Canadian Accredited Insurance Broker (CAIB) One Practice Exam

According to statutory conditions, which statement about misrepresentation is correct?

1. Concealing previous cancellations is acceptable

2. Misleading the insurer about the risk is permitted

3. Minor inaccuracies in property description do not affect coverage

4. Misleading the insurer about the risk being better than it is is not acceptable

The correct answer is: Misleading the insurer about the risk being better than it is is not acceptable

The correct statement regarding misrepresentation is that misleading the insurer about the risk being better than it truly is is not acceptable. This underlines the importance of full and honest disclosure in the insurance application process. When applying for insurance, the applicant has a duty to provide accurate information regarding the risk being insured. By presenting false or exaggerated information about the risk, the applicant undermines the integrity of the underwriting process. This practice can lead to significant complications, such as denial of claims or cancellation of the policy, should the truth about the risk surface later. In the context of insurance, misrepresentation can alter the insurer's decision to provide coverage, the terms of that coverage, or the premium charged. Therefore, ensuring that all information provided is truthful and accurate is not only a legal requirement but also a fundamental principle of ethical conduct within the insurance industry. In other scenarios, such as concealing previous cancellations or suggesting misleading details about the insured property, these actions are typically unacceptable and can lead to legal ramifications. Each of these alternative statements would imply that it’s permissible to omit critical information or misrepresent the actual risk, which contradicts the foundational principles of good faith and fair dealing that govern the insurance contract.