CRO Insurance & Risk Transfer 2 — Questions and Answers
Question 1: A company purchases a $10M excess of $5M liability policy. A $12M claim occurs. How much does the insurer pay?
- $7M (Correct answer)
- $10M
- $5M
- $12M
Correct answer: $7M
The insurer pays losses above the $5M retention up to the $10M limit, so $12M - $5M = $7M.
Question 2: Which insurance structure involves the insured retaining a portion of every loss rather than only losses below a threshold?
- Quota share arrangement (Correct answer)
- Straight deductible
- Aggregate stop-loss
- Occurrence limit
Correct answer: Quota share arrangement
A quota share arrangement has the insured and insurer each paying a fixed percentage of every loss.
Question 3: A CRO negotiating D&O coverage should prioritize which provision to protect the organization when executives cannot be indemnified?
- Side A coverage (Correct answer)
- Side B coverage
- Side C coverage
- Entity coverage
Correct answer: Side A coverage
Side A coverage responds directly on behalf of individual directors and officers when corporate indemnification is unavailable.
Question 4: What is the primary distinction between a 'claims-made' and an 'occurrence' policy trigger?
- Claims-made requires the claim to be reported during the policy period; occurrence requires the event to happen during the policy period (Correct answer)
- Claims-made responds only to bodily injury; occurrence responds to property damage only
- Claims-made policies have no retroactive date; occurrence policies do
- Claims-made provides broader coverage than occurrence in all scenarios
Correct answer: Claims-made requires the claim to be reported during the policy period; occurrence requires the event to happen during the policy period
Claims-made policies are triggered when the claim is first made during the policy period, while occurrence policies are triggered when the underlying event occurs.
Question 5: An organization wants to limit its maximum annual loss from multiple insured events. Which policy feature best addresses this need?
- Aggregate limit (Correct answer)
- Per-occurrence limit
- Sublimit
- Coinsurance clause
Correct answer: Aggregate limit
An aggregate limit caps the total amount the insurer will pay for all covered losses during the policy period.
Question 6: Which reinsurance type provides the cedent with protection against catastrophic accumulation of many small losses?
- Aggregate excess of loss (stop-loss) (Correct answer)
- Per-risk excess of loss
- Proportional quota share
- Facultative reinsurance
Correct answer: Aggregate excess of loss (stop-loss)
Aggregate excess of loss reinsurance activates when the cedent's total losses across all risks exceed a defined retention for the period.
Question 7: A 'hammer clause' in a liability policy primarily protects the insurer by:
- Limiting the insurer's liability to the amount at which it recommended settlement if the insured refuses to settle (Correct answer)
- Requiring the insured to submit all claims within 30 days
- Excluding coverage for punitive damages
- Mandating arbitration for all coverage disputes
Correct answer: Limiting the insurer's liability to the amount at which it recommended settlement if the insured refuses to settle
A hammer clause limits insurer liability to the settlement amount it was willing to accept if the insured rejects settlement and the final judgment exceeds that amount.
CRO Insurance & Risk Transfer 2
A company purchases a $10M excess of $5M liability policy.
A $12M claim occurs.
How much does the insurer pay?