CMCA - Certified Manager of Community Associations Risk Management and Insurance Questions and Answers Flashcards

What is the purpose of an occurrence-based commercial general liability policy compared to a claims-made policy?

Answer: An occurrence-based policy covers claims for events that happened during the policy period regardless of when the claim is filed, while claims-made covers only claims filed while the policy is active

Occurrence-based policies provide coverage for incidents that occur during the policy period even if the claim is filed years later, while claims-made policies only cover claims reported while the policy is in force.

Subrogation in insurance means that after paying a claim, the insurer:

Answer: Steps into the shoes of the insured to pursue the third party responsible for the loss

Subrogation gives the insurer the right to pursue the party responsible for causing the loss after paying the insured, allowing recovery of the amount paid without the insured having to sue.

A community association's property insurance should cover common area buildings at what value to avoid a coinsurance penalty?

Answer: 80 to 100% of replacement cost value as required by most policies

Most property insurance policies include a coinsurance clause requiring coverage at 80% or more of replacement cost. If the association is underinsured relative to this threshold, it shares in any loss proportionally.

Which risk management strategy involves the association retaining financial risk rather than transferring it to an insurer?

Answer: Risk retention through self-insurance or a deductible

Risk retention occurs when the association decides to absorb a financial risk itself through a deductible, self-insurance fund, or accepting the exposure, rather than paying an insurer to cover it.

An association's insurance deductible represents:

Answer: The portion of each covered loss the association must pay out of pocket before insurance benefits apply

The deductible is the association's retained portion of each covered loss, the amount the association must pay before the insurer covers the remainder up to policy limits.

Workers' compensation insurance is required for an association that:

Answer: Has paid employees

Workers' compensation insurance is legally required in virtually every state for employers with paid employees, covering medical costs and lost wages for employees injured on the job.