CPSA CPIA 4 — Questions and Answers
Question 1: Which type of reinsurance agreement covers all risks within a defined category automatically, without the ceding company needing to submit individual risks for approval?
- Facultative reinsurance
- Treaty reinsurance (Correct answer)
- Quota share reinsurance
- Surplus share reinsurance
Correct answer: Treaty reinsurance
Treaty reinsurance is a standing agreement under which the reinsurer automatically accepts all risks meeting the treaty criteria without case-by-case negotiation.
Question 2: An insured's $1 million CGL policy has a $1,000 per-occurrence SIR. How does a self-insured retention (SIR) differ from a deductible?
- An SIR reduces the policy limit; a deductible does not
- With an SIR, the insured handles and pays claims up to the retention amount before the insurer's duty to defend arises (Correct answer)
- An SIR is paid by the insurer and recovered from the insured later
- Deductibles apply only to property policies; SIRs apply only to liability
Correct answer: With an SIR, the insured handles and pays claims up to the retention amount before the insurer's duty to defend arises
Under an SIR, the insured bears the full cost and responsibility for claims below the retention threshold, including defense costs, before the insurer's obligations begin.
Question 3: Which inland marine coverage would protect a contractor's tools and equipment while being transported between job sites?
- Installation floater
- Contractors equipment floater (Correct answer)
- Commercial property blanket policy
- Builder's risk policy
Correct answer: Contractors equipment floater
A contractors equipment floater provides mobile coverage for tools, machinery, and equipment used by contractors at various locations and in transit.
Question 4: Under a personal auto policy (PAP), which coverage pays for damage to the insured's own vehicle caused by collision with another object?
- Comprehensive coverage
- Collision coverage (Correct answer)
- Uninsured motorist property damage
- Medical payments coverage
Correct answer: Collision coverage
Collision coverage pays for damage to the insured vehicle resulting from its collision with another vehicle or object, subject to the deductible.
Question 5: Which of the following best describes 'moral hazard' in the insurance context?
- The physical characteristics of a property that increase the likelihood of loss
- A dishonest tendency or character flaw that increases the probability of loss or exaggerated claims (Correct answer)
- Environmental conditions that make a loss more probable
- Regulatory uncertainty that affects insurer solvency
Correct answer: A dishonest tendency or character flaw that increases the probability of loss or exaggerated claims
Moral hazard arises from character-based tendencies — such as dishonesty or carelessness — that increase the likelihood or severity of a loss.
Question 6: A surety bond in which a contractor guarantees completion of a project according to contract specifications is called a:
- License and permit bond
- Performance bond (Correct answer)
- Payment bond
- Fidelity bond
Correct answer: Performance bond
A performance bond guarantees that the principal (contractor) will fulfill the terms of the contract with the obligee (project owner).
Question 7: Under workers compensation insurance, 'exclusive remedy' means:
- Workers may only file one claim per injury
- Workers comp benefits are the sole legal remedy against the employer for work-related injuries (Correct answer)
- Only one insurer may cover a worker at a time
- The insurer exclusively decides the amount of benefits paid
Correct answer: Workers comp benefits are the sole legal remedy against the employer for work-related injuries
The exclusive remedy doctrine bars injured employees from suing their employer in tort; workers comp benefits are their only recourse against the employer.
CPSA CPIA 4
Which type of reinsurance agreement covers all risks within a defined category automatically, without the ceding company needing to submit individual risks for approval?