Cause and location can matter |
| Windstorm/hail | Common property peril | Exterior openings and water entry wording matter |
| Smoke | May require sudden and accidental event | Gradual smoke or agricultural/industrial smoke may be treated differently |
| Theft | Requires unlawful taking | Mysterious disappearance may not equal theft |
| Vandalism/malicious acts | Intentional damage by others | Vacancy exclusions are common |
| Water damage | Highly wording-specific | Sewer backup, flood, seepage, surface water, and escape of water are distinct |
| Earthquake | Often excluded unless endorsed | Fire following earthquake may be handled separately depending on wording |
| Glass breakage | May be separate coverage or extension | Signs and special glass may need attention |
| Collapse | Often limited to specified causes | Wear and tear or faulty design issues may be excluded |
Personal Property and Habitational Coverage Map
| Coverage area | What it generally addresses | Watch for |
|---|
| Dwelling building | Main residential structure | Occupancy, use, renovations, detached structures |
| Detached private structures | Garages, sheds, fences, similar structures | Business or rented use may restrict coverage |
| Personal property/contents | Movable property owned or used by insured | Special limits for money, jewellery, collectibles, bicycles, watercraft, business property |
| Additional living expense | Extra cost to maintain normal standard of living after insured damage | Must result from covered loss and necessary increase in cost |
| Fair rental value | Lost rent when insured premises cannot be rented after covered loss | Rental use must be disclosed |
| Personal liability | Legal liability for bodily injury or property damage | Intentional acts, business activities, vehicles, and professional liability often excluded |
| Voluntary medical payments | Limited no-fault payment for injury to others | Not proof of legal liability |
| Voluntary property damage | Limited payment for damage to property of others | Separate from liability coverage |
| Additional coverages/extensions | Limited added protection | Extensions usually have conditions and sub-limits |
Actual Cash Value
Actual cash value is commonly understood as replacement cost less depreciation, subject to policy wording and relevant factors.
\[
\text{ACV} = \text{Replacement Cost} - \text{Depreciation}
\]
Coinsurance / Insurance-to-Value
If a policy requires the insured to carry a stated percentage of value, underinsurance can reduce recovery.
\[
\text{Claim Payment Before Deductible} =
\left(
\frac{\text{Amount of Insurance Carried}}
{\text{Amount of Insurance Required}}
\right)
\times
\text{Covered Loss}
\]
Where:
\[
\text{Amount of Insurance Required} =
\text{Value of Property} \times \text{Coinsurance Percentage}
\]
Apply the policy limit after the formula if the calculated amount exceeds available insurance.
Pro Rata Cancellation
Used when premium is returned proportionally for unused policy time.
\[
\text{Return Premium} =
\text{Annual Premium}
\times
\frac{\text{Unused Days}}{\text{Policy Term Days}}
\]
Short-rate cancellation may apply where the insured cancels, depending on policy rules.
Liability Insurance Reference
| Concept | Meaning | Exam application |
|---|
| Legal liability | Obligation imposed by law to compensate another | Liability policy responds only if insured is legally liable, subject to wording |
| Bodily injury | Physical injury, sickness, disease, or death as defined | Check policy definition |
| Property damage | Physical injury to tangible property or loss of use as defined | Pure financial loss may not fit |
| Personal injury | Often specific non-physical torts in liability wording | Do not assume same as bodily injury |
| Occurrence | Accident or repeated exposure causing injury/damage | Occurrence timing can affect policy response |
| Accident | Unexpected, unintended event | Intentional acts are frequently excluded |
| Damages | Monetary compensation | Punitive or exemplary damages may be restricted by wording/law |
| Defence costs | Cost to defend claim | May be inside or outside limit depending on policy |
| Negligence | Failure to meet required standard of care | Plaintiff must generally prove required elements |
| Vicarious liability | Liability for acts of another | Employer for employee in course of employment |
| Strict liability | Liability without proving negligence in limited situations | Depends on legal context |
| Nuisance | Interference with use/enjoyment of property | May arise in property-related scenarios |
| Occupiers’ liability | Duty owed by occupier of premises | Snow/ice, maintenance, warnings, and inspection practices matter |
Negligence Elements
| Element | Question to ask |
|---|
| Duty of care | Did defendant owe a duty to claimant? |
| Breach of duty | Did defendant fail to meet standard of care? |
| Causation | Did breach cause the injury or damage? |
| Damages | Did claimant suffer compensable harm? |
Liability Defences and Reductions
| Defence/reduction | Meaning |
|---|
| Contributory negligence | Claimant’s own negligence contributed to loss |
| Voluntary assumption of risk | Claimant knowingly accepted risk |
| Intervening cause | New event breaks chain of causation |
| Limitation period | Claim not started within required time |
| Contractual limitation/exclusion | Agreement may allocate or restrict responsibility |
Property vs Liability Claim Distinctions
| Question | Property insurance answer | Liability insurance answer |
|---|
| Who suffered the direct loss? | Insured’s own property | Third party alleges injury/damage |
| What must be proven? | Covered loss to insured property | Legal liability of insured, unless voluntary/no-fault coverage applies |
| Main policy trigger | Physical loss or damage by covered peril | Occurrence, injury, damage, or claim as defined |
| Key exclusions | Wear and tear, faulty work, intentional acts, water/flood, vacancy | Intentional injury, business/professional, auto, owned property, contractual liability |
| Settlement focus | Value of property and policy limits | Defence, liability, damages, settlement authority |
| Subrogation | Insurer may recover against responsible party | Less central unless insurer pays first-party loss |
Automobile Insurance Concepts
Automobile insurance is highly jurisdiction-specific in Canada. For CAIB 1 review, focus on vocabulary, coverage categories, and broker reasoning rather than memorizing provincial details not supplied by your course materials.
| Coverage concept | Practical meaning | Exam distinction |
|---|
| Third-party liability | Protects insured against legal liability for injury/damage to others from automobile use | Liability to others, not damage to insured vehicle |
| Accident benefits | Benefits to insured persons after automobile accident, as defined by applicable plan/policy | Often no-fault in design, but details vary by province |
| Uninsured automobile | Responds where at-fault motorist has no valid insurance, subject to rules | Not the same as underinsured |
| Underinsured motorist | Responds when at-fault party has insufficient insurance, if available/applicable | Excess-style protection subject to wording |
| Direct compensation property damage | In some jurisdictions, insured claims from own insurer for damage caused by another motorist | Jurisdiction-specific |
| Collision/upset | Damage to insured vehicle from collision or overturn | Optional physical damage coverage in many contexts |
| Comprehensive | Physical damage other than collision/upset, subject to wording | Often includes theft, fire, vandalism, falling objects |
| Specified perils | Only listed physical damage perils | Narrower than comprehensive |
| All perils | Combines collision and comprehensive-style protection, subject to exclusions | Still not literally every peril |
| Endorsement | Modifies automobile policy | May add, restrict, or change coverage |
| Fleet | Multiple vehicles under one arrangement | Underwriting differs from single personal auto |
| Use classification | Personal, business, commercial, pleasure, commuting, delivery, etc. | Misstated use is material |
Underwriting Reference
| Underwriting factor | Why it matters |
|---|
| Identity of insured | Determines legal interest, claims history, and moral hazard |
| Occupancy/use | Residential, rental, business, vacant, seasonal, commercial |
| Construction | Fire resistance, age, updates, building systems |
| Protection | Fire hydrants, fire hall distance, alarms, sprinklers, security |
| Exposure | Neighbouring hazards, weather, crime, catastrophe area |
| Loss history | Frequency and severity indicate risk quality |
| Maintenance | Poor upkeep increases loss likelihood |
| Values/limits | Adequate insurance-to-value and correct rating base |
| Deductibles | Risk sharing and premium effect |
| Prior insurance | Gaps, cancellations, non-payment, or declined risks are material |
| Mortgagee/loss payee | Third-party financial interest requiring documentation |
| Business activities | Home-based or commercial use changes risk |
| Claims attitude | Cooperation and honesty matter |
| Special property | Jewellery, fine arts, tools, watercraft, collectibles, equipment |
Underwriting Decisions
| Decision | Meaning | Candidate cue |
|---|
| Accept | Insurer agrees to cover as submitted | Risk fits guidelines |
| Accept with conditions | Coverage offered with changes | Higher deductible, exclusion, required repairs, endorsement |
| Rate surcharge | Higher premium for increased hazard | Poor loss history or higher exposure |
| Decline | Insurer will not write risk | Hazard outside appetite or unacceptable risk |
| Refer | Front-line authority insufficient | Complex, unusual, or high-value exposure |
| Cancel/non-renew | Insurer ends or does not continue coverage where permitted | Material change, non-payment, underwriting concern |
Key Documents and Their Functions
| Document | Function | Trap |
|---|
| Application | Collects risk information and request for insurance | Incorrect answers can become material misrepresentation |
| Quote | Estimate of terms and premium | Not always a binder or guarantee |
| Binder | Temporary evidence of coverage | Must match authority and stated terms |
| Policy | Formal contract wording | Declarations plus forms and endorsements matter |
| Endorsement | Changes policy | Later endorsement can override earlier wording |
| Certificate of insurance | Evidence of insurance for third party | Usually does not amend coverage |
| Cover note | Temporary confirmation/documentation of coverage | Authority and expiry are critical |
| Invoice | Premium billing | Non-payment can create cancellation/lapse issues |
| Renewal | Continuation offer or new term | Must review changed exposures |
| Cancellation notice | Ends policy according to rules | Effective date and method matter |
| Proof of loss | Formal statement supporting claim | Deadlines and completeness matter |
| Reservation of rights | Insurer investigates while preserving coverage defences | Not a denial by itself |
| Non-waiver agreement | Agreement that investigation does not waive rights | Protects insurer’s position |
Claims Process Reference
| Step | Purpose | Broker exam focus |
|---|
| Loss occurs | Triggering event | Was policy in force? Was cause covered? |
| Notice to insurer | Prompt reporting | Late notice can prejudice insurer |
| Emergency mitigation | Prevent further damage | Insured must act reasonably |
| Assignment to adjuster | Investigation begins | Adjuster gathers facts; broker assists client |
| Coverage review | Compare facts with policy | Insuring agreement, exclusions, conditions |
| Documentation | Estimates, invoices, photos, police/fire reports, proof of loss | Missing documents delay settlement |
| Valuation | Determine amount of loss | ACV, replacement cost, limits, deductibles |
| Liability investigation | Determine fault and damages | Statements, legal duty, causation |
| Settlement/denial | Resolve claim or explain coverage position | Reasons should connect to policy wording |
| Salvage/subrogation | Recover value or pursue responsible party | Insured must preserve rights |
Claims Duties of the Insured
| Duty | Practical meaning |
|---|
| Give prompt notice | Report loss as soon as required by policy |
| Protect property | Take reasonable steps to prevent further damage |
| Cooperate | Provide statements, documents, access, and assistance |
| Submit proof of loss | Complete required formal claim documentation |
| Do not admit liability improperly | Liability admissions may prejudice defence |
| Preserve damaged property | Allow inspection before disposal where reasonable |
| Notify authorities | Police/fire reports where appropriate |
| Be truthful | Fraudulent claims can void recovery |
Reinsurance and Insurer Risk Spreading
| Term | Meaning | Exam use |
|---|
| Reinsurance | Insurance purchased by insurer to transfer part of its risk | Stabilizes insurer results and capacity |
| Ceding company | Insurer transferring risk | Also called cedant |
| Reinsurer | Company accepting reinsured risk | Pays ceding insurer according to reinsurance contract |
| Facultative reinsurance | Reinsurance arranged for individual risk | Used for unusual or large risks |
| Treaty reinsurance | Agreement covering a class/portfolio of risks | Automatic within treaty terms |
| Proportional reinsurance | Shares premiums and losses by percentage | Quota share/surplus concepts |
| Non-proportional reinsurance | Reinsurer pays above retention | Excess of loss concept |
| Retention | Amount insurer keeps | Similar concept to deductible at insurer level |
Rating and Premium Logic
| Term | Meaning | Example use |
|---|
| Rate | Price per exposure unit | Rate per $100 of insured value |
| Exposure unit | Unit to which rate applies | Vehicle, location, payroll, revenue, insured value |
| Base premium | Starting premium before modifiers | Manual or class rate result |
| Surcharge | Additional premium for higher risk | Poor claims history |
| Credit/discount | Reduction for favourable risk features | Alarm, higher deductible |
| Minimum premium | Lowest premium insurer will charge | Administrative and risk minimum |
| Earned premium | Premium for expired portion of policy term | Insurer keeps earned portion |
| Unearned premium | Premium for remaining policy term | May be returned on cancellation |
| Pro rata | Proportional calculation | Often used when insurer cancels |
| Short rate | Return premium reduced by penalty/expense factor | Often used when insured cancels, if policy allows |
High-Yield Distinctions
| Distinction | Do not confuse |
|---|
| Peril vs hazard | Peril causes loss; hazard increases chance/severity |
| Moral vs morale hazard | Moral is dishonesty; morale is carelessness |
| Named perils vs broad/all-risks | Named perils must be listed; broad covers unless excluded |
| ACV vs replacement cost | ACV deducts depreciation; replacement cost may require actual replacement |
| Vacancy vs unoccupancy | Vacancy implies lack of normal use/occupants; unoccupancy is temporary absence |
| Binder vs quote | Binder can provide temporary coverage; quote is usually proposed terms |
| Certificate vs policy | Certificate evidences coverage; policy controls coverage |
| Insurer vs broker | Insurer assumes risk; broker advises/arranges and may have limited authority |
| Broker duty to client vs duty to insurer | Broker must serve client professionally while disclosing material facts to insurer |
| Direct loss vs indirect loss | Direct is physical damage; indirect is resulting financial loss |
| Liability vs voluntary payment | Liability requires legal obligation; voluntary payments may be no-fault limited coverage |
| Subrogation vs contribution | Subrogation pursues responsible third party; contribution shares among insurers |
| Cancellation vs non-renewal | Cancellation ends current term; non-renewal does not continue into next term |
| Misrepresentation vs concealment | Misrepresentation is incorrect statement; concealment/non-disclosure is failure to reveal material fact |
Scenario Decision Tables
Property Loss Scenario
| If the question says… | Think first |
|---|
| “Water entered through foundation over time” | Seepage/leakage, gradual damage, water exclusion wording |
| “Pipe burst suddenly” | Sudden escape of water; check freezing, maintenance, occupancy |
| “Home vacant for several weeks” | Vacancy condition/exclusion |
| “Jewellery stolen from home” | Theft covered? special limit? scheduled item? deductible? |
| “Client renovated without telling broker” | Material change in risk, increased value, construction hazard |
| “Detached garage used for business storage” | Permitted use of detached private structure and business property limits |
| “Insured replaced only part of damaged property” | Replacement cost conditions and ACV fallback |
| “Two policies cover same property” | Other insurance/contribution |
| “Loss caused by neighbour’s negligence” | First-party claim plus subrogation potential |
Broker Conduct Scenario
| If the question says… | Best exam response |
|---|
| Client refuses recommended coverage | Explain consequences and document refusal |
| Client gives unclear information | Ask follow-up questions; do not assume |
| Broker lacks expertise | Consult supervisor/market specialist or refer |
| Client reports claim | Notify insurer promptly and guide client on duties |
| Insurer requests material information | Provide accurate information with client cooperation |
| Coverage cannot be placed immediately | Tell client clearly; do not imply coverage |
| Renewal exposure has changed | Re-market/re-underwrite as needed; update application |
| Mistake discovered | Escalate, document, notify appropriate parties |
Liability Scenario
| If the question says… | Think first |
|---|
| “Guest slipped on icy steps” | Occupiers’ liability, negligence, maintenance records |
| “Insured intentionally punched claimant” | Intentional act exclusion |
| “Child accidentally broke neighbour’s window” | Personal liability or voluntary property damage |
| “Home business customer injured” | Business activity exclusion or need for commercial coverage |
| “Employee caused damage while working” | Vicarious liability and commercial policy context |
| “Insured admitted fault at scene” | Cooperation and prejudice to insurer’s defence |
| “Claim alleges emotional distress only” | Check definition of bodily injury/personal injury |
Common CAIB 1 Exam Traps
| Trap | Safer approach |
|---|
| Answering from common sense instead of policy wording | Start with the insuring agreement, exclusions, and conditions |
| Assuming “all risks” means no exclusions | Always apply exclusions and limitations |
| Ignoring material change in risk | Ask whether insurer needed to be told |
| Treating the broker as always able to bind | Check authority |
| Treating a certificate as coverage expansion | Policy wording controls |
| Forgetting deductibles and sub-limits | Apply limits, special limits, and deductible after coverage analysis |
| Overlooking valuation basis | ACV and replacement cost can produce different settlements |
| Confusing first-party and third-party claims | Property vs liability logic differs |
| Ignoring vacancy | Vacancy can materially restrict property coverage |
| Assuming legal liability exists because someone was injured | Negligence elements still matter |
| Forgetting documentation | Broker file notes are central in professional scenarios |
| Choosing the most generous answer | Choose the answer supported by contract wording and duties |
Compact Review Checklist
Before exam day, make sure you can do the following quickly:
- Define peril, hazard, loss, indemnity, insurable interest, subrogation, and contribution.
- Identify moral, morale, and physical hazards in scenarios.
- Explain contract elements and the effect of misrepresentation or non-disclosure.
- Distinguish broker, agent, insurer, underwriter, adjuster, insured, and reinsurer roles.
- Apply agency authority concepts to binding and coverage promises.
- Read a policy using declarations, insuring agreement, exclusions, conditions, and endorsements.
- Separate named perils coverage from broad/all-risks style coverage.
- Calculate simple ACV, pro rata return premium, and coinsurance-style recovery.
- Identify vacancy, material change, special limits, and replacement cost conditions.
- Apply negligence elements to liability scenarios.
- Distinguish third-party liability from first-party property coverage.
- Recognize key automobile coverage categories at a conceptual level.
- Outline the claims process and insured’s post-loss duties.
- Choose professional broker actions: ask, disclose, document, explain, escalate.
Final Practice Step
Next, work timed CAIB 1 practice scenarios. For each missed question, write one line identifying the failed step: definition, policy wording, broker duty, underwriting fact, claim condition, or calculation. Then redo a similar question until the decision path is automatic.