Canadian Accredited Insurance Broker (CAIB) One Practice Exam

Why must the insured report material changes as soon as possible?

1. To avoid premium penalties from the insurer

2. To ensure the insurer is aware of potential increased risks

3. To change the terms of the existing policy

4. To obtain a discount on future premiums

The correct answer is: To ensure the insurer is aware of potential increased risks

The requirement for the insured to report material changes as soon as possible is fundamentally tied to the insurer's need to assess and manage risk. When an insured party experiences a material change—such as a significant alteration in their property, business operations, or any factor that could influence their risk profile—it directly impacts the likelihood of a claim being made. By informing the insurer promptly, the insured allows the insurance company to evaluate the new level of risk associated with the policy. This assessment may lead to adjustments in coverage, premiums, or even terms of the policy to accurately reflect the updated situation. Effective communication about these changes ensures that the policy remains relevant and adequate for the insured’s current circumstances, which is crucial for both parties involved. In contrast, avoiding premium penalties, changing terms of the policy, or obtaining discounts may be secondary concerns regarding the insured's obligation to disclose material changes. The primary focus lies in maintaining an accurate understanding of the risks that both the insurer and the insured are managing together.