Posted by Barb Gavitt, CDEI, ITP, SILA-F ● January 31, 2023
The Ultimate Guide to the Property and Casualty Exam
The Property and Casualty exam is required for individuals wishing to become a licensed insurance producer by a state to transact both personal and commercial lines of insurance. To pass the exam, you will need to demonstrate minimal knowledge relating to general insurance terminology and concepts, the characteristics of specific products, the policy structure, covered perils, policy limits, exclusions, additional coverages, and endorsements. Additionally, there are state-specific rule and regulations you will need to know. In this blog, we will discuss the basics of the Property and Casualty exam, highlight 10 highly tested topics, and provide examples of questions you may encounter.
How is the Property and Casualty (P&C) exam structured?
The structure of the P&C exam varies by state and testing provider. An Exam Content Outline (ECO) is available for each state exam and includes the total number of questions on the exam, the time limit for testing, and provides a breakdown of the exam by topic.
The Property exam and Casualty exam are offered as individual exams in all states, but most states also offer a combination P&C exam. We recommend test takers take the combination exam wherever it is available, since many there are many common areas of both exams that overlap and there are generally fewer questions on the combination exam.
Since this information is general in nature, we recommend you view your state’s exam requirements.
What topics should I focus on when studying for the Property and Casualty exam?
Just to be clear, you may be tested on any topics listed on your state outline. When it comes to studying for the P&C exam, there are specific topics that are highly testable regardless of the state you are testing in. We have identified 10 general topics that students should focus on to pass the exam. These topics are listed in no particular order.1. Insurance Terminology, Concepts, and Contracts
Insurance terminology and related concepts will make up approximately 10-15% of your P&C exam. Knowing the types of risks, perils, and hazards, and the concepts of the law of large numbers, adverse selection, and insurable interest will provide a foundation to understanding the property and casualty insurance industry. Students can also expect to see questions regarding representations, warranties, binders, and, most importantly, the elements of a legal contract .
The following video explains the four elements of a legal contract:
The exam places an emphasis on knowing and understanding the P&C policy structure and common provisions, or conditions, included in most policies. It is not only important to know the 4 parts to a policy - Declarations, Insuring Agreement, Conditions, and Exclusions - but also where certain information can be found in the policy.
Let’s look at an example of a question:
The Duties of the Insured in the Event of a Loss are found in which section of an insurance policy??
A. Insuring Agreement
Looking at the four answer choices, you can automatically eliminate Choice D, since endorsements are not one of the 4 parts of a policy. The Insuring Agreement is the insurer's promise of protection and includes the perils insured against so the answer is not Choice A. The Declarations page, Choice B, describes information that is specific to the policy, the insured, and the property and is not the correct answer. The Conditions section specifies the obligations of the insurer and the insured for coverage to apply, which includes the Duties of the Insured in the Event of a Loss. Therefore, the correct answer is Choice C.
Common conditions include the Insurer Provisions, such as the liberalization clause, and the Named Insured Provisions, such as the insured's duties in the event of loss.
3. Property Insurance Basics
The property portion of the exam focuses on the fundamentals and property-specific terminology. For example, test takers will be expected to know and understand the difference between vacancy vs. unoccupancy, bailee vs. bailor, and named peril vs. open peril. A concept that test takers often struggle with is loss valuation, which is the method of how the insurer determines the value of a loss. It's important to know the difference between replacement cost and actual cash value and for which type of loss each valuation method is used.
Other important terms and provisions to know for the exam include, but are not limited to, deductible, coinsurance, appraisal, salvage, abandonment, and the Mortgage clause.
The following video reviews the loss valuation methods.
4. Casualty Insurance Basics
Similar to property insurance, the casualty portion of the exam focuses on the fundamentals and casualty-specific terminology. Casualty is liability coverage and is referred to as third-party insurance. Test takers will need to have a clear understanding of negligence, as well as the elements and defenses against it.
Let's look at an example of negligence:
Bill was driving 45 mph in a 35 mph speed limit zone. He took his eyes off the road to change the radio station and failed to stop at a red light. Bill hit another car proceeding lawfully through the green light. Although Bill did not intentionally run the red light, he was carelessly speeding and failed to obey the traffic laws. Bill's negligence caused the accident.
You can also expect to see several questions on the four types of liability exposures:
- Bodily Injury Liability
- Medical Payments Coverage
- Property Damage Liability
- Personal and Advertising Injury
The following video details the types of liability exposures.
5. Homeowners Policies
Since most P&C agents sell homeowners insurance, test takers can expect to see 7 to 11 questions relating to the following:
- Homeowner Policy Forms (HO-2, HO-3, HO-4, HO-5, HO-6, HO-8)
- Section I Property Coverages (A, B, C, and D) and Limits
- Perils Insured Against (Basic, Broad, and Special)
- Section I Exclusions, Additional Coverages, Conditions, and Selected Endorsements
- Section II Liability Coverages (E and F) and Limits
- Section II Exclusions, Conditions, and Selected Endorsements
For an overview of the Homeowners Section I Property Coverage limits, watch the following video.
The next video provides a review of the Homeowners Section II Liability Coverages:
6. Personal Auto Policies
Like Homeowners Policies, Personal Auto Policies (PAP) are highly testable and account for 7 to 11 test questions. Test takers can expect to see questions relating to the following:
- Eligible and ineligible motor vehicles
- Policy definitions
- Part A - Liability Coverage (bodily injury and property damage)
- Part B - Medical Payments Coverage
- Part C - Uninsured Motorists Coverage
- Part D - Coverage for Damage to Your Auto (Collision and Other than Collision)
- Part E - Duties After an Accident or Loss
- Part F - General Provisions
- Selected Endorsements
7. Commercial Property Policies
Commercial Property Coverage is typically part of a Commercial Package Policy, but can also be a standalone policy. Test takers will be expected to know the covered perils, additional coverages, and coverage extensions for the Basic, Broad, and Special Causes of Loss Forms.
One can also expect to see several questions on the following commercial property coverage forms:
- Building and Personal Property
- Commercial Builders Risk
- Business Income
- Extra Expense
- Business Income with Extra Expense
8. Commercial General Liability Coverage
The CGL Coverage insures businesses against the 4 legal liability exposures:
- Premises and Operations
- Completed Operations
- Contractual Liability
Here are two examples of legal liability exposures:
At a furniture company's retail location, a customer trips over a rug and hits their head on a coffee table on display. the furniture company is liable for bodily injury under the premises exposure.
While delivering furniture to another customer's home, an employee drops a heavy dresser and damages the customer's hardwood flooring. In this case, the furniture company is liable for property damage under the operations exposure.
The exam will also focus on the policy sections of the CGL policy:
Section I - Coverages
Section II - Who is an Insured
Section III - Limits of Insurance
Section IV - Commercial General Liability Conditions
Section V - Definitions
9. Businessowners Policies (BOP)
The P&C exam will stress the importance of business risks that are eligible and ineligible for coverage under a Businessowners policy.
The following video provides an overview of eligible risks.
Test takers are also expected to know that the Businessowners Coverage Form provides commercial property and liability coverage and will be tested on the following coverage sections in detail:
Section I - Property
Section II - Liability
Section III - Common Policy Conditions
10. State Insurance Laws
The state-specific insurance laws will be tested and these questions can make up anywhere from 20% - 30% of the exam. A handful of states still require licensing candidates to pass the state portion of the exam separately from the general portion of the exam. Review your state requirements so you know what's expected to pass the exam in your state.
The key topics tested in most states include the duties of the Commissioner (Director, Superintendent, etc.), types of licenses, licensing qualifications and requirements, license maintenance (continuing education and renewal), unfair trade practices, disciplinary actions, and penalties. There will also be product-specific regulations, such as policy renewal and cancellation requirements, financial responsibility for auto policies, state risk plans, and workers' compensation benefits.
Here’s an example of a state law question you could see on the exam:
A producer falsely tells a client that a rival insurance company does not pay their claims in a timely manner. This is an example of what Unfair Trade Practice?
Rebating is offering a premium, discount, or credit not specified in the policy. Misrepresentation involves a false statement made to a policyholder about a policy to induce the policyholder to lapse, cancel. or surrender a policy. Unfair discrimination is charging different rates or unreasonably denying coverage to individuals of the same risk classification. Therefore, Choice B is the correct answer. Defamation is a statement that is false, malicious, or derogatory to the financial condition of an insurance company and is done with the intent to harm.
How many math questions are on the P&C exam?
You will definitely see a lot of numbers on the exam, but that doesn't mean there are a lot of calculations. Typically, there are 1-3 math questions on the P&C exam. This is not a math exam and you should not spend a significant amount of time studying or worrying about the math. However, one concept that you will likely be tested on that involves a calculation is coinsurance.
The following video illustrates how to calculate coinsurance to value.
How can I start studying for the Property and Casualty exam?
A.D. Banker offers a P&C online course that includes videos, activities, practice exams, and audio, and can be supplemented with flashcards, a study manuals, and a web class.
We recommend you spend 40 hours studying for your exam. Additionally, we recommend you spend most of your time reading the content. This strategy leads to comprehension, as opposed to memorization. Practice tests should be used as assessment tools to gauge your understanding; they should not be your exclusive way of learning the material.
Our guide to passing your licensing exam on your first attempt provides more information on how to best utilize our online course – check it out, and then get started today!