Canadian Accredited Insurance Broker (CAIB) One Practice Exam

Which aspect is considered when evaluating the potential for an insurance loss?

1. Insured's credit history

2. Material change in risk factors

3. Location of the insured property

4. Claims history of the insurer

The correct answer is: Material change in risk factors

The potential for an insurance loss is critically evaluated based on the material change in risk factors. This includes assessing any alterations that might significantly impact the likelihood of a loss occurring. For instance, changes in building codes, renovations, operational practices, or the nature of the insured’s business can all represent material changes that affect risk. Insurers need to understand how these changes may increase or decrease potential losses to accurately assess the risk involved and determine appropriate premiums. Considering the other choices, while the insured's credit history and the location of the insured property are relevant to underwriting and overall risk assessment, they do not capture the dynamic nature of ongoing risk factors like material changes do. The claims history of the insurer, although important for assessing the insurer’s reliability and past performance, is not directly associated with the specific risks presented by the insured party or property.