CAS CAS Property and Casualty Insurance Fundamentals 1 — Questions and Answers
Question 1: Which of the following best describes the principle of indemnity in property and casualty insurance?
- The insured should be restored to the same financial position as before the loss, no more and no less (Correct answer)
- The insured is entitled to receive the full policy limit regardless of actual loss
- The insurer must pay the replacement cost of all damaged property
- The insured may collect from multiple insurers for the same loss
Correct answer: The insured should be restored to the same financial position as before the loss, no more and no less
The principle of indemnity states that insurance should restore the insured to their pre-loss financial position without allowing profit from the loss.
Question 2: In US property and casualty insurance, what does 'occurrence basis' coverage mean?
- Coverage applies to losses that occur during the policy period, regardless of when the claim is filed (Correct answer)
- Coverage applies only to claims filed during the policy period
- Coverage is triggered when the insured discovers the loss
- Coverage applies only when the insured reports the loss within 30 days
Correct answer: Coverage applies to losses that occur during the policy period, regardless of when the claim is filed
Occurrence basis coverage is triggered by when the loss event happens, not when the claim is reported, which can affect long-tail liability lines.
Question 3: What is the purpose of a deductible in a property and casualty insurance policy?
- To reduce moral hazard and share risk between insurer and insured (Correct answer)
- To increase premium revenue for the insurer
- To penalize insureds who file frequent claims
- To comply with state minimum coverage requirements
Correct answer: To reduce moral hazard and share risk between insurer and insured
Deductibles reduce moral hazard by ensuring insureds bear some financial responsibility, which discourages careless behavior and small nuisance claims.
Question 4: Which coverage part of a commercial general liability (CGL) policy covers bodily injury and property damage claims arising from the insured's products?
- Products-completed operations hazard (Correct answer)
- Premises and operations coverage
- Personal and advertising injury coverage
- Medical payments coverage
Correct answer: Products-completed operations hazard
The products-completed operations hazard covers liability arising from the insured's products after they have left the insured's custody and control.
Question 5: What is subrogation in the context of property and casualty insurance?
- The insurer's right to pursue a third party that caused an insurance loss to the insured (Correct answer)
- The process of transferring a policy from one insurer to another
- The insured's right to assign policy benefits to a third party
- The reinsurer's assumption of the primary insurer's obligations
Correct answer: The insurer's right to pursue a third party that caused an insurance loss to the insured
Subrogation allows the insurer, after paying a claim, to step into the insured's shoes and recover the loss from the negligent third party.
Question 6: In the US, what is the primary purpose of workers' compensation insurance?
- To provide wage replacement and medical benefits to employees injured on the job, regardless of fault (Correct answer)
- To protect employers from OSHA fines and regulatory penalties
- To cover employee lawsuits against employers for unsafe working conditions
- To fund state unemployment insurance programs
Correct answer: To provide wage replacement and medical benefits to employees injured on the job, regardless of fault
Workers' compensation is a no-fault system that provides injured workers with medical benefits and wage replacement without requiring proof of employer negligence.
CAS CAS Property and Casualty Insurance Fundamentals 1
Which of the following best describes the principle of indemnity in property and casualty insurance?