Canadian Accredited Insurance Broker (CAIB) One Practice Exam

What could result from failing to report a material change?

1. Increased premiums by the insurer

2. Violation of state insurance laws

3. Possible denial of claims by the insurer

4. Immediate cancellation of the policy

The correct answer is: Possible denial of claims by the insurer

Failing to report a material change can lead to the possible denial of claims by the insurer because insurance contracts are based on the principle of utmost good faith, which requires both parties to disclose all pertinent information. When an insured party fails to disclose significant changes in risk—like changes in property value, usage, or the existence of other insurance—they may be considered to have misrepresented their situation. If a claim arises, the insurer may find that the undisclosed information significantly alters the risk they initially agreed to cover. Thus, they could deny the claim based on the rationale that the insured did not provide a full and accurate picture of their circumstances, which would have affected underwriting decisions. The other options touch on consequences of failing to report a material change. While increased premiums could occur if the insurer recalibrates the risk after being informed, or legal violations may arise depending on jurisdictional laws, the immediate and tangible consequence in the event of a claim is often the denial based on non-disclosure. Cancellation of the policy can occur, but typically insurers will issue warnings or letters before taking such drastic actions following a material change, making denial of claims the more immediate concern associated with such failures in reporting.