1 - Core principles of insurance Flashcards
List 5 benefits of insurance
Up to 5?
- Improved cash flow
- Companies have more confidence to expand their business
- Improved loss control
- Premiums can be invested
- Job Protection
Define Risk
Definition
The possibility of an unfortunate occurrence
For a risk to be insurable it must be:
Self-test questions
a. Financial, speculative and particular.
b. Fundamental, pure and particular.
c. Financial, pure and particular.
d. Fundamental, financial and pure.
What is a pure risk and give two examples?
A pure risk the possibility of a loss but not of gain, and where
the best that we can achieve is a break-even situation;
- Travelling home in a car
- Pure risk of a fire could cause damage or destroy property
- Pure risk of machinery breakdown could cause business interuption
- Pure risk of injury could cost a company £thousands.
(16) An individual purchases travel insurance for when they goes on holiday without realising that their household policy also covers some similar elements. This is known as …
iF1 Exam 2023
A. coinsurance
B. dual insurance
C. reinsurance
D. self-insurance
What does pooling of risk help to determine for the insurer and the insured?
A fair premium is charged for the insured and a fair profit can be made for the insurer.
(15) A risk is co-insured between two insurers. If one insurer becomes insolvent and CANNOT pay a valid claim, what is the responsibility of the other insurer?
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A. It has no responsibility as the contract is void.
B. It is only responsible for its signed percentage.
C. If it is a compulsory insurance it must settle the claim in full.
D. It must always settle the claim in full.
Define MIAFTR
Definition
Motor Insurance Anti-Fraud and Theft Register
Homogeneous exposures are:
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a. Similar risks which help set premium levels.
b. Identical risks which help set premium levels.
c. Identical risks which help determine a pattern.
d. Similar risks which help determine a pattern.
(14) A person who is risk averse will generally transfer risk away through the use of …
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A. insurance.
B. risk assessment.
C. risk surveys.
D. savings and investment.
Define CUE
Claims Underwriting Exchange
What is the law of large numbers?
A theory that determines that predictions become more accurate as the base of data used increases in size.
(13) The main benefit to an individual when insuring her house is that …
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A. it reduces the chance of damage to the property.
B. maintenance costs are covered.
C. mortgage payments are lower.
D. the risk of a loss is transferred.
The pool of insurance premiums must be large enough to meet the losses in any one year plus the:
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a. Costs of operating the pool and an element of profit.
b. Costs of operating the pool.
c. Anticipated losses in the following year.
d. Costs of operating the pool and an element of contingency.
What is a fortuitous evevnt?
An event occuring which is unplanned, unexpected and out of control of the persons involved.
(12) A company manufactures ink cartridges, but due to a manufacturing fault the cartridges leak, causing damage to external property. What type of policy would cover the manufacturer against a claim?
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A. A business interruption policy.
B. A material damage policy.
C. A product liability policy.
D. A public liability policy.
Describe two examples of co-insurance
- Risk shareing between insurance
- Risk sharing with the insured
(11) The main reason a window cleaner purchases insurance for public liability is to provide him with
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A. a tax-deductible expense.
B. insurance that is required for his trade.
C. more trade as he can show he is risk adverse.
D. peace of mind.
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An intruder alarm in a workshop is an example of a:
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a. Physical control measure.
b. Preventative control measure.
c. Material control measure.
d. Financial control measure.
(10) What is the main purpose of Insurance Premium Tax?
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A. To support customers of insolvent insurers.
B. To raise revenue for the government.
C. A charge levied to join the Association of British Insurers.
D. A charge levied to be a Chartered Insurance Institute member.
What is a particular risk?
Particular risks are localised or even personal in their cause and effect. Sometimes the cause may be more widespread (e.g. a storm over a whole region), but the effect is localised or even related to an individual. Not all properties in the region will have been damaged.
(9) Following a review, a large company has decided to restrict its purchase of non-compulsory
insurance to amounts in excess of a certain level. This decision represents an increase in the
company’s
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A. moral hazard.
B. risk retention.
C. risk transfer.
D. uninsurable risks
Which types of risk may not be insured?
- Non financial risks
- Speculative risks
(8) A tsunami is an example of an event that is …
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A. high frequency and high severity.
B. high frequency and low severity.
C. low frequency and high severity.
D. low frequency and low severity.
Describe the difference between peril and hazard?
Peril is what gives rise to a loss
Hazard is what influences the cause or effect of the peril.
What are the three steps to risk management?
- Risk Identification
- Risk Analysis
- Risk Control
(7) In relation to insurance, a poor hazard is usually …
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A. a risk that can only be covered under special terms.
B. something which an underwriter must remove before a proposal can be accepted.
C. something which increases the risk of a loss arising under a policy.
D. something which is listed within a policy as an event for which cover is provided.
A taxi firm that regularly puts an amount of money aside to cover the costs of accidental damage is an example of:
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a. Co-insurance.
b. Dual insurance.
c. Self-insurance.
d. Reinsurance.
What are the components of a risk?
- Uncertainty
- Level of risk
- Peril & hazard
- Physical & moral hazard
(6) Key components in assessing the level of risk are …
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A. certainty and predictability.
B. frequency and severity.
C. insurable interest and indemnity.
D. uncertainty and predictability.
(5) The risk of a commercial company losing an important contract to a competitor is NOT generally
insurable because the risk is
iF1 Exam 2023
A. fundamental.
B. particular.
C. pure.
D. speculative.
Mi Casa Home Insurance has issued a collective co-insurance policy with two other insurance firms for a local construction company. It is true to say that:
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a. The construction company has a direct contractual relationship only with Mi Casa.
b. Mi Casa decides the terms and rating to be applied.
c. Mi Casa is solely responsible for settling any claims made.
d. The construction company has a direct contractual relationship with each of the
insurers.
(4) Which type of risk arises from a cause outside the control of any one individual and affects a large number of people?
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A. A fundamental risk.
B. A particular risk.
C. A pure risk.
D. A speculative risk.
(3) The key components of risk management are …
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A. analysis, control and insurable interest.
B. identification, analysis and control.
C. identification, analysis and frequency.
D. identification, control and predictability.
What are some of the risks of owning a car?
- Accidental vehicle damage
- Injury
(2) The main element(s) of risk are …
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A. certainty only.
B. certainty and level of risk.
C. insurable interest.
D. uncertainty and level of risk.
A claim for a new windscreen is an example of an event that is …
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A. high frequency and high severity.
B. high frequency and low severity.
C. low frequency and high severity.
D. low frequency and low severity.
Gary is starting a mobile bicycle repair business. He is concerned about the threat of local competition. He should be aware that this is not insurable as it is a:
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a. Pure risk.
b. Speculative risk.
c. Financial risk.
d. Non-financial risk
What are the three steps to managing risks?
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a. Risk identification, risk monitoring and risk avoidance.
b. Risk identification, risk analysis and risk control.
c. Risk highlighting, risk analysis and risk monitoring.
d. Risk highlighting, risk analysis and risk avoidance.
