Canadian Accredited Insurance Broker (CAIB) Two Practice Exam

Which of the following qualifies a risk for rate credit?

1. Soft construction materials

2. High occupancy levels

3. Fire resistive construction

4. Location in disaster zones

The correct answer is: Fire resistive construction

A risk qualifies for rate credit when it demonstrates characteristics that reduce the likelihood of loss or damage, making it a less risky proposition for insurers. When considering fire resistive construction, structures built with materials that can withstand fire exposure significantly diminish the potential for fire-related damage. This reduction in risk is recognized by insurance providers, which is why risks with fire resistive features may be eligible for a rate credit. The credit reflects the insurer’s assessment that these materials decrease the probability of a total loss, ensuring lower premiums for the insured. In contrast, soft construction materials, high occupancy levels, and locations in disaster zones typically indicate a higher level of risk. Soft construction materials are more susceptible to damage from various perils, high occupancy levels could increase the risk of loss due to greater exposure, and disaster zones are inherently associated with frequent severe events that can lead to increased insurance claims. These factors do not support rate credit because they do not align with the desirable attributes that would signal a lower risk to insurers.