Chapter 1

Question 1

What is the best definition of insurance being a risk transfer mechanism?
a. Moving your interest in an asset to insurers. □
b. Moving the actual risk of a loss to insurers. □
c. Moving the financial impact of a loss to insurers. □
d. Moving the cost of business to insurers,

Answer 1

C. Moving the financial impact of a loss to insurers

Question 2

Which of the following is not a main purpose of risk management?
a. Identifying, analysing and controlling risk. □
b. Giving shareholders confidence that the business is being run properly. □
c. Providing a disciplined approach to the quantification of risk. □
d. Reducing the operating costs of a business.

Answer 2

d. Reducing the operating costs of a business.

Question 3

Which of these types of loss is an example of high frequency/low severity?
a. Low speed car crash. □
b. Ship colliding with a dock. □
c. Damage to a wind turbine. □
d. Two aircraft colliding at an airport

Answer 3

a. Low speed car crash

Question 4

How would you best describe the sentimental value of a piece of jewellery?
a. A fundamental risk. □
b. A pure risk. □
c. A non-financial risk. □
d. A specialist risk.

Answer 4

c. A non-financial risk. □

Question 5

Which option best explains the difference between peril and hazard?
a. Peril causes the loss and the hazard can possibly make it worse. □
b. Hazard causes the loss and the peril can possibly make it worse. □
c. The underwriter calculates the premium based on hazard and does not consider
peril.
□
d. The underwriter calculates the premium based on peril and does not consider
hazard.

Answer 5

a. Peril causes the loss and the hazard can possibly make it worse. □

Question 6

How does a speculative risk differ from a pure risk?
a. A speculative risk is one where there is no possibility of a positive outcome. □
b. A pure risk is one where there is no possibility of a positive outcome. □
c. A pure risk is uninsurable but a speculative one can be insured. □
d. There is no difference between them.

Answer 6

b. A pure risk is one where there is no possibility of a positive outcome. □

Question 7

Which key insurance term is used to define something which is neither expected nor
intended?
a. Speculative risk. □
b. Fundamental risk. □
c. Certainty. □
d. Fortuitous event.

Answer 7

d. Fortuitous event.

Question 8

For what main reason do insurers pool risks?
a. To increase their investment income. □
b. To reduce their operational costs. □
c. To enable them to charge each client a fair premium. □
d. To be able to buy cheaper reinsurance. □

Answer 8

c. To enable them to charge each client a fair premium. □

Question 9

Identify the option which is not a primary reason for purchasing insurance.
a. Peace of mind. □
b. Risk transfer. □
c. Spreading the risk. □
d. Investment in the insurance industry

Answer 9

d. Investment in the insurance industry

Question 10

Which insurance is compulsory for individuals in the UK?
a. Third party motor. □
b. Buildings. □
c. Household contents. □
d. Pet.

Answer 10

. Third party motor. □