Canadian Accredited Insurance Broker (CAIB) One Practice Exam

Which of the following statements regarding material changes is incorrect?

1. Insurers only owe obligations to those with an insurable interest

2. A material change increases the potential for loss

3. Reporting a material change is usually followed by an additional premium

4. An unreported material change can lead to claim denial

The correct answer is: Reporting a material change is usually followed by an additional premium

The statement regarding a material change that is deemed incorrect focuses on the idea of additional premiums in the context of reporting. When an insured party reports a material change, it does not always, or necessarily, lead to an additional premium. Material changes refer to changes that affect the risk profile of an insured item or individual, and while these changes might warrant a reassessment of risk and potential adjustment to the premium, it is not guaranteed that a premium increase will follow every reported material change. In some cases, the change might not significantly alter the risk assessment, or the insurer might choose to maintain the current premium structure for other reasons. Understanding that insurers assess the entire context of the risk when a material change is reported is crucial. Therefore, while it is common for a reassessment to potentially lead to a premium adjustment, the outcome can vary based on the insurer's underwriting guidelines and the specifics of the situation. This concept highlights the nuanced relationship between risk, reporting changes, and how those factors interact in the insurance context.