Canadian Accredited Insurance Broker (CAIB) One Practice Exam

What are some of the factors insurers consider to determine commercial property base rates?

1. Location, property type, claims history

2. Construction, protection, political risk

3. Construction, occupancy, claims history

4. Claims history, market trends, inflation

The correct answer is: Construction, occupancy, claims history

Insurers take several critical factors into account when determining commercial property base rates, and the components listed in the correct choice are particularly relevant in this context. Construction refers to the materials and methods used in building the property, which significantly influence its vulnerability to various risks such as fire or natural disasters. A property constructed from non-combustible materials may qualify for more favorable insurance terms than one built with more flammable materials. Occupancy describes how the property is used and the associated risks. Different types of occupancy can greatly affect the likelihood of claims—for example, a warehouse storing hazardous materials might be assessed differently than an office building. Insurers analyze occupancy types to evaluate the risk profile of the property accurately. Claims history is crucial because it provides insight into the property's risk level based on past incidents. A history with frequent or severe claims can lead to higher rates, as it suggests a greater potential for future claims. Together, these factors help insurers assess the potential risks associated with insuring a commercial property, leading to the establishment of more tailored and accurate base rates.